Attorney General of Canada c. Igloo Vikski Inc. (Customs and excise — International trade — Tariff classification of goods — Importation of hockey gloves)
On appeal from a judgment of the Federal Court of Appeal (2014 FCA 266), setting aside a decision of the Canadian International Trade Tribunal (2013 CanLII 4408).
The importer arranged to import hockey gloves made of textiles and plastics, bound together by stitching. The Canada Border Services Agency classified five models of gloves as “gloves, mittens and mitts” under tariff item No. 6216.00.00of the Harmonized Commodity Description and Coding System (“Harmonized System”),incorporated into the Schedule to the Customs Tariff. The remaining model was classified under tariff item No. 3926.20.92 as “other articles of plastics”.
The Canadian International Trade Tribunal (“CITT” or “Tribunal”) dismissed the importer’s appeal, concluding that the gloves were classifiable as “gloves, mittens and mitts”. The Federal Court of Appeal, however, allowed the importer’s appeal and remitted the matter back to the CITT.
Held (8-1): The appeal should be allowed
Per McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner, Gascon and Brown JJ.:
The tariff classification exercise begins with Rule 1 of the General Rules for the Interpretation of the Harmonized System, which directs that the classification of goods must initially be determined with reference only to the headings within a chapter, as well as any applicable Section or Chapter Notes. Where the goods are unfinished or where they are comprised of a mix of materials or substances, Rule 2 is applied in conjunction with Rule 1 to determine the prima facie classification of such goods. Rule 2(a) deems unfinished goods to be finished goods, and directs that they be classified using Rule 1 as if they were goods in a complete or finished state. Rule 2(b) applies where a good consists of a mixture of more than one substance, and states that a reference to goods of a given material or substance in a heading shall be taken to include goods consisting wholly or partly of such material or substance. If, having applied Rules 1 and 2, the good is prima facie classifiable under only one heading, then the inquiry ends and the good is classified under that heading. If, however, the good is prima facie classifiable under more than one heading, then Rule 3 applies, by operation of Rule 2(b), to resolve the classification dispute. If the application of Rules 1, 2 and 3 does not lead to the classification of a good under a single heading, Rules 4, 5 and 6 are applied to determine the classification of the good.
While the General Rulesare commonly described as cascading in nature, this metaphor does not quite capture how the General Rules are to be applied. It is more helpful to understand that order as a function of a hierarchy rather than a cascade. Rule 1 does not lose all relevance where Rule 2 is applied. Where Rule 2 applies, it applies together with Rule 1 to identify the heading(s) under which an incomplete or composite good can be prima facie classified.
The CITT concluded that the gloves were not classifiable under heading 39.26 using Rule 1 because they were not made by sewing or sealing sheets of plastic together, as directed by the Explanatory Note to heading 39.26 of the Explanatory Notes to the Harmonized Commodity Description and Coding System. The CITT found that the gloves met the description of heading 62.16 using Rule 1. Since the gloves contained plastic padding that was more than mere trimming, the CITT applied Rule 2(b) of the General Rules, as directed by the Explanatory Note to heading 62.16, which led the CITT to extend the scope of the heading in order to classify the goods as “gloves, mittens and mitts”.
The Federal Court of Appeal found that the CITT had misinterpreted the General Rules by requiring that the goods must meet the description of a heading by applying Rule 1 before Rule 2(b) can be used to extend that heading to cover goods made of mixed substances. Once the CITT concluded that the goods did not meet the description of the heading in 39.26, it should have applied Rule 2(b) of the General Rules to extend that heading to cover the gloves. Then, because the goods were prima facie classifiable under both headings 39.26 and 62.16, Rule 3 should have been employed to determine the proper classification of the gloves.
In concluding that the CITT misapplied the General Rules, the Federal Court of Appeal misapprehended their structure. It did not appreciate the conjunctive nature of the application of Rules 1 and 2 to a determination of the heading(s) under which a good is prima facie classifiable. Further, the Federal Court of Appeal erred in supposing that Rule 2(b) can be applied to extend the scope of a heading to include a particular good where no part of that good falls within the heading. While Rule 2(b) deems a reference in a heading to a material to include a mixture of that material with other substances, the Section, Chapter Notes, and Explanatory Notes still apply when classifying that good as if it were made exclusively of the material referenced by the heading. Read as a whole, the CITT’s decision was reasonable. The CITT neither misapplied the General Rules, nor interpreted heading 39.26 and its Explanatory Note in an unreasonable manner.
Per Côté J. (dissenting):
The Tribunal’s decision falls well outside the range of reasonable interpretations. It contradicts the cascading nature of the General Rules, it is internally contradictory, and it interprets the Explanatory Notes in a manner that is irreconcilable with their words.
While the standard of review of reasonableness is applicable here, this appeal deals with the interpretation of a statute that was enacted to implement the International Convention on the Harmonized Commodity Description and Coding System. Given the Convention parties’ intention of creating a uniform classification scheme, the range of reasonable statutory interpretations in this context is narrow.
First, the Tribunal erred by requiring as a condition to the application of Rule 2(b) that the goods must first meet the description in the heading pursuant to Rule 1. The distinction between a conjunctive or hierarchical application of the General Rules as opposed to a cascading application is, in this case, irrelevant. A good does not need to first meet the description in a heading pursuant to Rule 1 in order for Rule 2(b) to apply. Such a reading is inconsistent with the text of Rule 2(b). It is precisely because certain goods consisting of more than one material or substance cannot be classified under a heading using Rule 1 alone that Rule 2(b) applies. The function of Rule 2(b) is to extend headings referring to a material under Rule 1 to include goods that are composed only partly of the material.
Second, the Tribunal failed to apply Rules 1 and 2(b) consistently to heading No. 39.26 and heading No. 62.16. The Tribunal had to apply Rule 2(b) in order for heading No. 62.16 to apply to the gloves since the gloves included plastic that constituted more than mere trimming. Therefore, Rule 1 alone was not sufficient to classify the gloves in heading No. 62.16 nor in any heading, and the Tribunal had to resort to Rule 2(b). In this context, the Tribunal’s refusal to apply Rules 1 and 2(b) consistently to both heading No. 39.26 and heading No. 62.16 is internally contradictory and therefore unreasonable.
Third, the Tribunal’s interpretation of the Explanatory Noteto heading No. 39.26 is unreasonable. While the Explanatory Note contains non‑exhaustive language, the Tribunal concluded that heading No. 39.26 only includes articles of plastics that are made by “sewing or sealing sheets of plastics”. Such a restrictive interpretation was contrary to both an ordinary and contextual reading of the Explanatory Note.
Reasons for Judgment by Brown J. (McLachlin C.J. and Abella, Cromwell, Moldaver, Karakatsanis, Wagner and Gascon JJ. concurring)
Dissenting Reasons by Côté J.
Neutral Citation: 2016 SCC 38
Docket Number: 36258