Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Alcohol And Tobacco: Two Things The Cause CBSA Officers To Not Apply Common Sense

Posted in Customs Law, NEXUS

Customs StopI receive many calls from clients who have disputes with the Canada Border Services Agency (“CBSA”) at the Canadian border.  Some of the most amazing stories relate to seizures of alcohol (beer, wine, liquor) and tobacco (usually cigarettes).  In most of the cases, I wonder aloud why the CBSA Officer could not use common sense and discretion.  Why seize the alcohol and tobacco with no terms of release (which is the common enforcement action taken as far as the stories I hear)?  As a Canadian taxpayer, I would prefer that the CBSA collect duties and taxes and permit the person to take the alcohol and/or tobacco home.  It makes no sense to me to seize the alcohol and tobacco and put it in storage for destruction.  How does that benefit the public bank account?

In many of the cases involving alcohol and/or tobacco, the CBSA Officer does not take a common sense approach and seizes the alcohol/tobacco and NEXUS Cards.  For example:

  1. A person properly reported on his E311 Declaration Card (form completed on the airplane) that he made a purchase of $23.00 and he checked the box that he was within his exemption limited because he read the form and believed his answer was correct.  The CBSA Officer seized the bottle of alcohol because he was outside Canada for less than 48 hours and the exemption did not apply.  The CBSA Officer also confiscated his NEXUS Card.
  2. A person properly reported on his E311 Declaration Card (form completed on the airplane) that he made a purchase of $85.00 and he checked the box that he was within his exemption limited because miscalculated the number of hours he was away.  He counted the number of travel hours starting with his first domestic flight within Canada to Toronto Pearson Airport to travel to the United States.  He was actually away for just less than 48 hours. The CBSA Officer seized the alcohol on the basis that the exemption did not apply.  The CBSA Officer also confiscated his NEXUS Card.
  3. A person purchased a bottle of alcohol at the Toronto Pearson airport duty free store in Canada before he traveled to the United States.  The person had intended to give the bottle as a gift to  friend.  However, he did not meet with the friend (while traveling on business) and brought the bottle of alcohol back to Canada.  He reported the value of the alcohol on his E311 Declaration Card and indicated he was within his exemption limits.  He did not count the alcohol for the purposes of the exemption because it was purchased in Canada. The CBSA Officer seized the bottle of alcohol because he was outside Canada for less than 48 hours and the exemption did not apply. The CBSA Officer also confiscated his NEXUS Card.
  4. A person traveled with his girlfriend who lives at a different address.  They were outside Canada for more than 48 hours. He purchased 4 bottles of rum at a duty free store before returning to Canada.  He completed an E311 Declaration Card on the flight and his girlfriend completed a separate E311 Declaration Card. He properly declared the value of the rum on his E311 Declaration Card.  Both he and his girlfriend checked the box that they were within their exemption limit. He was referred to the Secondary Inspection Area at Pearson Airport and his girlfriend was not permitted to join him.  The Secondary CBSA Officer seized 2 bottles of rum because without his girlfriend present, the man was over his exemption limit. The CBSA Officer also confiscated his NEXUS Card.
  5. A person bought a carton of cigarettes and properly reported the cigarettes on his E311 Declaration Card. He checked the box that he was within his exemption limited because he read the form and believed he could bring one carton of cigarettes.  The CBSA Officer said he incorrectly checked the box because he had 6 cigarettes in the pack he was not finished smoking.  He lost 6 cigarettes and his NEXUS card.
  6. A person traveled with 5 friends.  He bought 6 cartons of cigarettes at the duty free store outside Canada while waiting for his return flight.  He declared the value of all 6 cartons on his E311 Declaration Card.  He gathered his friends so that each could pay the applicable duties and taxes.  5 cartons of cigarettes were confiscated (with no terms of release) by a CBSA Officer after each friend was asked by the Secondary CBSA Officer to not pay the duties and taxes.  Everyone had claimed they were within their exemption limits.  Three travelers lost their NEXUS passes.
  7. A person traveled by land for a day of cross border shopping. He purchased a case of beer and placed it in plain sight on the back seat.  When he arrived at the Primary CBSA booth, he rolled down the window for the back seat so that the Primary CBSA Officer could see the case of beer.  He declared the correct value of goods purchased as stated on his receipts.  The receipts included he beer. He was sent to the Secondary inspection area.  The case of beer was seized with no terms of release because the Primary CBSA Officer did not write down that he declared the beer. The CBSA Officer also confiscated his NEXUS Card.
  8. A US citizen traveled to Canada. She brought alcohol for a week-end party.  Some of that alcohol was purchased on a previous trip in Canada.  She declared the alcohol to the Primary CBSA Officer who did not write down the number of bottles.  She was allowed to keep 2 bottles of alcohol and 2 bottles were seized. The CBSA Officer also confiscated her NEXUS Card.
  9. A person returned to Canada after a day of cross-border shopping.  The person declared to the Primary CBSA Officer that he had purchased beer, which meant that duties and taxes were owning.  He was sent to the Secondary Inspection Area and was met by a Secondary CBSA Officer.  The Secondary CBSA Officer saw that he purchased beer and alcoholic cider.  The cider was seized with no terms of release (even though the person had declared alcohol exceeding exemption limits). The CBSA Officer also confiscated his NEXUS Card.
  10. A person returned to Canada after a vacation with family at California wineries.  The person received a gift of two bottles of wine (one red and one white).  The person declared an estimated value for the wine on his E311 Declaration Card. He checked the box that he was within his exemption limit.  However, the bottles were larger than 750 ml.  The CBSA Officer asked if he had read the limits and the said that he had assumed that bottle sizes were within the 750 ml requirement.  One bottle was seized with no terms of release. The CBSA Officer also confiscated his NEXUS Card.
  11. A person returned to Canada after a family holiday at Christmas.  The person received a bottle of wine from his parents as a Christmas gift.  The person declared on his E311 Declaration Card $700 and included an estimate for the bottle of wine.  He did not have the receipt for the gift (and other gifts).  The person was sent to the Secondary Inspection Area.  The Secondary CBSA Officer asked for all receipts.  He did not have a receipt for the bottle of wine.  The Secondary CBSA Officer estimated a value for the wine and took the position that the person had less than $CDN 800 but more than $CDN 700  worth of goods acquired outside Canada.  Since he only wrote $700, he under-declared.  The bottle of wine was seized with no terms of release. The CBSA Officer also confiscated his NEXUS Card.

