Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Everyone Deserves To Have Secrets – Defend Trade Secrets Act of 2016

Posted in Aerospace & Defence, Agriculture, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border litigation, Cross-border trade, Export Controls & Economic Sanctions, Exports, FCPA/Anti-Corruption, Intellectual Property, Legal Developments

On May 11, 2016, President Obama signed into law the Defend Trade Secrets Act of 2016 (DTSA) which brought with it a new era of accountability and expediency in protecting employers’ intellectual property. Whether proprietary lines of code in a software program, the secret recipe for fried chicken or highly-valued customer lists, “trade secrets” provide a competitive advantage for businesses. While the DTSA provides new avenues for employers to protect their trade secrets, it also imposes additional burdens, creating new whistleblower protections and imposing new notice requirements.

One of the DTSA’s major benefits is that it provides employers with the option to pursue civil misappropriation of trade secret cases in federal court if the trade secret is related to a product or service used in, or intended for use in, interstate or foreign commerce. Until the passing of this law, trade secrets were regulated solely by state laws, which made it incredibly difficult and time consuming to prosecute misappropriation when the theft occurred across state lines or international boundaries. Under the DTSA, the employer still has the burden to establish that the material at issue constitutes trade secrets, meaning that the employer must show that it employed “reasonable measures” to protect the material.

The DTSA includes whistleblower protections that provide immunity for employees and other individuals who report thefts confidentially to the government or an attorney. If an employee claims retaliation for reporting a suspected trade secrets theft, that employee may disclose the trade secret to his or her attorney and use the trade secret in court, provided that such documents related to the trade secret are filed under seal and the employee does not disclose the trade secret except pursuant to court order.

Employers are required to give notice to employees (which includes contractors and consultants) about DTSA’s whistleblower immunity provisions in any contract that governs the use of trade secret or other confidential information that is entered into after the enactment of the DTSA. Employers may comply with this requirement by including a cross-reference in the agreement to a written policy that fully explains the DTSA’s immunity provisions. If an employer fails to provide the requisite notice, it may not be awarded exemplary (punitive) damages or attorneys’ fees for any action brought under the DTSA.

DTSA provides various forms of remedies, including damages, injunctive relief, and even royalty structures for future use of the trade secret in cases where an injunction would be inequitable. Notably, a court may NOT grant an injunction that prevents a person from entering into an employment relationship or that otherwise conflicts with applicable state law prohibiting restraints on employee mobility.

Most companies with trade secrets and other critical business proprietary information have implemented some degree of security and limited access to that data. If you desire to have your company assessed for exposure of secrets, their likelihood of being stolen or your ability to enforce your rights under DTSA, feel free to contact us.


How significant of a problem is trade secret theft?

According to the Commission on the Theft of American Intellectual Property, American companies have suffered trade secret attacks by domestic and foreign culprits to the tune of $300 billion a year.

What steps should employers take now to comply with the DTSA?

In order to comply with the DTSA’s notice requirements to employees, employers should revise any employment agreement that addresses trade secret or confidential information to either: (1) include information regarding whistleblower immunity for employee’s confidential disclosure of trade secret information; or (2) cross-reference a policy that includes such information. Employers also are wise to update (1) whistleblower policies; (2) non-disclosure agreements; (3) trade secrets policies and procedures; and (4) contractor agreements.

How do I know if our company has taken reasonable measures to protect it trade secrets?

An employer should analyze the following to determine whether it has acted reasonably to protect trade secret information in order to benefit from the DTSA:

  1. How are our trade secrets currently protected?
  2. Do we allow hard or soft copies of any trade secrets to be maintained at employees’ homes?
  3. Is data allowed to be downloaded onto local drives on employee laptops?
  4. How are our trade secret documents marked?
  5. How is on-line access managed?
  6. Are employees (including consultants and contractors) and other business partners required to sign non-disclosure agreements?
  7. How do we manage the use of thumb drives?
  8. How is access to our system monitored both during and after employment?
  9. What is our “bring your own device” (BYOD) to work policy?

MSK attorneys are experienced in drafting policies and agreements to assist employers in establishing reasonable measures to protect trade secrets. Please let us know if we can be of assistance in preparing or updating your documents.

Thanks to my colleague Brett Thomas for co-authoring this article with me.

What To Do When USCBP Wants To Conduct a NAFTA Verification Of An Exporter/Producer in Canada

Posted in Cross-border trade, Customs Law, origin

Canada-US GlobeMost Canadian businesses do not relish a visit from a Canadian tax auditor and also do not view with anticipation a fax from the United States Customs and Border Protection (USCBP) asking to come for a visit to conduct a NAFTA verification of their certificates of origin.

NAFTA Article 506 sets out the authority for each Party to NAFTA (Canada, Mexico and the United States) to conduct verifications of the books and records of exporters and/or producers located in the territory of another Party. NAFTA Article 506 permits USCBP to conduct verifications on Canadian soil and in Canadian factories/exporters.

The overall objective of an NAFTA verification is to confirm that products covered by a certificate of origin completed by the exporter or producer qualify as originating in accordance with the rules of origin in NAFTA (found in Chapter 4).

