Understanding Customs Tariffs

Customs tariffs are duties applied to goods at the time of importation. These duties are typically calculated as a percentage of the goods' value and depend on three key factors:

• The customs classification of the goods
• The declared value of the goods
• The country of origin of the goods

Most trading nations, including Canada and the United States (U.S.), use the Harmonized System (HS) to classify goods and determine applicable tariff rates.

In Canada

The HS is outlined in Canada's Customs Tariff Schedule, which organizes goods into 99 chapters. The Customs Tariff specifies the following duty rate categories:

• Most Favoured Nation (MFN) Rates: Applicable to goods from World Trade Organization (WTO) member countries.
• Preferential Rates: Applicable to goods from countries with which Canada has free trade agreements, such as the Canada-United States-Mexico Agreement (CUSMA). 

In the U.S.

The HS is set out in the Harmonized Tariff Schedule of the United States (HTSUS), which also contains 99 chapters and explanatory notes to clarify how tariff rules are applied. The HTSUS assigns each good one of three categories of duty rates:

1. Most Favoured Nation (MFN) Rates: Applicable to WTO member countries with normal trading relations with the U.S.
2. Preferential Rates: Applicable to goods from countries with which the U.S. has free trade agreements, such as Canada under the United States-Mexico-Canada Agreement (USMCA).
3. General Rates: Applicable to countries without normal trading relationships with the U.S.