Canadian Business Faces Unexpected Tariffs After Reshoring Production from China

A Canadian business owner has encountered significant financial challenges after relocating her manufacturing operations from China back to Canada. Sara Feldstein, the founder of Barumba Play, which manufactures modular couches designed for children’s play, has been confronted with unexpected import tariffs due to a reclassification of one of her product components by the Canada Border Services Agency (CBSA).

Barumba Play’s product, a child-friendly couch that can be easily disassembled and reconfigured, was initially produced entirely in China. Under its original classification, the entire product, including its components, was imported into Canada free of tariffs because it was categorized as a children’s toy. This tariff exemption significantly reduced costs and simplified the import process.

In 2023, Feldstein made a strategic decision to shift production to Markham, Ontario, with the intention of supporting local manufacturing and potentially benefiting from quicker logistics and reduced shipping costs. While this move successfully brought the assembly of the main parts of the couches to Canada, the cloth slipcovers continued to be produced in China due to specific manufacturing capabilities not available locally.

The transition seemed smooth until the summer of 2023, when Feldstein received notification from the CBSA. The agency informed her that the cloth slipcovers, previously classified under the toy category, were now considered general textiles, aligning them with products such as carpets, bed linens, and table linens. This reclassification subjected the slipcovers to an 18 percent import duty, a stark change from their previous duty-free status.

The decision by the CBSA was unexpected and contradicted the advice Feldstein had been given by business advisors and industry specialists, who had assured her that the slipcovers would maintain their classification as part of a children’s toy. The reclassification has led to a significant financial burden for Barumba Play, with at least $47,000 owed in retroactive tariffs. Depending on the duration and outcome of the appeals process, the costs could escalate to as much as $70,000.

The CBSA, while declining to comment specifically on Feldstein’s case citing privacy and policy reasons, explained that their tariff assessments are based on the presentation of goods at the border. They also clarified that any changes in the details of what is being imported could trigger a reevaluation of tariff classifications. Importers disagreeing with a tariff decision have the right to appeal, but they must first pay all assessed duties and interest.

Feldstein’s situation underscores the complexities and potential pitfalls of international trade and manufacturing strategies. It highlights how changes in production location and component sourcing can unexpectedly affect business operations through shifts in regulatory classifications. The financial impact on Barumba Play also illustrates the broader implications for businesses considering similar shifts in their manufacturing strategies, emphasizing the need for thorough planning and understanding of international trade regulations.

As Feldstein navigates the appeals process, the financial strain on her business serves as a cautionary tale for other entrepreneurs who might be considering reshoring or nearshoring their production processes. The case also raises questions about the consistency and predictability of tariff classifications and the challenges businesses face when there are changes in manufacturing strategies or component sourcing.