Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

NOT SO FAST!

Posted in Aerospace & Defence, Anti-Trust/Competition Law, Antidumping, Border Security, Controlled Goods Program, Corporate Counsel, Cross-border deals, Cross-border trade, Currency Reporting, Customs Law, Export Controls & Economic Sanctions, FCPA/Anti-Corruption, Politics, Tax, Trade Agreeements, Trade Remedies, Transportation

Originally published by the Journal of Commerce – November 2016

Fans of ESPN’s College Game Day© will recognize this tag line from the reaction of Lee Corso when he disagrees with others when panelists predict winners of selected college football games. If you prefer a different sports metaphor, there is Aaron Rodger’s 2014 now famous – RELAX!  Without meaning to make light of the outcome of the Presidential election, we all need to take a breath and pause.  Every campaign at any level finds candidates saying things to fire up their base. The same thing happened in this Presidential cycle, admittedly to a somewhat magnified degree. True, you had one candidate with lengthy position papers covering a wide variety of issues, and another who dealt only in broad statements.  We all know who won and the fact he had little substance to his proposals has many understandably nervous about what the future holds.

Let’s start with some obvious and basic truths. First, business will continue. Second, cargo will continue to flow across borders – in and out. Whether costs will go up and delivery times be delayed remains to be seen.

Yes, Article 2205 of NAFTA does allow any party to withdraw from the agreement upon six (6) months’ notice.  Interestingly, the President-elect has not said he wants to withdraw from NAFTA, rather also he wants to renegotiate it. For international traders, we understand that means the U.S. will sit down with our Canadian and Mexican partners and explain the provisions it wants changed. Traders also understand that means the Canadians and Mexicans will have provisions each wants changed as well. In other words, it won’t be quick and it won’t be easy – and since all one can do at this point is speculate,  how likely is it that if the negotiations get really contentious, any one of the parties could say enough and walk out!

If we continue to speculate and assume the U.S. withdraws from NAFTA in earnest, then what? Sure, trade wars are possible. Sure, the U.S. imposing a surcharge on China’s currency is possible. Yes, there could be 201, 301, antidumping, countervailing or other trade remedy proceedings pursued in the U.S. Traders understand the exercise of any of these options triggers the dispute resolution mechanism before the World Trade Organization or under the given trade agreement. Again, that takes time and while that lengthy process continues, all these non-tariff and tariff barriers are imposed.  Traders also know that if such steps were to be taken, our trading partners would impose similar restrictions on U.S. goods being imported into their countries.  We have already seen examples in recent memory where the U.S. failed to live up to its commitments, lost the complaint brought against it and ended up having serious surcharges imposed on key American products imported into the victor’s country. Time and again, our trading partners figure out who is the primary opposition in the American government, identify key products made by their constituencies, impose significant surcharges on those products, yielding American companies sitting down with government officials and explaining the harm caused – and that is when the view of the government changes. Yes, the current environment may be a bit different, but there is no reason to think the give and take will end up any differently.  The key different fact now is the President-elect has business interests in a particular industry. It won’t be difficult to get his attention by making it very hard for that industry to do business in individual countries.  Our trading partners readily understand how the American government works.

It is important to also think in terms of the role of the United States as a world leader.  As a practical matter, if the U.S. starts to renege on its trade deals, it won’t take long for our trading partners look elsewhere. There is, after all, already an Asian pivot. The most likely impact of any trade war triggered by U.S. actions would be for that pivot to become more pronounced.  Given the serious issues facing the world, the U.S. losing its leadership position is dangerous for America and the world.

The handwringing that has occurred so far has also omitted any consideration of what Congress might do. One party is now in charge across the board. That party has been viewed as typically favorable to business.  There are three (3) branches of government.  Having the Members, Senators and President all from one party does have the potential to result in laws being enacted more smoothly. At the same time, there is no reason to think Congress will ignore its role in the checks and balance process that is the American government.  Most Members and Senators will be there long after the President-elect leaves office, so the leadership can be expected to do what is best for the Congress while still cooperating with the President-elect.

Yes, things are uneasy right now. At the same time, traders understand history. By way of example, the Smoot-Hawley Tariff Act of 1930 and the 1971 Nixon 10% import surcharge are actions which seriously and negatively impacted the U.S. economy.  Protectionism did not work then, when the world was less globally connected. There is no reason to think it will work any better now.

There is no question the new administration could nonetheless have an immediate and disturbing impact on traders. We should keep in mind much of the export license reforms that have occurred in the Obama Administration were the result of executive orders. Similarly, there is the ACE computer system that CBP is finalizing. Much of the push for its completion came by way of executive order. Executive orders can be countermanded, so the fate of both could change – but will they?

The Transpacific Partnership is done, at least for now.  The Transatlantic Trade and Investment Partnership got its burial with the outcome of the Brexit vote.  In the immediate future, no more trade agreements.  What happens instead? Business will not stop.  Whether revisions to the tax, trade and immigration rules are favorable or hinder business remains to be seen. No one really knows what will happen, and so wisdom suggests we wait to see what the President-elect actually proposes. Once there is something concrete to discuss, we should by all means have a vigorous, but courteous, discussion. Just because the administration changes, that does not mean the trade community will be any less vocal about what is best for it in the global marketplace, even while the new administration seeks ways to address manufacturing and jobs.

