How Canadian Import Tariffs Affect Businesses and Consumers: A Comprehensive Guide

Canadian import tariffs are taxes that the government imposes on goods that enter the country from abroad. They are designed to protect domestic industries, raise revenue, and regulate trade. However, they also have an impact on businesses and consumers, both positively and negatively. In this article, we will explain what Canadian import tariffs are, how they are determined, and how they affect different sectors of the economy. We will also provide some trustworthy hyperlinks as references for further information.

What are Canadian Import Tariffs?

Canadian import tariffs are based on the Harmonized Commodity Description and Coding System (HS codes), which is a standardized system of classifying goods for international trade. The HS codes are divided into 21 sections, 96 chapters, and thousands of subheadings, each with a specific tariff rate. The tariff rate depends on the origin of the goods, the type of goods, and the trade agreements that Canada has with other countries.

The Canadian Customs Tariff shows the preferential tariffs for products coming from countries with which Canada has a free trade agreement (FTA), such as the United States-Mexico-Canada Agreement (USMCA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). These FTAs usually reduce or eliminate tariffs on most goods, making trade more liberalized and competitive.

However, not all goods are eligible for preferential tariffs under FTAs. Some goods are subject to non-preferential tariffs, which are higher than preferential tariffs and apply to all countries that do not have an FTA with Canada. These non-preferential tariffs are also known as Most-Favoured-Nation (MFN) tariffs, because they are based on the principle of non-discrimination among trading partners. The MFN tariff rates are determined by Canada’s commitments under the World Trade Organization (WTO), which sets the maximum tariff rates that Canada can charge on imported goods.

In addition to preferential and non-preferential tariffs, some goods may also be subject to other duties or taxes, such as anti-dumping or countervailing duties, excise taxes, or goods and services tax (GST). These additional charges are meant to address unfair trade practices, protect public health and safety, or collect revenue for the government.

How are Canadian Import Tariffs Determined?

Canadian import tariffs are determined by several factors, such as:

The origin of the goods

The origin of the goods refers to where they were produced or manufactured, not where they were shipped from. The origin of the goods determines whether they qualify for preferential or non-preferential tariffs under FTAs or MFN rules. To claim preferential tariffs under FTAs, importers must provide proof of origin, such as a certificate of origin or a declaration of origin.

The type of goods

The type of goods refers to their physical characteristics, composition, function, use, or classification under the HS codes. The type of goods determines the specific tariff rate that applies to them within each FTA or MFN category. To determine the correct tariff classification of goods, importers must follow the Harmonized System, the general interpretative rules, and the principles of tariff classification.

The value of the goods

The value of the goods refers to their transaction value or price paid or payable for them in international trade. The value of the goods determines the amount of duty or tax that is calculated based on the tariff rate. To determine the correct value of goods, importers must follow the valuation methods prescribed by the Customs Act and its regulations.

How do Canadian Import Tariffs Affect Businesses and Consumers?

Canadian import tariffs affect businesses and consumers in various ways, such as:

Increasing or decreasing the cost of imported goods

Import tariffs increase the cost of imported goods by adding an extra charge on top of their price. This makes imported goods more expensive for businesses and consumers who buy them. On the other hand, import tariffs decrease the cost of imported goods by reducing or eliminating their charge under FTAs. This makes imported goods cheaper for businesses and consumers who buy them.

Increasing or decreasing the competitiveness of domestic industries

Import tariffs increase the competitiveness of domestic industries by making imported goods more expensive and less attractive for businesses and consumers who buy them. This gives domestic industries an advantage over foreign competitors who sell similar goods in Canada. On the other hand, import tariffs decrease the competitiveness of domestic industries by making imported goods cheaper and more attractive for businesses and consumers who buy them. This puts domestic industries at a disadvantage against foreign competitors who sell similar goods in Canada.

Increasing or decreasing the variety and quality of available goods

Import tariffs increase the variety and quality of available goods by allowing businesses and consumers to access more products from different countries and regions under FTAs. This gives businesses and consumers more options and choices when buying goods. On the other hand, import tariffs decrease the variety and quality of available goods by restricting businesses and consumers to fewer products from fewer countries and regions under MFN rules. This limits businesses and consumers’ options and choices when buying goods.

The Impact of Canadian Import Tariffs on Global Demand

Canada is one of the world’s largest trading nations, with exports and imports accounting for about 64% of its gross domestic product (GDP) in 2020. Canada’s trade policy is shaped by various factors, such as its membership in the World Trade Organization (WTO), its participation in regional and bilateral free trade agreements (FTAs), and its domestic economic and political objectives. One of the instruments that Canada uses to regulate its trade flows is the import tariff, which is a tax levied on goods entering the country.

Import tariffs can have different effects on global demand for Canadian products, depending on the type, level, and structure of the tariff. In general, import tariffs can affect global demand through three main channels: price, income, and substitution effects.

Price effect

Import tariffs increase the price of imported goods relative to domestic goods, making them less competitive in the Canadian market. This can reduce the demand for imported goods and increase the demand for domestic goods, as well as for exports from countries that have preferential tariff arrangements with Canada. For example, Canada has FTAs with 15 countries, including the United States, Mexico, the European Union, and Japan, which grant lower or zero tariffs for most products. However, import tariffs can also increase the production costs of domestic firms that use imported inputs, making them less competitive in the global market. This can reduce the demand for Canadian exports and lower Canada’s trade surplus or increase its trade deficit.

Income effect

Import tariffs generate revenue for the government, which can be used to finance public spending or reduce taxes. This can increase the disposable income of consumers and stimulate domestic demand for goods and services, including imports. However, import tariffs can also reduce the real income of consumers by raising the prices of imported goods and services, as well as of domestic goods that use imported inputs. This can lower the purchasing power of consumers and reduce their demand for goods and services, including exports.

Substitution effect

Import tariffs can induce changes in the consumption and production patterns of consumers and firms, as they seek to substitute cheaper or more available goods for more expensive or less available ones. This can affect the demand for different products and sectors within Canada and abroad. For example, Canada imposes higher tariffs on dairy, poultry, and eggs than on other agricultural products, as part of its supply management system. This can encourage consumers to substitute these products with cheaper alternatives from other sources or sectors, reducing the demand for domestic producers and exporters. However, it can also protect these sectors from foreign competition and ensure their viability and profitability.

The net effect of import tariffs on global demand depends on the magnitude and direction of these three effects, as well as on other factors such as the elasticity of demand and supply, the degree of competition, and the exchange rate. In general, higher import tariffs tend to reduce global demand for Canadian products by raising their prices and lowering their competitiveness in both domestic and foreign markets. However, lower import tariffs tend to increase global demand for Canadian products by lowering their prices and increasing their competitiveness in both domestic and foreign markets.

References:

http://www.cbsa-asfc.gc.ca/

http://www.cbsa-asfc.gc.ca/publications/pub/bsf5056-eng.html#s5x4

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http://webarchive.loc.gov/all/20120324082649/http://fullcomment.nationalpost.com/2012/03/16/andrew-coyne-canada-is-poised-to-win-front-door-access-to-a-billion-person-market/

https://www.tradecommissioner.gc.ca/fta-ale-canada.aspx?lang=eng

https://www.tariffinder.ca/en/getStarted
https://wits.worldbank.org/CountryProfile/en/Country/CAN/Year/2020/TradeFlow/EXPIMP/Partner/by-country/Product/Total

https://www.tariffinder.ca/en/getStarted

https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/index.aspx?lang=eng