Canada: Customs Jurisprudence In Canada: Citt Takes Bold Initiatives In Tariff Classification Cases

Last Updated: November 28 2003

Article by Greg Kanargelidis, Michael Kicis and Robert Kreklewich.

In a string of recent decisions on tariff classification, the Canadian International Trade Tribunal (CITT) has shown a willingness to break away from international consensus and to adopt a "made in Canada" approach to tariff classification. In particular, the CITT has shown little regard for the World Customs Organization’s Explanatory Notes to the Harmonized Commodity Description and Coding System (Harmonized System), even though such Explanatory Notes are intended by Parliament to be an interpretative guide to tariff classification in Canada.

At first blush, this assertiveness by the CITT is a cause for concern for some, since it results in uncertainty for importers who are required to classify goods correctly or risk receiving a penalty under Canada’s year old Administrative Monetary Penalty System (AMPS). However, this is also a positive development, notably in circumstances where following the Explanatory Notes would result in unfavourable tariff classifications for importers. The recent decisions give importers renewed hope that the CITT will not rigidly follow Explanatory Notes. It is now open to question whether a particular Explanatory Note should be followed in making decisions on tariff classification for Canadian customs purposes.

Tariff classification of goods is important because it determines the range of applicable tariff treatments (and rates). One classification might result in "duty-free" treatment whereas another might result in a high tariff. In addition, tariff classifications are essential in the determination of "origin" for purposes of the North American Free Trade Agreement (NAFTA) and for country of origin marking of goods from a NAFTA country. Finally, correct tariff classifications is also important in order to avoid the possibility of an AMPS penalty or penalties.

The Harmonized System Treaty

Since January 1, 1988, Canada adopted the International Convention on the Harmonized System1 for the organization of its List of Tariff Provisions (Tariff Schedule). The Harmonized System is a set of international rules for classifying goods for importation purposes, up to the six-digit level. Beyond that, countries may use further break-outs and Canada’s Tariff Schedule goes up to ten digits. The Harmonized System also includes a list of rules for classifying goods that must be followed in order; these are called the General Rules for the Interpretation of the Harmonized System (General Rules). In addition, the Harmonized System includes certain Section and Chapter Notes that serve as interpretative guides as to where particular goods should be classified.

The Harmonized System is administered by the Customs Co-operation Council, which is also called the World Customs Organization (the WCO). The WCO has established a Harmonized System Committee composed of representatives from each of the parties to the Convention.2 One of the main functions of the Committee is "to prepare Explanatory Notes, Classification Opinions or other advice as guides to the interpretation of the Harmonized System".3

Canadian Customs Tariff

The Harmonized System is incorporated in Canada’s national customs laws by the Customs Tariff4—a federal statute. Section 10 of the Customs Tariff requires that "the classification of imported goods under a tariff item shall…be determined in accordance with the General Rules for the Interpretation of the Harmonized System and the Canadian Rules set out in the schedule." General Rule No. 1 stipulates that

The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the [rest of the Rules].

Based on General Rule 1, tariff classification must be determined by reference to the "terms of the headings" (i.e., to the 4-digit level), plus any Section Notes or Chapter Notes.

Section 11 of the Customs Tariff refers to the Explanatory Notes as follows:

In interpreting the headings and subheadings, regard shall be had to the Compendium of Classification Opinions to the Harmonized Commodity Description and Coding System and the Explanatory Notes to the Harmonized Commodity Description and Coding System, published by the Customs Co-operation Council (also known as the World Customs Organization), as amended from time to time. (emphasis added)

The extent of the CITT’s obligations with respect to the clear direction to "have regard to" the Compendium of Classification Opinions and to the Explanatory Notes in order to "interpret" tariff headings and subheadings will be further examined in the three recent CITT decisions surveyed below.

Pfizer Canada Decision

Pfizer Canada Inc. v. The Commissioner of the Canada Customs and Revenue Agency5 (Pfizer), issued October 9, 2003, concerned whether Halls Centres cough drops should be classified in heading 17.04 as "sugar confectionery" (as determined by the CCRA) or in heading 30.04 as "medicaments" (as claimed by the importer). Explanatory Notes that were directly on point appeared to require classification of the cough drops as "sugar confectionery". Nonetheless, the CITT determined that the goods were properly classified as "medicaments". This was favourable to the importer since (based on 2003 rates) sugar confectionery is subject to a tariff rate of 9.5% MFN, whereas medicaments are "duty free".

The Explanatory Notes to heading 30.04 provide in part as follows: "preparations put up as throat pastilles or cough drops, consisting essentially of sugars … and flavouring agents (including substances having medicinal properties, such as benzyl alcohol menthol, eucalyptol and tolu balsam) fall in heading 17.04." The Halls Centres cough drops contain sugar and menthol. On a plain reading of the Explanatory Notes, the menthol is deemed to be a flavouring agent, notwithstanding that it may have medicinal properties. Therefore, if the CITT were to strictly follow the Explanatory Notes, it would have been required to conclude that the Halls Centres should be classified in heading 17.04.