These are just some of the many cases I have seen.  I am not talking about Al Capone volumes of alcohol being smuggled across the border.  We are talking about what happens to normal people – like you and me.  Canadians arrive back home (or visitors arrive) and the experience with the CBSA goes sideways.

I should mention that most of these cases were appealed.  Some were successful.  Some are still under appeal. I one case, it was necessary to file a judicial review application in the Federal Court to get the NEXUS Card back and an action in the Federal Court to get a finding that there had been no contravention.

Now for the CBSA’s position – because I should be fair.  The CBSA has a special concern when it come to alcohol and tobacco.  I am not sure what that concern is – to be honest (other than the federal government and provincial governments impose excise taxes and other taxes on these items). If the governments need tax revenues, it would seem logical for the CBSA to collect the applicable duties and taxes and not take overlay aggressive positions over a bottle of alcohol. The CBSA takes the position that technically, errors were made and no errors are acceptable.  CBSA Officers have discretion, they do not have to use it.  If a person technically breaches the law or the rules or a policy, the CBSA Officer is technically justified in taking enforcement action – even on a zero tolerance basis.

It is important to note that there is nothing inherently wrong with importing alcohol and tobacco. A traveler can import as much as they wish.  They only have to pay the applicable duties and taxes, which often amount to a lot of money.  The question is whether the alcohol and tobacco is within a person’s personal exemption limit so that they do not have to pay duties and taxes.  The personal exemption limits are contained in the Custom Tariff HS Code 9804:

9804 – Goods acquired abroad by a resident or temporary resident of Canada or by a former resident who is returning to Canada to resume residence, for the personal or household use of that person or as souvenirs or gifts, but not bought on commission or as an accommodation for any other person or for sale, and reported by that person at time of return to Canada.

9804.10.00.00 – Duty free – Valued at not more than eight hundred dollars and included in the baggage accompanying the person returning from abroad after an absence from Canada of not less than forty-eight hours. For the purpose of this tariff item, goods may include either wine not exceeding 1.5 litres or any alcoholic beverages not exceeding 1.14 litres, and tobacco not exceeding fifty cigars, two hundred cigarettes, two hundred tobacco sticks and two hundred grams of manufactured tobacco.

9804.20.00.00 – Duty free – Valued at not more than eight hundred dollars, whether or not included in the baggage accompanying the person returning from abroad after an absence from Canada of not less than seven days. For the purpose of this tariff item: (a) goods may include either wine not exceeding 1.5 litres or any alcoholic beverages not exceeding 1.14 litres, and tobacco not exceeding fifty cigars, two hundred cigarettes, two hundred tobacco sticks and two hundred grams of manufactured tobacco, if included in the baggage accompanying the person at the time of return to Canada; and (b) if goods (other than alcoholic beverages, cigars, cigarettes, tobacco sticks and manufactured tobacco) acquired abroad are not included in the baggage accompanying the person, they may be classified under this tariff item if they are reported by the person at time of return to Canada.

9804.30.00.00 – MFN Rate is 7% – Valued at not more than three hundred dollars and included in the baggage accompanying the person returning from abroad after an absence from Canada of not less than forty-eight hours. For the purpose of this tariff item, goods shall not include those which could otherwise be imported into Canada free of duties, nor alcoholic beverages, cigars, cigarettes, tobacco sticks or manufactured tobacco.

9804.40.00.00 – Duty free – Valued at not more than two hundred dollars and included in the baggage accompanying the person returning from abroad after an absence from Canada of not less than twenty-four hours. For the purpose of this tariff item, goods shall not include alcoholic beverages, cigars, cigarettes, tobacco sticks or manufactured tobacco.

The CBSA has prepared information that travelers can find on their web-site.  The following chart is on the CBSA’s web-site and is intended to make the exemption more understandable:

Alcoholic beverage limits
(While bottle sizes vary, the amounts listed are fixed.)
Product Metric Imperial Estimates
Wine Up to 1.5 litres Up to 53 fluid ounces Two 750 ml bottles of wine.
Alcoholic Beverages Up to 1.14 litres Up to 40 fluid ounces One large standard bottle of liquor
Beer or Ale Up to 8.5 litres Up to 287 fluid ounces Approximately 24 cans or bottles (355 ml each) of beer or ale.
You are allowed to import only one of the amounts listed in the table free of duty and taxes, as part of your personal exemption.

 

Tobacco product limits
Cigarettes 200 cigarettes
Cigars 50 cigars
Tobacco 200 grams of manufactured tobacco
Tobacco sticks 200 tobacco sticks
If you bring in more than your personal exemption, you will have to pay regular assessments on the excess amount. These regular assessments can include duty and taxes, as well as provincial or territorial fees. When they calculate the amounts owing, border services officers will give an allowance for products that have an excise stamp “DUTY PAID CANADA DROIT ACQUITTÉ.

If you are 18 years of age or over, you are allowed to bring in all of the amounts listed in the table into Canada free of duty and taxes within your personal exemption.

If you include cigarettes, tobacco sticks or manufactured tobacco in your personal exemption, a partial exemption only may apply. You will have to pay a special duty on these products unless they have an excise stamp “DUTY PAID CANADA DROIT ACQUITTÉ.” You will find Canadian-made products sold at duty-free shops marked this way. You can speed up your clearance by having your tobacco products available for inspection when you arrive.