Fruit and Vegetable/All Importers Beware

Posted in Agriculture, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Exports, valuation

In July 2016, the Houston Regulatory Audit office sent a letter to a number of large importers cautioning them to be sure their value declarations were correct, underscoring CBP’s position by pointing recipients to a long list of CBP informed compliance publications, and touting the advantages of correcting any errors by way of a prior disclosure.

Now we see Round 2. In early October 2016, the Agriculture and Prepared Products Center for Excellence and Expertise (“Center”) sent a letter to many fruit and vegetable importers asking more value questions. Specifically, the Center wanted to know

1)         Was the importer purchasing his goods or receiving them on consignment?

2)         Are the parties related?

3)         From which suppliers is the importer purchasing?

4)         From which suppliers are the goods received on consignment?

5)         If on consignment, how are the goods being valued at time of entry?

6)         Is reconciliation filed?  If not, what actions does the company take to determine if the actual cost of goods is more or less than the value declared at time of entry?

It is this last question that ties right into the revenue collection role of Customs and Border Protection (CBP). Is CBP collecting the right amount at time of entry? If the value is too low at time of entry, it must be corrected. Similarly, if it is too high, it should also be correct.

The reaction of the trade community has been exactly what one would expect. Many produce importers are stunned to learn they may not have been correctly declaring their goods at time of entry, despite the efforts of many customs brokers to make sure importers understood the legal requirements. The reaction of many is my produce is duty free, why is CBP making such a big deal? I’ve never heard of this before is another typical reaction.

The starting point for this discussion is what does the law require? The value law and related regulations have been almost without change for about 20 years. The standard is transaction value or the freely offered or arms’ length price for a given shipment; in simplest terms – what is the sale price? If goods are imported on consignment, there is no sale price as there is no sale. Therefore, another method of value must be used. At the same time, the reasonable care standard (enacted in 1994) requires that if the importer cannot accurately state information on his entry, he is to flag that issue (classification, value, etc.) and provide the correct information when available by way of reconciliation. So, the required process is equally long-standing.

A stated purpose of the Centers for Excellence and Expertise was to become familiar with given industries and seek uniformity.   The Center’s letter seeks to do just that.  We can disagree whether this letter was the “best” method by which to accomplish the intended goal, but regardless of the product one imports, the classification and value must be correct at time of entry.  So, what happens next?

There are on-going discussions between the trade community and CBP. Some have suggested the USDA Agriculture Marketing Service prices be used in lieu of actual sales prices, and thereby eliminate the need for reconciliation. Others have pointed out that could mean a higher price is declared at time of entry for some companies and a lower price for others.  There is some produce that is subject to duty and various produce is subject to user fees, so there exists a financial consequence to this inquiry, including how invalid prices distort the balance of trade between countries.

As the issue is only newly raised, it is not clear what will be the outcome. What is clear is importers need to be sure their entry declarations are correct when made. Importers should also consider the value issue is one long overlooked by Customs and Border Protection and has now become a focus for the agency with its renewed efforts to train staff and pass along institutional knowledge.

Companies that export would be well-advised to also consider their value declarations. Periodically, various federal agencies look at exports and incorrect values often lead these agencies (typically of a law enforcement ilk) to conclude money laundering is taking place. The most recent example of this sort of mess was the auto export headaches that occurred recently.

Importers should take this opportunity to make sure their entries are correct when filed. Mistakes happen, and need to be promptly correct. The real challenge, however, comes when the entries are wrong and the company has lax procedures. Taking the two letters together – from Regulatory Audit and the Center – CBP may have hit the so the speak tip of the iceberg. Entries should be correct at time of declaration and mistakes identified and corrected promptly. Importers of all products should take this opportunity to make sure their compliance programs are robust and lead to the highest level of compliance possible.

It Remains All About Compliance Programs!

Posted in Agriculture, Corporate Counsel, Cross-border trade, Customs Law

Originally published by the Journal of Commerce – November 2016

In early October, Customs and Border Protection (CBP) sent a letter to all the fruit and vegetable importers asking them to identify the basis on which they are declaring the value of their imported produce. The precursor was a realization by CBP that not all these imports were being correctly declared at time of entry. The consignment value was often based on an educated guess, if that, and generally not later updated to reflect actual sales values.  The questions asked by CBP included whether the produce was purchased or on consignment, whether the parties were related, how the consigned value was determined and why reconciliation was not filed.  Correctly, this sent chills throughout the industry and caused everyone to make sure to consult with appropriate advisors before responding.

