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Mike Abbott:
Good afternoon everyone, and welcome to Tariffs and Trade in Focus. We have the next hour together, hopefully, and I'll kick us off.
I'm Mike Abbott, partner here at BDO, and I have the absolute pleasure of hosting this roundtable discussion during what are truly unprecedented times. But before we start, I would like to acknowledge the Indigenous peoples of all the lands that we are on today while we meet on a virtual platform. I'd like to take a moment to recognize the importance of the lands we each call home. This acknowledgment reaffirms our commitment and responsibility to improving relationships between nations and deepening our understanding of local Indigenous peoples and their culture.
I'm coming to you today from Ottawa, which is situated on the traditional and unceded territory of the Algonquin and Anishinaabe people. So, welcome.
Where do we start? We met two months ago, just a couple of days before the inauguration, and it certainly feels like a couple of years have passed given how much has changed. Some of the words that come to mind include uncertainty—something that I think everyone is feeling.
We see it manifest in a few ways. Clients are delaying decisions, and there's a level of paralysis about what to do next and where to turn. At the same time, some clients have found opportunity in the chaos—things they didn't expect. We're witnessing shifts and challenges in interprovincial trade barriers, as well as an unprecedented pace of potential regulatory change. We know that these changes don't always land well in the economy, and we've seen their effects reflected in the stock market.
Over the next hour, we'd like to share some different insights on these topics. And of course, here in Canada, we have an upcoming election, which we'll certainly discuss with one of our panelists.
Now, I'd like to introduce our panel. I'm pleased to be joined by three individuals. First, Brian Morcombe, a partner in our tax group. Brian, I'm going to hand it over to you to introduce yourself, and then I'll take us through the rest.
Brian Morcombe:
Thanks, Mike.
Brian Morcombe, broadcasting from our national office at 20 Wellington Street in Toronto. Very pleased to be here. I lead the Global Indirect Tax practice as well as the National Indirect Tax Service Line, which includes customs and international trade services.
Although I am trumped by my colleague, our director and leader of our customs and international trade service line—who you'll be hearing from in just a moment—the service line also includes goods and services tax, harmonized sales tax, provincial sales taxes, digital services tax, luxury tax, and the underused housing tax.
We support a variety of service needs for our clients that generally extend beyond the Income Tax Act. With that said, Mike, I'm really pleased to be here to talk about what we're hearing from clients, particularly regarding tariff readiness and supply chain.
Mike Abbott:
Great and I know, I got a few questions for you as we go through this.
So Brian, we'll have you back. Charmaine, I'm gonna bring you on stage and if you can introduce yourself.
Charmaine Goddeeris:
Hello. I see what you did there, Brian. I see what you did there. Keeping my eyes on you.
So, hello to everyone. For those I have not met before or who haven't seen my face—because it's been out there a lot lately—my name is Charmaine Goddeeris, and I lead the Customs and International Trade Practice here at BDO Canada.
I'm actually part of a larger global group of customs consultants at BDO Global. There are about 75 of us, with consultants in every major trading country around the world. My role here at BDO Canada is to help guide companies, ensuring they adhere to various customs rules, laws, and legislation while mitigating any type of duty exposure.
Lately, my main focus has been helping companies navigate the uncertainties of the current trade war so that they can not only survive but thrive.
Mike Abbott:
Perfect. And before I bring Scott out, I just want to say one thing.
Charmaine, I know you and I trade a lot of notes each day, and the range of questions that clients are asking—even in preparation for those of you who registered and submitted questions—is incredibly broad. Whether it's customs and excise tax questions, international inquiries, transfer pricing, mergers and acquisitions, or strategic concerns like creating value for an organization, cost optimization, and risk management, these are all pressing topics.
We see these questions surfacing in the marketplace, and as a group, we'll take some time to share insights on them.
Now, I'd like to introduce our third panelist. He joined us two months ago, and not much has happened since then—Scott, it's been a pretty quiet two months in the U.S. and Canada, right?
Scott Reid, analyst for CTV News, I'm going to let you introduce yourself and maybe kick us off with a discussion on what's happening here in Canada. Then, we'll bring it back to remind ourselves that we have some important tariff considerations as well.
Scott Reid:
Sounds good. Thanks a lot, Mike. Thanks, everybody.
I honestly do not believe that it was two months ago. It's not that I can't believe it—it's that I literally refuse to believe it. Because when you think about what's occurred—at least politically (I'll stick to my knitting)—that was surely 14 years ago that we talked. So much has changed.
We had a different prime minister. There was a completely different set of projections about how international trade relations—bilateral trade relations—would operate. A completely different assumption about when we'd have the next general election. We hadn't had a provincial election in Ontario when we last talked. A lot has happened.
Very quickly, my name's Scott Reid. My background—Mike just mentioned it briefly—for folks who follow political news, you may have seen me chatting on TV or heard me on the radio. I work with Bell Media and CTV, so I'm on CTV National News, CTV News Channel, and Question Period, talking politics as a political analyst.
Currently, I run a small consultancy, Feschuk-Reid. We focus on executive communications and strategic communications, working with a wide variety of clients—lots in the financial services sector, but really all sorts of industries, particularly those with a public affairs focus.
But my real credential—the one that's actually relevant here—is that I spent a number of years at Finance when Paul Martin was Finance Minister. And that really was more than 14 years ago. That was a whole lifetime ago. I worked for Mr. Martin throughout his time as Finance Minister and then when he became Prime Minister.
