Last week, I wrote that the federal government’s changes to tariffs in Budget 2013 would result in new import duties on models of MP3 players and three of four models of Apple iPods. The tariff changes involve changing the tariff status of 72 countries, so music devices manufactured in China, Indonesia and Malaysia will pay a 5 to 6 per cent tariff rather than their “preferential” rate of zero, starting in 2015.
The article caused quite a stir, and the government denied it was true. A spokeswoman for Finance Minister Jim Flaherty said the article was wrong. “Music devices like iPods are imported into Canada duty-free under a long-standing special tariff classification from 1987,” she wrote. That classification, which was unaltered by the recent budget, is known by its number: 9948.00.00. (We’ll call it 9948 for short.)
That was Thursday evening. On Friday, The Globe published a more detailed analysis by me on the issue.
Meanwhile, the Canada Border Services Agency, which enforces the rules around imports, issued its own statement appearing to back the Finance position. “Importers of MP3 players continue to be eligible to apply for tariff relief under Tariff Item 9948.00.00. Customs duty will be relieved on those imported goods that meet the requirements of tariff item 9948.00.00.”
In my view, the CBSA’s response far from closes the issue. The evidence, I believe, shows that higher import tariffs on iPods are on the way.
The CBSA release states that if importers of iPods and MP3 players can meet the requirements of 9948, the tariff increases will not apply to these items and there will be no new iPod tax.
The 9948 tariff applies to goods that “enhance the functioning of computers and other high-tech products” and has stringent requirements in order for a product to qualify. Under the CBSA’s existing enforcement, I am convinced they cannot meet those requirements.
I have obtained two documents that, until now, have not been made public. The first, which I will refer to as the verification letter (click to download pdf), is a six-page communication from the CBSA dated December 13, 2012. The letter refers to the importation of televisions that, in the CBSA’s view, were incorrectly classified under 9948.
The second document, which I will refer to as the 9948 enforcement memo (click to download pdf), is an internal CBSA communication detailing the agency’s enforcement activities. These appear to be two of the documents referred to in a recent Canadian Press article. I am making both documents available so you can judge them for yourselves.
My position that importers cannot meet the requirements of 9948 rests on three straight-forward premises:
1. It appears that sellers of iPods and MP3s are required to collect “end use certificates” from the final consumer on each sale, and be able to present these to the CBSA if audited.
2. The 9948 requirement for “end use certificates” appears to be actively enforced by the CBSA.
3. Retailers cannot reasonably collect these certificates from consumers when they buy an iPod.
These three, put together, make retail sales of iPods and MP3 players ineligible for 9948 and therefore subject to an iPod tariff. What follows is my evidence.
Premise 1: iPod importers require ‘end-use certificates’
The 9948 enforcement memo states that importers of certain kinds of televisions are to provide end-use certificates in order to be imported free of tariffs.
“This compliance verification initiative will require importers of televisions who have claimed the benefit of tariff items 9948.00.00 to provide the substantiating certification that is required by law.”
It goes on to add:
“However, it is likely that these importers may not be in compliance with the related record-keeping requirements as set out in the Imported Goods Records Regulations, which is a condition that must be met in order to benefit from the provisions of conditional tariff items such as 9948.00.00.”
This goes well beyond televisions. The verification letter describes the record-keeping requirements under Section 3 of the Imported Goods Records Regulations for “imported commercial goods that have been released free of duty or at a reduced rate of duty because of their intended use.”
When sold for their intended use, the importer is to obtain “a certificate or other record signed by the user of the commercial goods that shows the user’s name, address and occupation and indicates the actual use made of the commercial goods.” The user here refers to the end consumer, so the importer would need the retailer (if they are not the same entity) to collect that information on their behalf and pass it up the supply chain.
Further clarification was provided by the CBSA’s Memorandum D10-14-51, which states “importers are expected to provide end-use certificates” and was illustrated a recent CBSA communication on the iPod Touch that was obtained by the Canadian Press.