Tariff Basics for the Canadian Business

If your business is going to import and export goods overseas, then you’ll have to understand tariffs. Tariffs and similar trade barriers can have a big impact on your business, in both positive and negative ways. You can use tariffs to your advantage to make smart business decisions, or tariffs can ruin your market access in another country.If you’re considering starting an import/export business, learn the basics of tariffs so you can get your business off to a good start.

What are tariffs and how do they work?

A tariff is a tax levied on an imported good. Governments have imposed tariffs on foreign imported products to raise revenue and protect domestic industries. The basic idea behind a tariff is: when the price of a product manufactured in whole or in part overseas is more expensive to import, consumers and businesses will purchase the product domestically instead.Tariffs can also be used as a diplomatic tool, as a way for one government to penalize another and influence their behavior in trade-related matters.It’s important to note that foreign exporters are not the ones paying the tariff — the domestic consumers are. While foreign exporters don’t have to pay extra to get their goods into a country with tariffs, they will likely see a decline in sales of their products.

Two types of tariffs

Generally, there are two main types of tariffs: unit tariffs and ad valorem tariffs.

• Unit tariffs: Unit tariffs are a fixed fee per unit of a product, such as $1,000 per ton of steel.
• Ad valorem: Ad valorem tariffs tax the value of an item, such as 20% of the value of a vehicle.

Governments can impose other types of trade barriers besides unit and ad valorem tariffs, such as:

• Licenses
• Import quotas
• Voluntary export restraints
• Local content requirements

Who collects tariffs?

A country’s customs authority collects tariffs. In the U.S., it’s Customs and Border Protection (CBP). In Canada, it’s the Canada Border Services Agency (CBSA). Neither agency requires you to register with them to import goods, but you may have to get licenses or certifications from other agencies, depending on your imports.

What is an HS Code?

For the purposes of international trade, all major traded commodities have a code in the Harmonized Commodity Description and Coding System (HS), maintained by the World Customs Organization (WCO). The HS applies worldwide, but not every country imports and exports the same types of all the same goods. Individual countries can adapt the system to reflect their importing and exporting needs. For example, there are only a few HS codes for edible seaweed in the European Union, but there are dozens of edible seaweed HS codes for Japan.Countries have their own HS coding systems, which expand upon the international HS. At the global level, HS codes are six digits. Countries can add digits to these codes to make further classifications.

How to find your product’s HS Code

If you want to import goods into Canada, you will need to know that product’s Harmonized Tariff Code (HTS code). You can find your product’s code with the Canada Tariff Finder, a tool which allows you to look up import or export tariffs for products going to and from Canada. You can also use the tool to see which countries have a preferential trade agreement with Canada.You can search for your product’s HS code on the Canadian tariff schedule as well. When you export to other countries, such as the U.S., you’ll need that country's HS code for your product. You can find an HS code for the U.S. on the U.S. schedule of tariff codes.Identifying the right tariff codes can be tricky, so it may be best to work with a customs broker who can confirm your HS code for you. A customs broker can also help you determine what you will pay in tariffs when you import certain goods. Use Border Buddy’s Duty Calculator to estimate your tariff rates.

What does your Canadian business need to know about tariffs?

Tariffs can impact your business’s price competitiveness. If the Canadian government puts a tariff on a certain raw material that you import to create your finished products, you will have to raise the prices for your products in Canada to cover your increased expenses, which could make your products less attractive to customers.If other countries you export to have tariffs on certain products, it could also impact your bottom line. Tariffs don’t impact all foreign exporters the same way. A blanket tariff on all pork products imported into China, for example, doesn’t mean that all foreign companies trying to import pork into China will pay the tariff. China may have a free trade agreement with some countries, allowing companies from those countries to bypass the tariff. For the full list of free trade agreements click here.

As a Canadian business owner looking to export goods to another country, consider choosing countries with free trade agreements with Canada. You can avoid paying tariffs that companies from other countries would have to pay, making your products more competitive in that country.You can find a list of all the countries and territories that Canada has trade and investment agreements with on the Global Affairs Canada website.

Hiring a customs broker to help you understand tariffs

Tariffs can be complicated, and they’re only one aspect of importing and exporting goods. At Border Buddy, we can help your business determine what tariffs you’ll have to pay, as well identify the tariff code for your products. With our advice and expertise as a customs broker, you can make the smartest decisions for your business. Call us today to discuss tariffs.