United States Surtax Order (Motor Vehicles 2025): SOR/2025-118

Canada Gazette, Part II, Volume 159, Number 9

Registration
SOR/2025-118 April 8, 2025

CUSTOMS TARIFF

P.C. 2025-463 April 7, 2025

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance and the Minister for International Trade, makes the annexed United States Surtax Order (Motor Vehicles 2025) under subsection 53(2)footnote a and paragraph 79(a)footnote b of the Customs Tariff footnote c.

United States Surtax Order (Motor Vehicles 2025)

Definition of motor vehicle

1 In this Order, motor vehicle means a good that is classified under any of the tariff items set out in Schedule 1.

Surtax

2 (1) Motor vehicles that originate in the United States that are not entitled to the United States Tariff are subject to a surtax in the amount of 25% of the value for duty determined in accordance with sections 47 to 55 of the Customs Act.

Motor vehicles entitled to United States Tariff

(2) Motor vehicles that originate in the United States that are entitled to the United States Tariff are subject to a surtax in the amount of 25% of the value determined by the formula

A − B
where
A
is the value for duty of the motor vehicle determined in accordance with sections 47 to 55 of the Customs Act; and
B
is
  • (a) the value, determined in accordance with the CUSMA Rules of Origin Regulations, of all goods that originate in Canada and Mexico used in the production of the motor vehicle, if the importer claims that the value of those goods is greater than 15% of the value determined for A, or
  • (b) 15% of the value determined for A, in any other case.

Evidence

(3) If the surtax is determined in accordance with paragraph (a) of the description of B in the formula set out in subsection (2), the importer must provide, when requested by an officer, documentary evidence to determine the value of goods that originate in Canada and Mexico used in the production of the motor vehicle.

Country of origin

(4) For the purposes of this section, the determination of whether goods originate in Canada, the United States or Mexico is to be made in accordance with sections 2, 4 to 8 and 10 to 13 of the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations.

Exceptions

3 Despite subsections 2(1) and (2), the following motor vehicles are not subject to the surtax:

Coming into force

4 This Order comes into force on April 9, 2025, but if it is registered after that day, it comes into force on the day on which it is registered.

SCHEDULE 1

(Section 1 and paragraph 3(a))

Tariff Items — Motor Vehicles

SCHEDULE 2

(Paragraph 3(a))

Tariff Items — Chapters 98 and 99

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

On March 26, 2025, President Trump announced that the United States would impose tariffs of 25% on all motor vehicle imports, which came info effect on April 3, 2025. For Canada, the tariffs would apply as follows:

Prime Minister Carney announced on April 3, 2025, that Canada would impose countermeasures on imports of U.S. vehicles, mirroring the approach of the United States.

Background

On March 4, 2025, the United States imposed a 25% tariff on imports of most Canadian goods, and 10% tariffs on energy and potash imports from Canada. In response, Canada imposed reciprocal tariffs of 25%, effective March 4, 2025, on certain consumer goods imported from the United States valued at $30 billion annually and launched consultations on a broader list of U.S. goods that could be subject to future measures; these consultations closed on April 2, 2025. Beginning March 7, 2025, the United States amended its tariffs to exempt goods that are CUSMA-compliant (non-CUSMA compliant goods must still pay 25% tariffs).

On March 12, 2025, the United States imposed a global tariff of 25% on imports of steel and aluminum, including from Canada. In response, on March 13, 2025, Canada imposed reciprocal tariffs of 25% against $29.8 billion in annual imports of American steel, aluminum, and other products.

On April 3, 2025, the United States imposed global tariffs of 25% on imports of passenger vehicles and trucks. In the case of Canada (and Mexico), the tariffs apply in full to non-CUSMA originating vehicles, but apply only to the non-U.S. content of CUSMA originating vehicles. U.S. global tariffs on auto parts are expected to follow no later than May 3, 2025.

Section 53 of the Customs Tariff provides for the ability to apply trade measures, including tariffs, to respond to acts, policies or practices of other countries’ governments that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.

