In addition to establishing that the Canada Border Services Agency (CBSA) must follow decisions of the Canadian International Trade Tribunal (CITT), the other principle recently affirmed by the Federal Court of Appeal in the matter of Canada (Attorney General) v. Bri-Chem Supply Ltd., 2016 FCA 257 (discussed previously here) was a substantive question of interpretation that had previously been decided by the CITT in two prior cases involving Frito-Lay Canada Inc. and Bri-Chem Supply Ltd.
The issue in both those cases addressed whether or not an importer is entitled to claim “revenue neutral” duty relief under The North American Free Trade Agreement (NAFTA) more than one year from the date of accounting when its initial zero-rated tariff classification is subsequently re-determined by the Canada Border Services Agency (CBSA) as a positive duty-rated tariff classification.
The Customs Act establishes a one-year limitation period for duty refund claims under NAFTA. This situation most usually arises when importers are, for whatever reason, unable to declare that their goods are eligible for preferential NAFTA tariff treatment at the time of accounting and are therefore obliged to pay duty under the Most Favoured Nations tariff treatment.
While importers have just one year from the date of accounting to amend their declaration of tariff treatment in order to obtain a refund (after having obtained a previously unavailable certificate of origin, for example), the time limit applicable to re-assessments of tariff treatment by the CBSA and to self-adjustments by the importer (when say, it is discovered that NAFTA tariff treatment benefits had been incorrectly claimed) is four years from the date of accounting. However, the Customs Act makes no specific stipulation regarding the time limit applicable to tariff treatment amendments that are duty neutral; thereby effectively giving rise to a legislative “gap” that is open to differing interpretations.
The CBSA’s position was that the NAFTA refund provision, though not specifically germane to such instances, should nevertheless be applied in such a way as to limit the duty neutral amendment period to one year. In the Frito-Lay and Bri-Chem cases, CBSA argued that an importer must correct part of an original customs declaration, but contended that it should not be allowed to maintain the duty-free position of its original declaration, despite it being plainly obvious that, had the classification error not been made, the goods would have entered Canada duty-free under the UST/NAFTA tariff in any event.
The CITT rejected this argument and determined that the CBSA’s position could not be sustained in law, a finding subsequently upheld by Justice David Stratas of Canada’s Federal Court. In its Statement of Reasons, the Tribunal delivered an exceptionally scathing rebuke to the customs agency that is worth taking note of:
The CBSA’s position is disjunctive and defies the very purpose of preferential trade agreements. It is discordant as it proposes the decoupling of tariff treatment from tariff classification. It also ignores the day-to-day commercial reality of importers that would never reasonably make a tariff treatment claim other than MFN when the MFN rate of duty is already zero. It further ignores the basic fact that Bri-Chem only later realized that it was wrong in its initial tariff classification. More fundamentally, Bri-Chem would only be in a position to ascertain the applicable tariff treatment regarding a new position after it belatedly learned of its mistake.
There is no basis to the CBSA’s contention that MFN tariff treatment is “not an incorrect tariff treatment”. Such a statement is at best bureaucratically narrow-minded; at worst, it is entirely misleading if not underhanded, and it is also beside the point. It focusses on a purported “correction” to tariff treatment, whereas the proper analytical starting point is that the only “correction” that took place was to tariff classification.
Importantly, Bri-Chem did not correct the “origin” of the goods; they were always stated as being of U.S. origin. When Bri-Chem corrected the tariff classification, the accompanying choice of the UST/NAFTA tariff treatment that was always available to its goods of U.S. origin simply maintained the status quo ante of the previously claimed zero rate of duty and was, therefore, revenue-neutral. It is properly consequential that Bri-Chem was animated by a “reason to believe” when it learned that its initially claimed tariff classification was incorrect, whether viewed from either a subjective or an objective point of view.
The CBSA’s position fails because it seeks to artificially devise a way to catch the taxpayer into paying duties on goods that are rightfully duty-free. As examined in Frito-Lay, subsections 32.2(2) and (5) of the Act allow for a correction of tariff classification and a concurrent choice of a revenue-neutral UST/NAFTA tariff treatment because a refund-generating situation is not created. The Act does not permit the CBSA to receive the artificial windfall that it is seeking to have upheld in this matter.
Barring a successful appeal of this decision to the Supreme Court of Canada (expert opinion seems divided on whether this is likely), or a possible amendment to the Customs Act being made at some point in the future, for now importers can rely on the “Bri-Chem trilogy” decision as a guide to properly amending entries that have been subsequently re-determined by the CBSA if they have originally declared a tariff classification that is zero-duty rated.