Usually the NAFTA verification process starts with a fax from USCBP. They get the information from the certificate of origin that was provided by a U.S.-based importer when they claimed NAFTA duty-free treatment for imported goods from Canada. The fax/letter usually indicates that the USCBP would like to visit.  USCBP usually provides a planned date for the NAFTA verification. The fax/letter also indicates for which goods they plan to verify origin. It can be just a single good that is sold or it could cover a broad range of goods. The fax/letter also indicates that if the Canadian producer refuses to allow USCBP to visit to conduct the verification, shipments to the United States will be denied NAFTA preferential treatment.

What should the Canadian producers/exporter do when they get such a letter?

1. Do not panic – this is normal and USCBP is making sure that the certificates of origin are valid and non-NAFTA goods are not being transshipped via Canada.

2. Call the USCBP officers to let them know that you are consenting to their visit. If you need to change the date, please let them know why the date of the visit needs to be changed.

3. Ask the USCBP officers what documents they would like you to organize for them to review – having all documents organized will make the visit run more smoothly and may shorten the time to must entertain the USCBP officers.  Often USCBP will select a sample of export transactions.

4. Contact a Canadian lawyer to assist you organize the documents and to act as an observer during the visit.

5. Conduct a review of your records as soon as possible to identify any problems before the USCBP officers arrive. If you have not undertaken a origin review, this is the time to do it. You will need to create a bill of materials for each input in the final good and assess whether the rules of origin are satisfied. You will need to classify each input according to the HS harmonized code. You will need to look up the corresponding NAFTA rule of origin. You may need to apply a transformation test (regional value content or tariff classification or both). You may need to contact suppliers of inputs and gather information about the origin of the inputs.

6. Clean up your premises. Is there anything you do not wish to discuss with the USCBP officers?

7. Trace the steps of the inputs to the end of the production process to make sure you can discuss how you keep track of the originating status of the goods.

8. Before the USCBP officers arrive, organize the documents they requested.

9. When the USCBP officers arrive, take them on a tour of your business.

10. If you have identified any problems, raise them with USCBP before they find them on their own.

11. While you do not have to baby-sit the USCBP officers, do not leave them to their own devices. They are visitors and are conducting a review. You should watch them too.

12. Pick one or two people in the organization to be the point people. Others should not answer questions without verifying their answers with a point person.

13. Do not try to fake it. Do not answer questions without verifying the answer is accurate. If you need to review records, review the records and then give the answer.

14. At the end of each day, ask for the USCBP to provide their questions for you to work on overnight.

15. Make copies of every document that you provide to USCBP. I like to identify each document with a VE (Verification Exhibit number). I like to make a list of all verification exhibits. I also like to scan all verification exhibits and save the verification documents on a CD-ROM or in a folder.

16. If you must follow-up after the verification is over, make a list of all documents or follow-up items and review the list with the USCBP officers. It is important to meet their expectations.

17. If you have a disagreement with the USCBP officers about whether the goods qualify as originating, it is very important to make your views known and take steps to pursue your legal rights. The ramifications of USCBP deciding goods are non-originating can be severe from a customer relations perspective. Get help before the verification moves into denial of NAFTA treatment.

If USCBP determines that the exported goods are not NAFTA-originating, the U.S. importers will be assessed customs duty at the applicable rate.  We will address damage control after a NAFTA verification in a subsequent post.

Each NAFTA verification will have fact specific issues to address. Please contact Cyndee Todgham Cherniak at 416-307-4168.

Costs of Compliance –The Missing Element

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Controlled Goods Program, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border litigation, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Exports, FCPA/Anti-Corruption, Intellectual Property, Legal Developments, NAFTA, origin, tariff classification, Trade Agreeements, Trade Remedies, U.S. Federal Government, valuation

Originally published by the Journal of Commerce in May 2016

Only three (3) years ago, when Tom Winkowski was Acting Commissioner of Customs and Border Protection (“CBP”) and John Morton the Director of Immigration and Customs Enforcement (“ICE”), both of them acknowledged publicly how their respective agencies had lost such significant depths of knowledge and experience due to staff retirements that both agencies were hampered in bringing successful trade fraud cases.

ICE sought to raise its knowledge and skills by establishing the National Intellectual Property Rights Center. As  the name implies, the Center was originally focused on interdiction of counterfeit product and related crimes. However, it has expanded to include investigations about many other federal crimes and serves as the criminal investigative arm of CBP.

CBP took a different approach and created its Centers of Excellent and Expertise (“CEE). These virtual centers are intended, among other goals, to allow institutional knowledge to remain available by having multi-disciplinary staff in various geographic locations with widely different levels of experience and knowledge working together within the agency focused on specific industries. Add to that mix the recently announced Trade Enforcement Task Force within CBP’s Office of Trade, and what do we get? That remains to be seen!

The Trade Enforcement Task Force was recently announced as having a focus on antidumping and countervailing duty (“ADD”) evasion and intellectual property rights (“IPR”) enforcement. CBP and ICE have long coordinated when it comes to IPR cases, which is why it takes so long to get an answer about even routine detentions.  Additionally, both ADD and IPR have long been on CBP’s priority trade issues list, a list that has gotten longer or shorter, depending on the times. Right now, it consists of:  1) Antidumping and Countervailing Duty; 2) Import Safety; 3)  Intellectual Property Rights; 4) Textiles/Wearing Apparel; and 5) Trade Agreements.  What all of these topics have in common is the need for robust compliance programs. Two recent cases clearly reinforce this point.

