Canadian businesses compliant with USMCA still getting hit by soaring duties and fees

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Spread across Alberta, Saskatchewan and Montana, the Bearpaw Formation is a sprawling rockscape packed with the fossils of extinct predators. It’s here, where the United States and Canada are linked by kilometres of ancient bedrock, that Chris Bell sources the ammolite gems that make up the backbone of her jewellery business.

The Albertan edge of the formation is “the only place that it’s mined in the world,” she said, referring to the gem-grade stones made of fossilized shells of prehistoric sea ammonites.

But despite getting the material for her necklaces, earrings and bracelets in Southern Alberta and crafting them from her home on the shores of Cape Breton, Ms. Bell has reaped little if any benefit from having products compliant with the United States-Mexico-Canada Agreement.

“About 80 to 85 per cent of my stuff went to the U.S.,” she said of her business prior to the barrage of U.S. tariffs. In just a few months, she’d lost around $10,000 in sales, while spending “hours and hours and hours” on paperwork to document her USMCA compliance.

“And still after that, they charged me duties,” she said.

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In theory, USMCA-compliant goods were supposed to be exempt from the vast bulk of tariffs unleashed by U.S. President Donald Trump starting last year. That included tariffs many businesses became exposed to after the scrapping of the de minimis exemption last August, which allowed small parcels valued at under US$800 to enter the U.S. duty-free.

In practice, it’s made little to no difference for a chunk of small businesses, many of whom now face a Catch-22.

If they ship with Canada Post, they lose out on any preferential treatment under the USMCA and pay a 10-per-cent tariff.

A private courier such as UPS can process USMCA-compliant goods and ships faster, but the upfront costs are higher and there’s still a risk of duties and hefty processing fees if any paperwork is amiss.

A part of the issue is that a national postal service is treated differently under U.S. tariff rules.

USMCA is not relevant for postal shipments, “that is the bottom line,” said Joy Nott, a partner at KPMG Canada’s trade and customs practice. “If a Canadian company ships using the postal service, it doesn’t matter if the goods are [USMCA] or not.”

That means packages sent through Canada Post are not exempt from the global tariffs the U.S. imposed earlier this year. Many small businesses shipping through Canada Post even paid a higher 35-per-cent tariff between August and February, until a U.S. Supreme Court found the President’s sweeping levies on trade partners the previous year illegal.

Even then, “the executive order specifically called out international postal shipments,” Ms. Nott said.

“The sheer scale of postal shipments is just enormous,” she said, making it easier for illicit items to slip through the cracks or for high volumes of cheap goods, such as those that flooded the U.S. from Asia, to enter duty-free.

Despite working with a customs broker to ensure her items were properly declared as USMCA-compliant, Ms. Bell still pays a 10-per-cent tariff ($15 on a $150-value pendant) to ship with Canada Post, and around 5 per cent in processing fees. A third-party service called Zonos assesses, collects and remits her duties to U.S. Customs – a dollar amount that can feel arbitrary, she said.

“I took an ammolite gem I paid a hundred dollars for, took a picture of it, and Zonos told me it’s worth $350,” Ms. Bell said. “Zonos is saying they know how to grade ammolite? Hello. It’s like grading diamonds.”

Zonos did not respond to a request for comment.

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In contrast, sending through a private courier, such as UPS or FedEx is a “legally different kind of shipment,” Ms. Nott said. They have more sophisticated customs entry systems and in-house brokerage teams. But their higher costs can cancel out the benefits for small businesses.

Peter Bohlender, president of Clean Flight Golf in Ontario, said shipping one of his signature patented golf-ball washers with UPS used to cost about $17 for each $38 washer.

But recently, he’s faced charges as high as $37 in duties and handling fees, he said. “It’s like giving the customer my product and throwing in 20 bucks on top of it.”

(Businesses shipping with a courier typically have the option of charging the U.S. duties and fees to themselves, but the default is charging the customer.)

Mr. Bohlender said his products are USMCA-compliant and it’s unclear to him why UPS has been charging higher duties to ship his golf-ball washers to the U.S.

“They aren’t telling me anything,” he said. “They say, ‘You can file a dispute … a dispute actually takes four months.’”

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UPS spokesperson Natasha Amadi declined to comment on Mr. Bohlender’s specific case, but said brokers use customer-supplied information to calculate duties and fees. “UPS’s brokers are highly trained and use sophisticated technology to ensure accuracy.”

Part of the issue is that for many smaller or lower-value shipments, the courier itself becomes the importer of record, said Tom Gould, a customs and tariff strategy consultant based in Seattle. That means it takes on liability for goods entering the U.S., he said.

When in doubt, a fee often becomes the default. “They’re not willing to take on that responsibility,” he said, leaving the burden of proving erroneous charges on the sender.

Another issue is that some businesses may simply not realize they’re not fully USMCA-compliant, said Steve Bozicevic, chief executive officer of A&A Customs Brokers.

“Unless a valid certification is provided at the time of entry,” he said, “the shipment is treated as dutiable by default.”

The businesses that stand to benefit the most from USMCA compliance are often those that can ship in bulk or set up U.S. warehouses to reduce transportation and brokerage costs. “They simply distribute locally in the United States,” Mr. Gould said, an option out of reach for many small and medium-sized businesses.