Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Buy American Executive Order

Posted in Aerospace & Defence, Border Security, Buy America, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border litigation, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Exports, Government Procurement, Imports Restrictions, Legal Developments, NAFTA, Trade Agreeements, Trade Remedies

On April 18th, President Trump issued an Executive Order (“EO” or “Order”) focused on the Buy American  laws and regulations. See Buy American EO.  This EO directs federal government entities to review their procurement rules so that, to the extent legally permitted, preference is given to American made goods.  Section 2 specifically states: “[i]t shall be the policy of the executive branch to buy American and hire American”.  At the same time,  the EO confirms:  “[n]othing in this order shall be construed to impair or otherwise affect … existing rights or obligations under international agreements”.  So, what does this EO mean to the private sector when it comes to government contracting?

First, it is important to keep in mind the review triggered by this Order applies only to federal procurement. States and other governmental entities have their own rules. They cannot contradict the federal rules, but they can be different.

Next, nothing in this Order has any impact on privately funded projects. The typical example given in the general press is the Keystone Pipeline. Nonetheless,  the point is you are only impacted if you are providing or intend to provide goods to a U.S. government entity.

The EO goes on to provide a handful of noteworthy definitions:

“”Buy American Laws” means all statutes, regulations, rules, and      Executive Orders relating to Federal procurement or Federal grants including those that refer to “Buy America” or “Buy American”  that require, or provide a preference for, the purchase or acquisition of goods, products, or materials produced in the United States, including iron, steel, and manufactured goods.”

“”Produced in the United States” means, for iron and steel products, that all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.”

“Waivers” means exemptions from or waivers of Buy American Laws, “or the procedures and conditions used by an executive department or agency (agency) in granting exemptions from or waivers of Buy American Laws.”

and

“”Buy American Laws.”  In order to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases, it shall be the policy of the executive branch to maximize, consistent with law, through terms and conditions of Federal financial assistance awards and Federal procurements, the use of goods, products, and materials produced in the United States.”

The meat of the Order is: “Every agency shall scrupulously monitor, enforce, and comply with Buy American Laws, to the extent they apply, and minimize the use of waivers, consistent with applicable law”. To carry out this goal,  a timeline is set out:

1)         By September 15th, agency heads are to evaluate each agency’s use of Buy America, including waivers, and propose policies that maximize “the use of materials produced in the United States, including manufactured products; components of manufactured products; and materials such as steel, iron, aluminum, and cement” and report their findings.

2)         By June 17th, the Secretary of Commerce and the Director of the Office of Management and Budget (“OMB”) are to consult with the Secretaries of State and Labor, plus the U.S. Trade Rep. and the Federal Acquisition Council and provide guidance to the agencies about how to carry out their assessments and develop the requested policies.

3)         By September 15th, the Secretary of Commerce and Director of OMB are to assess the impact of free trade agreements and the World Trade Organization’s Agreement on Government Procurement on the operation of Buy American Laws, “including their impacts on the implementation of domestic procurement preferences”.

4)         By November 24th, the Secretary of Commerce, after consulting with the Secretary of State, OMB Director and U.S. Trade Rep., is to report his findings. The report is to include recommendations to strengthen implementation of the Buy American Laws. Subsequent reports are to be issued on November 15, 2018, 2019 and 2020. Thereafter, the frequency of the reports is determined by the Commerce Secretary and OMB Director. The Commerce Secretary is to annually report to the President starting on January 15, 2019.

5)         Waivers are to be used judiciously and should be decided by the agency head, if possible. Before being granted, account should be taken of whether a “significant” portion of any cost advantage is the result of the “use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured good”, and any such findings should be integrated into the waiver determination.

Buy American is obviously intended to provide a preference to U.S. made products. The rules can be found in the Federal Acquisition Regulations and the Defense Federal Acquisition Regulations. While the goal may be attaining a high percentage of American-made content for the goods procured, in fact, the definition of what qualifies may turn, in some circumstances, on whether simply more than 50% American content is attained. These regulations also provide for situations where outright foreign-made products are permitted if they meet the commercial off-the-shelf definition.  Qualification under Buy American may also be obtained in the right circumstances if the origin of the good comes from a country which is a signatory to the World Trade Organization Agreement on Government Procedure.  Qualification may also be obtained through the Trade Agreements Act.

In the short term, this Order means agencies may be more reluctant to award contracts without first seeking additional supporting documents. It may also mean that recertification of compliance may be demanded more frequently, or at least more regularly. Of course, it likely also means more audits or at least more attention being paid to Buy American qualification or compliance than has occurred in the past.  Companies that are part of the federal procurement supply chain should make sure they have all the right documents in hand.  All too often, sourcing changes are made without first considering the overall impact on government procurement and/or free trade agreement qualification.

Admittedly, this EO also mandates a review regarding the H1-B visa and generally talks about tightening U.S. immigration laws, but there is nothing actionable for the private sector in this Order and so we will not comment further on that topic at this time.

