After months of "will he or won't he" drama, the United States announced on July 31, 2025 that baseline tariffs on most goods imported from Canada would increase to 35%. So, what does this mean for cross-border aircraft transactions between parties located in Canada and the U.S.?
At this time, there are no Canadian tariffs applicable to imports of manned aircraft from the U.S. On the other hand, imports of Canadian-owned aircraft into the U.S. would generally be subject to U.S. tariffs unless relief is available, notably when qualifying for preferential tariff treatment under the Canada-United States-Mexico Agreement (CUSMA, a.k.a. USMCA).
CUSMA status: buckle up!
First, the good news: CUSMA generally provides a mechanism to exempt many Canadian-manufactured goods, including aircraft and aircraft engines, from U.S. tariffs when imported into the U.S.
However, the bad news is that CUSMA is set to expire on June 30, 2036, unless renewed by the parties. Moreover, CUSMA is subject to review, with the first review to occur on July 1, 2026. The review mechanism may open the door to a renegotiation of all or part of CUSMA, leading to a potential lack of predictability as to its application.
To add another layer of complexity, historically sales of civilian aircraft between Canada and the U.S. relied not on CUSMA for their duty-free treatment, but on the World Trade Organization's Agreement on Trade in Civil Aircraft that came into force in 1980. Indeed, prior to the recent introduction of tariffs by the U.S., Canadian sellers had not needed to be familiar with CUSMA as it relates to the sale of their aircraft but, subsequent to the new tariffs, they have had to scramble to gain an understanding of how it applies to their prospective sales. Not surprisingly, this has resulted in confusion and delays in many aircraft transactions and it is now imperative for aircraft exporters to the U.S. to familiarize themselves with the steps needed to benefit from preferential treatment under CUSMA.
Eligibility for preferential treatment under CUSMA turns on the tariff schedule and the CUSMA rules of origin. In particular, an understanding of the tariff shift rule is critical – that is, the shifting of materials originating outside of the CUSMA countries to become CUSMA compliant upon their incorporation into, in our case, an aircraft, being manufactured in Canada. This analysis is complex and will look to the description, tariff classification and origin of the goods to determine eligibility for preferential treatment under CUSMA.
And, it's not just aircraft and aircraft engines that are at issue: spare parts and other cargo onboard an aircraft whilst being imported to the U.S. also need to undergo the same CUSMA analysis to determine whether they benefit from preferential treatment.
Strategies to mitigate the impact of U.S. tariffs
Scenario #1: Importing a Canadian-manufactured aircraft into the U.S.
The following steps are recommended or required in order to benefit from preferential treatment under CUSMA:
(1) CUSMA Preparedness: It is recommended that the exporter (i.e., the aircraft seller) be proactive and prepare the necessary documents to support CUSMA compliance before listing the aircraft for sale. This should help to enhance the marketability of the aircraft to potential U.S. buyers.
(2) Aircraft Purchase Agreement: It is advisable when negotiating the aircraft purchase agreement that consideration be given to the location of the pre-purchase inspection, closing and delivery, and to the implications of that choice. Notably, if the seller agrees to deliver the aircraft in the U.S., they will generally be responsible for any applicable tariffs or to claim preferential tariff treatment under CUSMA. Additionally, some U.S.-based buyers may request that the pre-purchase inspection takes place in the U.S., and this too could trigger the application of tariffs, even if the aircraft will not ultimately be sold into the U.S. Care must also be taken in the designation of the Incoterms applicable to the sale of the aircraft, with a particular note of caution as to sales made on a DDP (delivered duty paid) basis, as these sales would have the seller liable for the tariffs, rather than the buyer. Other clauses to consider adapting are those addressing force majeure and material adverse change, with a view to establishing a ceiling of tariff percentage and/or purchase price, the surpassing of which would make the agreement no longer reflective of the intent of the parties.
(3) Rules of Origin: The Canadian aircraft must be certified as compliant with CUSMA rules of origin. However, the determination of the aircraft's country of origin may be complex and fact-specific. For example, the aircraft's interior may have been installed in a different country from where the airframe was produced, or the aircraft may have undergone substantial aftermarket refurbishment elsewhere than in the country of manufacture. In this regard, it may be a good idea to enlist the help of the aircraft manufacturer (even for the sale of a pre-owned aircraft), as they are often best placed to make these determinations and are becoming accustomed to providing the necessary information and documentation.
