Originally published in Blakes Bulletin on International Trade, June 2007
The Canadian International Trade Tribunal (CITT) recently issued two decisions both dealing with whether used recreational vehicles imported into Canada qualify for duty-free treatment pursuant to the North American Free Trade Agreement (NAFTA). The CITT denied preferential tariff treatment in each of these cases and, in doing so, has created uncertainty where none existed before.
Importers with Certificate of Origin Denied NAFTA Treatment
The cases in question are Duhamel & Dewar Inc. (AP-2005- 046) and Western RV Coach Inc. (AP-2006-002). In both cases, the importer had the requisite NAFTA Certificate of Origin (CO) in its possession at the time of importation of the recreational vehicle, but NAFTA treatment was denied by the Canada Border Services Agency (CBSA), leading to a liability for customs duties imposed on the importer.
In Duhamel & Dewar Inc. (D&D), the importer purchased a used 2000 Monaco Signature motor home from a company called Buddy Gregg Motor Homes Inc. (Buddy Gregg) in Knoxville, Tennessee. Buddy Gregg initially provided a completed and executed CO to the importer, but after the CBSA commenced a NAFTA verification audit and requested further details from Buddy Gregg to support its CO, Buddy Gregg responded by withdrawing the CO. The producer of the recreational vehicle in question, Monaco Coach Corporation (Monaco), did provide its own CO for the vehicle, which was rejected by the CBSA. As a result, duty-free treatment was denied and the importer was required to pay customs duties on the imported vehicle at the "Most-Favoured Nation" rate of duty of 6.1%. The CITT upheld the CBSA’s actions and dismissed the importer’s appeal.
In Western RV Coach Inc. (Western RV), the importer purchased a used 1995 Royale Coach motor home from a company called Marathon Coach Inc. (Marathon) in Florida. Marathon provided a completed and executed CO to the importer. The CBSA commenced a NAFTA verification and requested further support for its CO from Marathon. In response, Marathon provided a copy of a "certificate of origin for a vehicle" issued by the manufacturer, Monaco, to the original purchaser of the recreational vehicle at issue. This was not acceptable to the CBSA which asked for additional documentation to support the NAFTA origin claim. Monaco, the manufacturer, indicated it could not provide further documentation as the supporting documentation was no longer available since the year of production was some eight or nine years earlier. As a result, the CBSA denied duty-free treatment and the importer was also required to pay customs duties on the imported vehicle at "Most-Favoured Nation" rates of duty. The CITT upheld the CBSA’s actions and dismissed the importer’s appeal.
Conditions For Making NAFTA Claims
Pursuant to the NAFTA, all goods imported into Canada that qualify as "originating goods" are eligible for importation free of any customs duties. The NAFTA provisions, incorporated into Canadian law largely pursuant to the Customs Act, Customs Tariff, as well as a number of regulations, provide detailed rules of origin for the determination of when any imported goods qualify as "originating goods" for these purposes. The NAFTA also specifies rules regarding the "proof of origin" that must be available or be supplied by the importer who claims the benefits of the NAFTA upon importation of any goods from another NAFTA party.
Pursuant to subsection 24(1) of the Customs Tariff, goods are entitled to a preferential tariff treatment only if: a) proof of origin of the goods is given in accordance with the Customs Act; and b) the goods are entitled to that tariff treatment in accordance with regulations.
For purposes of satisfying the proof of origin requirement set out in paragraph 24(1) of the Customs Tariff, an importer must refer to subsection 35.1(1) of the Customs Act, which provides among other things that "proof of origin, in the prescribed form containing the prescribed information ... shall be furnished in respect of all goods that are imported". The Proof of Origin of Imported Goods Regulations must next be considered. Pursuant to subsection 6(1) of the Regulations, "where the benefit of preferential tariff treatment under NAFTA ... is claimed for goods, the importer or owner of the goods shall, for the purposes of section 35.1 of the Act, furnish to an officer, as proof of origin, at the times set out in section 13, a Certificate of Origin for the goods, completed in English, French or Spanish". Section 13 provides that the CO must be furnished, among other times, "at any time when requested by an officer."
For purposes of satisfying the requirement in paragraph 24(1)(b) of the Customs Tariff that the goods are entitled to the NAFTA preferential tariff treatment claimed by the importer, the importer must refer to the NAFTA Rules of Origin Regulations (NAFTA Regulations). The NAFTA Regulations specify the various ways in which particular goods may qualify as "originating goods" for NAFTA origin purposes. The NAFTA Regulations set out four principal rules ranging from goods that are "wholly obtained" within a NAFTA country, to goods produced in a NAFTA country of imported materials, so long as the imported materials meet certain other requirements, such as shifts in tariff classification or a minimum regional value content test.
CITT Veers Off Course of Existing Jurisprudence
The CITT came to the correct result in both the D&D and Western RV cases. However, it appears that the CITT skidded out of control when applying the legislative tests for determining qualification for NAFTA origin claims.