Back in 2013 and 2014, a large number of customs brokers received Civil Investigative Demands (“CID”) from the Department of Justice (“DOJ”). It was clear from the language in them, an action had been brought alleging fraud when it came to importing wooden bedroom furniture from China. The typical list of documents requested ran to about thirty (30) very broad categories, covered a large period of time, and often sought records about hundreds, if not thousands, of shipments.  These CIDs included demands for copies of emails, plus employee names and importer/supplier contact details. In December 2015, DOJ announced the settlement of one of those cases.  DOJ was collecting $15 million in a settlement with University Furnishings, LC and Freedom Furniture Group, Inc.

That case arose because a domestic competitor spent a lot of time, energy and money pulling together details about how the American importers and their suppliers conspired to evade the antidumping duty on wooden bedroom furniture from China. They did so the old-fashioned way – they misdescribed the goods. The suppliers were quite open about how do to it and, stupidly, they were quite blatant – if you knew what to look for. For example, they called two drawer bedroom cabinets two drawer lateral files! The old transshipment trick was also employed. Make the goods in China but mark them Made in Vietnam!

Taking the information it developed, the domestic company shared the details of its investigation with DOJ and CBP. It then filed a qui tam or whistleblower lawsuit. DOJ and CBP accepted the case and obtained the $15 million settlement. As a result of its efforts, the domestic company – J Squared Inc. dba University Loft Co. – will receive $2.25 million from the settlement and another $1.3 million from settlement of a separate civil lawsuit it filed.  Not discussed in all the press reports is the key question for traders and all those who find out their competitors are not playing by the rules. For the most part, the American buyers were school districts.  Now that the American importers’ actions have been fully acknowledged, will their customers drop them?

Further, in light of the Yates and Weissman memos that we have written about previously, DOJ is not supposed to settle with companies without considering who was responsible for the violations,  should we be looking for more fall-out from this case?

A more recent case is the one announced at the end of last month. In that one, criminal charges were brought by DOJ against UBF Group, Inc. doing business as Nu-Health Products Co. and its owners and former officers, Lynn Leung and Daniel Fu. This case, too, went beyond traditional trade fraud which involves undervaluation and misclassification, but also included violations of the Food & Drug Administration laws, the federal Marine Mammal Protection Act and, add to that, false Chinese export documents.  The duty difference was announced to be $119,000, but it all started with FDA and MMPA violations. Here, too, a certain level of sophistication was missing.

The manner in which the scheme was executed involved the typical prepare purchase orders with one description and value, and shipment documents with a different description and half the value. The false descriptions included fish oil, aloe vera, gingko biloba and multivitamins, exactly  the types of products which would attract FDA attention. Further, employees were directed to communicate with the suppliers and so had direct knowledge of the scheme and how it was being carried out. You know they were pressed to implicate the owners under threat of they themselves being prosecuted! Another factor was the invoices submitted to CBP totaled about $1.4 million but the overseas payments totaled about $2.5 million!  One might wonder how this came out? Most companies forget CBP is part of the Financial Crimes Network and so routinely has access to data about funds coming into and going out of the U.S.

The goods were shipped from China by an exporter who did not have the proper Chinese wildlife export license. Harp Seal are considered a threatened species and so may only be imported for public display, scientific research or enhancing the survival of the species. Some of the other items are barred by FDA rules and regulations.

What is noteworthy about these cases is they go well beyond the historical definition of trade fraud, that is under valuation and misclassification of goods. Instead what we see on an ever increasing basis is traders are found to violate laws enforced by other agencies, who do so by falsifying their shipment document. In the UBF case, the parties settled with a plea to two counts. One was for making and submitting a false record for wildlife imported, and the second for entry of goods falsely classified. The individuals lost their company and probably just about everything else, must pay significant fines, and were fortunate to be sentenced to probation rather than jail time.

While there is no question that CBP must and should go after cheaters, what we have not heard publicly discussed or in the press in several years (many more than just the three years mentioned above) is the efforts of CBP to pursue traditional trade fraud cases, those involving old-fashioned issues – misclassification and value, without other agency violations. It is important to keep in mind such enforcement actions do not need to be criminal cases to get the attention of the trade community. Serious civil cases are sufficient. Admittedly there are limits to what CBP is permitted to publicize about its penalty cases, as should be the case, but in the absence of regular reminders about the consequences of lax practices, companies get complacent. The lack of these types of public reminders makes it ever more difficult for trade compliance professionals to have the ammunition necessary to get the attention of their management to enhance compliance programs.

One of the stated reasons for the establishment of the CEEs was to provide CBP with a means to better understand industry practices but also to gain better knowledge about how the thousands of small and medium sized enterprises (“SME”) operate. Large and publicly traded companies have other regulatory controls and public pressures on them which lead to robust compliance programs. It is the SMEs that typically have more limited resources and focus elsewhere. It’s not that they necessarily intend to violate the law, but without those serious reminders, they become complacent.  Where is the periodic reminder of the serious costs of non-compliance?