Here are some tips for compliance regarding government procurement:

1)         Have a full and complete bill of materials for each product you are selling to any government entity;

2)         Your government procurement team should include at least one person familiar with international trade policies and regulations;

3)         Read the bid and make sure exactly what requirements are imposed for product qualification and those requirements are fully understood;

4)         Qualification of each product offered in response to a procurement proposal is regularly confirmed and is reconfirmed prior to the next bid being submitted;

5)         Your internal procedures permit regular verification that sourcing and other conditions have not changed;

6)         Your supplier purchase agreements include provisions for those suppliers to provide you with any needed documentation to satisfy all inquiries or requests from any federal agency, and those documents are to be produced in a matter of days;

7)         Your final closing action regarding any procurement contract (federal or otherwise) includes a review to make sure no errors were made, including how any foreign input was qualified. If an error is found, elevate it to the team that decides next steps.

8)         Your internal procedures require that if/when errors are discovered , they are reported; you don’t want your contractor integrity score to be damaged unnecessarily, so make sure that corrective action, including any disclosure filing, is implemented promptly.

In the Eye of the Beholder

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Buy America, Corporate Counsel, Cross-border trade, Customs Law, Exports, Government Procurement, Legal Developments, NAFTA, Trade Agreeements, Trade Remedies, World Trade Organization

First published by the Journal of Commerce – April 2017

The first tangible indications of what trade policy might actually look like under the Trump Administration have been released. After excoriating NAFTA as the “worst trade deal ever” and quickly withdrawing the U.S. from the TransPacific Partnership, which was already dead, we are now starting to see some actual language – and it will be disappointing to the diehards! First came the well-covered in the general press eight (8) page letter to Congress about NAFTA. It does contain some interesting provisions, but nothing revolutionary, at least not yet!

The NAFTA letter contains comments about restricting federal procurement to U.S. suppliers.  Obviously, whoever drafted it ignored that preference is only extended to non-U.S. content (not the location of the supplier)  if the origin of the inputs (raw materials, components, etc.)  is from a country with which the U.S. has a free trade agreement.  What was also overlooked is if the rules are changed, how long will it take other countries to act for the benefit of their own companies and against the interests of Americans bidding on foreign projects?

Another topic in the NAFTA letter was the rules of origin. One would be hard pressed to find experienced traders who argue the rules of origin do not need simplification and modernization. The challenge is how? From the beginning, the rules of origin have been too complicated.  Many companies take advantage of the reduction in trade barriers by entering new markets, but without seeking the corresponding free rate of duty simply because of how costly it is to be compliant. Also, among the missing topics is eCommerce and the myriad of issues it alone raises.

The other topic getting a lot of general press coverage regarding the NAFTA letter is dispute resolution. This is another context in which the new administration does not seem to be able to find a consistent position. First came, we’re not sure we like the World Trade Organization’s methodology, now we get we don’t like the NAFTA dispute resolution mechanism. We prefer the process provided by the WTO!

The general consensus is this letter will be finalized only once Robert Lighthizer is confirmed as U.S. Trade Representative.  Why then was the letter distributed to Congress now? It certainly did not trigger the 90 day consultation period required by law. When will it be published so we can all read it for ourselves?  What will the final version look like?

Showing a questionable understanding of current practices are the Executive Orders (EO) issued on Friday, March 31st. The first is yet to be published, but the two together are touted as cracking down on trade cheaters.  This first EO is said to call for an investigation which will focus on the causes of the U.S. trade deficit with China, Japan, Germany, Mexico, Ireland, Vietnam, Italy, Korea, Malaysia, India, Thailand, France, Switzerland, Taiwan, Indonesia and Canada. The investigation will go through the U.S. trade relationship country-by-country and look to identify root causes in such areas as cheating, lax enforcement and currency misalignment (previously called currency manipulation). What will result and how it will differ from reports already routinely prepared by federal agencies are all open questions.

The second EO issued on March 31st has been published and can be found here EO re ADD/CVD Enforcement Enhancement. It focuses on antidumping cases. Being a very short two plus pages, it calls for “appropriate” bonding provisions based on risk assessment. What the EO does not make clear is what that means or the form the “other legal measures” and “other appropriate enforcement measures” will take.

Secretary of Commerce Ross was on one of the Sunday news shows and is quoted as saying: “[w]hat had happened was that the very clever importers, who are beating the laws in a lot of ways, set up shell companies—those do the technical importing. Then when we levee a fine there’s no financially responsible party there. So this’ll call for a process of bonding or putting up letters of credit or cash to make sure that when we levee a fine, we collect it,”  Apparently Sec. Ross does not realize that bonds only secure duty payments and the unpaid antidumping and countervailing duty amounts are duties, not fines. Further, there is no methodology currently in place that facilitates the use of a bond to secure future potential violations which take the form of penalties.  Apparently Sec. Ross has also overlooked that much of the $2.3 billion related to antidumping and countervailing which remains unpaid is actually quote old and tied up in three cases, all of which together represents an importing process that long ago matured to bonds subject to separate and greater underwriting scrutiny, which are fully collateralized by letters of credit.

This EO goes on to call for Customs and Border Protection (CBP) to develop and implement a “strategy and plan for combating violations of United States trade and customs laws for goods and for enabling interdiction and disposal, including through methods other than seizure, of inadmissible merchandise entering  through any mode of transportation…” It would seem that Sec. Ross would interpret this language to mean we expect CBP will inspect more shipments where there is reason to be suspicious!

Oddly out of place is a provision dealing with intellectual property rights enforcement specifically as relates to counterfeit goods and, in particular, to how information about those counterfeit products can be shared with rights holders.

