Canada’s Tariff Remission ‘Bait and Switch’ Is Another Misstep

As we have written before, Canada’s “retaliatory tariffs” against the US were a bad idea and a questionable economic policy that put Canada in a fight that it couldn’t win.

It seems that someone in the Canadian government ultimately agreed, as Canada has dropped many of its retaliatory tariffs on US goods effective Sept. 1, through an Order in Council.

Unfortunately, Canadian importers got something of a bait and switch: While the Canadian government was erasing future surtaxes, the Department of Finance was announcing that remission of surtaxes paid between March and August would no longer be permitted under its general remission framework.

This means that thousands of Canadian businesses will be unable to request a refund of surtaxes already paid—something that the general remission framework expressly permitted, and that a number of businesses early to the application process had already applied for, due to the surtaxes’ crippling effects on business operations.

This bait and switch is dumbfounding from both a practical and legal perspective.

Practically, Canada is suffering from a high unemployment rate. A refund of retaliatory tariff duties would allow many Canadian businesses to more rapidly repair operations and either onboard previously laid-off employees or expand their workforce.

Helping these Canadians get back to work and put food on the table for their families should be the government’s top priority, particularly since it can give Canada’s economy a boost and help stave off a recession.

Legally, the Department of Finance’s new policy is likely challengeable in the federal courts. No rational connection appears to exist between relief provided on a go-forward basis and relief provided on a go-backward basis. Lawyers would call this policy a “fettering of discretion,” which isn’t permitted in governmental decision-making.

Perhaps most troubling is that this new policy isn’t legally required, with the Governor in Council and the Department of Finance having the clear power under subsection 115(3) of Customs Tariff, S.C. 1997, c. 36 to grant remission by way of “a refund of the duties to be remitted” if duties have already been paid.

So, this policy looks a little bit like poking Canadian taxpayers in the eye, going by the manner in which go-backward remission relief was removed.

The government could have blamed former Prime Minister Justin Trudeau’s leadership—which deserves criticism for this bad trade policy in the first place—and allowed both future and go-backward relief to the benefit of Canadians and Canadian businesses alike.

Instead, Prime Minister Mark Carney and the current Canadian administration have promised relief while clawing it back. This leaves us wondering whether they have their policy priorities straight, at least from the perspective of making life more manageable for Canadians.

If the government wants to provide substantive relief to Canadians and end the trade war with the US, it should permit applications for a refund of duties previously paid on the tariffs that have been repealed. Then it should learn what President Donald Trump’s complaints are, and address them.

For example, is supply management protection bothering Trump? Probably. Those quota protections disproportionately benefit a few thousand dairy and poultry farmers (mostly in Quebec and Ontario), reaping guaranteed above-market returns, while 42 million Canadians pay higher prices. The government should reform this system.

Is Canada’s approach to immigration an issue for Trump? If so, let’s focus on the right balance of immigration for Canada, while giving the US some comfort that our visa and screening standards are up to snuff. Overall border security makes sense.

Those are just a couple of areas where Canada and the US could make some good progress.

In the meantime, good riddance to those retaliatory tariffs. Hopefully Canada’s new bait and switch policy also will be reversed. Let’s get rid of all tariffs and grant remission for everything paid since March.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Robert G. Kreklewetz is founding partner of Millar Kreklewetz in Toronto and has more than 35 years of experience in international trade, customs, and indirect tax.

David R. West is an associate lawyer at Millar Kreklewetz practicing in indirect tax, customs, and international trade.

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