Victoria Day Week-end: Survival Guide For Cross Border Travel

Posted in Border Security, Cross-border deals, Cross-border trade, Customs Law, NEXUS, valuation

iStock_000014893754_SmallVictoria Day is the start of the long week-end season.  Canadians travel outside Canada to visit friends and family and to shop.  The Canada Border Services Agency (“CBSA”) is on the lookout for contraventions of the Customs Act and other border laws.

Here is our survival guide to make sure the CBSA is happy with your declaration and does not seize your goods, vehicle and/or NEXUS card:

  1. Organize your receipts before you arrive at the border.  If you have gone shopping, organize all your receipts (that is, all the receipts of all people in he vehicle) together. The most common mistake is forgetting a receipt and under-declaring to the Primary CBSA officer the value of the goods purchased outside Canada. Another mistake is that Dad does not know all the purchases and understates the value purchased by everybody in the vehicle.  Make sure to add up all of your receipts before you drive to the border – preferably using a written list and a calculator app.  Yes, you may be sent to the cashier — but you will not be delayed by seizure paperwork.
  2. Declare any gifts or things received for free and allocate an amount to those items.  If you took the soaps and coffee from the hotel room, add a small value for these items.
  3. Declare any purchases of alcohol or tobacco products to the Primary CBSA officer. Canada restricts the number of items that may enter duty-free.
  4. Declare goods purchased at the duty free store.  Buying at a duty free store does not mean the goods are exempt from duties.  Also ,the CBSA gets the records of the purchases at the duty free store because you provide the store your license plate number or name.  The Primary CBSA officer knows that you purchased duty free when they input your information into their computer.
  5. Remember to convert your added receipts into Canadian dollars.  This is the second most common mistake.  Canadians inform the CBSA officer of the United States (or Euro or other currency) amount and do not adjust the amount upward to reflect foreign exchange.  The CBSA will hold you to the number provided and, if it has not been converted, will take the position that you under-declared the value.
  6. If you shopped at a store in the United States that accepted Canadian dollars at par, be in a position to provide evidence.  The CBSA will default to converting your receipt into Canadian dollars.  The CBSA does not know all the stores that accept Canadian dollars at par.  A photograph of a sign or a note for the store will be necessary to prove to the CBSA that you were allowed to pay using Canadian dollars.
  7. If you have more than $CDN 10,000 in your possession (adding up all the Canadian dollars and all the other currencies converted into Canadian dollars), inform the Primary CBSA officer that you have currency over $10,000.  The CBSA takes the position that you have the obligation to inform them even if they do not ask you the question.  If you fail to inform them, the CBSA could seize all of the money and take the position that it is proceeds of crime.  If the CBSA accepts that it is not proceeds of crime, they will impose a penalty for failure to declare the currency in the amount of either $250, $2500 or $5,000.  If you have made this mistake before, the CBSA can seize all of the money and not give it back to you.
  8. Don’ forget to tell the Primary CBSA officer about any food that you have.  It is best to not bring any food that is not permitted (e.g., fruits, vegetables, dairy, eggs, poultry, etc.). Check to see what food is not allowed – because if you bring it, your travel time will be extended due to the time spent in lines at the border.  The fines are significant for not declaring food.  For example, failure to declare food in Canada is $800.  Before you travel it is best to clean the vehicle in case you have a bag of Cheerios in the back seat.
  9. Don’t forget to declare your pets in the vehicle.
  10. If you have NEXUS Card, but there is at least one person in your vehicle that does not have a NEXUS card, do not use the dedicated NEXUS lane.  The CBSA will take away your NEXUS Card for a breach of the program rules.
  11. Make sure that if you plan to travel with your NEXUS Card, you also have your passport.  It is a rule of the NEXUS Program.
  12. Make sure that if you travel with your NEXUS Card and plan to use the NEXUS lane, that every NEXUS Card holder has up-to-date information in the CBSA’s computerized records.  If you have received a new driver’s license or passport, you must update the information with the NEXUS program.  You will get pulled over to update the information if this has not been done.  To avoid delays, update the information online before traveling.
  13. If you have commercial goods in the vehicle, do not use the NEXUS lane.  It is a breach of the NEXUS Program rules to use a nEXUS lane when you have commercial goods (that is, goods for your business).
  14. If you have teenagers, have the talk with them about drugs.  It is really embarrassing and is a negative event if your child is arrested at the border.  The rule must be that they not bring any drugs and that they look in their pockets (clothing and bags) to make sure that drugs are not bring transported across the border.
  15. The CBSA are not very sympathetic.  Their view is that everyone must get in the long line up.  Cutting if you use the NEXUS lane and do not have NEXUS membership, you will be sent to Secondary Inspection and your visit with the CBAS will be lengthened.  It would have been a lot shorter to use the long line up.

There are many other mistakes that could be listed – these are the most common.  Hoe you have happy travels and let the other people spend time in the CBSA’s Secondary Inspection Area.

Why Should SMEs Care About Incoterms® Rules?

Posted in Cross-border deals, Cross-border trade, Customs Law, GST/HST, origin, tariff classification, valuation

question markSmall and medium sized enterprises mistakenly accept costs and financial risk when they agree to Incoterms without considering the consequences. SMEs should care about Incoterms because mistakes can be costly – very costly.