For further details on bringing back tobacco products, consult I DeclareTobacco products.

The CBSA also has prepared a Personal Exemption Mini-Guide.  However, the information on the E311 Declaration Card is not as clear as the Mini-Guide.

NEXUS And Global Entry Are Not The Same Thing In Canada

Posted in Border Security, NEXUS

Canada-US GlobeNEXUS Membership is a Canada-U.S joint regulatory discretionary trusted traveler program.  GOES or Global Entry is a U.S. regulatory discretionary trusted traveler program. NEXUS and Global Entry are different expedited entry programs.

HOWEVER, and this is very important, a person who uses a NEXUS lane at a Canadian land border crossing must have a NEXUS card.  If a driver of a vehicle that uses the NEXUS lane at a Canadian land border crossing must ensure that all passengers have NEXUS cards.  If the person has a Global Entry Card (or one or more persons in the vehicle has a Global Entry Card rather than a NEXUS Card), they cannot use the NEXUS Lane.  The Canada Border Services Agency (“CBSA”) at land border crossings do not have access to the U.S. Global Entry data. The Canadian and U.S computer systems do not share all information with each other.  The CBSA cannot obtain Global Entry information.  The CBSA can access the jointly shared NEXUS information.

What this means that the CBSA may confiscate a person’s NEXUS Card or Global Entry Card when they use a NEXUS lane and breach a rule of the NEXUS program.  Many people think the programs are interchangeable and make this common mistake.  If this should happen due to a misunderstanding, it may be possible to appeal the NEXUS confiscation to the NEXUS Redress Committee.

By the way, Canadians should get the NEXUS Membership Card.  It only costs $USD 50.00.  the Global Entry Card costs $USD 100.  So, it is preferable from a Canadian perspective to have the NEXUS Card.

6 Most Frequently Asked Questions About Canada’s Economic Sanctions Against Iran

Posted in Aerospace & Defence, Canada's Federal Government, Cross-border deals, Cross-border trade, Export Controls & Economic Sanctions, Exports

3d human with a red question mark

On February 5, 2016, Foreign Affairs Minister Dion announced that “Canada amends sanctions against Iran” and regulatory changes were implemented/promulgated. On February 5, 2016, the Export Controls Division of Global Affairs Canada issued Notice to Exporters No. 196 “Exports  of items listed on the Export Control list to Iran”. On February 15, 2016, the Canada Border Services Agency issued Customs Notice 16-05 “Amendments to Iran Sanctions as of February 5, 2016”.  Since then, Canadian companies have had many questions relating to what opportunities exist for them to do business with Iran and, more importantly, can they legally pursue those opportunities.  The top 6 questions we hear asked are:

Did Canada lift all economic sanctions against Iran?

No, Canada did not lift all sanctions against Iran.  Canada merely amended the Special Economic Measures (Iran) Regulations and Regulations Implementing the United Nations Resolutions on Iran to remove many of the more restrictive of the sanctions. What this means is that Canada has maintained some of the multilateral economic sanctions against Iran (those enforcing UN Security Council Resolutions) and some of Canada’s unilateral economic sanctions and trade restrictions against Iran. The unilateral economic sanctions and trade restrictions are where Canada may be more limiting than other countries.

Can I sell anything to Iran?

No, because some of the economic sanctions remain in place and Canada imposes restrictions on exports pursuant to the Export and Import Permits Act, Canadian companies cannot just export any goods to Iran.

First, transactions involving persons listed in Schedule 1 to the of the Special Economic Measures (Iran) Regulations may be restrictedCanadian companies planning to enter into contracts with Iranian firms (or the Iranian government) should review the prohibitions and the listed persons before proceeding.

Second, transactions involving goods restricted pursuant to the Regulations Implementing the United Nations Resolutions on Iran or listed on Schedule 2 of the Special Economic Measures (Iran) Regulations may be restricted. Canadian companies planning to enter into contracts with Iranian firms should review the prohibitions and the lists of restricted goods before proceeding.

Third, items on the Export Control List cannot be sold to Iran without an export permit. Notice to Exporters No. 196 informs Canadian exporters that Global Affairs Canada will generally deny export permits to export a number of categories on the Export Control List that are considered sensitive from a national and international security perspective. Canadian companies planning to enter into contracts with Iranian firms should review export permit requirements and assess the likelihood of obtaining the necessary permits before signing a contract with a delivery date.

It is still important to review all the sanctions before exporting goods to Iran.

I have goods with US-made parts/inputs – Can I sell these items to Iran?

It is possible that Canada will not issue an export permit to export goods manufactured in the United States or manufactured with U.S-made parts or components.  Item 5400 on Canada’s Export Control List covers all goods and technology of U.S. origin that are not covered elsewhere on the ECL.  Notice to Exporters No. 196 indicates that export permits may be denied for all goods covered by Item 5400 “(Strategic goods and technology), with the exception of 5504.2.a.1, 5504.2.b as they relate to the use of 5504.2.a.i only”.  What this means is that a Canadian export permit will be required and Global Affairs Canada will not approve the export unless an export permit or export approvals are provided by the United States authorities.

As a result, it is still very important for Canadian companies to prepare a bill of materials for exports to go to Iran, determine whether there are any U.S.-made inputs/parts, analyze whether the good is subject to Item 5400 restrictions and analyze whether U.S. approvals are required prior to export.

Can I sell services to Iran?

Most of the remaining restrictions relate to goods rather than services.  Generally speaking, the remaining sanctions do not restrict the provision of services per se.  That being said, there are some restrictions relating to services that could impact a Canadian business. Canada prohibits the dealing in any property, wherever situated, that is held or controlled by a person listed in Schedule 1 of the Special Economic Measures (Iran) Regulations. This prohibition affects services.  For example, the provision of services in respect of property (such as, repairing equipment) owned by a listed person could be considered to be a “dealing” with respect to property.