If an importer knows his value (and other selected topics) at time of entry is not 100% correct, he runs the risk of penalty if he does not flag the discrepancy and then file reconciliation in order to report his true sales values later. Due to misunderstandings within the agency, those dealing with fruits and vegetables did not realize the disconnect until recently. In reality, what importers often overlook is the penalty for a failure to make a correct declaration when there is no duty difference is greater than when the full duty is not paid at time of entry. Perhaps this lax attitude can be traced to a lack of understanding, but it is also likely the result of the philosophy underpinning the CBP enforcement system.

When CBP enforces the law, it typically thinks first about civil penalties, for all but the most serious violations, and criminal later. When it comes to exports, however, those enforcement agencies (for good reason) think first jail first and civil penalties second. No one is suggesting CBP should change its philosophy. Rather, the point is that importers should know the requirements and abide by them, and so should exporters.

No doubt exporters pay far more attention to their levels of compliance, due in large measure to the many companies that recognize the national security and foreign policy implications of the products they sell, along with their own compliance standards, but it is also a matter that when it comes to enforcement, Commerce and State have vigorous outreach programs and make a point of talking about their successes, whereas CBP is typically silent on this topic.

By way of example, last week was the annual Bureau of Industry and Security Update. The program featured representatives of Commerce but from many other agencies as well, including State, the Office of Foreign Assets Control and the Defense Technology Security Administration.  Perhaps one of the most striking discussions had to do with voluntary disclosures.  On a dais consisting of three investigators, the Office of Export Enforcement Director proudly pointed out that not one voluntary disclosure had ever led to a criminal investigation. – imagine how quickly disclosures would stop if one was ever turned into a criminal case! What was particularly noteworthy was the Director’s comment that OEE routinely consults with the Dept. of Justice (Justice) before deciding disclosures.  When was the last time you heard CBP talk about the disclosures it receives?

What made the discussion even more topical was the early October National Security Division at Justice guidance issued regarding voluntary self-disclosures , see https://www.justice.gov/nsd/file/902491/download.  The focus of this guidance was described as “willful export control and sanctions violations” by companies and their employees.  Aiming yet again to find ways to hold individuals responsible for violations which occur, this Justice guidance requests companies to continue to file their voluntary self-disclosures with the agency having jurisdiction over the alleged violation, but to also submit a disclosure to Justice.  What makes this particular guidance unique is its focus on “willful” violations. What this tells the trade community is that generally less egregious mistakes will not lead to criminal prosecution, a philosophy the agencies generally follow when it comes to setting civil fines. In reality, any company that finds itself suffering a willful violation will most likely first fire the people involved and upgrade its compliance program.  This must be done quickly, which again points to why having processes and procedures in place, fully supported by upper management, are critical. The need for prompt action relates to a disclosure only being valid if it is reported before an investigation is opened, or if one is opened, before the company has notice of its existence. Once the remedial action has been completed, the disclosure is filed and steps taken are reported as part of the company seeking cooperation credit.

This latest Justice memo builds on the now somewhat infamous Yates memo regarding individual liability. See https://www.justice.gov/dag/file/769036/download. Both guidance documents underscore the same standard of full disclosure prior to any investigation having been initiated, with cooperation, including providing evidence and witnesses, and facilitation of third-party evidence, remains the norm at Justice.

Taken together, these various publications and events serve to remind all importers and exporters the key to financial success is a compliance program that actually works!

 

What Does The Election of President Trump Mean For Canada?

Posted in Aerospace & Defence, Agriculture, Antidumping, Border Security, Buy America, Cross-border deals, Cross-border trade, Elections, Export Controls & Economic Sanctions, Immigration law, NAFTA, Softwood Lumber, State Governments, Trade Agreeements, Trade Remedies

Canada-US FlagsOn November 8, 2016, Donald Trump was elected President of the United States.  What does this mean for Canadian businesses in terms of trade?

