United States President Donald Trump on Thursday “adjusted” an order imposing tariffs on Canada and Mexico, delaying or reducing levies on many goods until April 2. The full delay will be applied to any good in compliance with the Canada-U.S.-Mexico Agreement (CUSMA).

While a fact sheet released by the White House declared that the “Dealmaker-In-Chief” intended the moves to “minimize disruption to the automotive industry,” the changes are broader than that. Here’s a look at what is now subject to tariffs and what isn’t — at least for now.

What did the U.S. change on Thursday?

Trump’s latest move means that certain goods from Canada and Mexico will not face tariffs until April 2. According to the White House fact sheet, there will be no tariffs on goods from Canada and Mexico that “claim and qualify” for CUSMA preference.

Products from the two countries that do not satisfy CUSMA preferential treatment rules remain subject to 25 per cent tariffs.

The U.S. also reconfirmed that a lowered tariff rate of 10 per cent will apply to Canadian-origin energy products, and it reduced tariffs on potash from Canada and Mexico to 10 per cent, for product that falls outside of CUSMA preference.

Any new tariff exemptions will not be retroactive, the White House said.

What does it mean to ‘claim and qualify’ for CUSMA preference?

Last year, around 38 per cent of Canadian imports and half of Mexican imports used the CUSMA preference, which allows goods to receive zero or near-zero customs duties, according to a White House official who spoke to reporters on Thursday.

CUSMA, the free trade agreement between Canada, the U.S. and Mexico that took effect in 2020, outlined “rules of origin” to determine whether a product is entitled to preferential duties under the agreement. Those rules state that a product qualifies for CUSMA preference if it originates or is manufactured entirely from materials sourced from the U.S., Mexico, or Canada.

In theory, Canadian goods that fall under CUSMA include a wide range of products, from nearly all agricultural items — such as beef and seafood — apparel and textiles, minerals and natural resources extracted from Canada, and manufactured items, like cars, that meet the rules of origin.

Canadian exporters who want to claim preferential tariff treatment under CUSMA are required to include a “certificate of origin” in their shipments. A large proportion of the goods that qualify for preferential treatment include automotive vehicles and related parts, the White House said.

What doesn’t fall under CUSMA?

While many goods are covered by CUSMA, determining what qualifies for preferential treatment is not always straightforward.

The process is relatively simple for items such as Canadian fruits and vegetables, but can be trickier for manufactured goods, as every element has its own tariff classification code, said Zvi Halpern-Shavim, a partner at law firm Blake, Cassels & Graydon LLP, who focuses on trade and tax.

The rules of origin are complex and “dictate how much domestic versus foreign content can be used in a product for it to be considered to ‘originate’ in Canada,” said Wendy Wagner, head of international trade and customs at Gowling WLG. Meeting some of those elements can be “extremely onerous,” said Nicole Bivens Collinson, managing principal at Sandler, Travis & Rosenberg P.A., a customs and international trade firm.

As a result, some Canadian exporters may choose to use the “most favoured nation” (MFN) tariff treatment instead of CUSMA’s preferential treatment for duty-free access. The MFN tariff rate applies to all World Trade Organization parties. “You just look at the list, know what your product is and see which code it fits under — it’s easy to figure out what it is,” said Halpern-Shavim.

Oil is covered by CUSMA, but a White House official said it typically does not qualify for CUSMA preference.

Approximately US$3 billion of Canadian potash and US$16 billion of mostly Canadian energy products that fell outside of CUSMA flowed into the U.S. tariff-free last year, according to Trade Partnership Worldwide LLC, a research firm.

How did Canada respond?

In response, Ottawa has paused its second phase of retaliatory tariffs of $125 billion of U.S. goods, according to Canada’s finance minister Dominic LeBlanc.

“The United States has agreed to suspend tariffs on CUSMA-compliant exports from Canada until April 2. As a result, Canada will not proceed with the second wave of tariffs on $125 Billion of U.S. products until April 2, while we continue to work for the removal of all tariffs,” LeBlanc wrote on X on Thursday.

Jacques Shore, a partner at Gowling WLG, said that Canada will “continue to be mired in a period of uncertainty as we’re all stuck between Trump and a hard place. We have to look at that very seriously, and hope for the best but prepare for the worst.”

• Email: ylau@postmedia.com

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