Auto production in North America is highly integrated based on the free flow of vehicles and auto parts maintained under CUSMA. In 2024, Canada exported $44.4 billion in finished vehicles to the United States, while importing $35.6 billion. The auto industry is a major employer in Canada, accounting for over 550 000 in direct and indirect jobs across the country. U.S. tariffs will have a significant negative impact on the industry.

The CUSMA rules of origin determine how much production, measured as regional value content (RVC), must be undertaken in North America for goods to qualify as originating under the Agreement and therefore be traded on a duty-free basis. To be CUSMA originating, passenger vehicles and pick-up trucks must meet the following requirements: 75% RVC for the vehicle; 75% RVC for certain key parts contained in the vehicle, including the engine and transmission; 70% of the vehicle producer’s total North American purchases of steel and aluminum are CUSMA originating; 40% high-wage content in passenger vehicles and 45% high-wage content in pick-up trucks.

Objective

The objective of Canada’s tariffs is to mirror U.S. trade actions on vehicles to ensure reciprocal market access conditions and protect Canadian workers as much as possible.

Description

Pursuant to section 53 of the Customs Tariff, the United States Surtax Order (Motor Vehicles 2025) establishes reciprocal surtaxes of 25% on passenger vehicles and certain trucks that originate in the United States, in accordance with the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations. These goods amount to approximately $35.6 billion in annual imports.

For American motor vehicles that do not meet the CUSMA rules of origin, surtaxes will be calculated on the basis of the value for duty of the imported goods, as determined in accordance with sections 47 to 55 of the Customs Act. These surtaxes apply in addition to any applicable customs duties imposed under the Customs Tariff.

For American motor vehicles that meet the CUSMA rules of origin, the surtaxes do not apply to that portion of the value representing parts used in the production of the vehicle that are themselves originating in Canada or Mexico. All American vehicles that originate under CUSMA are eligible to have that portion deemed to be 15%, as this is estimated to be the average total Canadian and Mexican content across imports of U.S. assembled vehicles. Based on this approach, the 25% surtax would apply only to 85% of a vehicle’s value. Alternatively, at the importer’s choice, that portion may actually be determined in accordance with the CUSMA Rules of Origin Regulations. In such cases, the importer must provide, upon request, documentary evidence supporting that determination.

Chapter 98 of the Schedule to the Customs Tariff waives customs duties on certain non-commercial importations such as the temporary import of a vehicle by an individual visiting Canada, while Chapter 99 waives customs duties on certain commercial importations such as goods for specific uses (e.g. religious goods) and in select situations to assist a small number of complex manufacturing activities. Most vehicles classified under chapters 98 and 99 are exempt from the surtaxes, even if the goods are classified in a tariff item subject to the surtaxes.

The surtaxes come into effect on April 9, 2025, although they do not apply to vehicles that were already in transit to Canada on or before this date.

Regulatory development

Consultation

From March 4 to April 2, 2025, Canada’s public comment period resulted in extensive stakeholder input and feedback on its tariff measures, with nearly 7 000 written submissions. As part of these consultations, the Government received 131 submissions pertaining to the motor vehicles subject to this Order, most of them from vehicle importers and retailers concerned about consumer affordability and the viability of their businesses due to tariffs on American vehicles that they sell. Other groups voiced support for the need to have a strong retaliatory response to U.S. tariff actions.

The Government took these views into consideration when developing its response to the U.S. auto tariffs. Given the serious threat posed by U.S. tariffs for Canada’s automotive manufacturers, but also the high level of integration of the Canadian and U.S. auto markets, the Government is taking a measured, reciprocal approach by implementing counter tariffs to ensure reciprocal access for U.S. auto manufacturers to the Canadian market.

The Prime Minister has also announced Canada’s intention to develop a framework for auto producers that incentivizes production and investment in Canada.

Modern treaty obligations and Indigenous engagement and consultation

Following an assessment of modern treaty implications, no adverse impacts on potential or established Indigenous or treaty rights, which are recognized and affirmed in section 35 of the Constitution Act, 1982, were identified in the Order.