Hopefully, that brings a bit of relevant background in terms of bilateral relations and how governments approach these kinds of issues. Managing these files from the government side is an extraordinarily important aspect of how everyone else is moving forward these days. So much depends on the instincts of political decision-makers.
Even now, as we know, the White House is set to unroll new tariffs on April 2nd—or maybe not, given how things work these days. The investment and business communities are watching it all unfold, and to a certain degree, we all are a little bit hostage to the political events happening around us.
You want me to just hop in and start rolling, right, Mike?
Mike Abbott:
Yeah, go for it.
I think, as you said, a lot has happened. And as you were saying that, I actually forgot—yeah, we have a new prime minister, a new election, all within two months.
Take us through where we really are here in Canada. What's going to happen next?
Scott Reid:
There's a lot to say, and I don't know that people want me to just spend the whole thing turning into a political podcast. So I'll try to be quick and make three points. One, and I'll start with politics. It really is an extraordinary and exceptional political moment. And every jackass politician I've ever worked for likes to say about the election they're involved in, "This is the most important election of our lifetime, the most historic set of choices that we've ever been called upon to make." This is a moment where that rhetoric actually probably registers as the stone-cold truth because it literally is a situation that's virtually without precedent.
We suddenly have a prime minister who comes to office with zero political experience. By the time he calls the election on Sunday, he will have had one week of experience in office, never having held elected office. I like to call Carney politics adjacent because, you know, as a governor of the Bank of England, governor of the Bank of Canada, he was observing and interacting with elected leaders. Never run for political office until now. So that's an extraordinary and literally unprecedented event.
We have the extraordinary aggression of the White House, you know, and I mean this is, you know, table stakes all of a sudden. But it's worth just saying plainly and out loud again to remind ourselves how bizarre and extraordinary the circumstance we're in. The occupant of the White House is effectively unleashing a trade war on Canada. Our most reliable and dependable partner is now indicating that he wants to exert maximum economic harm on Canada, in part to reward his own country, but also by his own confession because he has ambitions to break us down, bust us up, and annex the parts that he likes. That is a hell of a thing for a president of the United States to say out loud. But that's a situation that we're in, and we may wonder whether that's rhetoric or overstatement, but I think if you're a decision-maker, you're obligated to regard it pretty seriously.
We have a complete realignment of the political landscape that's happened at light speed in just a couple of months. Mr. Trudeau gone. Why? Victim of all the circumstances actually still unfolding, right? In a situation where we had to deal with Donald Trump and the aggression from the Oval Office, it was no longer possible. The liberal government, literally members of the government and cabinet, came to the conclusion that they couldn't sustain such an unpopular prime minister. They couldn't actually marshal the public consensus required to move forward at such a time, much less even dream of re-election, much less at that point, even imagine that they could avoid political extinction.
And now bang, two months later, a 26-point lead that's going to Nanos polling, a 26-point lead for the conservatives has evaporated into a jump ball election. It is not clear who will win this election. There are polls in the last couple of days that suggest liberals could win a majority government. I'm not making any predictions on that. You know, maybe that momentum carries forward and Mr. Carney's elected prime minister with the majority on the 28th of April, maybe the laws of political gravity will reassert themselves, time for a change, and incumbent IDUs will claim the liberals and Poilievre will end up with the majority government.
But I'll make you this prediction. I believe there will be a majority government one way or the other. As close as the polls look right now, I do not believe this thing will resolve itself with a minority government because the questions are so serious and all indications are Canadians are looking at it as though it's that serious. And I think there will be a hard decision made one way or another, third, fourth week of this five, six-week campaign, I think you'll see a break heavily toward one party or the other. I think people want a government that has firm control and command. So it's an extraordinary, exceptional political moment.
Second thing—
Mike Abbott:
Scott.
Scott Reid:
Yes sir.
Mike Abbott:
Sorry, just to cut in there 'cause there's something that's on my mind here.
Five years ago, we went into COVID and it created just a tremendously negative economic, or at least that was the view that it was going to be a high level of economic uncertainty.
We now have five years later, we're talking government changes and the tariffs.
Scott Reid:
Yep.
Mike Abbott:
So how serious and how do we relate what's going on politically through to what we're clearly seeing from your second point there, The White House and the tariffs that are coming?
How serious does the government take it? Whichever one it leans towards, conservative or otherwise.
And then how does that start playing into the Canadian economy? How do we start seeing that?
Scott Reid:
Yeah, that's exactly, the last two quick points I try to make off the top. One, it's dominating and driving almost every single political and government decision, and it will drive this election campaign. But more importantly, it's already begun to drive government operations provincially and federally.
So let me give you one example, and it's a big one. Everyone actually agrees suddenly, like almost there is a startling degree of consensus, right? Well, we're gonna have to marshal countervailing tariffs. There's very few voices that say that we don't have to strike back. There is obviously an overwhelming consensus that we have to eliminate the consumer carbon tax that's already been done. There's suddenly consensus on tackling interprovincial trade barriers, which was a kryptonite for years and years and years politically. Diversification and locating other markets for trade purposes on and on and on.
So in many respects, there are still differences between the major political parties, but there's suddenly this broad consensus driving so many of these critical questions leading to the conclusion that eventually the election probably isn't gonna be about what, but who.
