Canada has entered into free trade agreements (and has active
free trade agreements) with a number of countries, including the
United States, Mexico, Israel, Chile, Jordan, Iceland, Norway,
Sweden, Lichtenstein, Peru, Colombia, Panama, Honduras, Costa Rica
and South Korea. Under these free trade agreements, the duties on
certain goods have reduced to 0%. Importers claim the preferential
tariff treatment and pay no duties (or reduced duties where
applicable). As a result, "free trade" is often equated
with tariff elimination or tariff reductions.
Confusion arises when the Canada Border Services Agency
("CBSA") contacts importers of goods from FTA countries
and asks to verify origin in order to support the duty free
treatment. Often, the importer does not have the necessary
information to respond to the CBSA and the duty free treatment is
denied for past imports and future imports.
We are often contacted at the start of the verification process
and are able to assist with the organization of the documents. When
we are contacted after the detailed adjustment statement is issued
changing the origin and imposing the MFN (most-favoured-nation)
rate of duty, it is a more complicated process to resolve the
The seven most common mistakes that are made are:
Importers think duty free
treatment means that the transactions will not be
scrutinized: Nothing could be further from the truth. The
CBSA likes to verify that importers who claim duty free treatment
are properly claiming duty free treatment. The CBSA verifies that
the applicable rule of origin has been satisfied. Duty free does
not mean free pass. The CBSA would like to collect customs duties
on all imports. It is only when there is a rule for duty relief
that the CBSA does not charge customs duties.
Importers do not obtain
certificates of origin from the exporter/manufacturer: An
importer of record must have a duly completed certificate of origin
from the exporter prior to importing goods under a preferential
tariff treatment. If the importer does not have the certificate of
origin, the duty free treatment can be denied.
Importers do not ask
sufficient questions to determine if the exporter is the
manufacturer of the goods: If the exporter is not the
manufacturer, the exporter will have to get information from the
manufacturer to determine if the goods satisfy a rule of origin. If
the information is not obtained up-front, the exporter may not
provide information about their suppliers. The exporter does not
want the Canadian importer to buy directly from their supplier and
cut them out.
Importers assume that if the
exporter is in the United States (or another free trade country),
the goods are entitled to duty free treatment: This is not
correct. There are specific rules in the applicable free trade
agreements on an H.S. Code basis – there are a lot of rules.
The rules of origin are sometimes very technical.
Importers do not realize that
in order to determined origin, they may have to know every input
into the good and the origin of every input. Many rules of
origin are not simple. It is often necessary to obtain a bill of
materials and then determine if any of the goods are not
originating. For each non-originating good, it is necessary to
determine if that good goes through the proper tariff shift and
regional value content transformation. This can take time and it is
often very difficult for importers to track down all the
The proof is in the
paperwork: If you do not have or cannot provide all the
proper paperwork, then duty free treatment will be denied for past
transactions under verification and will not be allowed in the
future. Usually an assessment is used for the past transactions and
can go back many years (even beyond the 4 year limitation period).
The amount of money can add up depending on what is the applicable
MFN rate of duty.
Importers assume it is the
exporter's responsibility: This is not correct. For
most free trade agreements, the obligation to report the accurate
origin of goods is on the importer of record.
Importers must rely on
exporters for accurate information about the origin of the goods
and the inputs of the goods and sometimes the exporter is
wrong: It is better to take control over customs
compliance rather than relying on others.
While that agreement mandated export measures on Canadian softwood lumber exports destined for the United States, it also protected those lumber exports from the potential imposition of onerous import measures by the U.S.
On September 29, 2016, the Supreme Court of Canada issued its first tariff classification decision since Canada signed the International Convention on the Harmonized Commodity Description and Coding System in 1998.
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