Pointless, unenforceable rules that no one knew existed and the government can't explain

That's the iPod tax controversy for you, writes Mike Moffatt

JD Hancock, Flickr

In a piece for, William Wolfe-Wylie examines the iPod Tax dispute and concludes that it is a manufactured controversy. He is correct in pointing out that changes to the General Preferential Tariff (GPT) system apply to thousands and thousands* of products (and not just iPods) and that it is altogether different than past proposed iPod taxes. If that was all there was to the issue then he would be correct—there is no controversy here. However, a great deal has come to light since I published my first piece in April. There are at least four “iPod tax” controversies here, all of which go well beyond the fact Canadian consumers will be paying more for goods.

Controversy 1. Retroactive taxes and changing rules by the CBSA

One of the ways a company can determine the correct tariff classification for a product is to obtain an Advance Ruling from the Canadian Border Services Agency (CBSA) which is a legally binding decision assigning a tariff classification to a product. The CBSA issued a private ruling on a model of television that can be plugged into a computer. I have obtained a copy of that ruling; it clearly states that televisions that can be plugged into a computer do not require end-use certificates:

The Nexus 37? Plasma Television in question is “physically connected” to the computer by connecting a D-sub cable between the D-sub jack on the PC and the D-sub input jack on the unit. The goods are “functionally joined” to the computer as they enhance the function of the host unit. (To satisfy the “functionally joined” standard, the goods must be physically connected to the host unit and must enhance the function of the host unit.) Tariff Code 9948.00.00 is applicable to these goods. Further, the Tariff Policy Division has determined that no evidence (end-use certificates) of actual use is required in order for goods to obtain the benefits of tariff item 9948.00.00.00. (emphasis added)

The CBSA has since assessed companies back tariffs on previously imported goods for failing to collect these very same end-use certificates on televisions that can be physically connected to computers. The 9948 Fair Treatment coalition, a group representing a number of importers of consumer electronics, has presented documents it believes show that they were intentionally misled, including an internal CBSA memo that states “the above statements in the ruling and the fax should not deter us from re-assessing the importers.”

Controversy 2. Bureaucracy run amok

It has been nearly impossible, despite multiple requests, to get a straight answer from the government to Maclean’s Aaron Wherry’s question: “Is it true that sellers of iPods and MP3 players are required to collect ‘end use certificates’ from the final consumer to meet the requirements of 9948?” Specifically, is it necessary for retail sellers to obtain these certificates and are they legally obligated to collect and transmit them to importers? The closest thing we have to an answer comes from testimony given by Finance Minister Jim Flaherty, who said:

You’re talking about a process problem. Substantively there is no tax on iPods and end user certificates have been required for a long, long time on a long range of projects. Some vendors have obeyed the law and some haven’t. And some who haven’t obeyed the law have found themselves in some difficulty. That’s what happens.

This does little to answer the question for retail sellers, as nobody has been able to find a single retailer of MP3 players that has collected certificates. What are these projects that require end use certificates? Have any retail sellers of MP3 players ever collected any certificates?

Furthermore, it is not clear what purpose end user certificates serve for retail sales of consumer electronics. If the government’s intent is to have these items sold tariff free at retail, then why require the collection of certificates? And what, exactly, is being certified?

Controversy 3. Privacy concerns and the requirement of an iPod registry

If consumers are required to fill out an end use certificate to purchase an iPod, they will be forced to disclose to the retailer their “name, address and occupation” and how they plan to use the iPod to stay compliant with the CBSA’s Memorandum D17-1-21. This information will then be transmitted from customer to retailer to importer. The importer will then collect these certificates and create an internal iPod registry which they are required to make available to the CBSA, upon request. Why would the government require Canadian consumers to divulge this information simply to purchase an MP3 player?

Controversy 4. Civil liberties

The end user requirement is subject to verification, so the CBSA can be assured that the goods in question were not “diverted to a use other than that on the basis of which they were released free of duty.” In order to fully do so, the CBSA would have to inspect homes of individual consumers to ensure they are not using their iPods in ways they did not attest to on their certificate. Due to the obvious civil liberty concerns I could never see the CBSA ever doing this, which makes the end user certificate even more pointless since a large portion of it is unenforceable.

These are four very real issues for Canadian businesses and Canadian consumers, making the iPod tax far from a manufactured controversy.

* At a recent House of Commons Standing Committee on Finance meeting, a number of Conservative MPs objected to my characterization of the GPT changes affecting “thousands and thousands” of products, when the changes only apply to roughly 1290 tariff classifications. The confusion stems from the fact that the one tariff classification often applies to multiple types of products. For example one of the affected tariff classification affected by the 3922.10.00 covers “[b]aths, shower-baths, sinks and wash-basins”. As such, the GPT changes applies to far more than 1290 products. Given the complexity of the Customs Tariff, it is unsurprising there is confusion on the number of products affected by the changes.