Instead, the CITT decided that the Explanatory Notes were ambiguous and only applied to menthol added to a product for the purpose of acting as a flavouring agent (vs. as a medical ingredient). Therefore, by interpreting the Explanatory Notes in this "purposive" manner, the CITT was able to avoid their plain meaning.

FHP/Atlantic Decision

In FHP/Atlantic Inc. v. Canada (Customs and Revenue Agency)6 ("FHP"), issued July 18, 2003, the subject goods were cleaning devices consisting in part of a machine washable micro-fibre pad. All parties were in agreement as to the applicable tariff heading (96.03), but disputed which tariff item (i.e., 8 digit level) was applicable. Heading 96.03 covers "Brooms, brushes … , hand-operated mechanical floor sweepers, not motorized, mops and feather dusters; prepared knots and tufts for broom or brush making; paint pads and rollers; squeegees (other than roller squeegees)." The issue was whether the subject goods should be classified in tariff item No. 9603.90.30 as "mops of textile materials" or in 9603.90.90 as "other". In 2003, "mops" are dutiable at 16.5% MFN whereas "other" goods are dutiable at 6.5% MFN.

The Explanatory Note to heading 96.03 provides that, "Mops consist of a bundle of textile cords or vegetable fibres mounted on a handle. They are used for floor cleaning, dish-washing, etc."7 The CITT acknowledged that the goods did not consist of a bundle of textile cords, yet still determined that the goods were "mops". The CITT reached this conclusion by applying (somewhat questionably) General Rule 3(a)8 and Canadian Rule 19 and concluding that the "most specific description" (as between "mop" and "other") was "mop".

Suzuki/Kawasaki Decision

In Suzuki Canada Inc. and Canadian Kawasaki Motors Inc. v. The Commissioner of the Canada Customs and Revenue Agency10 ("Suzuki"), issued May 2, 2000, the CITT gave no weight to the Explanatory Notes. The issue was whether all-terrain vehicles ("ATVs") should be classified under heading 87.03 as "other motor vehicles principally designed for the transport of persons" (as determined by the CCRA) or under heading 87.11 as "motorcycles and cycles fitted with an auxiliary motor" (as claimed by the importer). Motor vehicles are currently subject to duties of 6.1% MFN whereas motorcycles are "duty free".

The Explanatory Note to heading 87.03 provides that the heading "also includes … (6) Four-wheeled motor vehicles with tube chassis, having a motor-car type steering system (e.g., a steering system based on the Ackerman principle)." This Explanatory Note was added to the WCO Explanatory Notes as recently as 1999. On a plain reading of the Explanatory Note, the ATVs would have to be classified in heading 87.03 because the ATVs have four wheels, a tube chassis, and a steering system based on the Ackerman principle.

However, the CITT chose not to follow the Explanatory Note. Instead, the CITT took issue with the fact that the Note considered the type of steering system to be determinative of the tariff classification. Therefore, despite the unambiguous language of the Explanatory Notes and a validating Classification Opinion11, the CITT decided not to follow the Note and instead ruled that the ATVs should be classified as motorcycles.


The decisions in Pfizer, FHP and Suzuki illustrate the relative ease by which the CITT can circumvent or blatantly not follow relevant Explanatory Notes when determining the tariff classification of goods. While it is trite to point out that Explanatory Notes are non-binding, the CITT’s refusal to follow the Notes in these three cases has both positive and negative implications for importers. On the one hand, importers can no longer rely on the Explanatory Notes to provide certainty in tariff classification, which has obvious negative implications for business planning. On the other hand, there is an opportunity for importers to consider pursuing tariff classification appeals even though (as in Pfizer) the plain wording of the Explanatory Notes would support an unfavourable tariff classification.


1. International Convention on the Harmonized Commodity Description and Coding System (done at Brussels on 14 June 1983) [the "Convention"].

2. See the Convention, supra note 1, Article 6(1).

3. See the Convention, supra note 1, Article 7(1)(b).

4. Customs Tariff, S.C. 1997, c. 36, as amended.

5. AP-2002-038 to AP-2002-090. Available from the CITT’s website at

6. Appeal No. AP-2002-099. Available from the CITT’s website at

7. Explanatory Notes to Heading 96.03, Customs Co-operation Council, 2d ed., Brussels, 1996.

8. General Rule 3(a) states in part: "The Heading which provides the most specific description shall be preferred to headings providing a more general description".

9. Canadian Rule 1 states in part: "For legal purposes, the classification of goods in the tariff items of a subheading or of a heading shall be determined according to the terms of those tariff items and any related Supplementary Notes and, mutatis mutandis, to the General Rules".

10. AP-99-114, AP-99-115 and AP-2000-008. Available from the CITT’s website at

11. Opinion 8703.21, Compendium of Classification Opinions, Customs Co-operation Council, released May 1999.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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