30-05-2025
Canada's pause on U.S. countertariffs causes confusion among businesses it was supposed to help
A recent measure that temporarily exempts certain U.S. imports from Canadian retaliatory tariffs was meant to provide businesses here with some financial relief. But for many firms, it's added yet another layer of confusion to the rapidly changing conditions of the trade war.
Prime Minister Mark Carney's Liberal government issued a six-month reprieve on April 16 that exempts a number of U.S. imports used in Canadian manufacturing, processing, and food and beverage packaging from Canada's countertariffs on about $60-billion worth of U.S. goods.
The temporary measure was also intended to 'minimize the negative effects' of surtaxes by carving out exemptions for importers in public health, health care, public safety and national security, according to an April customs notice.
But trade lawyers say the order's broad room for interpretation, along with a lack of clarity in how the order will be administered at the border, has resulted in a flurry of questions from businesses, which still need to pro-actively apply for the exemption.
'I have clients who are having a really difficult time understanding their own imports – which ones are going to benefit from remission and which ones aren't,' said Jonathan O'Hara, an international trade lawyer at McMillan LLP. 'And these are sophisticated companies who are looking really hard at the issue, and it's tricky.'
Martha Harrison, an international trade lawyer at McCarthy Tétrault, said the order's significant room for interpretation wasn't necessarily a downside, but the subsequent guidance from the government on how to apply it created confusion.
'On a broad reading, there could be any number of products that are used in the manufacturing and processing, and food and beverage packaging, that could be eligible,' she said.
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For example, in the food sector, the remission makes it clear that inputs coming from the United States for manufacturing in Canada – think of chocolate chips imported to make cookies - would likely be eligible for an exemption.
Those chips get off the hook because they're being imported into Canada for further production, she said.
Finished packaged goods – chocolate bars, a can of orange juice or even canned peanuts – would likely not be eligible for the exemptions unless they're repurposed for further manufacturing.
Where things get murky is when it comes to the eligibility of indirect inputs: 'Lubricants or fuel, or replacement tires for use of workers in the manufacturer facility … handles for food handlers or gloves or some kind of protective equipment," said Ms. Harrison, listing examples.
On a broad reading of the original remission order, any number of those products, which are used in manufacturing and processing, could be eligible, she said.
But a Canada Border Services Agency notice updated in May, which administers the remission order at the border, added confusion. 'After the CBSA notice was issued, it became less clear that some of the opportunity was still available,' she said, adding that the language in the memo seemed to reduce the scope of eligible imports.
Businesses are now reassessing their eligibility for the exemption and determining when it's worthwhile to disentangle it all. Sometimes, hundreds of thousands of dollars are at stake – and often it's millions, said Ms. Harrison.
Confusion among businesses and trade experts reached a fever pitch in early May after the release of a report from advisory firm Oxford Economics. The findings, shared and referenced across a handful of publications as well as a post on X from Conservative Leader Pierre Poilievre, stated that the Canadian government had 'essentially paused nearly all its countertariffs on the U.S. for at least six months.'
The report claimed that the six-month exemption would cover about 97 per cent of the other $59.8-billion worth of goods that previously faced countertariffs.
'This brings the Canadian effective tariff rate increase on the US to nearly zero in Q2 and Q3,' Oxford Economics said.
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William Pellerin, an international trade partner at McMillan LLP, says his LinkedIn feed and e-mail suddenly blew up with inquiries when a media outlet ran a story that quoted the Oxford report was published. His clients were dumbfounded and eager to know whether the news was true.
'We actually thought that they must be referring to a new exemption that we hadn't even seen yet,' he said. 'When we understood that they were referring to the April 16 exemption, we were quite incredulous.'
He said the report's findings were 'completely inconsistent' with what his firm was seeing from clients, some of whom were still paying tens of millions of dollars in tariffs.
Responding to Mr. Poilievre's post on X, which accused Mr. Carney of 'quietly' dropping retaliatory tariffs to nearly zero, Finance Minister François-Philippe Champagne said that 70 per cent of those tariffs are still in place.
Tony Stillo, director of Canada Economics at Oxford Economics, said that the report's conclusion was based on a 'broad interpretation' while the Canadian Finance Minister's comments appeared to 'assume a much narrower' definition regarding tariff exemptions.
Marc Froese, a political science professor and founding director of the international studies program at Burman University in Alberta, said the initial order from the Canadian government may have been trying to walk the line between pleasing tariff-weary businesses and consumers while maintaining a strong position in trade talks.
'They recognize that countertariffs have been popular with Canadians as an initial show of collective disapproval,' he said. 'But they are also acutely aware that this particular response hurts Canadians.'
Mr. Pellerin added that Canada's countertariffs likely won't be lifted any time soon, despite a ruling by the U.S. Court of International Trade on Wednesday that blocked almost all the Trump administration's tariffs. On Thursday, a U.S. federal appeals court allowed Mr. Trump's tariffs to be reinstated.
A May food inflation report from Loblaw Companies Ltd. stated that the new Canadian rules would provide some relief, as indirect tariffs were of 'significant concern' for food prices.
But tariffs remain on thousands of products imported from the U.S. Consumers can expect to continue seeing tariff-related increases on approximately 6,000 items, Loblaw said.