In this connection, the CITT previously had before it similar facts in Buffalo Inc. (Buffalo) (AP-2002-023). In Buffalo, the Tribunal was asked to consider whether certain imported laces were entitled to NAFTA treatment. The CBSA had rejected the importer’s NAFTA treatment claim on the basis that (1) the importer had not provided proper proof of origin and (2) the goods did not qualify for NAFTA treatment. The CBSA appeared to base its conclusion on the fact that the CO was not entirely consistent with the facts and certain other supporting information provided by the exporter and producer of the goods at issue.
The Tribunal rejected the CBSA’s position and held that a valid CO was provided by the importer. Therefore, the Tribunal turned to the second issue before it, namely, whether the goods in issue were entitled to preferential NAFTA treatment. In this connection, the Tribunal once again disagreed with the CBSA’s position and held that there was ample evidence before the CBSA to support the NAFTA treatment claim.
In contrast, in D&D, a CO was initially provided by the exporter of the goods, but was later withdrawn. The original producer of the goods subsequently provided a CO. However, the CBSA argued that this was not sufficient because, among other things, a CO can only be supplied by the "exporter" and not the "producer" of the goods. In support of this position, the CBSA relied on section 97.1 of the Customs Act. However, section 97.1 deals with the obligations of an exporter within Canada and not with the obligations of an exporter of goods to Canada. The CITT was careful to note in D&D that the CBSA’s "decision ... says nothing of the validity of the certificate of origin per se. It makes no reference to whether a certificate of origin from the producer was acceptable or not in the circumstances under examination".
Thus, the Tribunal left open the issue of whether a CO provided by the producer rather than the exporter could be acceptable "proof of origin" for purposes of the Customs Tariff and Customs Act. The Tribunal went on to consider whether there was sufficient evidence to support a NAFTA claim. In this connection, the Tribunal considered the lack of detailed evidence and instead made specific reference to a letter from Monaco to the CBSA in which Monaco noted that the vehicle at issue was made in the same facility as other vehicles that were considered to qualify for NAFTA treatment. However, the subject vehicle was manufactured in 1999 while the NAFTA qualifying vehicles were manufactured in 2002. The Tribunal correctly – in the writers’ opinion – decided that there was not sufficient evidence to support the NAFTA claim. What is not clear from the D&D decision is whether the Tribunal based its decision on the failure by the importer to satisfy paragraph 24(1)(a) of the Customs Tariff (i.e., the proof of origin requirement), paragraph 24(1)(b) of the Customs Tariff (i.e., proof that the good qualified for preferential treatment), or both.
In Western RV, a CO was provided by the exporter. However, once again the CBSA rejected the CO and the NAFTA treatment claim. The Tribunal appeared to follow its previous decision in D&D in dismissing the importer’s appeal: "The Tribunal finds the above case [D&D] to be consistent with the present appeal on this point."
In Western RV, the Tribunal set out the "four things" that the importer was required to prove in order for the vehicle in issue to qualify for NAFTA treatment. The first of the four things was as follows: (1) that the imported good, including its component parts and traced materials, met the statutory proof-of-origin requirement, i.e., that a certificate of origin accompanied by the statements required by the regulations was tendered for the vehicle.
The Tribunal noted that "since the  tests are cumulative, failure to meet any one of the four requirements will result in the failure of the appeal on the first issue". Following its analysis of the evidence and argument, the Tribunal stated that "the good in issue did not meet the statutory proof-of-origin requirement for preferential tariff treatment. Therefore, the Tribunal determines that the good in issue is not entitled to preferential tariff treatment."
The Tribunal’s decision in Western RV appears to be inconsistent with its previous decision in Buffalo or, in the alternative, appears to read into the legislation an additional requirement for the satisfaction of the proof-of-origin requirement. It is arguable that the "proof of origin" requirement is satisfied upon presentation by the importer of a CO completed and signed by the exporter (or possibly, by the producer). However, since it appears that the CO was indeed tendered by the importer in Western RV, the Tribunal’s decision makes unclear what more, in addition to the CO, the importer must do in order to satisfy its "proof of origin" requirement. It is hoped that the Tribunal will clarify its position in subsequent decisions on NAFTA origin claims.
NAFTA Certificate Does Not Immunize Importers From Duty Assessments
Regardless of the criticisms of the manner in which the Tribunal set out its reasons for decision in D&D and Western RV, the message from the two decisions is clear: the existence of a CO does not protect an importer from duty assessments where the CO is not ultimately supported by additional documentation from the exporter and/or producer of the goods. Also, in the case of "used goods", information provided by the exporter is arguably of greater evidentiary weight than from the producer, since the producer’s information will not include evidence of any alterations or repairs made to the vehicle following initial production and sale. Based on the decisions in D&D and Western RV, an importer buying a used good from an exporter who offers a CO should, to the extent possible, obtain as much information as possible from the exporter concerning alterations or repairs to the vehicle from the date of original manufacture to the date of sale.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.