What is an Incoterm? Answer:  Incoterms is an abbreviation of the phrase International Commercial Terms. The Incoterms rules or are a series of commercial terms published by the International Chamber of Commerce (ICC).  The current version are the Incoterms 2010.  Incoterms are used by buyers and sellers in international and domestic commercial transactions to allocate costs, risks and obligations/responsibilities. The Incoterms rules are so common that have become an essential part of the daily language of trade. The Incoterms rules have been incorporated in contracts for the sale of goods worldwide. However, many small and medium sized businesses remain unaware of what these important rules mean.

There are two groups of Incoterms rules.  Group I includes:

  • EXW (Ex Works),
  • FCA (Free Carrier)
  • CPT (Carriage Paid To)
  • CIP (Carriage and Insurance Paid to)
  • DAT (Delivered at Terminal)
  • DAP (Delivered at Place)
  • DDP (Delivered Duty Paid)

Group II includes:

  • FAS (Free Along Ship)
  • FOB (Freight on Board)
  • CFR (Cost and Freight)
  • CIF (Cost, Insurance Freight)

Group I Incoterms are rules that can be used for any mode of transport.  Group II Incoterms are rules for sea and inland waterway transport only.

The Incoterms rules set the obligations of the sellers and the buyers (which can be changed by specifically adjusting the Incoterm in a contract).  It is important for SMEs to understand, right at the beginning of contracts negotiations, which of the above Incoterms should be selected, so that they know what type of costs, risks and liabilities they will be accepting in the international trade transactions under the contract.

For example, EXW (Ex Works) imposes the minimum obligations on the seller.  The seller delivers the goods to the buyer at the seller’s warehouse and all cots, risks and obligations are transferred to the buyer at that point. On the other hand, the seller takes on more costs, risks and obligations when the goods are delivered DDP (Delivered Duty Paid) because the seller takes on all shipping costs and financial obligations and risks relating to outbound and inbound customs laws.

The correct use of Incoterms can give buyers and sellers a competitive edge.  They can also be used to shift risk to an unsuspecting party who does not know anything about Incoterms.  For example, if goods are delivered Ex Works, then it could be more difficult to for buyer reject the goods is they arrive damaged or spoiled.  The buyer would be responsible for the transport of the goods.  If the buyer did not have any marine insurance, the buyer could not expect a claim to be processed by the seller whose obligations ended when the goods were delivered to the buyer at the seller’s warehouse.  The damaged goods should have been rejected by the buyer at the seller’s warehouse.  Buyers should only use EXW when they have in country inspections (quality assurance agents) prior to shipment.

Further, Incoterm rules may place customs obligations on sellers and buyers in unfamiliar jurisdictions.  For example, if an American seller sells goods to Canadian buyer DDP, the American seller will be responsible for Canadian customs duties and border goods and services tax.  The seller may be a non-resident importer or may have a Canadian presence.  The seller would have the relationship with the Canada Border Services Agency (CBSA) .  If the seller uses the incorrect H.S. Code in Canada (it is not always the same number as used to import into the United States), then the seller would be responsible for additional duties and Administrative Monetary Penalties (AMPS) penalties.  The seller may also be required to be registered for goods and services tax and charge, collect and remit GST/HST in Canada (since delivery would take place in Canada).  in other words, the seller may take on Canadian registration and tax obligations.

What if a Canadian buyer buys from a Chinese seller and agrees to FOB (ships edge).  The buyer would be the importer of record and would take all risks of reporting to the CBSA.  If the Canadian buyer does not know that the goods are subject to antidumping and countervailing duties (e.g., fasteners, aluminum extrusions, stainless steel sinks, copper pipe fittings, solar modules, certain steel products, etc.) , the buyer could face significant duties. If the buyer had agreed to DDP terms, the antidumping duty/countervailing duty liability would be on the Chinese seller.

There are many other examples that highlight why knowing about Incoterms is important.  Please ensure that you are using the correct Incoterm in your contract.  Please review your ongoing contracts to ensure that the Incoterm used is consistent with the agreement between the parties.  When in doubt, call a professional.

NEXUS Pass Appeals Process In Canada Is Regulatory

Posted in Border Security, Canada's Federal Government, NEXUS
Security Bag Check sign on a white background. Part of a series.

Security Bag Check sign on a white background. Part of a series.

NEXUS pass holders sometimes run into difficulties when they return to Canada after a trip abroad.  The NEXUS pass holder may discover that their “disagreement” with the Canada Border Services Agency (“CBSA”) upon re-entering Canada may result in the immediate confiscation of their NEXUS pass or they may receive a letter in the mail (or by email if they have a GOES account) after the fact informing the pass holder that their NEXUS privileges have been cancelled. An informal and regulatory appeal process has been established — but it is not quick. As a result, until the appeal is resolved, the business persons and frequent travelers must use the snail lines (instead of the fast NEXUS kiosks) while any appeal is under review.

If you are Canadian and your NEXUS pass is confiscated or cancelled by the appeal process is established in the Presentation of Persons (2003) Regulations. The appeal process requires a letter to be written and mailed within 30 days of the date of the confiscation or letter informing of the cancellation of NEXUS privileges.  The letter must be mailed to the NEXUS Program.

