Executive summary

On 21 August 2026, United States (US) Customs and Border Protection (CBP) issued Cargo Systems Messaging Service (CSMS) #69606660, providing guidance to importers, brokers and filers on implementing the additional 50% Section 338 duties on certain Canada-origin goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern time (ET) on 22 August 2026.

The duties, imposed by Proclamations 11046, 11047, and 11048 and originally effective 19 August 2026, were temporarily suspended by Proclamation 11056 until 12:01 a.m. ET on 22 August 2026 to allow continued US-Canada negotiations. After those negotiations were suspended, the duties took effect as scheduled on 22 August 2026.

The guidance establishes Harmonized Tariff Schedule of the United States (HTSUS) headings 9903.03.12 through 9903.03.16 and addresses duty rates, interaction with other duties, Chapter 98 treatment, foreign trade zone (FTZ) admission, drawback eligibility and the order of HTSUS reporting on entry summaries.

Canada has announced its intent to impose dollar-for-dollar counter-tariffs on certain US-origin goods, expected to take effect on 8 September 2026.

Background

On 20 July 2026, US President Donald Trump signed three proclamations imposing an additional 50% ad valorem tariff on certain Canada-origin goods, invoking Section 338 of the Tariff Act of 1930 (19 U.S.C. 1338) in response to Canadian measures affecting US alcoholic beverages, dairy and motor vehicles. Section 338 authorizes the US President to declare additional duties of up to 50% ad valorem on imports from a foreign country upon a finding that the country discriminates against US commerce or applies an unreasonable charge, exaction, regulation or limitation that is not equally enforced on the like articles of every foreign country.

The additional duties were originally scheduled to take effect at 12:01 a.m. ET on 19 August 2026. On 18 August 2026, the Executive Office of the President issued Proclamation 11056, temporarily suspending the duties until 12:01 a.m. ET on 22 August 2026 while negotiators from both countries worked toward an agreement. Late on 21 August 2026, Canada suspended the negotiations, and because the suspension was expressly tied to a finalized deal, the Section 338 additional duties took effect as scheduled on 22 August 2026.

For more on Section 338 measures, see EY Global Tax Alert, US imposes additional 50% tariff on certain Canadian imports under Section 338, dated 21 July 2026.

Following the breakdown in negotiations, Canada announced that it will impose dollar-for-dollar counter-tariffs on certain US-origin goods, expected to take effect on 8 September 2026. Though the final scope has not been released, the announced target sectors include steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics.

CBP guidance (CSMS #69606660)

US CBP guidance instructs importers, brokers and filers on filing entries for covered imports from Canada under Harmonized Tariff Schedule of the United States (HTSUS) headings 9903.03.12 through 9903.03.16. The Chapter 1 to 97 HTSUS classifications corresponding to each Chapter 99 heading are set out in the Section 338 Canada HTS List (Final) and in 91 FR 46639, 91 FR 46653 and 91 FR 46663.

The following additional rates apply effective for certain goods entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. ET on 22 August 2026:

* Note 51 to Subchapter III of Chapter 99 of the HTSUS was added by the July 2026 presidential proclamations implementing the Section 338 duties on certain Canadian-origin products.

Products classified under headings 9903.03.12 through 9903.03.16 remain subject to any antidumping, countervailing or other duties, taxes, fees, exactions and charges that otherwise apply, in addition to the Section 338 rate. Products qualified under the United States-Mexico-Canada Agreement (USMCA) remain subject to the additional duty under these measures.

The additional duty does not apply to goods for which entry is properly claimed under a Chapter 98 provision, pursuant to applicable CBP regulations and if CBP agrees such entry is appropriate. This relief does not extend to goods entered under subchapter XXIII of Chapter 98 or under subheadings 9802.00.40, 9802.00.50, 9802.00.60 and 9802.00.80. For subheadings 9802.00.40, 9802.00.50 and 9802.00.60, the additional duty applies to the value of the repairs, alterations or processing performed. For heading 9802.00.80, the additional duty applies to the value of the article assembled abroad, less the cost or value of the US products.

Foreign Trade Zones and drawback

Any covered product admitted into a US FTZ must be admitted as "privileged foreign status" under 19 C.F.R. 146.41, unless eligible for admission under "domestic status" as defined in 19 C.F.R. 146.43. Upon entry for consumption, such products will be subject to the ad valorem rate of duty related to the classification under the applicable HTSUS subheading. The additional Section 338 duty is eligible for drawback.

HTSUS reporting sequence

When an entry summary claims a heading or subheading in Chapter 98 and/or 99, the HTSUS should be reported on the entry summary line in the following order:

1. Chapter 98 (if applicable)
2. Chapter 99 number(s) for additional duties (if applicable)
3. For trade remedies, first Section 301, followed by Section 122, Section 232, Section 201 duties (if applicable) and Section 201 quota (if applicable)
4. Chapter 99 number(s) for replacement duty or other use (e.g., Miscellaneous Tariff Bill or other provisions)
5. Chapter 99 number for other quota not covered above (if applicable)
6. Chapter 1 to 97 commodity tariff

The entered value of the imported product should be reported on the Chapter 1 to 97 HTSUS classification, unless Chapter 98 reporting provisions require the entered value to be reported differently.

Actions to consider

Businesses affected by these changes should, depending on their particular circumstances, consider the following:

• Identify exposure by mapping HTSUS classifications of Canada-origin imports against the finalized CBP list and headings 9903.03.12 through 9903.03.14 to quantify the 50% duty impact effective 22 August 2026.
• Confirm entry filing accuracy, including the correct order of Chapter 98 and Chapter 99 reporting and the interaction of the Section 338 rate with any applicable antidumping, countervailing, and other trade remedy duties.
• Evaluate Chapter 98, FTZ and drawback positions to preserve available duty relief and recovery opportunities for covered merchandise.
• Model pricing, contract and customs valuation impacts, including Incoterms allocation, related-party pricing and first-sale eligibility.
• Monitor Canada's counter-tariffs expected on 8 September 2026 and any further CBP guidance, Federal Register notices, or presidential action modifying the Section 338 measures.