The What the Heck of the Trump Administration Canadian Tariffs for business aviation

opinion

by Alasdair Whyte

March 13, 2025

Opinion piece from Paul Jebely, partner and vice chair, international, Sterlington Law – 13th March, 2025

“There’s something happening here,
but what it is ain’t exactly clear.”

– Buffalo Springfield, “For What It’s Worth” (1966)

One can be forgiven for losing track of the volley and folly of the present trade war between the United States and Canada. Still, these developments have created significant uncertainty and complexity for the private aviation industry in the US market in particular, especially for transactions involving Canadian-manufactured aircraft, engines or parts, as well as aircraft imported from or exported to Canada. This client alert is current as of Sunday March 9th,2025, which is critical to note in light of the fact that the situation is fluid – and fluid tends to flow downhill.

The complexities of the present situation for market participants are further compounded by the need to navigate USMCA compliance and the potential impact of reciprocal tariffs. The impact of tariffs on all manner of commercial contracts in the private aviation industry can be profound, affecting pricing, risk allocation, and contract performance. In this client alert, we will highlight some of the key Whipsawing Trade Frameworks (WTFs) and issues that private aviation industry participants should be aware of at this time.

The Current Situation

The Trump Administration recently imposed a 25% tariff on certain Canadian products, which for the moment does include both aircraft and aircraft engines, due to a political and trade dispute – the coherent articulation of which is beyond the scope of this client alert, thankfully. This tariff was temporarily paused in February 2025 until March 4th, 2025. This pause was further extended until April 2nd, 2025, but only for USMCA-compliant goods. Since this is an unfolding situation, there are no guarantees that this pause will be further extended in April. Additionally, there is a possibility of reciprocal tariffs on other products from Canada and other countries with different tariff rates than the US. Reciprocal tariffs are designed to level the playing field by imposing equivalent tariffs on imports from countries that have higher tariffs on US goods. This approach aims to encourage fair trade practices and reduce trade imbalances. The potential for these tariffs has created a significant amount of uncertainty in many markets, including private aviation, as stakeholders are unsure how long the pauses will last and what the nature and extent of its long-term implications will be.

USMCA Certification: A Temporary Lifeline Amidst Tariff Uncertainty

One of the main challenges for importing Canadian aircraft or aircraft engines into the US is to obtain a certification that the goods qualify for duty-free treatment under the US-Mexico-Canada Agreement (USMCA). The USMCA is a free trade agreement that allows for preferential tariff treatment for goods that originate in the US, Canada, or Mexico, or that undergo a substantial transformation or a tariff shift in one of these countries. This certification process is crucial as it is currently the only way to avoid the 25% tariff on Canadian aircraft or aircraft engines, given that the tariff suspension is contingent on the goods being eligible for USMCA treatment.

However, the aviation industry has not historically relied on the USMCA to claim duty-free treatment, as most aircraft and aircraft engines were already duty-free under the World Trade Organization Agreement on Trade in Civil Aircraft. Therefore, the industry does not have a well-established process or documentation to certify the origin of the goods under the USMCA. This lack of established processes has led to significant confusion and delays, as stakeholders scramble to understand and comply with the new requirements.

The USMCA certification can be made by the manufacturer, the exporter, or the importer, based on sufficient knowledge or information that the goods meet the origin criteria. The certification must include certain data elements, such as the description, tariff classification, and origin criteria of the goods, and must be provided to the US Customs and Border Protection (CBP) upon request. The certification does not have to follow a prescribed format, but it must be in writing, either in paper or electronic form. This flexibility in format, however, does not reduce the complexity of gathering the necessary information and ensuring its accuracy.

As mentioned above, the USMCA certification is currently the only way to avoid the 25% tariff on Canadian aircraft or aircraft engines. Therefore, it is crucial to obtain the certification from the manufacturer or the seller, or to have sufficient evidence to make the certification yourself, before importing the goods into the US. Otherwise, you may face significant delays, costs, and risks at the port of entry. Additionally, the certification process may require coordination with multiple parties, including manufacturers, exporters, and customs brokers, to ensure compliance and avoid potential penalties.

The USMCA certification may also be required in the future, depending on whether the tariff suspension is extended or lifted, and whether the US imposes reciprocal tariffs on other products. Therefore, it is advisable to prepare for this scenario and to review your existing and future contracts to ensure that they address the USMCA certification issue. This preparation should include updating force majeure clauses, material adverse change provisions, and other relevant contract terms to account for the potential impact of tariffs and certification requirements.