  1. President-elect Trump has said he is opposed to the TransPacific Partnership Agreement (“TPP”).  It is highly unlikely that TPP will be ratified.  Canada will have to negotiate strategic bilateral free trade agreements with TPP countries, starting with Japan, Australia, New Zealand and Malaysia.
  2. President-elect Trump has said he will renegotiate NAFTA.  What this means is unclear. Until we figure out what “renegotiation” means, it should be expected that there will be uncertainty in the Canada-US trade relationship.
  3. President-elect Trump is not a fan of the removal of U.S. unilateral economic sanctions against Iran.  It should be expected that new economic and trade sanctions will be implemented against Iran. We call this a “snap-back” of the sanctions.  The new sanctions may be worse than the old sanctions.  Canadian businesses with U.S. parents or subsidiaries or who use U.S. -made inputs should be very cautious when pursuing opportunities in Iran.  What may be permissible under Canadian law may become impermissible under U.S. law in 2017 (President-elect Trump takes the oath of office on January 20, 2017).
  4. “Thickening of the border” – Canada should expect that President-elect will implement new border security measures that will have an effect on Canada-US trade.  The flow of goods and services will slow down for a period of time until Trump realizes that he is hurting manufacturing businesses.  Canadian companies must join Partners in Protection and C-TPAT in the United States ASAP in order to reduce risks associated with new border security laws/policies.
  5. The buzz word will be “protectionism”.  Canadians should expect to see renewed protectionism. Expect new forms of protectionism that we have never considered.  It will not just be “Buy America” policies; which Canadians are used to seeing.
  6. Canada’s JLT Division (government trade lawyers) will be very busy filing cases with the World Trade Organization to react to President-elect Trump’s protectionist measures.  These cases take 3-4 years to run their course.  We won’t project a second term yet, but if there is one, expect to learn the word “retaliation”.  “Retaliation” is Canada being entitled to deny WTO benefits to goods/services from the United States to retaliate for the U.S. not bringing offending measures into compliance with WTO rules after Canada wins a case.
  7. Hollywood North will be booming. Many American celebrities have said they will move to Canada. There will be more filming in Canada.  The St.Lawrence Market district of Toronto looks a lot like Boston.
  8. Canada’s technology industry will see an increase in U.S. investment.  Many of the Silicon Valley establishment were in the Stop Trump movement.
  9. Canada should expect to see an increase in antidumping and countervailing duty cases in the United States.
  10. Canada should expect a revival of global safeguard cases brought in the the United States.  It is likely that President-elect Trump will implement safeguard measures if the procedures are taken so he can receive recommendations.  A safeguard is a form of trade remedy where U.S. manufacturing shows a surge of imports from all global sources and there is a finding that the imports caused or threatens to cause serious injury to the domestic industry.

For more information about what to expect in terms of Canada-U.S. trade relations, please continue to watch Canada-US Blog. Please contact Cyndee Todgham Cherniak (I have a Canadian law degree, a U.S. law degree and a Masters of Laws in international trade law) at 416-307-4168.

CBP C-TPAT Top Ten Tips for Points of Contact

Posted in Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Legal Developments

Thanks to one of the CBP Supply Chain Security Specialists for sharing this top ten list for portal points of contract – make sure:

  1.  All Point of Contacts in web portal are current.
  1.  All your C-TPAT partners SVI numbers are listed in the web portal field.
  2.  You have a list of all your non-C-TPAT global supply chain to include foreign site transportation providers, freight forwarders, sea carriers, etc.
  1.  To update any company changes into the web portal, e.g. address, personnel, security additions, etc.
  1.  You have uploaded monthly/quarterly/bi-annual and/or annual internal/external security audits of your business partners, (foreign site factories, transportation providers, etc. ). This must be done at least annually to be compliant with the C-TPAT program.
  1.  You have a system in place that includes risk assessment in your global supply chain that is similar to the C-TPAT 5 Step Risk Assessment process guide. These documents must be uploaded to the web portal.
  1.  You have a blank copy and a completed copy of the C-TPAT questionnaire(s) that your company uses to mail and/or physically use to assure compliance with the C-TPAT program. These documents must be uploaded to the web portal.
  1.  Your Importer of Record (IOR), Manufacturer Identification  (MID), FMC, SCAC and NVOCC numbers are listed in the web portal and are accurate to your supply chain address.
  1.  The company adheres to all the MUST’S and SHOULD’S in the C-TPAT criteria.
  2. Although it is not a requirement, it is suggested that you have a written C-TPAT manual or company/corporate policies and procedures that address the C-TPAT criteria for your respective entity type, e.g. Importer, foreign site factory, Highway carrier, Sea carrier, etc.

It’s All About Compliance – Part 2 – Import Classification

Posted in Aerospace & Defence, Corporate Counsel, Customs Law, tariff classification

This Alert is one in an occasional series of articles providing tips about various topics which come up routinely with import and export transactions.  These articles/tips are published with the intention to provide suggestions to aid international traders in their on-going efforts to get their declarations right the first time, and are based on situations we commonly see arising. Whether it is reasonable care on the import side or not self-blinding on the export side, compliance is a key for many different reasons, including protecting your bottom line.

Part 1 of this series addressed how to value goods correctly. It can also be found on this blog. This edition provides import classification tips.

Under U.S. law, imported goods are classified for duty assessment and statistical reporting using the Harmonized Commodity Description and Coding System.  This compilation of 97 Chapters and approximately 5,000 product descriptions, known in the U.S. as the Harmonized Tariff Schedule of the United States (HTSUS), provides a single modern structure for product classification and is used by more than 200 countries as a basis for their customs tariff and collection of international trade statistics.  The first six digits and their corresponding product descriptions are enacted by the countries World Trade Organization member countries. The remaining digits in any tariff number (which total 10 in the U.S.) and their corresponding duty rates are set individually by each country.  The HTSUS in the U.S. has 99 chapters, with the two unique ones intended to cover product specific provisions, such as American goods returned, products assembled abroad, special rules imposed on given products (for example, temporary quotas), and so on.

Tariff classification of goods under the HTSUS is governed by the General Rules of Interpretation (“GRIs”) which are analyzed in order until one applies.  In so doing, don’t forget to also check the additional U.S. rules of interpretation.