Canada prohibits the transfer, provision of disclosure to Iran or any person in Iran any technical data related to goods in Schedule 2 of the Special Economic Measures (Iran) Regulations.  This is the most significant of the restriction because the provision of services could involve the transfer of technical data (depending on the service).

Canada also prohibits the provision of any financial or related service in respect of a dealing in any property, wherever situated, that is held or controlled by a person listed in Schedule 1 of the Special Economic Measures (Iran) Regulations. Canada also prohibits the provision of any financial or related service to a person listed in Schedule 1 of the Special Economic Measures (Iran) Regulations or to a person acting for the benefit of such a person. Canada also prohibits any person in Canada or any Canadian outside Canada doing anything that causes, facilitates or assists in, or is intended to cause, facilitate or assist in any prohibited act.

In light of the above restrictions, there are more opportunities to provide services than obstacles for Canadian businesses.  Canadian businesses should be mindful of where problems can arise in the provision of services and continue to ask questions.  In addition, Canadian businesses should prepare proper proposals relating to the services and paperwork relating to the provision of services.  A paper trail will be very important to prove that services rather than goods were provided and the nature of the services.  Invoices merely stating “for services provided” should be avoided.  The more information about what was done and to whom, the better.

If the services are being provided to a person listed in Schedule 1 to the of the Special Economic Measures (Iran) Regulations, it may be wise to seek advice from a professional to be certain that the provision of the specific services is legal.  The information you should be prepared to discuss will include what types of services (in detail) will be provided, who the services are being provided to, will any goods be provided in connection with the provision of the services, who owns any property that will be connected with the services, are there any intermediaries involved in the provision of the services, etc.

Can I get paid?

This is one of the most important questions because Canadian businesses do not want to give the goods and services to Iranian businesses for free.  Getting paid for legal exports of goods and services is easier (now that the sanctions have been relaxes, but not without risk.  A number of Iranian financial institutions remain on the Schedule 1 list of designated persons in the Special Economic Measures (Iran) Regulations (e.g., Bank Sasderat, Asnar Bank, Mehr Bank, Bank Sepah, and Bank Hekmat Iranian).  As a result, it will be necessary to know where the money is coming from and how it is getting to your bank account.  Sometimes it is difficult to know prior to the transmission of the funds the path the funds will travel.  When it is possible that a designated person (financial institution) may be involved in the outbound flow of money from Iran to Canada, it may be wise to obtain a ministerial authorization pursuant to the Special Economic Measures (Iran) Permit Authorization Order to receive payment without risk of a future disagreement with Global Affairs Canada.

Will Canada reinstate sanctions against Iran?

This is a good question that cannot be answered.  It is important to include contractual provisions in contracts to anticipate a change in Canada’s unilateral economic sanctions and new multilateral sanctions implementing UN Security Council Resolutions.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com

The CBSA Commences Consultations On Amendments To The “Good Character” Eligibility Requirements In NEXUS Regulations

Posted in NEXUS

Good BadOn July 19, 2016, the Canada Border Services Agency (“CBSA”) commenced a public consultation process with respect to the eligibility criteria to be applied when assessing “good character” of Trusted Traveler programs applicants. (See Announcement) As an extension, the CBSA is also looking at when NEXUS membership may be cancelled or revoked as a result of an action that would make a person ineligible for NEXUS membership.  The public consultation will take place between July 19, 2016 and August 19, 2016. Any one is permitted to provide comments.

At the end of the consultation process, the Governor-in-Council (the Trudeau Cabinet) will amend the Presentation of Persons (2003) Regulations made pursuant to the Customs Act.  The CBSA issued a Notice to Stakeholders in which it proposed the repeal of the term “good character” and possible eligibility criteria that may be inserted as an amendment. The proposed eligibility criteria presented in the Notice to Stakeholders are:

  • Failing to provide complete personal information, supporting documents and/or attend interviews with partner law enforcement and intelligence agencies (Royal Canadian Mounted Police/Canadian Security Intelligence Service), if required and associated with the assessment of eligibility and continued eligibility, could lead to the denial of an authorization as the CBSA will not be in a position to conduct all necessary checks and verifications for assessment of eligibility.
  • Criminal convictions may render a person ineligible, unless they have received a pardon or record suspension. Indictable offences, or any criminal record of multiple convictions, will render the person ineligible for their lifetime (“lifetime ban”). One summary conviction, or two summary convictions arising out of a single occurrence, will have an ineligibility period of 10 years beginning after the end of the imposed sentence. In addition, convictions in relation to the following border enforcement priorities could result in a lifetime ban:
    • drugs and chemical precursors, obscenity and hate propaganda, endangered species, terrorism, kidnapping, child pornography, or trafficking in persons/human smuggling;
    • the importation, exportation or trafficking of alcohol and tobacco, currency, firearms and weapons; or
    • the exportation of items on the Export Control List. All foreign convictions will be assessed against the current Criminal Code of Canada.
  • For pending criminal charges for which a conviction would result in ineligibility, and outstanding criminal warrants, it is proposed that an application be denied until such time as a court decision is made on the charge(s)/warrant(s) or the warrant(s) are expired.
  • Contraventions to program legislation (such as legislation and regulations administered or enforced by the CBSA) may result in ineligibility for a period of time for minor infractions or a lifetime ban for major infractions, as identified in policy and outlined in program terms and conditions. Multiple minor seizures within a 10-year period will result in a 10-year ineligibility period and any contraventions in relation to the border enforcement priorities listed above would render the person ineligible forever.
  • National security concerns may render a person ineligible if there are sufficient grounds to suspect that the person constitutes a threat to the security of Canada as defined in Section 2 of the Canadian Security Intelligence Service Act. An authorization may be denied, revoked or suspended.
  • Other security threats such as war crimes, crimes against humanity, and transnational crime such as trafficking of persons/human smuggling, money laundering, or terrorism financing are also grounds to deny, cancel or suspend an authorization.
  • The Immigration and Refugee Protection Act authorizes the Minister of Immigration, Refugees and Citizenship Canada (IRCC) to declare a foreign national ineligible (who is otherwise admissible) to enter Canada for a period of up to three years based on public policy considerations, as outlined in s22.1(1) of the Immigration and Refugee Protection Act. The CBSA is proposing that persons declared ineligible to enter Canada by IRCC will also be ineligible for Trusted Traveller Programs.
  • Where a person is required (e.g., by Court order) to surrender travel documents (such as a passport under the Family Orders and Agreements Enforcement Assistance Act), this person will also not be eligible for a NEXUS or FAST authorization (or an existing authorization may be suspended).