The Attorney General is also called upon  to give a high priority to prosecution of trade law violations and provide recommended prosecution practices.

These provisions alone should set off red flags for all traders – this can only mean one thing – more enforcement, perhaps at the expense of trade facilitation, and impacting many product lines, especially since antidumping and countervailing duty are apply to many different products from many different countries. The EO goes on to require CBP to come up with its plan within 90 days, so we should know more by the end of June/early July.

For experienced international traders, they understand that asking CBP to do this much more really means give the agency more staffing, more equipment and more money. On top of that, if the goal is to have compliant trade (forget whether we call it fair trade or free trade), that requires cooperation among countries. Yes, there are cheaters out there, no question, and some of them may actually be American companies.  However, the vast majority of American importers are naive (or maybe totally confused is more accurate) about the relevant laws and regulations, don’t know what questions to ask and even if they know the right questions, they don’t know to whom to turn. CBP publishes vast amounts of information about its rules and regulations on its website. So does Commerce, and other agencies provide other information.  Despite that, unless you know what you are doing, you really don’t know which questions to ask.  Never mind that other countries provide all sorts of educational support and financial assistance to their companies.  When is the American government going to stop blaming everyone else and start taking real and tangible steps to present information to novice and less experienced importers and exporters in a way that is easy to understand and implement?  Only when that happens will we see American importers and exporters on a level playing field with their international competitors.

EU-Origin Cosmetics Become Duty-Free Upon Provisional Implementation of CETA

Posted in Canada's Federal Government, Canada-EU CETA, Cross-border trade, Customs Law, origin, tariff classification

CLASSIC-COSMETICS-GROUPOn the date of provisional implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (the “Canada-EU CETA”) (June 1 or July 1, 2017), EU-origin cosmetics will become duty free immediately.  Cosmetics are in Chapter 33 of the Harmonized Commodity Description and Coding System.  Canada committed in its Annex 2-A to immediately eliminate customs duties and all items in Chapter 33.

The cosmetics must meet the applicable rule of origin in the Canada-EU CETA (goods are not duty free if the only test that is satisfied is that they are shipped from an EU Member).  The product specific rules are in Annex 5 of the Protocol on rules of origin and origin procedures in the Canada-EU CETA.

The CETA rules of origin for HS 33.03 (perfumes and toilet waters) is:

“A change from any other heading; or
A change from within this heading, whether or not there is also a change from any other heading, provided that the value of non-originating materials of this heading does not exceed 20 per cent of the transaction value or ex-works price of the product.”

The CETA rule of origin for HS 33.04-33.07 (lip make-up preparations, eye make-up preparations, manicure or pedicure make-up preparations, powders, etc.):

“A change from any other heading; or
A change from within any one of these headings, whether or not there is also a change from any other heading, provided that the value of non-originating materials classified in the same heading as the final product does not exceed 20 per cent of the transaction value or ex-works price of the product.”

This rule of origin is easy to meet if you have a single item, such as a lipstick because the tariff shift rule would most likely be applicable.  The rule of origin for compilations or sets may require more detailed analysis because the tariff shift rule may not apply and the regional value content rule would be applicable.

The Canada-EU CETA will bring opportunities to EU-exporters of cosmetics if they ship directly to Canada from the EU.

An open issue is the treatment of EU-origin goods that are sold by a distributor or retailer located in a third country (e.g. the United States).  Chapter 2 of the Canada-EU CETA does not contain a transshipment restriction (which is often found in Canadian FTAs).  However, Article 2 of Annex 2-A, provides as follows:

“Except as otherwise provided in this Annex, the Parties shall eliminate all customs duties on originating goods, of Chapters 1 through 97 of the Harmonized System that provide for a most-favoured-nation (“MFN”) rate of customs duty, imported from the other Party upon the date of entry into force of this Agreement.”

Does this mean EU-origin goods shipped from another country (e.g., the United States) will not be entitled to CETA preferential duty rates?  Article 2 of Annex 2-A does not contain the most restrictive language of NAFTA Article 411 (which states that “A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of Article 401 if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the Parties, other than unloading, reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of a Party”). Article 2 of Annex 2-A does not contain the word “directly”.  It could be interpreted to mean transshipment is allowed (it could also be interpreted to not allow transshipped goods to receive duty relief).

The Canadian regulations and Customs Notices have not yet been published.  As a result, we do not yet know whether the Canada Border Services Agency is going to require direct shipment from the European Union for goods to be entitled to CETA duty rates.

There are many other important questions to ask – hopefully this gets you started asking questions.  If you require any assistance, please contact Cyndee Todgham Cherniak at 416-307-4168 or Cyndee@lexsage.com.  There are many useful articles posted on the LexSage website.