Instrument choice

Subsection 53(2) of the Customs Tariff provides the authority for the Governor in Council, on the recommendation of the Minister of Finance and the Minister of Foreign Affairs, by Order, to make goods that originate in any country subject to a surtax for the purpose of responding to acts, policies or practices of a country that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.

The powers, duties and functions of the Minister of Foreign Affairs under subsection 53(2) of the Customs Tariff were transferred to the Minister for International Trade by the Order Transferring from the Minister of Foreign Affairs to the Minister for International Trade the Powers, Duties and Functions Under Subsection 53(2) of the Customs Tariff.

Other instruments were considered, but were found unsuitable in terms of effectively addressing U.S. tariffs in a timely manner.

Regulatory analysis

Benefits and costs

The 25% U.S. tariffs on motor vehicles create a significant price disadvantage for Canadian vehicles vis-à-vis American vehicles in the U.S. market. As Canadian manufacturers sell into the U.S. market, tariffs could negatively impact automakers’ willingness to continue to produce and invest in Canada.

In 2024, Canada exported $44.4 billion in passenger vehicles and trucks to the United States now subject to the tariffs, while importing $35.6 billion worth of these goods. Given this dynamic and the new reality of restricted access to the U.S. market, Canada’s counter tariffs will help to preserve the Canadian market for Canadian-made vehicles, especially those most impacted by U.S. tariffs due to their relatively higher Canadian content. The Canadian counter tariffs also send a signal and encourage the removal of the U.S. tariffs to protect the integrated North American auto industry. Should the United States eliminate its tariffs against motor vehicles made in Canada, Canada’s counter tariffs would be repealed as well.

In the short-term, the counter tariffs will increase the prices of motor vehicles in Canada as some importers may pass the additional importation costs onto their Canadian clients. However, as time progresses, Canadian importers and retailers previously dependent on American vehicles may begin to alter their sourcing in favour of Canadian manufacturers or from other markets not subject to the surtaxes, thereby bringing down the prices of motor vehicles. This reorientation to the domestic market could also create additional incentives or new supply opportunities for Canadian auto parts producers. In this context, the absence of Canadian tariffs on parts and their components also helps to partially protect supply chains for automotive inputs and avoids imposing further costs.

Small business lens

Analysis under the small business lens determined that the measure would impose administrative requirements on small businesses. In cases where importers of CUSMA-compliant vehicles may be requested to provide documentary evidence to determine the value of Canadian and Mexican originating parts, they can do so by relying on existing documentation used to claim CUSMA originating status for vehicles. CUSMA record-keeping requirements are necessary for vehicle imports to benefit from duty-free preferences under the agreement and do not impose any additional burden on importers.

One-for-one rule

The requirement to provide information related to the country of origin for parts of the vehicle meets the Red Tape Reduction Act definition of “administrative burden,” thus triggering the one-for-one rule. The Order is also considered to be a new regulatory title under the rule. However, duties are considered to be “taxes” and the Order has been exempted from the requirement to offset burden and titles as it relates to tax and tax administration.

Regulatory cooperation and alignment

Canada continues to engage with the United States to assess its objectives behind the tariffs and advocate for an arrangement or resolution that upholds free trade on the North American continent. In this respect, Canada is also actively exploring ways to consolidate its trade ties with Mexico. More broadly, Canada is consulting and cooperating with the United States’ trade partners affected by American tariff actions.

Effects on the environment

In accordance with the Cabinet Directive on Strategic Environmental and Economic Assessment (SEEA Directive), a preliminary scan concluded that a strategic environmental and economic assessment is not required.

Gender-based analysis plus

No impacts based on gender and other identity factors have been identified for this Order.

Implementation, compliance and enforcement, and service standards

The Canada Border Services Agency (CBSA) is responsible for administering Customs Tariff legislation and regulations, including this Order. The CBSA will release a Customs Notice to inform the importing community of issues related to the administration of the tariffs.

Contact

Mike Mosier
Director
Trade and Tariff Policy
International Trade Policy Division
Department of Finance
Ottawa, Ontario
K1A 0G5
Email: tariff-tarif@fin.gc.ca