Section 338 Tariffs Override CUSMA: What Your Canadian Import Broker Files Now

Key Takeaways

• Section 338 tariffs apply at 50% even when your goods meet CUSMA origin rules, overriding the preferential zero-rate claim.
• Your CAD must declare both the CUSMA origin qualification and the Section 338 assessment; omitting either invites CBSA verification or AMPS exposure.
• Most Section 338 classifications are arguable at the HS 6-digit level; a well-constructed ruling request can exclude goods from the list.
• Alternative sourcing from CETA partners or direct imports via non-US routes sidestep Section 338 entirely if your supply chain can pivot within 60-90 days.

Section 338 Overrides CUSMA Preferential Treatment

The US has imposed 50% duties under Section 338 on a wide range of products imported from Canada, and the tariff applies even when goods qualify for duty-free treatment under CUSMA (the United States-Mexico-Canada Agreement). For Canadian importers, this means your Certificate of Origin no longer delivers zero-duty entry at the US border, and for companies importing US-origin goods back into Canada after value-added processing, the reverse trade flow now carries the same 50% assessment.

A canadian import broker filing the Commercial Accounting Declaration (CAD) through the CARM Client Portal must now declare both the CUSMA origin claim and the Section 338 tariff line. The origin certificate remains valid for CBSA verification purposes, but the preferential rate is overridden by the Section 338 assessment. Omitting either declaration invites a verification request or an AMPS penalty for incorrect tariff classification.

This is not a tariff quota or a safeguard with a phase-out schedule. Section 338 is a trade remedy that sits above preferential agreements until the US removes it by Federal Register notice. If your HS 6-digit code appears on the published list, you pay 50% on the transaction value, and your RPP bond or cash deposit must cover the full amount before CBSA releases the goods.

What Canadian Import Brokers File on the CAD

The CAD structure under CARM Phase 2 requires three duty-line entries when Section 338 applies:

• The base MFN rate (usually zero under CUSMA Chapter 2 for qualifying goods).
• The CUSMA preferential claim, supported by a valid Certificate of Origin citing the applicable tariff-shift rule or regional-value-content calculation.
• The Section 338 add-on duty at 50%, applied to the transaction value after any adjustments for freight, insurance, and assists under Customs Act section 48.

The Section 338 rate is not rolled into the MFN line. It appears as a separate levy, and the importer’s duty account in the CARM Client Portal shows both components. If you pay the wrong rate or omit the Section 338 line entirely, CBSA flags the entry for post-release verification, and you receive a Notice of Re-Determination within 90 days of the original CAD acceptance.

Most Section 338 classifications are arguable at the HS 6-digit level. The US HTS and the Canadian Customs Tariff do not always align on product scope, and goods excluded from the US list may still be swept into the Canadian mirror measure if CBSA interprets the tariff-shift rule differently. We routinely file for advance HS classification rulings when the product sits near a tariff boundary, and a favourable ruling from CBSA excludes the goods from Section 338 exposure going forward.

Documentation Requirements and Verification Risk

CBSA’s verification protocol for Section 338 entries mirrors the standard CUSMA origin verification procedure under D-memorandum D11-4-20, but with an added layer of product-classification scrutiny. If your goods are subject to both a CUSMA claim and a Section 338 assessment, CBSA may request:

• The Certificate of Origin (CUSMA format, covering all applicable tariff-shift or RVC criteria).
• Commercial invoices showing the transaction value, freight, and insurance broken out separately.
• Product technical specifications, lab test reports, or manufacturer declarations supporting the HS 6-digit classification you declared on the CAD.
• Bills of lading and cargo control documents proving the US origin of the goods (not just the port of export).

If you cannot produce clean documentation within the 30-day response window, CBSA denies the CUSMA claim and re-assesses the entry at the full MFN rate plus the Section 338 duty. The combined rate often exceeds 50%, and the unpaid balance accrues interest from the original date of CAD acceptance. For high-volume importers moving 200-300 entries per month, a single documentation gap can trigger a file-wide audit covering the past four years of CUSMA claims under Customs Act section 42.

Filing Strategy: Challenge Classification or Pivot Sourcing

When Section 338 applies, you have two paths:

1. Challenge the HS classification. File for a binding advance ruling from CBSA’s Tariff Classification and Origin unit, arguing that your product falls outside the Section 338 list. The ruling process takes 90-120 days, but once issued, the decision binds CBSA for all future entries of the same product under the same HS code. If the ruling excludes your goods from Section 338, you file for duty drawback covering past entries within the four-year limitation period under Customs Act section 74, and recover the 50% duty paid on every entry filed since the Section 338 measure took effect.