Classifying goods correctly is important not only for duty purposes, but also to determine whether the goods are subject to quotas, restraints, embargoes or other restrictions, and whether they are eligible for preferential duty rates or reductions. Incorrect classifications can lead to higher duty costs than necessary, unpleasant unplanned additional duty bills, lost sales/non-competitive pricing, liquidated damages, loss of business and even sizable penalties imposed for sufficiently egregious misdeclarations.  Although the importer is responsible for correctly declaring product classification, customs brokers (and even freight forwarders when they stray into this area) are at risk if they are not careful about the documentation they prepare on behalf of their customers.

Against that background, here are some tips for setting up a viable classification system.

1)         Review the product itself, and maybe even its specifications and other details, to verify the product description includes all the information reasonably needed for proper classification and then, and only then, classify the product;

2)         Periodically review products for any design or component changes which affect classification and update descriptions on invoices and tariff classifications accordingly;

3)         Prepare written classification procedures for internal and service provider use; for example, do you have your customs broker classify your goods or must they use your pre-determined classifications?

4)         Include researching the on-line CBP ruling database (CROSS),  and also court cases when appropriate, to identify prior rulings and court determinations dealing with your product and any similar ones;

5)         Consider requesting a classification ruling from CBP any time how to classify your product is not clear;

6)         Provide written instructions or a classification database to your customs broker and update it in a timely manner when changes are made to existing products and/or new items are added to your product line;

7)         Regularly review transactions to identify errors and if any are discovered, take immediate corrective action; decide if the error must be disclosed to the government and, in  doing so, seek legal advice before making a final decision.

If you have a topic on which you are interested in receiving tips, please let us know.

It’s All About Compliance – Part 1 – Value

Posted in Corporate Counsel, Cross-border trade, Customs Law, Legal Developments, Trade Agreeements, valuation

This Alert is one in an occasional series of articles providing tips about various topics which arise routinely with import and export transactions.  These tips are published with the intention to aid international traders in their on-going efforts to get their declarations right the first time, and are based on situations we commonly see occurring. Whether it is reasonable care on the import side or not self-blinding on the export side, compliance is a key for many different reasons, including protecting your bottom line.

Given the ever increasing attention being paid by the U.S. government to compliance by companies of all sizes, and especially in light of the recent informed compliance letter sent out by CBP’s Regulatory Audit in Houston, TX, now is the time to review how to value goods correctly.

The same basic value code is used throughout the world, at least among all the World Customs Organization member countries, although most assess duty on the C.I.F. value of the imported goods, whereas the U.S. assesses duty on the F.O.B. cost of goods. While admittedly each country has its own interpretation and they vary a tad, the basics are:

1) transaction value;

2) transaction value of identical or similar merchandise;

3) deductive value;

4) computed value; and

5) other values.

These are applied in order. For ease of calculation and documentation alone, everybody prefers transaction value.  Transaction value simply means the price paid or payable for the merchandise when sold for export to the U.S., plus packing costs, the selling commission, the value of any assist, any royalty or license fee, and the proceeds of any subsequent resale, disposal or use of the merchandise that accrues, directly or indirectly, to the seller, if not already included.

The bottom line is all of the value elements must apply to reach an F.O.B. cost of goods. If the F.O.B. price cannot be established, you go through each other option in order until one is satisfied.

What is the price paid or payable for the goods?

Typically, it is exactly what the definition implies – the F.O.B. cost of the shipment. The amount must be revised if the importer is given a credit on the current shipment to offset a shortage or quality problem on an earlier shipment, whereas the reasonable cost for constructing, erecting, assembling, maintaining, or providing technical assistance after importation, transport of goods post-importation and the duties, user fees and other federal taxes paid by the importer may be deducted, if previously added to the invoice price. Just don’t jump the gun and start deducting any of these costs unless you have actual invoices.  Similarly, where there are restrictions on the use of the goods; the value cannot be determined, proceeds accrue to the seller,  an adjustment cannot be made or the relationship between the parties influences the price, there are challenges to establishing a proper transaction value.

Assists are a topic unto themselves, but basically cover anything provided to the seller to make the goods which was provided free of charge or at a reduced cost. The one broad exclusion is for engineering, development, artwork, design work, and plans and sketches that are undertaken in the United States. Additional challenges arise when you must apportion the cost as the design work is created in the U.S. and at least one other country or all the units produced are not exported to the U.S.  Also worth keeping in mind is the impact if that design work is subject to an export license under the deemed export rules.

Royalties and license fees can be another serious challenge. Any company that owns a trademark, copyright or other form of intellectual property wants to protect it, but trying to determine whether the amount paid is or is not dutiable can be a major headache and often turns on exactly what is provided in the royalty agreement and the actual relationship between the parties – arms’ length or related.

Transaction value of identical or similar merchandise can be a challenge to an importer because you typically do not have access to the acquisition cost of your competitors, assuming your products are identical or similar, and how is that similarity to be defined? Computed value is typically used for related party transactions and deductive value generally applies to consigned goods such as produce. Since this article is intended as a refresher, we will avoid the complexity of these categories of value!