Canadian Manufacturers And Exporters Will Benefit From the Canada-EU CETA Opportunties

Posted in Agriculture, Canada's Federal Government, Canada-EU CETA, Cross-border trade, Exports, Trade Agreeements

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The Canada-European Union Comprehensive Economic and Trade Agreement (the “Canada-EU CETA”) creates opportunities for Canadian manufacturers and exporters to sell into the European markets. On the date of provisional implementation, 98% of Canadian-origin goods will be able to enter European Union Members tariff free, compared to just 25 per cent today.  We have prepared a chart of the European Union tariff elimination and reduction commitments in Annex 2-A of the Canada-EU CETA,

100% of non-agricultural goods (other than autos and auto parts) exported from Canada to European Union Members become duty free immediately.  Most (94% of EU tariff lines on agriculture products) Canadian-origin agricultural goods become duty free immediately upon provisional implementation. This is true for many agricultural products, including everything from maple syrup to apples to cranberries. Some agricultural goods are exempted from tariff elimination, meaning that those limited items will enter the European Union at MFN rates of duty.  Other agricultural goods (cheese, dairy, beef, veal, pork, etc.) will be subject to origin quotas and others will be subject to tariff rate quotas. Canadian beef and pork producers will benefit gradually, over a five-year transition period, from greater market access in the EU.

What does “provisional implementation” mean?

“Provisional implementation” means that all or almost all of the market access provisions for goods and services will be implemented as soon as the European Parliament and the Government of Canada have ratified the Canada-EU CETA.  The effect of provisional implementation is that the non-controversial provisions (96% of the Canada-EU CETA provisions) go into effect even though there are outstanding issues relating to the investment chapter to resolve.  There are EU Members who have concerns about the investor-state dispute mechanism and the competency of the EU Parliament to enter into a free trade agreement (rather than requiring EU Members Parliamentary approval).

To which countries may Canadian exporters sell CETA goods?

Canadian importers may benefit from the Canada-EU CETA duty relief commitments made in respect of imports originating in the 28 European Union countries, which are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

What does “Canadian-origin” mean?

In order to benefit from the preferential tariff rates that the EU has agreed to impose on Canadian goods, the goods must originate in Canada according to the rules of origin.  “Originate” does not mean the good was shipped from Canada because the EU does not wish U.S. and Chinese goods to benefit from the preferences given under the CETA.  Product-specific rules of origin, based on H.S. Classification numbers as at 2015 are set out in Annex 5 of the Protocol on rules of origin and origin procedures.  The goods must meet the applicable rule of origin.

What Goods Are Subject to Tariff Rate Quotas?

Canadian Beef, veal and pork will be subject to tariff rate quotas imposed by the European Union.  A tariff rate quota is an import mechanism whereby a set amount of a specific product(s) may be imported at a low or zero rate of duty.

What Goods Are Subject to Origin Quotas?

The following categories of goods are subject to origin quotas:

You must review the specific charts to see whether the goods that you wish to export are subject to an origin quota.

What Are Origin Quotas?

This is a new concept for Canadians – origin quotas are not common in our free trade agreements.  Origin quotas are good.  Some goods contain non-originating materials/inputs.  The Origin Quotas allow for some of those goods to enter the EU under the preferential tariff rate regardless of the foreign (e.g., U.S.) content.

An Origin Quota is a mechanism whereby a specified quantity of a specific processed product(s) can qualify as originating under the CETA, even if it contains non-Canadian and non-European Union sourced materials, provided that it has undergone sufficient production based on the alternative, less restrictive rule of origin associated with that Origin Quota. These products are considered originating and are thus eligible for the preferential tariff treatment that a Party provides under CETA.

Under CETA, for specified processed products to meet the CETA rules of origin and be eligible for preferential tariff treatment, the main rules of origin place restrictions or limitations on the use of specific non-originating materials or ingredients, while the alternative rules of origin provide the flexibility to use more non-originating materials or ingredients in the production of that product. Under the alternative rules of origin that apply to the Origin Quotas, producers can use more non-originating materials or ingredients than otherwise permitted under the main rules of origin.

Relying on the Origin Quotas to export preferentially to the European Union, is only necessary for products that do not satisfy the main product-specific CETA rules of origin or do not enter the European Union via a tariff line that is already Most-Favoured Nation (MFN) duty-free.

How Will Origin Quotas Be Managed?

This will be the subject of a subsequent post.  We will tell you now that the EU will manage the origin quotas on a first-come first-served basis and shall calculate the quantity of products entered under these origin quotas.

There are many other important questions to ask – hopefully this gets you started asking questions.  If you require any assistance, please contact Cyndee Todgham Cherniak at 416-307-4168 or Cyndee@lexsage.com.  There are many useful articles posted on the LexSage website.

The Canada-EU CETA Rules Of Origin For Textiles And Apparel Are More Flexible For Canadian Importers

Posted in Canada's Federal Government, Canada-EU CETA, Cross-border deals, Cross-border trade, Imports Restrictions, origin, tariff classification, Trade Agreeements

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Currently, European textile and apparel goods are available in Canada.  When the Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) is provisionally implemented, more European textiles and apparel goods may be imported into Canada. Canadian importers need to know the new Canada-EU CETA rules for textiles and apparel in order to take full advantage of the new opportunities.

The Canada-EU CETA contains 8 rules of relevance to those interested in textile and apparel goods:

1. Canada’s schedule of commitments (Annex 2-A) immediately eliminates Canadian customs duties on all textile and apparel goods originating in the European Union.  Currently, certain textiles and apparel goods are subject to up to 18% MFN duties upon importation into Canada. The cost of importing EU-origin textiles and apparel goods will decrease.  If the cost savings are passed on to consumers, then demand may increase for EU-origin textiles and apparel goods.  Further, it may be that a U.S. equivalent good is not duty free due to more restrictive NAFTA rules of origin.  As a result, EU-origin textile and apparel goods may be cheaper than U.S.-origin goods.