2. Pivot sourcing to a CETA partner. If your goods are available from EU suppliers and qualify for CETA origin under the tariff-shift or regional-value-content rules in CETA Chapter 23, the 50% Section 338 duty does not apply. CETA’s MFN rate for most industrial goods is zero, and the agreement includes a robust origin self-certification process that does not require a government-issued certificate. We see clients shift from US to German or Dutch suppliers within 60-90 days when the Section 338 duty math makes US sourcing uneconomical.

For goods already in a Canadian bonded warehouse or sufferance facility (such as Montreal’s bonded storage), you can defer the CAD filing and the Section 338 duty assessment until you decide whether to release the goods to the Canadian market or re-export them to a third country. Bonded storage under CBSA supervision keeps the goods duty-suspended indefinitely, and you pay only the warehouse service fees while you explore alternative sourcing or challenge the classification.

Compliance Exposure and AMPS Penalties

CBSA applies the Administrative Monetary Penalty System (AMPS) to incorrect duty declarations, and Section 338 errors fall under the tariff-classification infraction category. A Level 1 penalty for a first-time misclassification starts at CAD 3,500, and the amount scales if the underpaid duty exceeds CAD 10,000 or if the error repeats across multiple entries. The penalty is separate from the unpaid duty and interest, and it does not go away if you correct the entry within the 90-day correction window.

If you file the CAD without declaring the Section 338 duty, CBSA treats it as a tariff-classification error, not a simple omission. The Master Penalty Document published by CBSA lists “incorrect tariff classification resulting in reduced or eliminated duties” as a contravention with penalty mitigation only when the error is demonstrably inadvertent and the importer has a clean compliance history. Repeat offenders or cases involving large underpayments face Level 2 or Level 3 penalties, and CBSA may suspend your CARM Client Portal access or revoke your Release Prior to Payment (RPP) bond privileges until you post additional financial security.

What We File Tomorrow Morning

Most Section 338 entries we process this week involve machinery parts, steel products, and electronics components that qualify for CUSMA origin but fall within the Section 338 product scope. The CAD filing takes an extra verification step: we cross-reference the US HTS code against the Federal Register list, confirm the Canadian HS 6-digit equivalent, and attach the CUSMA Certificate of Origin with the tariff-shift calculation documented in the remarks field.

If the classification is borderline, we flag it for a ruling request before filing the first CAD. A favourable ruling from CBSA costs you 120 days of lead time but eliminates four years of 50% duty exposure. If you need that analysis started today, get in touch.

Frequently Asked Questions

Does Section 338 override my CUSMA certificate of origin?

Yes. Section 338 tariffs apply regardless of CUSMA qualification. You still file the origin claim on the CAD, but CBSA applies the 50% Section 338 rate instead of the CUSMA zero rate. Per CBSA’s CUSMA procedures, the certificate remains valid for verification purposes even when overridden by other trade remedies.

How do I know if my HS code is on the Section 338 list?

The US Federal Register publishes the list of subject HS 6-digit codes. Cross-reference your Canadian HS classification; most codes align but some tariff-shift rules differ between the US HTS and Canadian Customs Tariff. We verify both classifications before filing the CAD.

Can I challenge a Section 338 classification at the border?

Yes, but not in real time at release. You file the CAD with the Section 338 duty paid or secured via your RPP bond, then request a formal HS classification ruling from CBSA within the 90-day correction window under CARM procedures. If the ruling excludes your goods, you file for duty drawback covering up to four years of past entries under Customs Act section 74.

What happens if I file the CAD without declaring Section 338?

CBSA will flag the entry for verification. If they determine Section 338 applies, you face the unpaid duty plus interest, and potentially an AMPS penalty starting at CAD 3,500 for Level 1 infractions (incorrect tariff classification). The penalty scales if the underpayment is substantial or repeated.

Does Section 338 affect goods already in a Canadian bonded warehouse?

Not until you file the CAD for release to the Canadian market. Goods in sufferance or bonded storage under CBSA control remain duty-suspended. The Section 338 rate applies at the moment of accounting, so you can hold inventory and pivot sourcing or challenge classification before committing to the 50% duty.

Can I source the same goods from Europe under CETA to avoid Section 338?

Yes, if the goods qualify for CETA origin and are not separately subject to SIMA or other Canadian trade remedies. CETA’s tariff elimination schedule covers most industrial goods at 0% MFN, and Section 338 is a US-origin trade action with no extraterritorial reach. We routinely advise clients on CETA origin documentation when US supply chains face prohibitive tariffs.

How long does a Section 338 tariff stay in effect?

Section 338 measures are subject to periodic review by the US administration. There is no automatic sunset, but the list can be amended by Federal Register notice. Subscribe to CBSA’s D-memorandum updates and US Federal Register notices to catch removals or expansions of the subject-goods list.

Source: Supply Chain Dive