Final thing I would say is to that very same point. This is a really rare moment where action is possible. Often government, lots of talk, lots of promises, not much happens, but events are conspiring in a way that some of these things that did seem like kryptonite and that were untacklable, suddenly are going to be mounted.
So you look at the moment that I was in in 1995, it was almost a rare window of consensus to tackle deficit spending. There wasn't really much consensus either before that or since that in Canadian history that it ought to be done and the sacrifices required are necessary. And yet that happened then, I think we're in a similar moment. I think some of these choices that, you know, how do we deal with tariffs? What are we gonna have to do in our own backyard? How are we gonna pursue, you know, alternative trade arrangements?
I think all of a sudden you're gonna see a consensus on energy infrastructure. I think you're gonna see that there's a window of opportunity where government investment and business will be able to actually move on those priorities and get stuff done. But here's the thing, those windows don't stay open long. They're unpredictable in their duration. So we're gonna have to move quick.
Mike Abbott:
Yeah, and so we'll have a period of time here over the next 45 days-ish, where there'll be a lot of things I know on the table, whether it be interprovincial trade barriers, and that's a very hot topic of, you know, what does where does that lead us?
You know, we've done some polling of organizations in Canada to get a sense of how much does it actually impact. One of the things that jumped out to me is 95% of our respondents, you know, had regulatory barriers in provincially speaking as a major obstacle to existing growth. And I know I've seen that, you know, show up in the political path and the political trail.
Maybe I'll turn the one question here, Brian, I'm gonna put you on the spot if you're okay with it. With all of this as the backdrop, right, we've got unprecedented times, we've got people and organizations wondering what to do, how to predict what will be next, which is incredibly difficult to do until we see it play out. We see the paralysis.
Maybe we'll take a step back. Where actually are we with the tariffs?
Brian Morcombe:
That's a really good question. Can we get the visual up? There we go. Great. Thank you.
[A slide titled “Tariffs timeline” is pulled on the screen presenting a timeline of escalating trade tensions between the U.S. and Canada, highlighting key tariff-related actions and responses.
It begins with the U.S. suggesting a 25% tariff on all Canadian imports on November 25, 2024, followed by official announcements in early February that include a 10% tariff on Canadian energy products. Canada retaliates with CAD 30 billion in tariffs on U.S. goods.
Throughout March, both countries adjust their trade policies, with delays, additional tariffs, and sector-specific levies on goods such as steel, aluminum, energy, and consumer products.
By April 2, the U.S. is considering a broad 25% tariff on all Canadian goods, while Canada is reassessing its CAD 125 billion tariff strategy.]
So Mike, you're right on point. I think, you know, there's been a lot happening as Scott's been alluding to and in a very short period of time. I agree with the 14 years comment condensed into two months. So when you reflect back, November 20, yeah, it was November 25th, 2024. That's the first we heard about the potential tariffs. And we're gonna focus on Canada for the moment and those 25% tariffs that were going to be applied to all Canadian goods. There's been some back and forth since then.
Where we stand right now, so what is the current state of the tariffs? Quite simply, we've got 25% tariffs imposed on steel and aluminum that's exported from Canada and imported into the United States. So these are tariffs that the US is imposing on Canadian steel and aluminum. The Canadian reciprocal tariffs that were introduced earlier on, I believe it was March 4th, March 3rd, March 4th that came into effect and was basically targeted tariffs on $30 billion worth of goods coming from the US into Canada. So these are going to be goods tariffed by Canada in response. And again, targeting predominantly states and goods that are manufactured or distributed from states where there's strong Republican representation.
Where are we going? April 2nd is the next big one, as Scott alluded to. That's when we are expecting to hear whether the proposed tariffs originally suggested on November 25th, reiterated again on January 20, and then reiterated again February 1st, March 4th, and now April 2nd. We will see potentially 25% tariffs on all goods going from Canada to the United States, again, imposed by the United States. Canada's response to that is to add $125 billion worth of targeted goods that will be tariffed on import from the United States into Canada, again imposed by Canada.
So that's the landscape, that's where we are right now, where we're going. Mike, any questions on that?
Mike Abbott:
Oh, I got tons of questions about where we're going.
Brian Morcombe:
Alright, let's go.
Mike Abbott:
So look, I think, and Scott, I'm not gonna ask you to predict whether we're gonna see the same sort of, you know, exact same government incentive plans that happened in COVID and how things look like that. But I might come back and ask a question on that in terms of what we might see under different governments.
But Brian, clients ask where to go with this, right? There's so much uncertainty, what do I do with it? And there are organizations, I think every organization in Canada is impacted by this either directly or indirectly just because of the economic impact. And there's certainly not one client that I've talked to that this is not relevant for them in some way, shape, or form.
But for those organizations that are directly impacted, right? One of the notions would be on the tariffs. Do you pass it right along to a customer? How do you deal with that? Maybe talk about what you're seeing on some of the strategies that you're seeing with clients.
Brian Morcombe:
Yeah, I think there's obviously increased attention to the terms of sale in particular. I would really, I would actually, I would break it down, Mike, into three main buckets. I would say there's the terms of sale consideration that businesses have the ability to reflect on and potential control over. And I'll come back to that in a moment.
I would say that there's the complexity of goods consideration. How easy can vendors, purchasers on both sides of the border pivot and potentially replace suppliers? And then I would say the stability of your supply chain and trade relationship.