These specific high level negative behaviours requirements are an improvement over the present day ambiguous “good character” criteria.  The CBSA currently uses the term “good character” to mean whatever it desires in order to justify a revocation/cancellation of a person’ NEXUS privileges.  For example, the CBSA Recourse Directorate has suggested that a failure to declare over $10,000 would go to their “good character” even if they are only over by $5.00 (e.g. a person forgot to count coin) and it is the first error .  The United States has suggested that a man who does not look through his wife’s purse for a single muffin is not of good character.  The United States has suggested that a man with a much younger girlfriend is not of good character (I kid you not).  If a CBSA officer disagrees with your characterization and calls you a liar, the officer may take away your NEXUS pass on the basis you are not of good character.  I have seen many files that look like an officer having a bad day and using lack of “good character” as a reason to confiscate a NEXUS pass.

If you are interested in providing your views to the CBSA, please send all enquiries and comments regarding these proposed regulatory changes by email by August 19, 2016, 11:59 p.m. EDT to TTPpost-PVFpostes@cbsa-asfc.gc.ca.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com

Canadian Customs Audit Targets – CBSA Releases H2 2016 Verification Priorities

Posted in Customs Law, origin, tariff classification, valuation

Globe with financial papersOn July 7, 2016, the Canada Border Services Agency (“CBSA”) released “Tariff Compliance Verifications – July 2016”.  What are “Tariff Compliance Verifications”? Tariff compliance verifications are CBSA customs audits during which the CBSA ensures that importers are using the proper tariff classification (HS Code) numbers when completing import documentation.

The Tariff Compliance Verifications – July 2016 identifies tariff classification, origin and valuation targets of the CBSA for the random and mandatory verifications that will take place in the second half of 2016.  There will still be other verification of importers of other “not listed” imported goods.  However, the document released by the CBSA is a “heads up” to importers and a “helpful” nudge to review one’s import paperwork carefully.

In this document, the CBSA provides useful information that helps importers assess their risk of a reassessment.  The CBSA indicates which verification targets were previously listed by them and the compliance rates discovered by the CBSA.  The CBSA also states the amount of money the CBSA has collected in respect to the targeted items. For example, the CBSA informs that $1,142,773 has been collected as a result of prior verifications relating to preparations and pastrycooks’ products – who would have thought that would be a big problem area?  With respect to disposable and protective gloves, the non-compliance rate was at 92%.  Importers who use the HS code for disposable gloves and protective gear should be asking themselves if they have made the same mistakes as others.

Any importer who imports a targeted item could be the subject of a verification audit by the CBSA.  If the CBSA finds non-compliance, the importer will be assessed duties, taxes and possibly administrative monetary penalties.  For this reason, if you import on of the listed item, review your paperwork and make corrections before the CBSA calls.

The listed tariff classification trade compliance priorities in alphabetical order are:

  • air brakes and parts thereof (HS Code Subheading 8607.21) (new)
  • articles of apparel and clothing (HS Code Heading 39.26)
  • articles or iron and steel (HS Code Heading 73.26)
  • articles of plastics (HS Subheading 3926.90)
  • batteries (HS Codes 98506.10.10 and 8506.50.10)
  • bicycle parts (HS Code Heading 87.14)
  • cell phone cases (HS Code Headings 39.26, 42.02, and 85.17) (new)
  • cereals (HS Code Heading 10.08)
  • chemical products (HS Code Heading 38.08)
  • coconut milk from Asian countries (HS Codes 1106.30.00, 2008.19.90, and 2106.90.10.90)
  • dexatrins and other modified starches (HS Code 3505.10.900)
  • disposable and protective gloves (HS Codes 3926.20.10 and 4015.19.10)
  • curling irons (HS Code 8516.32.10)
  • footwear (HS Codes 6403.59.20 and 6403.99.30)
  • furniture for non-domestic purposes (H.S. Codes Headings 94.01 and 94.03)
  • gazebos (HS Code 9406.00.90.20)
  • geophysical and oceanographic instruments (HS Code Heading 90.15)
  • hair extensions (HS Code 6703.00.00)
  • hair dryers and electric smoldering irons (HS Code Heading 85.16)
  • handkerchiefs, towels and related paper products (HS Code Heading 48.18) (new)
  • interchangeable tools (HS Code Heading 82.07) (new)
  • live plants (HS Code Heading 06.02) (new)
  • machinery for public works (HS Codes 8479.10.00)
  • mountings, fittings and similar articles (HS Code Heading 83.02) (new)
  • parts for power trains (HS Code Heading 87.08)
  • parts for use with machinery of Chapter 84 (HS Code Heading 84.31)
  • parts of lamps (HS Code Heading 94.05)
  • pasta (HS Code Heading 19.02)
  • polyurethanes in primary forms (HS Code 3909.50.00)
  • prepared meat and swine (HS Code Heading 16.02) (new)
  • special purpose motor vehicles (HS Code 8705.90.90.90)
  • seaweed (HS Codes 1212.21.00 and 1212.29.00)
  • spectacle lenses (HS Codes 9001.40.10 ad 9001.50.10)
  • stone table and counter tops (HS Code 9403.90.00) (new)
  • tubes, pipes and hoses (HS Code Heading 39.17)
  • vices and clamps (HS Code Heading 82.05)