Value Tips For Compliance:

1)         Verify the INCOterm of sale of the deal match your invoices and periodically verify how your value is structured;

2)         Conduct knowledgeable reviews of your import and export transactions.

3)         Provide regular reminders to employees to double-check value issues apparent on documents, such as a term of sale which conflicts with how freight is charged (e.g., an F.O.B. invoice with prepaid freight or C.I.F. invoice with collect freight);

4)         Provide training to refresh knowledge and address any issues spotted during previous document reviews;

5)         Always vet business partners carefully. Establish the right to make entry or routed transaction is properly documented.

6)         Periodically verify that value determinations are correct and current, and reflect actual terms and conditions, and, if any errors are discovered, take immediate corrective action; decide if the error must be disclosed to the government and, in so doing, seek legal advice before making a final decision.

8)         Purely on the export side –

  1. a) the value reported is the selling price by the U.S. Principal Party in Interest to the foreign buyer or cost if not sold;
  2. b) plus the cost of inland freight, insurance, and other charges incurred in moving the goods from their U.S. point of origin to the U.S. port of exportation;
  3. c) but the import price is whatever else the buyer’s country requires to be added to reach transaction value.

If you have a topic on which you are interested in receiving tips, please let us know.

What Are The Steps Canada Follows To Ratify And Implement A Treaty?

Posted in Canada's Federal Government, Constitutional Law, Cross-border deals, Cross-border trade, Legal Developments, Trade Agreeements

CETAOn October 30, 2016, Canada participated in a signing ceremony for the Canada-EU Comprehensive and Trade Agreement (“CETA”).  What steps must Canada take to implement a free trade agreement (or any treaty) in Canadian law?

Step 1: Signing Order (Instrument of Full Powers): This step should be taken befor the signing ceremony. A signing order (that is, an Instrument of Full Powers) will designate one or more persons who have the authority to sign the treaty on behalf of Canada.

Step 2: Tabling the Treaty in the Parliament: The signed treaty is tabled in the House of Commons for discussion (not for a vote).  Before 2008, treaties were not brought to all members of Parliament.  In January 2008, Prime Minister Harper changed the procedures of ratifying treaties and added this step in order to improve transparency and the democratic process.  Global Affairs Canada has the 2008 Policy on its website. However, there is no vote on the treaty. There may be a full discussion about the treaty, but no opportunity to vote, undo the signature or change the text of the negotiated treaty.

The Clerk of the House of Commons distributes to all MPs (Members of Parliament) the full text of the treaty along with an Explanatory Memorandum about the treaty (often prepared by the negotiating team with input from the Minister responsible for the treaty).  The Explanatory Memorandum covers the following points:

  • Subject Matter: a description of the treaty;
  • Main Obligations: a description of the main obligations that will be imposed upon Canada by the treaty, should it be brought into force;
  • National Interest Summary: a description of the reasons why Canada should become a party;
  • Ministerial Responsibility: a listing of Ministers whose spheres of responsibility are implicated by the contents of the treaty;
  • Policy Considerations: an analyse as how the obligations contained in the treaty, as well as how the treaty’s implementation by Government departments are or will be consistent with the Government’s policies;
  • Federal-Provincial-Territorial implications: a determination of whether the obligations in the treaty relate in whole or in part to matters under provincial constitutional jurisdiction;
  • Time Considerations: details of any upcoming dates or events that make the ratification a matter of priority;
  • Implementation: a brief description of how the treaty will be implemented in Canadian law, including a description of the legislative or other authority under which it will fall (which will have already been determined by the Department of Justice);
  • Associated Instruments: information on any international instruments of any kind that are related to this treaty;
  • Reservations and Declarations: a description of any reservations or declarations;
  • Withdrawal or denunciation: a description of how the treaty could be terminated; and
  • Consultations: a description of the consultations undertaken with the House of Commons, self-governing Aboriginal Governments, other government departments and non-governmental organisations prior to the conclusion of the treaty, as appropriate.

The House of Commons then has 21 sitting days to consider the treaty before the Executive may take necessary steps to ratify the treaty (Step 4). The MPs often debate the treaty.

Step 3: Motion in House of Commons: When there is a majority government or sufficient support in the House of Commons, a motion will be tabled to recommend action, including ratification of the treaty.  The vote is not required.  The vote does not have legal effect.  If the vote fails, the government cannot be toppled.

Step 4: Order-in-Council (Instrument of Ratification): After the treaty has been in the House of Commons for 21 sitting days, the ratification of the treaty may occur.  The ratification process is controlled by Cabinet.  There is no requirement to pass legislation in the Parliament to ratify a signed treaty. The Governor-in-Council (Cabinet) prepares an Order-in-Council authorizing the Minister of Foreign Affairs to sign an Instrument of Ratification or Accession.