Other Issues and Considerations

In addition to the USMCA certification, there are other issues and considerations that you should be aware of when dealing with transactions involving Canadian aircraft or aircraft parts, or aircraft imported from or exported to Canada. These issues include understanding the nuances of the tariff application, the impact on supply chains, and the potential for future regulatory changes. Some of these are:

The 25% tariff applies not only to new aircraft, but also to used aircraft, regardless of where they are coming from or going to, except of course if the aircraft in question is already physically in the US and therefore no further import is necessary. The tariff is based on the country of manufacture, not the country of origin or destination. Therefore, if you are buying or selling a used Canadian aircraft, you should factor in the tariff impact and the USMCA certification requirement in your transaction. This distinction is crucial, as it means that even aircraft that have been previously imported and exported may still be subject to the tariff upon re-entry into the US.

Registration and importation are separate and distinct issues. You may wish to register your Canadian-manufactured aircraft on the Federal Aviation Administration (FAA) N-registry for use outside the US, and you may certainly do so without worrying about the 25% tariff. Alternatively, you may wish to register your Canadian-manufactured aircraft on a non-US registry (e.g. San Marino) but for import and use inside the US, in which case the non-US registration will not, in and of itself, protect you against the 25% tariff. It is importation and not registration that triggers the tariff.

The 25% tariff also applies to aircraft parts, which may have different origin criteria and value calculations than aircraft or aircraft engines. The tariff impact and the USMCA certification requirement for aircraft parts may vary depending on the type, source, and destination of the parts, and the nature and purpose of the import or export. Therefore, you should carefully review the tariff schedule and the USMCA rules of origin for aircraft parts, and consult with a customs broker or an attorney to determine the best course of action for your situation. This review should include an analysis of the regional value content and tariff shift rules to ensure compliance and avoid unexpected costs. It is also worth noting that if there are any spare parts or other cargo manufactured in Canada that are loaded on your aircraft during the import flight, you should go through a separate analysis with a customs broker or an attorney for these items as well.

The 25% tariff does not apply to services, such as maintenance, repair, overhaul, or pilot training, that are performed in Canada or by Canadian providers. However, if you are importing or exporting aircraft or aircraft parts for these purposes, you may still need to make a formal entry with the CBP, and you may need to obtain a bond, pay a merchandise processing fee, and comply with other customs requirements. You may also need to use a temporary importation bond (TIB) or a duty drawback program to avoid or recover the tariff, if applicable. Therefore, you should plan ahead and coordinate with your service provider and your customs broker or attorney to ensure a smooth and compliant process. Additionally, it is important to understand the limitations and conditions of TIBs, such as the requirement that the goods must be exported within a year and cannot be sold while in the US.

The 25% tariff may have an impact on the valuation, financing, and closing of transactions involving Canadian aircraft or aircraft parts, or aircraft imported from or exported to Canada. The tariff may affect the agreed price, the allocation of risk and responsibility, the availability and cost of credit, the timing and location of delivery, and the documentation and record keeping of the transaction. Therefore, you should review and revise your contracts, leases, loans, trusts, and other documents to address these issues, and to include appropriate clauses, such as force majeure, material adverse change, indemnification, and dispute resolution, to protect your interests and rights. It is also advisable to engage with financial institutions and legal advisors early in the transaction process to navigate these complexities effectively.

Conclusion: Flying Through the Storm

In conclusion: What the Heck, indeed. The 25% tariff on Canadian products, including aircraft and aircraft engines, and the potential reciprocal tariffs on other products, have created significant uncertainty and complexity for the private aviation industry, especially in the US market. The USMCA certification is a temporary lifeline to avoid the tariff, but it requires careful preparation and documentation. There are also other issues and considerations that you should be aware of if you are involved in transactions involving Canadian aircraft or aircraft parts, or aircraft imported from Canada. We recommend that you consult with a customs broker and an attorney to determine the best course of action for your situation, and to ensure compliance with the applicable laws and regulations. Additionally, staying informed about potential changes in tariff policies and preparing for various scenarios will be crucial in navigating this complex and constantly changing landscape. This is perhaps the best advice to offer industry participants at this moment, and it is free of charge and tariffs.

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