The listed valuation trade compliance priorities are:

  • apparel (HS Chapters 61 and 62)
  • preparations and pastrycooks’ products (HS Chapter 19)

The listed origin trade compliance priorities are:

  • t-shirts (HS Code Heading 61.09)
  • jewelry (HS Codes 7113.11.90, 7113.19.90 and 7113.20.90)

Consider whether you are at risk of a verification letter from the CBSA and whether you may benefit from making a voluntary correction or voluntary disclosure.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com

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What Is The Difference Between A Red/Green Olive And A Black Olive?

Posted in Agriculture, Customs Law, tariff classification

Black-or-Green-OlivesThe answer to this question is found in the recent Canadian International Trade Tribunal (“Tribunal”) tariff classification appeal case of Délices de la Forêt Inc. v. President of the Canada Border Services Agency (“CBSA”), AP-2015-018. The issue is this case was whether green and red olives in brine in a glass jar were properly classified pursuant to HS Code 2005.70.10.00 (which is duty free in the Customs Tariff) or HS Code 2005.70.90.00 (which has an 8% MFN duty rate in the Customs Tariff). The olives imported by the appellant were red and green olives of the Cerignola variety, in brine, packaged in a glass jar and originating in Italy.

The H.S. Codes at issue in the case are:

Chapter 20 – Preparations of vegetables, fruit, nuts or other parts of plants

20.05 – Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading 20.06.

2005.07 – Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading 20.06. – Olives

2005.70.10.00 – Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading 20.06. – Olives – Olives sulphured or in brine but not in glass jars; Ripe olives in brine

2005.70.90.00 – Other vegetables prepared or preserved otherwise than by vinegar or acetic acid, not frozen, other than products of heading 20.06. – Olives – Other

The case could have been decided on the basis that the glass jar packaging resulted in H.S. Code 2005.70.10.10 being not applicable.  However, the Tribunal focused on whether green olives and red olives are ripe olives.  The Tribunal found that red and green olives are not ripe olive.  Only black olives are ripe olives and that black olives can be coloured or dyed and still be ripe olives.  The Tribunal stated:

“The Tribunal is of the view that the interpretation of the expression “ripe olives” put forward by Délices de la Forêt is not supported by the preponderance of the evidence or in the context of tariff item No. 2005.70.10. On the basis of the evidence, the Tribunal concludes that a ripe olive is an olive that was harvested when it was completely mature or almost mature, which can be noted by the olive’s characteristic black colour.”

The Tribunal accepted the testimony of an expert who opined that:

 

  • a ripe olive is an olive that has reached its full ripeness, not merely its optimal size;
  • the olive’s properties change during its ripening on the tree, for example, with respect to the growth of its flesh, its taste and its oil content;
  • an easily observable, fundamental marker of an olive’s ripeness is its colour, which changes with each particular stage of the fruit’s ripening;
  • three types of olives normally recognized in the food science field: (a) unripe green olives; (b) semi-ripe olives (changing colour, purplish tinge); and (c) ripe, black olives; and
  • all three types of olives are used in the industry and that green olives are most frequently used because of, among other things, their resistance to bruising.

Why is this case important?  This case presents an example of the cost of not undertaking tariff classification reviewed prior to importing goods from an MFN country.  The importer will have to pay customs duty in the amount of 8% of the value for duty of the imported olives plus additional good and services tax plus interest. Depending on the volume of olives that were imported and the number of transactions during the reassessment period, the reassessment could be costly or not.

This case presents a perfect example of the importance of the words in the H.S. Code.  A green olive has one H.S. Code and a black olive has a different (and preferable) H.S. Code.  An analysis of the words in the H.S. Code provisions is important and often not undertaken.  Questions should have been asked about the meaning of the word “ripe” in the H.S. Code.  The question that should have been asked by the importer is whether green olives are ripe olives or not? Internet research on olives provides reason to ask questions.  One reputable source of information on Cerignola olives indicates that “[b]lack cerignolas or the ripe ones are softer compared to unripe cerignolas which are the green ones. It can be added in a variety of dishes including salads, pastas, and meat dishes.”

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com

Appeal Process for Truckers/Carriers When The CBSA Issues ACI eManifest AMPs

Posted in AMPs, Canada's Federal Government, Cross-border trade, Customs Law

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Truckers (highway commercial carriers) can appeal the imposition on administrative monetary penalties (AMPs) imposed by the Canada Border Services Agency (CBSA) for failure to meet advance commercial information (ACI) reporting requirements.  The appeals are filed with the CBSA, Recourse Directorate.  We spoke to a source at the Recourse Direcotrate this week who informed us that there has been a significant increase in appeals of ACI AMPS penalties.

As of January of 2016, highway carriers transporting goods into Canada are required to transmit cargo and conveyance data electronically to the CBSA prior to arrival. The cargo and conveyance data must be received and validated by the CBSA a minimum of one hour before the shipment arrives at the border.

Certain Common AMPS

The AMPs penalties can be costly. For example, AMP C379 relates to a failure to submit advance information in the prescribed time or prescribed manner to the CBSA. For the first infraction, the penalty is $250; for the second infraction, the penalty is $375; and for the third and subsequent infractions, the penalty is $750 per instance. The AMPs penalty is imposed on a per instance basis.  Prescribed information must be transmitted in the prescribed trimeframe and in the prescribed manner.  These two separate obligations must be satisfied.  A contravention against any one obligation could result in the imposition of a penalty.