So building out the first point around terms of sale, talked about this a little bit in the past too, and I think it is one of the critical points that businesses need to understand. You as a business have likely entered into agreements already with your suppliers and again, with your customers. Those agreements generally speak to who's responsible for what and where. There's a responsibility quotient here that comes into play. Generally referred to as Incoterms and UCC terms for those of my vintage that, you know, studied accounting back in the nineties, you'll be familiar with, you know, FOB origin, FOB destination, those considerations. However, Incoterms by far globally have taken over and Incoterms, you would now be more familiar with X works or deliver duty paid. And your agreements will speak to those points.
When you're thinking about it from the context of your purchasing cycle, like if you are purchasing from a vendor elsewhere in the world and that agreement is subject to a DDP, delivered duty paid arrangement, go with some of the more basic ones for these, of example. If you have a fixed pricing on your product that you're purchasing from that vendor, that delivered duty paid could really work to your advantage. Because if there's additional tariffs, if tariffs go up and down against Canada against you as the purchaser, it technically would need to be absorbed by the vendor of those goods because you have a set price delivered, duty paid. That's how it's going to be.
On the flip side of that, if it's X works and now you're purchasing from somebody and you're responsible for those goods from the vendor's docks elsewhere, the opposite to the delivery duty paid concept, at that point in time, you are going to now be subject to those tariffs. So the goods you're, say you've purchased something from China, you would be responsible for the pickup of those goods from China, the import into Canada. Any tariffs then would be subject or applied to those goods as they're coming into Canada, Canada would impose those. So that speaks to the control you have.
And so it's not as easy as to say, "Hey, I'm gonna pass it along now if I'm thinking about my ceiling to my US customer," everything I've just described on the purchase side applies on the sales side too. So now you're selling to your US customer, are you delivered duty paid? Do you have a set price? Well then at that point in time, you're probably incurring those tariffs, you're probably absorbing them based on that current agreement if there's no flexibility in there. On the flip side of that with X works, your US customer is going to be incurring those tariffs because again, they're imposed now by the US as the goods move from Canada to the United States. So understanding your agreement is critical, critical, critical before you make any more decisions in that regard.
Now, really quickly, complexity of goods. This is something Mike, you and I, have kicked around a little bit and it actually stemmed from a dinner conversation. A neighbor was over and we were talking about her particular business and the operations that they have. And there are elements of that business that are complex and there are elements of that business that are not so complex. And so where they've designed special equipment to cut material and send it to the United States, that US customer can't pivot quickly to replace the Canadian vendor of that product because there's been special equipment designed. And so that US customer now has to find somebody else who can cut that material and receive it either from the United States likely or elsewhere. However, it's not gonna be easy for them to do. That gives that vendor, assuming again their Incoterms align, kinda step one to step two. It gives that vendor a lot of control over who's absorbing the tariffs.
But then that leads me to my third point, which is, do you wanna just throw your supply chain away by not playing ball? I think there's a lot of considerations to negotiating and respecting relationships, understanding that hey, we're all party to this. We're not the ones all making the decisions. There's decisions happening at other tables that affect us and we can play ball with each other. How long is this going to be? How long is this going to be in place? Do you wanna upend your entire supply chain and your customer base simply over what's happening right now? So there's a lot of decisions that have to be made in there.
Mike Abbott:
So, I've got two questions just to follow up on that, Brian. One's gonna be real-time, so we'll see where we go with it. We might defer this one, but as you were talking through that, and maybe we'll defer this question to a little bit later, but I know there's a remission process that you can apply to, you know, government on certain elements of the tariffs. Maybe we can talk about that maybe a little bit further down, but you were getting towards, because I think that would be a really interesting thing to touch on.
But maybe where you're going here on the supply chain, I'll go to my second question. Maybe we come back to the remission piece.
Brian Morcombe:
Sure.
Mike Abbott:
There's obviously lots of discussions of where to take your supply chain, right? And obviously, do you relocate to the US? That's been a very hot topic that we've seen.
The EU has shown up as well as one of those or the UK. Can you talk a little bit about where you see those conversations happening with the clients that you're working with and what are the factors that are falling into that?
Mike Abbott:
Yeah, you got it. Certainly on your first point about remissions, Charmaine has incredible experience and has had very successful real-life examples of where she's assisted clients with that. So that's gonna be a great topic to bring Charmaine into in a moment. It's something everybody wants to pay attention to because this is a real relief measure you can really drive home.
So coming to your next point though, really expanding to foreign markets, there's been a lot of discussion, "Hey, why aren't we doing more business with the EU, the UK, and why can't we do more of that? Why aren't we doing more business with Asia-Pac and how could we be doing more?" It is an interesting question because I think what's taking people there, Mike, is this idea that to simply set up shop, acquire a business in the United States, a manufacturing operation, a distribution center for example, or completely move your business to the United States. This is something that a lot of Canadian businesses are considering as a point of immunizing themselves, if you will.
I would say that requires very careful consideration. It could be a great option for your business. It might be something that you should have thought about a long time before this. However, you do want to consider, it's not just as simple as starting something up or moving your business. There are exit taxes you have to consider and lost positions to take into account. There are repatriation of profit considerations, there's permanent establishment considerations that you want to note as you are developing out this idea. That has a significant impact on the complexity of your business and the nature of your operations. And even, you know, you think about the employment considerations and the labor requirements. If you're not familiar with that market, there's a lot in play there. It's not as simple as just setting up. I would urge anybody that is considering that to do very little first until you understand your customs costs and understand how truly impacted you are by all of this and the longevity of it. I would then make sure you speak to your international tax advisor, your US corporate tax advisor, mobile workforce advisors, because there's a lot in play in addition to your Canadian tax advisors. So, definitely consider that.
