As a small business, you’re no doubt familiar with the stress of operating on tight margins, and you know how valuable even a small amount of cost-savings can be to your bottom line.
But many small businesses don’t realize is that their supply chain – particularly when it comes to imports – can be a significant source of cost savings.
For any company that imports into Canada, tariff classification and preferential tariff treatments – such as reduced NAFTA duty rates and Most-Favoured Nation (MFN) duty rates – are two areas that can make a big difference to your bottom line.
Fast, efficient customs clearance is key to getting your goods into the hands of your customers when and where they’re needed. And when importing goods into Canada, the best way to ensure your shipments get through Customs without delays is to make sure they’re classified with the correct Harmonized System (HS) codes.
The 10-digit HS codes describe the make-up of your goods to Canada Customs so they know what you’re importing. But there’s more to HS codes than just quickly clearing customs.
HS codes also determine how much duty is applied to your goods. If your classifications are incorrect or inaccurate, you could end up paying more duty than you need – and you could be looking at penalties or even an audit down the road.
Preferential Tariff Treatments
Another way you can save money on your imports is to ensure you’re taking advantage of preferential tariff treatments. These treatments come into effect as a result of trade agreements and – provided your goods meet the required criteria under these agreements – can result in significant reductions on the amount of duty you pay.
Most-Favoured Nation status and NAFTA are two common ways Canadian importers save money on their imported goods.
“Most-Favoured Nation” is a typical trade term that refers to a level of treatment – such as low tariff rates – accorded by one nation to another in international trade. In Canada’s case, the MFN rate is the rate extended to all imports into Canada from the List of Countries in the Customs Tariff.
To qualify for the MFN tariff treatment, at least 50% of the cost of production of the goods must be incurred in one or more MFN beneficiary countries or Canada.
The North American Free Trade Agreement (NAFTA) has reduced, and in many cases eliminated, tariff rates applicable to goods imported into Canada that originated in the United States and Mexico. In order to prove your goods meet the correct criteria, they must be accompanied by a Certificate of Origin, indicating where the goods originate. Certificates of Origin can be prepared for each individual shipment, or a blanket certificate can be prepared on an annual basis.
There are a number of additional preferential tariff treatments that Canadian importers can take advantage of, including the General Preferential Tariff, the Caribbean Commonwealth Country Tariff Treatment, the Canada Israel Agreement Tariff and more. Naturally, each agreement has its own documentation requirements; as with tariff classification, accurately completing the required paperwork is key to making the most of any preferential tariff treatment.
Work with a Cstoms Broker to Maximize Your Savings
Fully understanding tariff classification and preferential treatments can be a challenge even for experienced importers. Finding a customs broker with experience in classification and tariff treatments will help you identify opportunities and maximize your import potential.