If the ACI information is received after arrival, the CBSA will more likely apply AMP C378, which relates to a failure to submit the prescribed pre-load/pre-arrival information relating to the cargo and/or conveyance.  The AMPs penalty is imposed on a per instance basis.  This AMPS penalty is applied when the pre-load/pre-arrival information is not provided in accordance with the timelines, technical requirements, specifications and procedures for electronic means as set out in the Reporting of Imported Goods Regulations and the applicable Electronic Commerce Client Requirements (see also D-Memorandum D12-3-1 Pre-Arrival Highway). For the first infraction, the penalty is $2000; for the second infraction, the penalty is $4,000; and for the third and subsequent infractions, the penalty is $8,000 per infraction.

The transmission of ACI data does not constitute a reporting for Customs Act purposes.  The CBSA will impose AMP C023 relating to a failure to report conveyances inbound and/or upon arrival.  For the first infraction, the penalty is $2000; for the second infraction, the penalty is $4,000; and for the third and subsequent infractions, the penalty is $8,000 per infraction.

AMP C375 relates to a failure by a person to transmit Conveyance Arrival Certification Message (CACM) as the Governor-in-Council may prescribe.  The penalty is issued on a per conveyance basis. After the July 10, 2015-anuary 10, 2016 grace period, for the first infraction, the penalty is $2000; for the second infraction, the penalty is $4,000; and for the third and subsequent infractions, the penalty is $8,000 per infraction.

More AMPs penalties are outlined in the Master Penalty Document.

We recommend that highway commercial carriers who transport goods into Canada implement a compliance protocol for ACI reporting. Fix any bugs discovered in connection with filing ACI eManifest submissions, implement a process to proactively identify errors, omissions, or other non-compliance and provide updated accurate information immediately. The implementation of internal controls may result in more efficient border processing by the CBSA and reduce delays and costly monetary penalties.

Appeals:

If a wishes to appeal/dispute the imposition of an AMPs penalty, a request for a Ministerial decision can be made to the CBSA‘s Recourse Directorate.  Requests for a Ministerial decision must be submitted within 90 days from the day the Notice of Penalty Assessment was served.  In exceptional circumstances, the filing deadline may be extended to one year.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com

CBSA Has Revised The D-Memorandum On The Anti-dumping/Countervailing Duty Re-determination Process

Posted in Antidumping, Trade Remedies

Which wayOn June 28, 2016, the Canada Border Services Agency (“CBSA”) quietly issued revised D-Memorandum D4-1-3 “Re-determinations and Appeals Under the Special Import Measures Act”.  The preamble to the D-Memorandum indicates that it was revised to reflect changes in contact information and the process to request a re-determination by the President.

Some of the important information in the D-Memorandum includes:

  1. What can be re-determined?
    A request for re-determination may cover:
    (a) the normal value;
    (b) the export price;
    (c) the amount of subsidy;
    (d) the amount of the export subsidy; or
    (e) whether the goods are of the same description as those described in the order or finding of the Tribunal or in the order of the Governor in Council.
  2. Who can file a request for re-determination?
    A request may be filed by the importer or the importer’s agent. In the case of goods of a NAFTA country, the government of that NAFTA country or the producer, manufacturer or exporter of the goods, if they are of that NAFTA country, may file a request. These requests will be reviewed whether or not the importer has paid the duties owing on the goods.
  3. Does am importer have to pay the assessed antidumping duties, GST, penalties and interest prior to the acceptance of the request for re-determination?
    Yes.  An importer, agent, NAFTA country, manufacturer or exporter from a NAFTA country may submit a request to the CBSA only if all duties owing on the goods have been paid. The CBSA will reject requests when importers have not paid the duties for the goods at issue.
  4. What is the time limit for filing a re-determination?
    A request for re-determination must be filed within 90 days of the CBSA officer’s or the designated officer’s decision.  If the 90th day after the date of the decision falls on a Saturday, Sunday or holiday, the final day for making a request for re-determination will be the next business day.  The date of receipt of a request for re-determination, or the date of the registered postmark when delivered registered mail, is considered to be the date that the request is made.
  5. How to file a request for re-determination?
    The CBSA states in the D-Memorandum that “[a] separate request on form B2, Canada Customs – Adjustment Request, must be made for every transaction with respect to the goods that are the subject of the request for re-determination, except in the case of blanket requests.”  A blanket request is a procedure through which an importer may request re-determinations on more than one transaction on a single form B2. This can be done under specific conditions, provided that both the public and the CBSA receive administrative benefits. Under the blanket request procedure, the same designated officer or President’s decision is issued with respect to each transaction included in the request. Written authorization must be obtained prior to submitting the form B2 covering multiple transactions.
  6. What should be included with a request for re-determination?
    The CBSA wishes to receive as part of the request for re-determination the following information (as attachments under field No. 37 of the B2):

(a) a statement setting out the grounds on which the determination or re-determination is contested;

(b) a statement setting out the facts on which the request for re-determination is based;

(c) evidence in support of the facts referred to in subparagraph (b) above;

(d) a copy of the original (i.e., interim and final) accounting document package;

(e) a copy of the customs invoice or a commercial invoice (which meets the CBSA’s invoice requirements);

(f) a copy of the cargo control document;

(g) copies of any required certificate(s) and/or permit(s); and

(h) a copy of the form B3-3, Canada Customs Coding Form, if available.

The CBSA identifies other documents that may facilitate an expeditious resolution of the request, such as, the purchase order or sales contract, commercial invoice and letter of credit.The CBSA informs that evidence to be submitted should include samples of the imported product, product literature/specifications, certificates of specification, and purchase documents describing the goods in detail (for example, purchase order, commercial invoice, etc.).  The CBSA also wants to receive the telephone number of someone at the company/requester to be able to discuss the request for re-determination.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com

Why Should Importers Ask The CBSA If Goods Are Subject To Anti-dumping Duties?