If the confiscation relates to a violation of the NEXUS Program (e.g., using the NEXUS lane when non-NEXUS persons are in the vehicle), then it is only necessary to file an appeal to the Level 1 Redress Committee of the NEXUS Program.

However, if the confiscation relates to a customs infraction/contravention, the person must overturn the customs infraction in order to be successful in the NEXUS appeal (for example, the under-declaration of goods acquired outside Canada). There is a separate process, to appeal valuation, tariff classification and origin issues. The appeal on valuation, classification and/or origin issues (called a “request for redetermination”) is filed with the CBSA, Recourse Directorate. This process takes time.

It is important to file 2 appeals. One appeal is filed with the NEXUS program and is in respect of the cancellation of the NEXUS privileges. The second appeal is the appeal on the merits of the customs infraction. The NEXUS program appeal will be reviewed at the NEXUS Program and then sent to the Recourse Directorate if the explanation has any merit whatsoever. However, if you have filed both appeals, the appeal for reinstatement of NEXUS privileges will be deferred until after the appeal on the merits. The CBSA may or may not understand that the business traveler is more interested in a quick reinstatement of NEXUS privileges and less concerned about the refund of duties and GST/HST.

The appeal must set out the facts, details concerning the dispute and the reasons for the appeal. The appeal should include any and all relevant documents concerning the “disagreement”.

After the appeals are filed, the CBSA, Recourse Directorate will send a copy of the CBSA Officer’s notes on the day in question relating to the “disagreement”. The CBSA, Recourse Directorate will give you 30 days to file additional information after receiving the notes. If your letter of appeal is very divergent from the CBSA Officer’s version of the events, you will have a problem in explaining those differences.

It is not a simple and quick process to appeal a confiscation of a NEXUS pass. The process is not written anywhere and may take over a year. If you require assistance from a lawyer because the NEXUS privileges are important to you, please contact Cyndee Todgham Cherniak at 416-307-4168.

What Are The Procedures For FTA Origin Verifications in Canada?

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

Many QuestionsOn May 12, 2016, the Canada Border Services Agency (“CBSA”) released revised D-Memorandum D11-4-20 “Procedures for Verifications of Origin Under Free Trade Agreements”. The overall objective of an free trade agreement verification is to confirm that products covered by a certificate of origin completed by the exporter or producer qualify as originating in accordance with the applicable free trade agreement.

D-Memorandum D-11-4-20 outlines and explains the verification procedures pursuant to:

  • Sections 42 and 97.201 of the Customs Act and various regulations promulgated thereunder,
  • Article 506 of the North American Free Trade Agreement (NAFTA),
  • Article E-06 of the Canada-Chile Free Trade Agreement (CCFTA),
  • Article 5.6 and Annex 5.6.2 of the Canada-Israel Free Trade Agreement (CIFTA),
  • Article V.6 of the Canada-Costa Rica Free Trade Agreement (CCRFTA) ,
  • Article 406 of the Canada-Peru Free Trade Agreement (CPFTA),
  • Article 406 of the Canada-Colombia Free Trade Agreement (CCOFTA),
  • Article 24 of Annex C of the Canada-European Free Trade Association Free Trade Agreement (CEFTA), and
  • Article 5-6 of the Canada-Jordan Free Trade Agreement (CJFTA).

The verification procedures are not identical under each free trade agreement and, therefore, the applicable free trade agreement is important to determine at the onset. D-Memorandum is organized by Appendix setting out the procedures for verifications under the free trade agreements.

Record Keeping Requirements

When an importer claims a preferential rate of customs duty pursuant to a free trade agreement, the CBSA may want to verify that the preferential rate is available (that is, the good is originating in the free trade partner).  The process requires that importers be in possession of a valid exporter’s Certificate of Origin. The certificate or origin and supporting documentation record-keeping requirements for importers and exporters are as follows:

  • Canada, are for a period of not less than six years
  • United States, are for a period of not less than five years
  • Mexico, are for a period of not less than five years
  • Chile, are for a period of not less than five years
  • Israel, are for a period of not less than five years
  • Costa Rica, are for a period of not less than five years
  • Peru, are for a period of not less than five years
  • Colombia, are for a period of not less than five years
  • an European Free Trade Association (EFTA) country (Iceland, Norway, Switzerland and Liechtenstein), are for a period of not less than three years
  • Jordan, are for a period of not less than five years

Manner of Conducting Verifications

A verification may be conducted by the CBSA and foreign customs administrations according to the manners set out in the applicable free trade agreement. As a general rule, the CBSA may undertake verifications of origin with respect to goods imported into Canada.  This may be done by seeking information from the importer or conducting a verification of the records of the exporter (or a foreign producer).

As a general rule, the options for conducting a verification are as follows:

Applicable FTA Verification Questionnaire Verification Letter Visits to premises Other methods Agreed by Parties
NAFTA Yes Yes Yes Yes
CCFTA Yes Yes Yes Yes
CIFTA Yes No Yes No
CCRFTA Yes Yes Yes Yes
CPFTA Yes Yes Yes Yes
CCOFTA Yes Yes Yes Yes
CJFTA Yes Yes Yes Yes

The Canada-EFTA FT is unique in that the CBSA must request that the customs official of the applicable EFTA country of export conduct the verification on Canada’s behalf and provide an opinion as to whether the goods are originating.