Step 5: Federal Implementing Legislation: Treaties must be implemented in Canadian law in order to have legal effect.  An implementing bill is tabled in the House of Commons.  The implementing bill contains the changes required to Canadian law at the national level to implement the provisions of the treaty.  The MPs debate the implementing bill and may suggest changes to the implementing laws.  The MPs cannot require changes to the substance of the treaty.  However, the MPs may ask questions of the Government and the questions must be answered.

After the implementing bill passes in the House of Commons, the implementing bill is sent to the Canadian Senate.  The implementing bill is debated in the Senate.  It is possible that the Senate will not pass the implementing bill.  This happened in 1988 when the Senate would not pass the Canada-United States Free Trade Agreement Implementation Act.  This triggered a federal election.

Step 6: Provincial/Territorial Implementing Legislation: It may be possible that implementing legislation is also required at the provincial level.

Step 7: Regulatory Changes: Often new regulations and/or changes to existing regulations are required to implement treaty provisions. The passing/changing of regulations is controlled by Cabinet.

Step 8: Taking Effect: The date that a treaty comes into force, or the terms and conditions necessary for the treaty to come into force, are established in the treaty itself.  CETA will be different than typical treaties in terms of when it will take effect.  We have not yet seen the official English version of the Belgian Declaration.  We will comment on how the CETA will take effect after reviewing the text.

Step 9: Other Changes to Policies, Guides, Procedures of Government: Government departments will make necessary changes to government policies, guides, procedures, etc.  These changes take place over time and are not completed at the time the treaty takes effect.

For more information about Canada’s free trade agreements and international law, please call Cyndee Todgham Cherniak at 416-307-4168 or email cyndee@lexsage.com.

The CBSA (as Administrator of Laws) Must Follow CITT Decisions (Subject to Limited Exceptions)

Posted in Antidumping, Cross-border litigation, Customs Law, Government Procurement, Imports Restrictions

Gavel and Scales of JusticeThis case is a must-read for all customs and trade lawyers.  This case is a must- read by other administrative lawyers who appear before quasi-judicial tribunals. The general administrative law rules for law enforcers and tribunals have been clarified in simple, understandable terms. May there be greater certainty, greater predictability and finality as a result of this important case.

On October 21, 2016, Justice David Stratas of Canada’s Federal Court released a game-changing customs decision/administrative law, which is Canada (Attorney General) v. Bri-Chem Supply Ltd., 2016 FCA 257 (the “Bri-Chem Decision – FCA”).  The Federal Court of Appeal has spoken.  The Canada Border Services Agency (“CBSA”) is an “administrator” of Canada’s border laws.  The Canadian International Trade Tribunal (“CITT”) is a a quasi-judicial tribunal that has been granted the powers of a superior court of record.  The CBSA must follow the decisions of the CITT and can no longer ignore decisions it does not agree with (subject to general rules set out below).

I will put money on an appeal of the Bri-Chem Decision-FCA to the Supreme Court of Canada.  As a result, I expect more significant developments in Canada’s customs and trade laws regimes to be forthcoming.  But, until then, the Bri-Chem Decision-FCA is a significant decision that will be quoted often by counsel for importers who are the subject of CBSA enforcement actions.  It will also be quoted by lawyers who regularly appear before other tribunals.

Before I discuss the decision itself, I would like to say something about Justice Stratas.  I worked with Justice Stratas at Heenan Blaikie before he was appointed to the bench. He has proved himself to be a great appointment to the Federal Court of Appeal (and I have no cases pending before him now – just to be clear).  He sits on many judicial reviews of CITT decisions (customs and antidumping injury decisions).  His judgments are understandable and one often nods as his decisions are read.  This decision should be taken seriously because it was written by Justice Stratas.  As a result, his Bri-Chem Decision-FCA should be given great weight.

Justice Stratas made the following important points in his decision, which are, for many purposes, general rules to be followed by tribunals and administrators:

Rules for Tribunals

  1. Tribunals and administrators are both public bodies established by legislation. Both wield public power and both must obey all relevant legislation, often the same legislation. They are independent from each other. But they are in a hierarchical relationship. Tribunals pass judgment on the acts of administrators;
  2. While tribunals should try to follow their earlier decisions, they are not bound by them;
  3. It is possible for one tribunal panel to disagree with another and still act reasonably – however, while it is true that later tribunal panels are not bound by the decisions of earlier tribunal panels, it is equally true that later panels should not depart from the decisions of earlier panels unless there is good reason;
  4. As long as an administrator is acting bona fide and in accordance with its legislative mandate, an administrator can assert—where principled and warranted—that an earlier tribunal decision on its facts does not apply in a matter that has different facts.
  5. A tribunal is constrained by any rulings and guidance given by courts that govern the facts and issues in the case;
  6. Parliament—with a view to furthering efficient and sound management over an area of administration—has passed a law empowering a tribunal to decide certain issues efficiently and once and for all;
  7. Certainty, predictability and finality matter;
  8. Allowing tribunal panels to disagree with each other without any limitation tears against the need for a good measure of certainty, predictability and finality.