2. The CETA rules of origin are more flexible than the NAFTA rules of origin.  The Protocol on rules of origin and origin procedures sets out the product-specific rules of origin.  You must know the H.S. classification number in order to find the appropriate rule of origin.

3. Annex 1 of the Protocol on rules of origin and origin procedures contains special rules of origin to apply when applying the product specific rules of origin.  Certain non-originating materials may be disregarded in applying textile and apparel rules of origin.  Article 2 of Annex 1 of the Protocol on rules of origin and origin procedures states:

“For greater certainty, non-originating materials of Chapter 1 through 49 or 64 through 97, including materials that contain textiles, may be disregarded for the purpose of determining whether all the non-originating materials used in the production of a product of Chapter 50 through 63 satisfies the applicable rule of origin set out in Annex 5.”

4. The CETA rules of origin are primarily based upon a double transformation principle.  The double transformation principle is understood to mean, in simple terms, that weaving and sewing, plus all subsequent manufacturing stages must be carried out in the beneficiary country in order to be considered to be originating. Annex 6 of the Protocol on rules of origin and origin procedures contains the Joint declaration concerning rules or origin for textiles and apparel.  Article 1 of Annex 6 states:

“Under [CETA], trade in textiles and apparel between the Parties is based on the principle that double transformation confers origin, as reflected in Annex 5 (Product-specific rules of origin) of the Protocol on rules of origin and origin procedures.”

5. The rules of origin include origin quotas for textiles and apparel.  Article 2 of Annex 6 of the Protocol on rules of origin and origin procedures – the Joint declaration concerning rules of origin for textiles and apparel provides for limited, reciprocal origin quotas for textiles and apparel.  These origin quotas are expressed in terms of volumes classified by product category, and include considering dyeing as equivalent to printing, for a limited and clearly identified range of product categories. Tables C.1, C.2, C.3 and C.4 of Annex 5 of the Protocol on rules of origin and origin procedure set out the origin quotas applicable for imports of EU textiles and apparel into Canada. The origin quotas, which are exceptional, will be applied in strict adherence to the Protocol on rules of origin and origin procedures.

  • Table C.3 applies to certain textiles imported into Canada under H.S. Classification Chapters 50, 51,  52, 54, 56, 57, 59 and 63.
  • Table C.4 applies to certain apparel goods imported into Canada under H.S. Classification Chapters 61 and 62.

6. The origin quotas for textiles and apparel will be increased as needed. For each of the products listed in Tables C.1, C.2, C.3 and C.4, if more than 80 per cent of an origin quota assigned to a product is used during a calendar year, the origin quota allocation will be increased for the following calendar year. The increase will be 3 per cent of the origin quota assigned to the product in the previous calendar year. The growth provision will apply for the first time after the expiry of the first complete calendar year following the entry into force of this Agreement. The annual origin quota allocations may be increased during a period of up to ten years. Any increase in the origin quota volume will be implemented in the first quarter of the subsequent calendar year.

The CETA rules of origin for textiles remain complicated – but, they are significantly less complicated than the fibre-forward, yard-forward and fabric-forward rules of origin in NAFTA.  It will be necessary to review the CETA rules on a textile-by-textile, apparel-by-apparel basis to see what opportunities may be pursued by Canadian importers.

7. The certifications of origin on EU-origin goods may result in lower Canada Border Services Agency (“CBSA”) reassessment risk.

8. The Canada-EU CETA does not contain geographic indications relating to textiles and apparel goods.

For more information about the Canada-EU CETA, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@Lexsage.com.  More information about the Canada-EU CETA is posted on the LexSage web-site.

Say Cheese: European Cheeses Will Soon Be Available Under Canada-EU CETA

Posted in Agriculture, Canada-EU CETA, Cross-border trade, Customs Law, Imports Restrictions, origin, tariff classification

CheeseCurrently, European cheeses are available in Canada.  When the Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) is provisionally implemented, more European cheese may be imported into Canada. Current Canadian importers of cheese and new importers of cheese (e.g., restaurants, specialty cheese retailers and others) need to get ready.

The Canada-EU CETA contains 5 sets of rules of relevance to those interested in cheese:

1. The duty elimination and duty reduction rules:  Canada’s schedule of commitments (Annex 2-A) on duty elimination and duty reduction exempts some types of cheeses.  The exempted cheese may still be imported into Canada.  However, the applicable rate of duty will be the MFN rate (rather than the CEUT rate).  There is no preferential rates of duty for the identified cheese.

2. Over a 5 year gradual increase period, Canada has agreed to grant more quota for cheese over and above the WTO commitments:

Cheese Quota by the Numbers (in Tonnes)
New CETA commitments
Current EU Quota Under WTO 13,500 High Quality Classes (16,000 tonnes phased over 5 years) (tonnes)
Yr 1 2,667
Yr 2 5,333
Yr 3 8,000
Yr 4 10,667
Yr 5 13,333
Yr 6 and after 16,000
Added quantity for EU high value cheese 800 Industrial Cheeses (1,700 tonnes phased in over 5 years)
Yr 1 283
Yr 2 567
Yr 3 850
Yr 4 1,133
Yr 5 1,417
Yr 6 1,700
WTO Total 14,300

3. Canada has made commitments regarding the allocation of the new cheese quota.  In Annex 2-B, “Declaration of the Parties concerning tariff rate quota administration, Canada has agreed to allocate cheese quota using an import licensing system on an annual basis.  The EU cheese quota allocation method must allow for new entrants each year. During the phase-in period from Year 1 to Year 5, at least 30 per cent of the tariff rate quota will be available to new entrants every year. After the end of the phase-in period from Year 6 and in subsequent years, at least 10 percent of the tariff rate quota quantity will be available for new entrants. This allows for retailers and specialty cheese stores and restaurants to apply for EU cheese quota.  Canadian importers must apply for quota on an annual basis. To be eligible, an applicant shall be, at a minimum, a resident of Canada and be active in the Canadian cheese sector regularly during the year.