Now, okay, you want to pick up, you want to look at other markets. Well certainly you've got the Comprehensive Economic Trade Agreement that exists with the EU, a fantastic trade agreement. Charmaine can again speak to some of the success we've had with clients that aren't as familiar with that trade agreement. We've all known customers for a while and USMCA, but some of these other ones we were less familiar with. So hey, look at things like the CETA agreement, but that's not gonna get you all the way there. Expanding into the EU has other considerations. I think we can all agree that, and certainly from experience, quality requirements in the EU regulatory environment are stricter for the most part. Okay, but that isn't a game changer because it shouldn't prevent you from doing this, because if you actually look at the labor costs per hour of the G7 countries, we're mid-tier as a country. So we can still produce and sell in Europe for generally cheaper than some of the European countries as well as North America. So parts of North America I should say. So there's a yin and a yang to this and there's certainly some good opportunity in there.
So consider the trade agreement. But your hurdles, your barriers are probably gonna be around logistics, getting your goods to Europe, and considering the quality and also the regulatory environment. The last point I'll make on that one, Mike, is the supply chain access. Accessing that supply chain is gonna be complicated. You're not familiar with it generally if you haven't done business in those markets. So you gotta break into it somehow. This isn't gonna be as easy as setting your salespeople on a mission to go find business in these other foreign markets. You're gonna have to have a strategy about how you approach this. You're gonna have to understand that market, quality considerations, regulations considerations, as I said, as well as the trade agreements that you wanna take advantage of. But all that can come together and potentially put you in an advantageous sales spot and profitability and that will help you immunize against your overall trade and supply chain.
Mike Abbott:
So, listen Brian, you've said Charmaine's name a few times, so I wanna bring her into the conversation.
Brian Morcombe:
Good call.
Mike Abbott:
And I would like, I'm adding a couple of different questions as I'm seeing and hearing them for Scott. I'd like to come back at some point on the EU stuff 'cause I think there's a potentially fascinating piece.
But Charmaine, maybe I'll kick it over to you here. I think there's a couple of things I'd like to get your comments on. You know, hearing around how Canadian companies would set up related entities in the US just to piggyback where Brian was going.
But maybe before we get into that, when the news came out on March 4th that there was a pause, it was being reported that, you know, the pause came for those items that were already under an existing trade agreement under USMCA and CUSMA. But we saw news outlets reporting that that really covered only a fraction or a small portion of what the goods could be.
Can you maybe just comment on that? 'Cause I think that's one of the confusion points that people may not fully appreciate or understand.
Charmaine Goddeeris:
Yeah, absolutely. So just to level set, the March 4th pause that we're talking about here is the pause on the original IEPA tariffs that the Trump administration alluded to in November of 2024 and then talked about in January and February of 2025. The idea with the IEPA tariffs is they were punitive tariffs on both Canada and Mexico. The US was concerned with security issues at the northern and southern borders, fentanyl issues, et cetera. So that's the set of tariffs that we're talking about right now.
It is my understanding that the pause really came about because three of the large automakers and down the automotive parts chain started to put up their hands and say, "You don't understand, Mr. Trump, how integrated the automotive supply chains are." If we are going to be able to withstand this storm in any capacity, we need a little bit more time. And from that was born this pause, and as you said, it was on goods that qualified under USMCA or CUSMA in Canada. We put the C first, and in Mexico, it's referred to as T-MEC, and no one wants to hear my Spanish, so let's just go with T-MEC.
Anyway, then we saw the news reports come out, and they started to toss around this 38% number. Well, you know, this really only impacts 38% of goods coming from Canada. So it's not really that great of a deal, but you needed to know a little bit more information to understand where that 38% came from.
So let's talk about into the United States. Dependent on what product you're importing, your duty rate could go from 0% without any use of any type of free trade agreement. It's inherently duty-free regardless of what it was or is and where it came from, all the way up to 25%, which used to be the highest sort of duty rate that we would see. So if you're a Canadian company and you're manufacturing a good in Canada, and when you sell it into the United States, it's not attracting any duty, you're not going to go through the administrative exercise of qualifying your goods because it's not as simple as saying, "Oh, I made it in Canada, therefore it qualifies." No, under USMCA CUSMA, there are actually two types of rules of origin.
There's the general ones, and the general ones are if it was mined, grown, you know, the cow out in the pasture, those types of things. That's a pretty easy analysis to do, and that's what we refer to as the general rules. And then there's specific rules, which are generally meant for manufactured goods. So you have to go through this process. There's a tariff determination, there's looking up to see what the rule is, grabbing support from your vendors, possibly. And companies were in time constraints, productivity constraints, and people constraints. That was just one of those decisions they made and said, we're not gonna spend this time and manpower over here when we're not saving anything over here.
But lo and behold, now they need to pay attention to it because it could be advantageous to support their claim that it's zero duty-free or would qualify for this pause. And it's certainly important going forward. Even after April 2nd, we don't really know what that looks like. There's the concept or the threat of reciprocity tariffs, this pause coming off, and on and on. My advice to clients is still to do that USMCA CUSMA exercise because even on April 2nd, if the pause goes away, you still potentially can avoid other tariffs. At this juncture, any amount of money that you can save or a company can save is advantageous for their business.