Posted in Antidumping, origin, tariff classification

3d human with a red question mark

Is it better to seek permission or ask for forgiveness after the fact? 

When it comes to imports of goods into Canada that may be subject to anti-dumping duties, it is better to seek an advance ruling from the Canada Border Services Agency (“CBSA”).  If you import goods and the CBSA believes that the goods are within the product description of an anti-dumping order, the CBSA may issue a detailed adjustment statement (“DAS”) (an assessment).  If the CBSA issues a DAS, the importer must pay the full amount of the DAS in order to perfect a request for re-determination (an appeal).  If the amount of the DAS has not been paid in full at the 90 day limitation period for the appeal, the CBSA will not accept the request for re-determination.  We have seen requests for re-determination (in the form of adjustment requests) returned to the importer or their advisor.

In many cases, the rate of anti-dumping duty applicable to imports under the all others rate is over 100%.  We have met many importers who did not mark up the price of the imports in an amount that exceeded the anti-dumping duty rate.  They just cannot afford the assessed amount in the DAS.

Sometimes, the CBSA does not issue the DAS for two years and they issue two years worth of DASes.  If the importer has imported a lot of the goods at issue, the amount of anti-dumping duties payable, plus additional goods and services tax plus interest calculated from the date of the importations amounts to significant money.

Also, there is no guarantee that if the importer appeals the DAS (after a failed request for re-determination) to the Canadian International Trade Tribunal (“CITT”) that the CITT will accept arguments that the goods are not within the scope of an anti-dumping order.

To avoid an unexpected and significant financial liability, it is best to ask the CBSA for an advance ruling on whether particular goods are subject to an anti-dumping order.  The question may be whether specific goods fit within a product description (that is, is it a subject good).  For example, is an aluminum baluster in retail packaging within the CITT’s anti-dumping order against aluminum extrusions from China.  There has been a case on this one and the CITT determined that finished aluminum balusters in retail packaging where aluminum extrusions within the product definition in the Aluminum Extrusions anti-dumping and countervailing duty order.

The question may also relate to whether a particular good originates in a subject country.  For example, are certain screws that are further manufactured in the United States subject to the anti-dumping and countervailing duty order against carbon steel fasteners from China and Taiwan. There has been a case on this one and the CITT determined that the term “originates” is not defined in the Special Import Measures Act and has a very broad meaning.  The CITT held in Ideal Roofing Company Limited and Havelock Metal Products Inc. that:

“In the absence of a statutory regime for determining origin in the context of SIMA, the Tribunal finds that the CBSA’s submission to rely on the dictionary definition of the term “originating” is most appropriate for the case at hand and most consistent with the past practice of the Tribunal in the context of SIMA.[47] Specifically, the Tribunal will rely on the Canadian Oxford Dictionary[48] which defines the term “origin” as “. . . a beginning, cause, or ultimate source of something . . . that from which a thing is derived, a source or a starting point . . .”[49] and “originate” as “. . . begin, arise, be derived, takes its origin . . . .”

The CBSA will consider advance ruling requests and issue biding rulings.  The importer has the opportunity to provide the relevant facts for consideration by the CBSA and include product samples.  While it may take a while to get an answer from the CBSA, the importer has better control over their financial liability by working with the CBSA where they may be questions raised.  It is better for importers to acknowledge the risk of a potential future disagreement than avoiding the question and hoping for the best.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Alternatively, visit www.lexsage.com

8 Things You May Not Know About The International Law Aspects Of The South China Seas Decision

Posted in International Arbitrations

chessWatchers of international trade cases are looking at this historic South China Seas decision and watching for what will happen next.  News agencies are speculating about what China will do next and what the United States will do next (US ships are in the vicinity at issue in the case).  However, most people are wondering what this is all about as they have never heard of the treaty or the arbitral body that made the decision.  This is international law and most people have not been following the case.  the news about the decision is very interesting and seems to have ramifications beyond China and the Philippines.  Since most people are not aware of the basic international law elements, we thought we should share a few pieces of information.

  1. There is a very long decision written by the Permanent Court of Arbitration in the Matter of the South China Sea Arbitration before An Arbitral Tribunal Constituted Under Annex VII to the 1982 United Nations Convention on the Law of the Sea between The Republic of the Philippines v. The People’s Republic of China.  If you cannot fall asleep tonight, this long decision might be just what you need.
  2. The Philippines won the case.  See the Press Release from the Permanent Court of Arbitration.
  3. The decision is biding on the parties – unless a party wants to ignore the decision as there is no enforcement powers element to the Permanent Court of Arbitration.
  4. The proceedings were initiated in January 2013.  There is a timeline of the events in the proceeding (that do not yet include the July 12, 2016 release of the award).
  5. The United Nations Convention of the Law of the Sea Dec. 10, 1982, 1833 U.N.T.S. 397 (known in trade law circles as UNCLOS) is an international treaty that defines the rights and responsibilities of nations with respect to their use of the world’s oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. UNCLOS is the “foundational document of modern international ocean law” and provides that the coastal states possess rights over a twelve nautical mile territorial sea as well as a 200 nautical mile exclusive economic zone. [See McDorman]
  6. The United States has signed UNCLOS, but has not ratified it.  Canada has signed and ratified UNCLOS.  China and the Philippines have signed an ratified UNCLOS.  For a full list of parties, please go to the UN Master List.
  7. It is generally accepted that significant provisions of UNCLOS are customary international law.  In 1985, the ICJ found in the Continental Shelf case (Libya v. Malta) 1985 I.C.J. 13. that it is “incontestable that the institution of the exclusive economic zone is shown by the practice of the states to have become part of customary international law.”
  8. The Permanent Court of Arbitration has been in existence since 1899.  It is an intergovernmental organization that is located in the Hague, Netherlands.  Despite the name, the PCA is not a court.  The PCA organizes arbitrations and mediations.