On October 21, 2016 the Federal Court of Appeal (the "FCA") ruled on the ability of importers to correct the tariff treatment declared upon importation in the course of self-adjustments to declaration of tariff classification under section 32.2 of the Customs Act (the "Act"). However, the impact of Attorney General of Canada v. Bri-Chem Supply Ltd.1 goes well beyond the mere relationship between the Canadian International Trade Tribunal (the "CITT" or "Tribunal") and the Canada Border Services Agency (the "CBSA") as "administrator"; it clarifies the hierarchy between all courts and tribunals (e.g. Tax Court of Canada), and the administrative/government agencies whose actions are regulated by such judicial bodies (e.g. the Canada Revenue Agency). This decision is important to not only customs practitioners, but all practitioners in the realm of administrative law.
Background - the CITT Decision on Tariff Treatment Corrections
All three cases, as well as the earlier Frito-Lay decision, involved goods imported under the Most Favoured Nation ("MFN") tariff treatment (and for which no customs duties were payable upon importation based on the specific tariff classification of the goods), that could also have been imported on a duty-free basis under the North American Free Trade Agreement ("NAFTA"). Upon realizing that the goods imported should in fact be subject to customs duties under MFN because of their misclassification under the Customs Tariff, the importers filed corrections pursuant to subsection 32.2(2) of the Act, whereby they corrected the tariff classification as well as the tariff treatment declared, this time claiming duty-free treatment under NAFTA (rather than MFN).
The CBSA denied the right of the importers to change the tariff treatment declared because the MFN tariff treatment was not "incorrect" and is beyond the scope of corrections that may be made pursuant to subsection 32.2(2) of the Act. The CITT disagreed with the CBSA, stating that it was not following the correct methodology, focusing on a purported correction to tariff treatment, whereas the proper starting point was to consider whether the correction was to tariff classification.4 Moreover, the importer did not correct the origin of the goods, which had always been U.S. origin, but rather the tariff classification.
The CBSA further argued that the importers could not switch to NAFTA tariff treatment because the claim had been made more than one year after importation and therefore the importers were barred by the one-year limitation for applications for refunds under paragraph 74(1)(c.1) of the Act. Once again, the Tribunal disagreed with the CBSA, stating that it was confusing the regime for corrections under section 32.2 and the regime for refunds under section 74. Section 74 applies to persons who actually paid duties on imported goods, which had not occurred here. The CITT further stated that:
Section 74 does not allow the CBSA to operate schemes which would ensnare importers into duties on goods that are legitimately entitled to enter Canada duty-free; that is tantamount to taxation in the absence of legislation...5
The FCA Decision on Tariff Treatment Corrections and the Abuse or Process
The FCA stated that the CITT's decisions in the three cases at issue, as well as its earlier decision in Frito-Lay, were reasonable. In that respect, the FCA pointed out that the Attorney General, arguing that a correction to tariff classification cannot lead to a subsequent correction of tariff treatment, interpreted section 32.2 of the Act too narrowly. In order to demonstrate that such an interpretation is erroneous, the FCA gave the following example:
An importer that does not claim NAFTA treatment at the time of importation and that does not seek a refund of duties under section 74 of the Customs Act finds itself in a dilemma. In order to claim NAFTA treatment, the importer must have a valid certificate of origin at the time of making the declaration. But often the importer is waiting to receive the certificate of origin from the exporter or manufacturer. As a result, the importer has no choice but to claim MFN treatment. Under the Attorney General's interpretation, the importer would never be able to change the tariff treatment even after receiving a valid certificate of origin from the manufacturer or exporter.6
The CITT also pointed out that its earlier Frito-Lay decision had already ruled on the issues, and therefore found that the CBSA had committed an abuse of process by simply disregarding Frito-Lay and in turn "relitigating" a matter that the Tribunal had already ruled on. The CITT stated that the CBSA had "knowingly frustrated importers from the applicability of Frito-Lay in either similar or even identical situations of fact" and had "embarked on what appears to be a policy of outright disregard for Frito-Lay".7
The FCA decision clearly sets out the hierarchy and relationship between specialized tribunals, such as the CITT, and government agencies such as the CBSA. Simply put, an agency whose actions are regulated by a tribunal must follow tribunal decisions8, subject to two exceptions. First, they are not bound by earlier tribunal decisions if the facts do not apply to the matter at hand. Second, they can decide not to follow a tribunal decision if they have a well-founded, bona fide belief that the decision is flawed and should not be followed. The FCA stated the following with respect to the threshold that must be crossed in order for the latter exception to apply:
This threshold should be shaped by two sets of clashing principles discussed above: the principles of certainty, predictability, finality and tribunal pre-eminence on the one hand, and, on the other, ensuring that potentially meritorious challenges of arguably wrong decisions can go forward.9
The FCA noted that, in this case, the CBSA took administrative positions contrary to the decision without explanation or justification. For these reasons, the FCA found that there were no grounds for interfering with the finding that the CBSA had committed an abuse of process.
The FCA's decision in Bri-Chem should put an end to the CBSA's practice of ignoring the CITT's ruling in Frito-Lay that an importer may correct customs declarations in order to obtain a more favourable tariff treatment in the course of corrections to tariff classification under subsection 32.2(2) of the Act. More importantly, the decision clearly establishes that the CBSA, along with the Canada Revenue Agency and other administrative bodies whose actions and decisions are regulated by a court or tribunal, must follow the decisions of such judicial bodies, subject to very specific and limited exceptions.
The author wishes to thank Jordan Dawson for his help in writing this article.