So that's sort of the concept of where that 38% came out and things that are inadvertently or not inadvertently just duty-free, not inadvertently duty-free.
(group laughing)
Brian Morcombe:
I agree with you, Charmaine, on that too because I think that this has drawn a light on compliance to the USMCA CUSMA. Businesses need to be paying attention to their compliance with that.
And I think we could see more action on the part of both customs authorities.
Charmaine Goddeeris:
Yeah, I actually have a further comment on there too 'cause, you know, as I'm talking to some companies, they're like, "Well, we qualified under NAFTA, so, you know, it'll just be easy. We already know." And I say to them, but CUSMA USMCA is not NAFTA. There were changes, you know, and there's probably been changes to your supply chain.
And guess what? Canadian and US customs are auditing certificates. We have three USMCA audits on the go right now, even before this started. So yes, document retention and support are absolutely paramount if you're going to use CUSMA USMCA.
Mike Abbott:
Charmaine, one of the things that has struck me through the past two months, one of the actions that we've seen organizations doing, and I say it, I could say it with air quotes, is waiting, right? Which isn't really an action or an activity, but I understand with the high level of uncertainty.
What we have started to see, and you and I were connecting just beforehand, is that organizations are establishing a tolerance for how much uncertainty they're willing to sustain. And we are now starting to see some actions, whether it be making some decisions around investments and saying, "We can't wait any longer. The business is too important. We're gonna make a, you know, we're gonna restructure. We're going to dive a little bit deeper into our customers of excise tax positioning."
Can you maybe talk about what are some of the things that you are seeing specific to the tariffs around strategies that you're seeing organizations take to mitigate and not only mitigate the tariffs that are there, but the potential for where things can go so they can establish sort of that tolerance for uncertainty?
Charmaine Goddeeris:
Yep, and if you'll all bear with me, I'm going to give a real-life client example that is turning out really good for that client. So just to set the stage, they have a US parent, they have a Canadian sub, and then they have their customers in the United States that they sell to, either the Canadian entity sells to or the US parent company sells to and the flow of goods.
So they're in the steel and aluminum, so very, you know, very topical right now. They import steel and aluminum components and some other components into Canada, do some manufacturing, and then ship back to the United States. Before we got involved, they would've been paying 25% additional duties into Canada under the steel and aluminum reciprocal tariffs that we have in Canada. And then in turn, they would've been paying 25% back into the US with the potential on April 2nd to be paying an additional 25%.
And they came to us and said, "Charmaine, you know, what can we do here? We just can't, you know, we cannot withstand this." And I said, "Okay, well here's the starting point." I said, "What do you know about your supply chain? What's coming in and out?" And they said, "Hmm, well not a lot." And I said, "Well, how about we start with our TOVA product?" How about we take your import data, load it in and level set, you know, what you're doing, who you're buying from, you know, and then we'll start to look at what some duty mitigation strategies would be.
So for them, on the Canadian side, we're using two duty mitigation strategies. One is the remissions, the remission program that you spoke to. And either Brian and I will discuss that in further detail in a minute. And then into Canada, even with our punitive and reciprocal tariffs, the Canadian government is still allowing duty drawback or duty deferral. And duty drawback is, in short, if you pay duties when a good was imported into Canada, that good does not remain in Canada either in its form or manufactured into a good. You can claim that duty back from the Canadian government.
Now I will say on the flip side, the US government is not allowing that and the duty deferral program is you have to start with an application to the Canada Border Services Agency. But if you're accepted into that program, what it says is if you're manufacturing goods that will leave the country using inputs that came into the country, you can defer payment of those goods and or the duty on those goods and only pay if for some reason those goods stayed in Canada. So we've got them set up, we've got a remission application in right now, and we're just in the decision process of drawback versus duty deferral. But we have now mitigated their duty to zero upon import into Canada.
Awesome, so what about, what do we do on the US side? Well, on the US side there are a couple of exemptions available in very small cases. And it has to do with the steel or aluminum, if it was melted, poured, smelted, cast, and I might have that backwards, but we kind of get the gist of that, in the United States, came into Canada for further processing and then left. There's exemptions into the United States in those circumstances, acknowledging that a big chunk of the good is manufactured using steel or aluminum from the United States.
So as it stands today, zero into Canada, zero into the United States, big win, clients happy, but now we want to prepare them for, that's the short term, right? That's the bandaid, that's the short-term solution. Now we're preparing them for the long-term solution. And what that looks like is a brainstorming, you know, where we get, as Brian you talked about earlier, international tax transfer pricing, our supply chain management, or you know, the old ESG group, the strategy value creation and analytics group and myself and sometimes someone from, you know, one of my US colleagues and we all sit together in a room or on a call like this and say, okay, this is what we're working with. What can we do long-term strategies to mitigate costs, look at different supply chains, looking at, you know, maybe using your US parent company in a larger capacity.
And then from that meeting, you know, we figure out what they have the appetite to do, right? And once we figure out that we've got a solid plan, everybody goes off and, you know, does what they need to do to help that client. So that, you know, the takeaway there is the remissions, the exemptions, et cetera, you know, they're somewhat short term, but you really need to start looking at the long term.