D-Memorandum D11-4-20 “Procedures for Verifications of Origin Under Free Trade Agreements” sets out details concerning what each of these manners of verification entails.

Verification Questionnaires and Letters

Verification questionnaires and verification letters are the most common form of verification.  Usually, the CBSA sends a request for information about selected transactions.  If the CBSA is satisfied that the transactions involve goods that are originating, they may not ask for further information for the importer, exporter or foreign producer.  Even if the CBSA is satisfied with the information, they may request a verification visit to verify that the information provided is correct. If the CBSA has concerns, they usually request an on-site verification visit as the next step in the process.  Sometimes it is difficult to know whether the CBSA has concerns or not before the verification visit.  For this reason, it is beneficial to gather documents carefully and review the documentation with a knowledgeable advisor who understands the applicable rule of origin.

Verification Visits

Verification visits are the most intrusive because the CBSA will visit the premises of the importer or exporter.  If the CBSA is going to travel to foreign soil to conduct the verification, there are procedures that the CBSA must follow.  The CBSA cannot just show up at the door of an exporter in Texas, for example.  If the CBSA is conducting a verification of a foreign exporter or producer of the imported goods, the CBSA must send written notification of the intent to conduct a verification visit.  The notification must be sent to the person whose premises are the subject of the verification visit  and the customs administration of the country in which the verification visit will take place.  With respect to many FTAs, the CBSA may also be required to notify the Embassy (location in Canada) of the country in which the verification visit will take place.


Most of Canada’s FTA permit observers to be present during the on-site verification visit.  An observer may be a lawyer, a customs broker, an other outside advisor.  While most FTAs indicate that the observer may not participate and may only observe, it is our experience that observers may facilitate the process and the customs officials welcome involvement so long as it is not obstructionist.

Negative Verifications

D-Memorandum D11-4-20 “Procedures for Verifications of Origin Under Free Trade Agreements” sets out what may happen if the verification doe snot go well.  For example, if an exporter does not consent to a verification in 30 days, the goods will be considered to be non-originating. If an exporter denies access to books and records (or fails to maintain books and records), the goods will be considered to be non-originating.  If an exporter fails to respond to questions after the verification (or fails to answer follow-up questions), the goods will be considered to be non-originating. Where the CBSA determines that goods are non-originating, the CBSA must send the exporter a written statement.

For more information about FTA verifications, please contact us at

The CBSA Signs Secure Supply Chain Mutual Recognition Agreement With Mexico

Posted in Border Security, Canada's Federal Government, Customs Law

Shipping Container Above Stacked OthersOn May 13, 2016, the Government of Canada announced that on May 11, 2016 the Canada Border Services Agency (“CBSA”)  had signed a Mutual Recognition Agreement (“MRA”) with the Tax Administration of Mexican States. The MRA was signed at the World Customs Organization 3rd Global Authorized Economic Operators (AEO) Conference in Cancun, Mexico.

This means that Mexico will recognize Canada’s Partners in Protection (“PIP”) and permit expedited customs clearance to PIP members.  Canada will recognized Mexico’s SAT’s Nuevo Esquema de Empresas Certificadas (“NEEC”) programs and permit expedited customs clearance to NEEC members..

The MRA expands the international trade network of accredited low-risk companies.  The MRA between Canada’s PIP and Mexico’s NEEC programs means that:

  • both countries apply similar security standards and site validation practices when approving companies for membership in their respective programs, and
  • both countries recognize each other’s members and may grant them similar benefits.

Canada’s PIP Program is a cooperative trusted traveler program between the CBSA and private businesses engaged in importing and exporting activities (and suppliers thereto).  The purpose of the PIP program is cross-border trade chain security and trade facilitation of legitimate cargo by reducing risks to Canada’s security, health, environment and economy from supplier to customer origin to destination.  While the PIP Program clearly has a trade chain security objective, it also has as an objective the facilitated clearance of legitimate cargo and use of FAST lanes at the border.

The PIP Program is a voluntary program pursuant to which private businesses may apply and demonstrate that they pose low risk to trade chain security and, therefore, are trusted businesses.  Private businesses must provide detailed information, which will be provided to the CBSA, the United States Department of Homeland Security and other governmental agencies.  There is no statutory obligation to participate in the discretionary and regulatory PIP Program.

There is no membership fee to participate in the PIP Program.  Participants in the PIP Program are required to satisfy terms and conditions in order to join the PIP Program.  In addition, participants in PIP must continue to abide by the rules of the PIP Program in order to remain in the PIP Program.

The Canada-Mexico MRA  aligns with the World Customs Organization’s SAFE Framework of Standards, which establishes standards for globally integrated supply chain security and facilitation for all modes of transport.