It is anticipated that Canada will continue to require importers of cheese who are allocated quota to be required to apply for an import permit on an import-by-import basis (as required currently).  The Government of Canada undertook consultations with Canadians on cheese quota allocation and has not yet communicated the results of those consultations.  The EU cheese quota rules will have to be implemented prior to the provisional implementation of the Canada-EU CETA.  The EU cheese quota may slow down the process.  Be ready to apply as soon as the new program is announced.  30% of the Year 1 quota goes to new applicants. Get in earlier rather than later.

4. The Canada-EU CETA contains rules of origin for cheese.  The cheese must originate in the EU (according to the Canada-EU CETA rules of origin) in order to qualify under the EU cheese quota.  Rules of origin are based on H.S. classification numbers.  One of the rules of origin for cheese is:

“A change from any other chapter, except from dairy preparations of subheading 1901.90 containing more than 10 per cent by dry weight of milk solids, provided that:
(a) all the material of Chapter 4 used is wholly obtained, and
(b) the net weight of non-originating sugar used in production does not exceed 20 per cent of the net weight of the product.”

Check the specific rules of origin for the type of cheese you wish to import.

5. Canada’s commitments of geographic indications restricts the use of certain names of cheese.  Canadian distributors, retailers, restaurants, etc cannot use the name of certain cheese names unless it is in respect of the genuine product. Canadian companies should exercise caution when using these cheese names on products and in advertising.

Iran Sanctions – Tit for Tat?

Posted in Aerospace & Defence, Agriculture, Border Security, Controlled Goods Program, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border trade, Environment, Export Controls & Economic Sanctions, Exports, Government Procurement, Harmonization, Immigration law, Imports Restrictions, Legal Developments, Politics, Trade Agreeements, Trade Remedies, World Trade Organization

On Sunday, March 26, 2017, the Iranian State Agency (IRNA) announced the imposition of sanctions by Iran on 15 American companies.  While the move is widely seen as Iran responding to recent and on-going enforcement action taken in the U.S., such action is certainly creating ever more complex circumstances in the region.

In explaining the sanctions imposed, IRNA stated:  “[t]he sanctioned companies have, directly and/or indirectly, been involved in the brutal atrocities committed by the Zionist regime in the occupied Palestinian territories . .. Imposition of new sanctions by the US is based on fabricated and illegitimate pretexts and amount[s] to an action against the international regulations”.  IRNA also repeated the oft-asserted claim that strengthening Iran’s missile system is “enhancement of the country’s defense capabilities” and is not aimed towards aggression.

IRNA further emphasized Iran’s resolve to develop its peaceful missile power as part of the nation’s “inalienable” right to enhance its deterrence and defense in the face of claimed threats. The consequence of these sanctions is that any assets found in country will be seized, business with these companies is forbidden and their officials will be denied visas by Iran. Given none of these countries is thought to have a presence in Iran, the impact of these sanctions is seem as symbolic at best.

As grounds for its action, Iran asserts the listed companies support Israel’s actions which Iran characterizes as violating UN Security Council Resolution 2334, calling on Israel to stop its settlement expansions.  Based on an article found at: http://www.presstv.ir/Detail/2017/03/26/515663/Iran-US-Sanctions, the companies on which Iran imposed sanctions are:

-Beni Tal security company has worked with the Israeli military.

-United Technologies has sold Black Hawk military helicopters to Israel.

-Raytheon has supplied Israel with technologically advanced military weapons.

-ITT Corporation has provided the Israeli military with equipment.

-Re/Max has been involved in real estate transactions in Israeli settlement areas.

-Oshkosh Corporation has been supplying the Israeli military with parts for armored vehicles.

-Magnum Research Inc. has worked with Israeli military industries in the manufacturing of firearms and military equipment.

– Kahr Arms has provided spare parts and developed light weapons used by the Israeli army.

– M7 Aerospace LP, purchased by U.S. subsidiary of the Israeli military contractor Elbit Systems, has been active in the production and development of Israeli radar and missile systems.

– Military Armament Corporation has provided services and equipment linked to the Israeli police.

– Lewis Machine and Tool Company has provided weapons spare parts and services to the Israeli military’s arms industry.

– Daniel Defense has provided the Israeli military’s arms industry with spare parts and services.

– Bushmaster Firearms International has provided the Israeli military with spare parts and services for weapons manufacturing.

-O.F. Mossberg & Sons has supplied Israel with weapons for use by the military and police forces.

-H-S Precision, Inc. has provided the Israeli military with weapons manufacturing technology.