And I have to admit, we're getting there, you know, some of the paralysis is wearing off and I do see a movement of companies and yeah, this isn't going away. Yeah, I believe you, Charmaine, the international trade landscape has, you know, has forever changed. And it's not just the Trump administration, right? It's what happened in the Suez Canal, it's the threat of, you know, another pandemic and on and on and on. There really needs to figure out the long-term strategy. So again, as I started, not only survive but thrive.
Mike Abbott:
Okay, I've got a bunch of follow-up questions that I'd like to ask on that one, but I'm gonna ask it in a different way. I'm gonna go to Scott first on something in a second.
So Charmaine, I'm gonna just give you the heads up. There was an interesting question that popped up there that I'd like to come back to. It caught my eye around, you know, SaaS businesses or buying purchasing software from the US. I'm gonna come back on that one just because I know there's been a bunch of questions about how does that, you know, potentially if it is goods and management fees and transfer pricing that I might get you to comment on. Not that they're the same thing, but I can see the parallels to it, but I'll come back on that one.
Scott, I wanna ask, that was my way of giving you a little bit of time to think of a good answer for it Charmaine. You didn't catch that. Scott, I'd like to come back on the economic packages because there is some paralysis that we see in the marketplace that we see in the Canadian economy of not making decisions. We're seeing a little bit of it wear off and some things starting to move but in sort of small pieces.
How big are the economic packages landing or do you think they'll land as part of the campaigns, either conservative or liberals? Can you comment on that?
Scott Reid:
I think for the next 38 days, you're gonna see people be relatively vague on both sides of the political fence just because people won't wanna specify for fear that what they project won't fit the moment and it could overshoot and promise spending that's not necessary or prudent, or that they could undershoot. So I think you'll hear broad assertions of "we will be there for individuals, for industry, and to help people through it."
In truth, I think that's gonna manifest itself in a couple of ways. And one of them is particularly relevant to folks on this call, I think. The first is general support packages, you know, so what happens for those that are really sideswiped by it? What's the relative way of providing some kind of support for folks to help them using the federal treasury to help 'em get through what could be tough times? And there will be tough times presumably if Trump proceeds.
But the second is what alterations, what changes might be made and how might that help? What opportunities would be created? And that's where understanding your business as a process of going through and trying to tariff-proof might also lead you to, you know, what would work. You know what would be awfully darn good if there was this kind of allowance through federal regulation or this sort of fund or this kind of mechanism. So starting to think about those things, I would keep a piece of foolscap in my desk where I write down what could be, what seemed like crazy ideas right now, but in a moment of crisis, no idea is crazy. No ask is necessarily too large to put on the table.
So I think about that funneling. I'd make a point I'd wanna make real quick is, although by the way, the real honest answer to your question is I think we're gonna spend big 'cause I think these things are gonna hit big and I do think we're gonna see the federal treasury unleashed because I don't know that there's much else and I think the dollar's gonna take a kicking 'cause that's our other obvious circuit breaker and buffer.
I would just say to your point about people's tolerance for uncertainty, it's so important. Because you need to do two things, not one thing. One, you need to tariff-proof your business. So that's going to like the Charmaine and Brians of the world getting the best possible advice on tax, on customs, on duty mitigation strategies, thinking about your supply chain, sourcing it, fortifying that, getting as much cash as possible so you have as much flexibility as possible. All those things that sound business people do.
But you're also gonna have to Trump-proof and that's harder. And what that means is you're gonna have to live with unpredictability. What's gonna happen on April 2nd beats the living hell outta me and no one else knows. March 4th is instructive. Listen to what Charmaine said, right? On March 4th they had to retreat within 36 hours because automakers said, "Hey, we're a very integrated industry." Well guess what? I knew that before March 4th. I would've thought that the people imposing tariffs did as well. It goes to show you that they know what they wanna do as a matter of policy outcome, but how it's gonna get done.
So all the questions on the side about how's this gonna impact software and what will and what won't be eligible? They don't know and we don't know and we don't even know if Trump will impose sweeping tariffs on the whole world on April 2nd, including Canada and Mexico on top of what else has happened to us. And then say, "Alright, now come to us and beg, borrow, and negotiate on a bilateral basis and we'll strike bilateral arrangements that will have a complete patchwork quilt application across a variety of places."
And that's gonna require a lot of courage on people's parts 'cause what it means is we aren't gonna know the rules of the game and we aren't gonna know what does and doesn't apply. We won't even know it on April 3rd.
Mike Abbott:
So yeah, I think it's, you know, there was a comment that came up earlier: if anyone can perfectly predict, they're probably not a hundred percent there. That being said, getting ready for your level of, you know, assessing what your own level of tolerance for uncertainty is something that is within your control.
I did wanna come back to that question though, Charmaine, of services and sort of as you cross border. And Brian, it might be for you too. So I don't wanna just point it one way, but can you talk historically about, you know, how some of the tariffs have worked on services? Or, you know, I've seen some other considerations of different pricing practices of changing the price of goods and using services to help balance that.
I'll throw it to both of you. Maybe just comment on what that could look like.
Charmaine Goddeeris:
Yeah, so it's okay Brian, I'm gonna start. And I'm actually gonna punt it to you and you'll know exactly what I'm about to punt it to you.
So generally, duties are applied on physical goods that cross the border, not services. And it's actually noted right in the USMCA CUSMA agreement that services don't attract any type of tariffs. However, and I'm saying this because it is actually noted in the USMCA, and what we know is we're coming up to a renegotiation of USMCA and CUSMA. We should expect that there will be negotiation rhetoric and discussion around this and also the digital services tax, which we know is another burr in the Trump administration. And honestly, it kind of was in the Biden administration as well.