The CBSA has now signed five MRAs with other customs administrations, including the United States, Japan, Singapore and the Republic of Korea:

  • June 2008 – U.S. Customs and Border Protection – Customs Trade Partnership Against Terrorism (C-TPAT) program
  • June 2010 – Japan Customs and Tariff Bureau – AEO program
  • June 2010 – Korea Customs Service – AEO program
  • June 2010 – Singapore Customs – Secure Trade Partnership (STP) program
  • May 2016 – Tax Administration Service of the United Mexican States – New Scheme of Certified Companies (NEEC)


CBSA Announces Enhancements to Trusted Traveler Program

Posted in Border Security, Canada's Federal Government, Cross-border trade, Customs Law, U.S. Federal Government

Canada CustomsOn May 12, 2016, the Canada Border Services Agency (“CBSA”) announced that it is expanding Free and Secure Trade (FAST) benefits for members of its trusted trader programs. The FAST Program is a joint Canada–U.S. initiative to enhance border and trade chain security and make cross-border commercial shipments simpler and subject to fewer delays. FAST gives members of the CBSA trusted trader programs access to dedicated lanes  and booths (permitting alternative presentation) at specified ports of entry that allow them priority access to the border and expedited clearance.

The CBSA plans to increase the number of dedicated FAST lanes to provide low-risk, pre-approved importers, carriers and drivers with expedited clearance at the border. By winter 2017, dedicated FAST lanes will be in operation at Fort Erie, Ontario, and at Pacific Highway, British Columbia. A new FAST lane will be opened at Emerson, Manitoba by spring 2018.

The CBSA also announced that FAST Program eligibility requirements will also be expanded at existing FAST sites in Sarnia and Pacific Highway, and at future sites at Fort Erie and Emerson. These improvements will expedite commercial traffic at the border by allowing more trusted traders access to the FAST benefit.

The CBSA provided the following facts:

  • In 2014, Canada–United States trade surpassed CAN$680 billion (goods and services), meaning that nearly $2 billion worth of goods and services crosses the border daily—over $1 million traded every minute.
  • Canada and the United States continue to develop a common approach for Trusted Trader programs that aligns requirements, enhances member benefits, and facilitates the cross-border movement of commercial goods.
  • As of April 2016, the CBSA had over 61,000 registered FAST drivers; 679 FAST-approved carriers and 71 FAST-approved importers.
  • Existing FAST sites in Canada are located at Windsor, ON; Sarnia, ON; and Pacific Highway, BC.

The CBSA also issued a Backgrounder on Fast and Secure Trade.

Canada Announces Plans To End Strict Export Controls Against Belarus

Posted in Canada's Federal Government, Export Controls & Economic Sanctions, Exports

iStock_000019169483XSmallOn May 7, 2016, Global Affairs Canada (formerly known as DFATD and DFAIT) made an announcement that Canada plans to legally remove Belarus from the Area Control List. Belarus has been on the Area Control List since December 14, 2006.  When this occurs, only North Korea will remain on the Area Control List.

The Area Control List is a Canadian regulation made pursuant to the Export and Import Permits Act. As a result, the removal of Belarus from the list (and the addition of any country to the list) is made by the Governor-in-Council by way of an amendment to Regulation, SOR/81-543.  The Canadian Legislature does not vote on regulations. When the Government of Canada promulgates the regulations to remove Belarus from the Areas Control List, the notice will be published in the Canada Gazette, Part II, which is released on Wednesday, every two weeks.

Global Affairs Canada made the following statement concerning the reasons for the removal of Belarus from the Area Control List:

This announcement is consistent with actions taken by the United States and the European Union since October 2015 (see links below). It also reflects Canada’s acknowledgment that the Government of Belarus has made progress in key areas in recent months, including the release of political prisoners and conducting a presidential election in October 2015, which demonstrated greater adherence to international norms and was not marked by the levels of violence and intimidation seen in past elections. Canada also recognizes the constructive role played by Belarus in facilitating negotiations toward a ceasefire and peace agreement in Ukraine—the Minsk agreements—in September 2014 and February 2015.

Belarus is no longer in the penalty box.

The removal of Belarus from the Areas Control List means that trade with Belarus will be significantly less restricted. This means that there are opportunities for Canadian businesses and exporters to sell goods to Belarus and businesses/persons in Belarus. Such opportunities have not existed for the last 10 years while the strict export controls have been in place.  It was uncommon for Global Affairs Canada to issue export permits to Canadian businesses wishing to export to Belarus.

The Export and Import Permits Act prohibits the export or transfer of all goods and technology to a country listed on the Area Control List.  Global Affairs Canada has announced that its Export Controls Division will immediately (presumably any time after May 7, 2016) “issue export permits for the export to Belarus of goods and technology that are not specifically listed in the Export Control List.” Technically, the CBSA may detain goods and technology exported to Belarus without an export permit in the interim period.

After Belarus is removed from the Area Control List (that is, the regulatory process is complete), goods and technology not listed on Canada’s Export Control List may be exported to Belarus without an export permit. The Export Control List should be reviewed in conjunction with A Guide to Canada’s Export Controls. Goods and technology on Canada’s Export Control List may not be exported or transferred to any country (with the exception for certain goods and technologies exported or transferred to the United States) without an export permit issued by Global Affairs Canada.

Canada does not currently impose additional economic sanctions against Belarus pursuant to the United Nations Act or the Special Economic Measures Act.  Whether or not Canada passes such economic and trade sanctions against Belarus by way of regulations promulgated pursuant to these laws is yet to be seen.  There is no indication in the Global Affairs Canada announcement that such plans exist. It is important to note that the current restrictions (soon to be past export controls) were not economic sanctions by name; but were de facto economic and trade sanctions.