Government emails reveal internal dispute over regulation of iPod imports

Updated: Monday, January 20, 5:54 PM with comment from CBSA; and at 8:05 PM with comment from the finance minister’s spokesperson.

Officials at the Canada Border Services Agency strongly disagreed with the Office of the Minister of Finance on whether MP3 players such as iPods would be subject to new import duties, according to documents obtained by Mike Moffatt, an assistant professor at the Richard Ivey School of Business and Canadian Business columnist. One CBSA employee even wrote in an email that Finance’s interpretation of the rules would be “perpetuating a fraud.”

Last April, Moffatt wrote that changes in the 2013 federal budget would subject MP3 players manufactured abroad to tariff charges, which became known as the “iPod tax.” A spokesperson for Finance Minister Jim Flaherty contested Moffatt’s interpretation and claimed it wasn’t true, stating that music devices are exempted from tariffs under a provision known as 9948.00.00. A statement from the CBSA, which is responsible for enforcing tariffs, appeared to back up Finance last year.

But documents obtained by Moffatt through an access to information request show dissent within the CBSA. After the initial article was published, one official wrote in an email that Moffatt “is quite bang-on in his interpretation,” while another called his analysis “practically flawless.”

The Director General of the Trade Programs Directorate at the CBSA emailed a Finance Canada official to clarify that some iPods and other MP3 players have been imported under the duty-free provisions, “albeit incorrectly.” She also wrote it is “really unlikely” that all iPods are imported duty-free under 9948. “If someone from your department is actually making that statement, you might want to correct that misinterpretation,” the CBSA official wrote.

When asked for comment on the content of these messages between the agency and the ministry, a CBSA spokesperson said, in an emailed statement: “Email exchanges are not considered official statements of the CBSA.”

As media interest in the “iPod tax” grew last April, a CBSA communications rep drafted a response and emailed it to colleagues. “It’s important to clarify that iPods do not qualify for the provisions of tariff item (TI) 9948.00.00,” it read. The statement clarified that in order to qualify for the exemption, products need to be used “in computers and enhance the functions of the computer.” The buyer also has to certify the product is being used this way through an end-use certificate. In a separate email, a manager of litigation at the CBSA wrote that “suggesting end use certificates is perpetuating a fraud because the vast majority of folks don’t use them with computers.”

In response to questions from Canadian Business, a spokesperson from Flaherty’s office characterized the CBSA emails as “internal deliberations.”

“At CBSA’s request we sent them clarification that it was never the intention to have the obligation of end use certificates fall to consumers,” according to Marie Prentice, Flaherty’s press secretary. Indeed, last June, the CBSA announced the elimination of end-use certificates entirely for goods imported under 9948.

The CBSA draft statement does not appear to have been issued publicly. When the CBSA did comment last April, it stated: “Importers of MP3 players continue to be eligible to apply for tariff relief under Tariff Item 9948.00.00.”

The CBSA would not comment on the discrepancy between the draft and published statements. “It is important to note that drafts are not final documents,” the spokesperson’s statement read. “We only ever comment on final, approved documents.”