So I expect this, you know, the topic of services to be part of the USMCA negotiation and to have a lot of discussion around it between the two countries. Brian?
Brian Morcombe:
Yeah, no, I like the introduction of the digital services tax considerations. You're right on point. We were fielding interviews around this last August and, you know, there was a lot of concern on the part of businesses and the government based on what was coming out of the United States and the concerns that they had with the digital services tax.
What's interesting about that though, it is a driving force and it is, I would say, offensive is not an incorrect term for American business and the American government that the digital services tax is there. But Canada is a later rival to the digital services landscape. My peers in the industry will agree that we were a latecomer and generally speaking, we're talking high-value dollars that are businesses that are gonna be included in that. You know, you're talking, was it 750 million euro billion dollars roughly, of global revenue that has to be earned by the business and then there has to be $20 million of core source revenue specifically related to Canada. So we're talking about a specific type of business that is affected by that.
However, I would say that unfortunately we haven't done ourselves any favors with the digital services tax introduction. I would be interested to see how it lasts, but yeah, I won't spend too much time on there.
I want to, if I can, I'd love to come back to a comment that Scott made around the relief measures and the concerns there. Personally, I think we need to do more. I love the point about the treasury needing to be unleashed. I think, and politics aside, thinking just about what's advantageous for Canadian business, we need to see CEWS ER's style, like the Canadian Emergency Wage Subsidy and Rent Subsidy style relief come into play in the near future to help businesses that may find themselves having to potentially lay off staff that will have difficulty remaining a growing concern if we see what's coming on April 2nd, if we see a 25% tariff.
And I know that that's not gonna be popular with everybody. It's going to, you know, increase deficits. However, it gives us the opportunity. And of course, we now know that what we learned in economics back in the day, again, that doesn't hold true anymore. And we could see inflationary effects and other things that come from that. And we might be battling that again. However, I think that's good for the livelihood of Canada.
Mike Abbott:
Okay, Brian, thanks. We've got just a couple of minutes left. And you know, you talk about going back to economics class. I kind of feel like the moment we're in is kind of like when you had an assignment in school, and you didn't a hundred percent know what good looked like. There were a couple of things to do. One is to do your homework right, roll up your sleeves and do your homework about what you can do for yourself.
And what was the other thing that I know I did, which was to ask for help. You go in and you talk to others, you just either ask for help or you go in and you talk to other people about what challenges you're seeing, peers or otherwise. And I think that would certainly be one of the things that we've seen is even if you don't know what to do, just talk to others and say, "Hey, what could that look like?"
[A poll appears on the screen, asking attendees: Would you like to speak with a BDO advisor about the impact of tariffs on your organization?
Two answer options are provided: Yes and no.]
So to the extent that we'll open the poll and then I'll bring it back. Like, to the extent you just wanna talk to somebody about this, what's going on in your business, I've seen some really great questions in there. I apologize we can't get to all those questions. Some are a little bit more detailed than others. Happy to have those conversations.
So we'll open a poll if you wanna go through it. I know we're wrapping up here and I wanna make sure that we give some time. So is the poll open? I think so, yes. Okay, so if you'd like to speak to somebody at BDO, just to talk it through, by all means, I'm interested to see what people feel on that. That is, yeah, go ahead, Brian.
Brian Morcombe:
I was just gonna say, Mike, another thing that I know, Charmaine has mentioned this many times with clients also on webinars and opportunities where we can be public facing, is networking with your associations. Folks, connect in with the people in your industry.
Maybe Charmaine, if you wanna build out on that a little bit briefly, because I think you say it best.
Charmaine Goddeeris:
Oh, thank you. No, absolutely. I always say that the group voice is louder than the singular voice. And I've been doing a lot of work with some of the industry groups in Canada, and I'm gonna be speaking to some of them over the next few weeks.
The idea there is you get to have your voice heard, right? And they are taking down all of the things that you're saying and all of the concerns, and they're creating these submissions to the Canadian government. So they're your voice. You know, and they're large advocacy groups, they will be heard.
So if you wanna have your voice heard, certainly as you suggested, make sure you get in touch with your local industry group.
Mike Abbott:
Okay, so we are really near time. Scott, I wanna say thank you so much. Always a pleasure to have your voice and your opinion on where things are at. I know it's changing frantically.
I always look forward to, I get a nice little email from Scott most weeks that gives me the sneak peek of what might be, and I come back and I have never, never had to come back and say you're wrong. So thank you for that.
Scott Reid:
Well, I don't know about that. Thanks a lot.
Mike Abbott:
We'll see. Brian, Charmaine, thank you so much. We are here and available if you guys want to chat about any of this. I love the suggestions about going to different associations, Brian and Charmaine. That's a great thing to do.
Don't tackle these issues yourself, right? This is a really, really tough time. Talk to anyone, but we'd be happy to talk more about what we're seeing with other organizations. I don't believe there's any two organizations that will face the issue directly or indirectly in the exact same way. So getting the homework done and understanding what's gonna be unique to you is going to be critical.
Alright. With that, thank you everyone. Brian, Charmaine, Scott.
Brian Morcombe:
Thank you.
Mike Abbott:
Thank you.
Charmaine Goddeeris:
Thank you very much.
Scott Reid:
Lots of fun.
Brian Morcombe:
And thanks to all the attendees.