Canada: IREP Disputes Must Be Handled With Care

Last Updated: June 10 2016
Article by Cyndee Todgham Cherniak

From time to time, importers who import dairy products (e.g., cheese, milk, butter) pursuant to the Import For Re-Export Program (IREP) may have a dispute with the Department of Global Affairs Canada (formerly DFATD and DFAIT) or the Canada Border Services Agency. Pursuant to the IREP Program, Canadian processors may obtain approval from Global Affairs Canada under the Export and Import Permits Act to import dairy products for processing or repackaging to manufacture dairy or food products for re-export. For example, cheese can be imported in order to be further manufactured into frozen pizzas to be exported. The dairy products imported under IREP are not subject to the prohibitively high customs tariffs charged at the over-access tariff rate. Instead, the dairy products are imported at the applicable "within access" duty rates.

Under the IREP Program, importers are accepted into the program by Global Affairs Canada. After acceptance into the IREP Program, importers receive import permits for each shipment of dairy products so that duty relief occurs at the border at the time of customs clearance.

The most common dispute is that Global Affairs Canada may cancel an import permit after an inspection/ verification. For example, Global Affairs determines that imported dairy products were diverted for sale in Canada or that procedures do not properly account for wastage. When this occurs, Global Affiars Canada cancels an import permit and, subsequently, the CBSA charges over-access duty rates and issues a detailed adjustment statement ("DAS") to the importer. Usually the over-access duty rates are over 200% and the DAS is for a significant amount of money.

If the importer disagrees with the decision by Global Affairs Canada to cancel the import permit, the importer must file a judicial review with the Federal Court of Canada. If the importer does not file a judicial review application, it may not be able to challenge the decision of the CBSA to impose duties. The recent Volpak decision (AP-2012-009) of the Canadian International Trade Tribunal ("CITT") highlights the view of the CITT that their jurisdiction is limited. The CITT clearly stated in their decision:

Decisions made by DFATD regarding the issuance and cancellation of IREP permits are not within the Tribunal's jurisdiction and are therefore outside the scope of this appeal.

The CITT went on to state:

While the Tribunal acknowledges that the relevant period to be examined for the classification of goods is the time of importation, the Tribunal also recognizes that the IREP is a unique program that is designed to administer the flow of certain goods not only into Canada but also back to the United States over a set period of time. The IREP is a process, and the program, together with any permit issued under its auspices, governs not only the moment of importation but also the entire process of importing, processing and re-exporting.

By cancelling Volpak's initial permit, DFAIT essentially determined that the goods in issue were no longer part of the process and, therefore, no longer qualified as "within access commitment" for the purposes of the IREP. That being the case, the CBSA had no option, by virtue of the conditions set out in subsection 10(2) of the Customs Tariff, but to re-classify the goods in issue as outside the IREP and, thus, to designate them as "over access commitment".

This conclusion is reinforced by the CBSA's role within the bifurcated IREP system. The CBSA has no power to issue permits under the IREP, nor does subsection 10(2) of the Customs Tariff grant the CBSA the power to investigate DFATD's rationale with respect to granting or cancelling permits. The provisions of EIPA clearly grant DFATD sole authority to issue, amend or cancel permits under the IREP. To allow the CBSA to effectively ignore DFATD's decision to cancel a permit would compromise the statutory framework that Parliament created...

The CITT has clearly signaled that certain matters relating to the cancellation of import permits must go to the Federal Court by way of judicial review.

This means that importers must fight two battles (one at the Federal Court and one at the CITT) when an IREP import permit is cancelled and results in a customs duties assessment. It is important to preserve one's legal right by filing the application for judicial review within 30 days of the cancellation of the import permit. It is also very important to preserve one's legal rights by filing a request for re-determination with the CBSA with respect to the DAS for the tariff classification in the over-access HS Code and assessment of duties and taxes within the 90 day limitation period.

These cases are often very complicated and the affected importers require legal assistance in framing the correct issues for the appropriate decision maker.

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.

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