The Iranian Foreign Ministry stated the list could expand to include more entities.  This action by  Iran is seen as another  reactionary step responding to actions take or threatened by the U.S. against Iran.

In the last week alone, the U.S. has imposed significant sanctions for violations of the U.S. export laws related to aiding Iran’s ballistic missile development. There were sanctions imposed on 30 foreign companies or individuals for transferring sensitive technology and violating export controls  in violation of the Iran, North Korea and Syria sanctions.  Eleven companies or individuals from China, North Korea or the United Arab Emirates were sanctioned for technology transfers seen as possibly boosting Iran’s ballistic missile program. Plus, nineteen entities or individuals were sanctioned for other violations under the Iran, North Korea and Syrian sanctions regimes.

In addition, in the U.S. Senate, also last week, a bipartisan bill was introduced which would impose mandatory sanctions on those involved in Iran’s ballistic missile program. Remarkably, this bill includes a provision which would impose terrorism sanctions on Iran’s Revolutionary Guard, the first time a recognized government entity would be so designated.  The bill includes a provision which would require  “the president to block the property of any person or entity involved in specific activities related to the supply, sale, or transfer of prohibited arms and related material to or from Iran”. See S.722. See also H.R. 1698, the text of both has yet to be published.

Also contributing to the situation is Iran’s on-going unhappiness with its progress to reintegrate into the international system of banking and business. The situation is so complex that European bankers have repeatedly asked the U.S. government to provide briefings in order that they might clearly understand their potential exposure under the current American economic sanctions regimes. The level of knowledge Iran had about American sanctions before JCPOA (Joint Comprehensive Plan Of Action, which took effect in October 2015) is not clear in terms of whether they understood how much of what is on the books is in law v. what President Obama could ease by way of Executive Order.  Nonetheless, there is little doubt, Iran is vexed at its inability to access capital through regular banking channels so long as the American sanctions remain in effect.  What happens next is getting ever more threatening.

Canadian Senate Bill Takes Firm Position On Iran Sanctions And Could Add To Sanctions List

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

globe and calculatorCanada’s Senate is currently considering Bill S-219 “An Act to deter Iran-sponsored terrorism, incitement to hatred, and human rights violations” (to be called “Non-Nuclear Sanctions Against Iran Act“) which has received little attention. Bill S-219 will, if passed into law, ensure that Canada has the most restrictive economic sanctions regime against Iran of all countries in the World.

Canada’s unilateral economic sanctions regime is based on targeted sanctions. Bill S-219 also pursues targeted sanctions – but the new sanctions targets are wide in potential scope.  Bill S-219 would, if passed, change Canada’s economic sanctions regime, as it applies to Iran, in four fundamental ways:

  1. The Minister of Foreign Affairs and International Trade will be required to table an Annual Report focused on Iran-sponsored terrorism, incitement to hatred, and human rights violations;
  2. Canada would be prohibited from easing economic sanctions under the Special Economic Measures Act unless two consecutive annual reports conclude that there is no credible evidence of terrorist activity or incitement to hatred emanating from Iran and that there has been significant progress in Iran in respect of human rights;
  3. Incorporating into Canada’s economic sanctions system a human rights imperative (Iran only); and
  4. Establishing another list of sanctioned Iranian persons (which can be modified from time to time) the following persons:
  • the Execution of Imam Khomenei’s Order (EIKO);
  • other entities named in the annual report, including those that the Minister believes have been owned or controlled by EIKO or the Islamic Revolutionary Guard Corps (IRGC) or the officers of which have been acting on behalf of EIKO or the IRGC during the five preceding years; and
  • Iranian officials named in the annual report as being persons the Minister believes to be responsible for terrorist activity, support of terrorism, incitement to hatred, or serious human rights violations.

These changes will be significant, if passed into law.  Currently, Bill S-219 has receive Second Reading in the Senate.  Bill S-219 is currently being reviewed by the Senate Standing Committee on Foreign Affairs and International Trade.  There has already been much testimony on Bill S-219 (Bill Bowder testified on December 8, 2016 and his testimony is a very interesting read) and more testimony will be had.  Bill S-219 is on the Agenda of the Senate Standing Committee on Foreign Affairs and International Trade’s March 29, 2017 meeting.  There is no guarantee that Bill S-219 will be passed into law in Canada.

If Bill S-219 is passed into law in Canada, it will limit the ability of the Minister of Global Affairs to ease Canada’s economic sanctions against Iran even if other countries ease their sanctions against Iran.  This would limit the ability of Canadian companies and Canadians outside Canada from pursuing the opportunities that are available to other companies (e.g., U.S. companies or EU companies where the economic sanctions regimes have been eased).  If Bill S-219 is passed into law, Canada would essentially take the hardest stance against Iran of any country.  For this reason, Canadian companies should be watching this Bill very closely and revisit any business in or with Iran.  Any Canadian business or Canadian doing business in Iran should ensure that their compliance program process for reviewing designated persons lists is updated and able to respond quickly to the addition of new names of designated persons/entites (targets).

For more information about Canada’s economic sanctions against Iran, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@Lexsage.com.  More information about Canada’s economic sanctions regime is posted on the LexSage web-site.

When Will The Canada-EU CETA Be Provisionally Implemented?