(4) Import Formalities: The importer of the aircraft into the U.S. must claim preferential tariff treatment under CUSMA when the aircraft is imported to the U.S. and have supporting documentation on hand in case of further review by U.S. authorities.
Scenario #2: Importing a U.S.-made aircraft into the U.S.
In principle, there should be no U.S. tariffs that apply. It should nonetheless be confirmed whether the aircraft's country of origin is indeed the U.S. and that it has not undergone substantial aftermarket transformation that could shift this country of origin determination (see the comments above regarding "Rules of Origin").
Scenario #3: Importing an aircraft manufactured outside of Canada, the U.S. and Mexico into the U.S.
Relief under CUSMA will not generally apply, save in exceptional circumstances such as an aircraft manufactured in a third-party country that has undergone a tariff shift or possibly other major modifications in Canada, the U.S. or Mexico (in which case, most of the comments under Scenario #1 would apply). However, other forms of relief may be available, including possible tariff exemptions granted by the U.S. to specific manufacturers.
Misconceptions regarding the application of U.S. tariffs to aircraft
(1) "The aircraft was manufactured by a U.S. company"
Unfortunately, it might not be that simple. The key issue for the application of tariffs is the aircraft's country of origin, not where the manufacturer is based. For example, the aircraft may be sold by a U.S. manufacturer but was actually built abroad. Or, even for an aircraft that was ostensibly produced in the U.S., production or aftermarket work performed outside of the U.S. may be material enough to cause the aircraft to no longer be deemed as U.S.-origin and thus not qualify for preferential treatment under CUSMA. Conversely, aircraft manufactured and/or assembled in Canada with engines or parts manufactured in third-party countries should generally benefit from preferential treatment under CUSMA. Still, the mere completion of an aircraft in Canada or Mexico is not sufficient to qualify for preferential treatment under CUSMA.
(2) "The U.S. tariffs only apply to new, not pre-owned aircraft"
The U.S. tariffs do not distinguish between new and pre-owned aircraft and, therefore, a determination as to the eligibility for preferential treatment under CUSMA will still be required in both instances.
(3) "The aircraft, although non-U.S. made, is already located in the U.S."
It is true that if the aircraft is already located in the U.S. and closing and delivery are to occur in the U.S. then the sale transaction should not trigger any U.S. tariffs. However, this does not preclude the possibility of the aircraft being imported into the U.S. sometime after closing, upon which U.S. tariffs may indeed apply.
(4) "The aircraft was already registered in the U.S."
Generally speaking, the registration and current location of the aircraft have no bearing upon the application of tariffs – the trigger is importing an aircraft to the U.S. That said, in the case of a non-U.S. manufactured aircraft, if the aircraft is registered in the U.S. then, in principle, no U.S. tariffs should apply, so long as it is not subsequently imported to the U.S.
(5) "Maintenance is a service, so no tariff concerns there"
It is true that tariffs do not apply to the acquisition of services. However, the tariffs could apply to the import of aircraft engines and other parts installed on the aircraft, depending on their origin. As such, before deciding to perform major maintenance or a refurbishment in a location other than in the U.S., consideration should be given to whether the work contemplated would cause the aircraft to no longer be CUSMA-compliant upon its re-importation into the U.S.
(6) "The aircraft is registered in Canada and owned by a Canadian"
The mere fact of Canadian ownership and registration will not, as we have seen, guarantee preferential treatment under CUSMA. Ultimately, it's the origin of the aircraft and whether it has undergone a tariff shift or possibly other major modifications subsequent to its manufacture that will determine its tariff status.
(7) "Trans-shipment will allow me to circumvent the tariffs"
The practice of trans-shipping – shipping a good ineligible for preferential treatment upon its direct import to the U.S. to a third-country with better tariffs rates and then exporting the good from that country to the U.S. – will not benefit Canadian aircraft vendors, first, because it does not actually create a change in the origin of the goods, and, second, because trans-shipped goods are now subject to 40% U.S. tariffs (unless relief under CUSMA or other measures applies).
The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.
© McMillan LLP 2025
