Who Pays the Tariff?

Are you worried about being saddled with paying the tariffs or duties the new administration plans to impose on Canadian goods that you export to the United States?

The answer to this concern is generally found in your purchase agreement or the purchase order, which usually contains the terms for delivery. Generally, these terms of delivery will take the form of Incoterms, developed by the International Chamber of Commerce (ICC). 

Incoterms

Incoterms are standardized rules for international trade. They define the responsibilities and obligations of buyers and sellers in commercial transactions, covering key aspects such as risk transfer, shipping, delivery, insurance, documentation, customs duties, and logistics. These concise rules clarify the terms of trade agreements worldwide. The ICC updates the Incoterms periodically, based on evolutions in common trade practices around the world. 

Most Frequent Incotems

In our experience, most commercial agreements use Incoterms that require the buyer to assume the payment of customs duties imposed by a tariff on import. The Incoterms that we encounter most frequently are:

- EXW – ExWorks at a place of delivery – buyer pays the import duty

Normally, under ExWorks, products are made available for pickup by the buyer at the seller’s premises. The seller has no obligation to organize transport or export clearance, to clear the goods for import or for transit through third countries, to pay any import duty, or to carry out any import customs formalities.

However, sometimes delivery under ExWorks can be at a mutually agreed location that may not be in Canada. In such cases, the seller will be responsible for making the products available for pickup at that location. It’s important to verify the location of delivery because if it is in a country where there is an import customs duty, that duty will need to be paid by the seller. 

- FCA – Free Carrier at a place of origin – buyer pays the import duty

- FOB – Free on Board at a port of loading – buyer pays the import duty

- CPT – Carriage Paid to a place of destination – buyer pays the import duty

Here, the presumption is that the place of origin, place of destination or port of loading is in Canada, as they are usually close to the seller’s location—but not always! This, too, needs to be checked. 

In all of these circumstances, the seller clears the goods for export and loads them onto the road vehicle or boat for delivery to the buyer. However, the seller has no obligation to clear the goods for import or for transit through third countries, to pay any import duty or to carry out any import customs formalities.

Warning

Just because an Incoterm governs the delivery of the products and, more specifically, the payment of import duties, does not mean that a seller cannot otherwise be held liable for the payment of import duties. Check the purchase agreement or purchase order for a specific clause addressing this issue. It may expressly deviate from the standard provisions of the Incoterm. Keep in mind that such a specific clause will take precedence.

Be Careful When Using FOB

Be aware that the Uniform Commercial Code (UCC), adopted by every state in the United States, provides a different meaning of the term “FOB” than what is defined in the ICC’s Incoterms. Use of the term “FOB” without specific mention of the Incoterms, or if used in the context of shipping by rail, land, or air, will refer to the meaning as per the UCC rather than the Incoterm. This is particularly relevant if the purchase agreement or purchase order is governed by the laws of a state of the United States. Of particular concern are situations where the terms of delivery are FOB (Destination), as the seller could be held liable for the payment of import customs duties.

Make sure that the terms of delivery are those of the ICC.

What If There Are No Terms of Delivery?

In the absence of a clause governing product delivery in the purchase agreement or purchase order, and assuming the contract is governed by the laws of Quebec, the Civil Code of Quebec stipulates that delivery expenses are the responsibility of the seller. If the products are being delivered to a country that charges an import customs duty, the seller pays the customs duty.

None of This Makes Any Sense

BCF’s mission is to support local businesses in their development, provide reassurance during times of uncertainty, and offer expert advice. We’re committed to providing guidance and expertise to help you navigate complex situations, including matters related to import customs duties. Our team is aware of the challenges you face and is always ready to help you make the best use of available resources. Please feel free to contact our team for advice on your obligations when it comes to paying import customs duties.