Posted in Canada-EU CETA

3d human with a red question mark

The officials have said that the Canada-European Union Comprehensive Economic and Trade Agreement (the “Canada-EU CETA”) will be provisionally implemented in the Spring of 2017.  We know from the Canada-EU CETA implementing provisions that the start date will be the first of a month.  April 1, 2017, May 1, 2017 and June 1, 2017 are all firsts of months in Spring.

April 1, 2017 is next week and the Senate Standing Committee on Foreign Affairs and Trade have not yet met to discuss Bill C-30 “An Act to implement the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States and to provide for certain other measures”. So, that means that April 1, 2017 is no longer likely.

We have heard that the Senate Standing Committee on Foreign Affairs and Trade will schedule to meet and hear testimony on Bill C-30 soon.  So far, no meetings on Bill C-30 have been posted by the Senate Committee of Foreign Affairs and Trade.  This Committee is meeting on March 29, 2017 on a different piece of legislation.  However, there will be an in camera discussion about future Committee business on March 29, 2017.

Assuming that the Senate Standing Committee on Foreign Affairs and Trade meets and calls witnesses to provide testimony and answer questions from senators concerning Bill C-30, the Report could be written in April 2017 and could be tabled for third reading in the Senate.  It is possible for Bill C-30 to pass third reading in April 2017.  It is possible that Bill C-30 will receive Royal Assent in Canada in April 2017.  It is possible that Canada will ratify the Canada-EU CETA in April 2017 – but is it likely?

Canada must pass regulations after Bill C-30 receives Royal Assent.  Many of Canada’s laws to implement CETA will be in changes to regulations and the issuance of new regulations.  Canada may not be ready in April to promulgate all the necessary regulations.  Rumour has it that Canada still needs some time to prepare the regulations and take other steps to be ready for provisional implementation.

For this reason, May 1, 2017 may not be the most likely provisional implementation date.  June 1, 2017 is the most likely date for provisional implementation of the Canada-EU CETA unless the Government of Canada is willing to miss an important date that was communicated to the public this week by the EU Trade Commissioner. Would Canada want to embarrass, Cecilia Malmström?  Canada will not wish to embarrass a key trade ally.

There are many other important questions to ask – hopefully this gets you started asking questions.  If you require any assistance, please contact Cyndee Todgham Cherniak at 416-307-4168 or Cyndee@lexsage.com.  There are many useful articles posted on the LexSage website.

Canada’s 2017 Budget Bill Includes Significant Changes To Canada’s Antidumping/Countervailing Duty Laws

Posted in Antidumping, Canada's Federal Government, Trade Remedies

Gavel and Scales of JusticeOn March 22, 2017, Canada’s Federal Government tabled the 2017 Budget.  Hidden within the supplemental documents is a notice of changes to the Special Import Measures Act (“SIMA”) (Canada’s antidumping and countervailing duty law).  These amendments are very important – most are intended to provide domestic producers greater protection. The changes include:

  1. SIMA amendments to permit an antidumping investigation to be terminated where it is found that an exporter did not engage in dumping or dumped at de minimis levels.  This amendment is a result of a WTO Dispute Settlement Panel decision in Canada – Carbon Steel Welded Pipe and brings Canada’s laws into compliance with WTO obligations.  These amendments are beneficial for specific exporters.  The 2017 Budget is silent on certain other issues identified in the WTO Carbon Steel Welded Pipe case.
  2. SIMA amendments to permit the Canada Border Services Agency to make “scope rulings”. Interested parties may request that the CBSA conduct a formal review to determine whether a specific product falls within the scope of a trade remedy measure. Presumably, the changes will permit domestic producers, as well as importers and foreign producers to seek scope rulings.  It is possible that domestic producers will obtain samples of goods imported by importers in order to obtain scope rulings against the importers, which could lead to re-assessments of SIMA duties against the importer.
  3. SIMA amendments to allow domestic producers to file a complaint regarding trade and business practices specifically intended to avoid trade remedy duties. If the CBSA finds that a Canadian importer is engaging in such behaviour, antidumping/countervailing duties may be extended to goods found to circumvent a trade remedy measure.  The amendments will establish a formal procedure whereby the CBSA will conduct an investigation and in which all interested parties will be able to participate.  This could be problematic for specific importers and importers who also get caught in the net.  It could also affect consumers.  Importers will have to watch SIMA trade remedies investigations more closely to see whether their goods are added to Canadian International Trade Tribunal Orders.
  4. SIMA amendments to give the CBSA more flexibility when assessing reliability of home market prices of foreign producers. Where CBSA investigators find that prices are distorted due to the presence of a “particular market situation”, it will now be possible to use alternative approaches to ensure a proper price comparison. These amendments affect foreign producers/exporters and importers and consumers.  These amendments could increase dumping margins and normal values calculated for cooperative exporters.  The higher the dumping margin, the more likely goods will be too expensive for Canadians.  The opaque process for determining normal values and export prices will become more confusing for foreign producers/exporters.
  5. Amendments will be made to SIMA or the Special Import Measures Regulations to ensure that unions have the right to participate as interested parties in trade remedy proceedings.

The amendments to SIMA will be included in the 2017 Budget bill when it is tabled in the House of Commons.  We have not been able to locate a Notice of Ways and Means motion.

For more information about Canada’s antidumping laws, please contact Cyndee Todgham Cherniak or at cyndee@lexsage.com.  There are many articles about Canada’s antidumping system posted on LexSage’s website.