Rules for Administrators

  1. An administrator whose actions are regulated by a tribunal (like the CBSA whose decisions are regulated by the CITT) must follow tribunal decisions.
  2. Tribunals bind those who are subject to their jurisdiction, including administrators, subject to any later orders by reviewing courts.
  3. Certainty, predictability and finality matter;
  4. In pursuit of its legislative mandate, an administrator can sometimes distinguish an earlier tribunal decision on its facts and act accordingly;
  5. In certain circumstances, the administrator should be allowed to act upon its view of the matter and, when challenged, should be allowed to raise with the tribunal the flaw it sees;
  6. An administrator can act or take a position against an earlier tribunal decision only if it is satisfied it is acting bona fide in accordance with the terms and purposes of its legislative mandate and only if a particular threshold has been crossed. This threshold should be shaped by two sets of clashing principles (1) the principles of certainty, predictability, finality and tribunal pre-eminence and (2) ensuring that potentially meritorious challenges of arguably wrong decisions can go forward.

What Is The Threshold?

Justice Stratas articulates his answer to this important question as follows:

“In an administrative regime like the one before us, the administrator must be able to identify and articulate with good reasons one or more specific elements in the tribunal’s earlier decision that, in the administrator’s bona fide and informed view, is likely wrong. The flaw must have significance based on all of the circumstances known to the administrator, including the probable impact of the flaw on future cases and the prejudice that will be caused to the administrator’s mandate, the parties it regulates, or both.

This is something far removed from an administrator putting essentially the same facts, the same law and the same arguments to a tribunal on the off-chance it might decide differently. Tribunal proceedings are not a game of roulette where a player, having lost, can just hope for better luck and try again.

When the administrator tries to persuade the tribunal that its earlier decision should no longer be followed, the administrator must address at least the matters discussed above, offering submissions that are not simply a rerun. They must go further than just a modest modifying or small supplementing of the earlier submissions. The tribunal may then decide whether its earlier decision remains good law after considering the evidence before it, the terms and purposes of the legislation, and any other legal standards that properly bear on its decision.”

Why is the Bri-Chem Decision-FCA important?

The Bri-Chem Decision-FCA is important in respect of matters within the mandate of the CITT AND other administrative/quasi-judicial tribunals at the federal and provincial levels.  This may be a customs case, but it will be cited in matters before other administrative tribunals regarding actions of other administrators.  Customs lawyers can rejoice because customs law will influence other court cases – this is not a common occurrence.

Even before the CITT, the Bri-Chem Decision-FCA will be relevant in antidumping appeal proceedings, government procurement bid challenge proceedings and excise tax proceedings.  The importance of the general rules is applicable beyond customs decisions and the specific facts of the underlying CITT cases discussed therein. I have not even covered the facts underlying the Bri-Chem Decision-FCA because they will only be a footnote in the future.

The CBSA is an administrator of many border laws beyond just the Customs Act, Customs Tariff and Special Import Measures Act.  But, there are many other administrators of laws who must read this decision and follow this decision. Unless and until the Bri-Chem Decision-FCA is appealed to the Supreme Court of Canada or another case that follows the Bri-Chem Decision – FCA is considered by the Supreme Court of Canada, this is precedent.

This Canadian Federal Court of Appeal decision may even have relevance in other jurisdictions.  It is that significant.

For more information, please call Cyndee Todgham Cherniak at 46-3017-4168 or email at cyndee@lexsage.com. Please review more free information on the LexSage website.

 

 

On What Authority Does The CBSA Search Smart Phones?

Posted in Border Security

Canada CustomsI often receive calls from travelers who have had their cell phone, smart phone, PDA, iPhone, camera, and laptop computer examined by the Canada Border Services Agency (“CBSA”) during a secondary inspection.  Most of the time, the traveler is outraged because the CBSA either (a) saw naked photos on the phone, (b) found the receipt for the goods they failed to declare, (c) read emails about illegal work in Canada or (d) saw a photo of them smoking drugs or using a bong, or (e) all of the above.  In the initial contact, the person claims that the CBSA illegally searched the cell phone, smart phone, PDAs, iPhones, cameras, or laptop computer without a warrant.

The CBSA does not require a warrant to conduct an examination at the border. Section 99 of the Customs Act (Canada) gives CBSA officers the authority to examine goods and provides in part:

“An officer may
(a) at any time up to the time of release, examine any goods that have been imported and open or cause to be opened any package or container of imported goods and take samples of imported goods in reasonable amounts;

(c) at any time up to the time of exportation, examine any goods that have been reported under section 95 and open or cause to be opened any package or container of such goods and take samples of such goods in reasonable amounts;

(e) where the officer suspects on reasonable grounds that this Act or the regulations or any other Act of Parliament administered or enforced by him or any regulations thereunder have been or might be contravened in respect of any goods, examine the goods and open or cause to be opened any package or container thereof; or

(f) where the officer suspects on reasonable grounds that this Act or the regulations or any other Act of Parliament administered or enforced by him or any regulations thereunder have been or might be contravened in respect of any conveyance or any goods thereon, stop, board and search the conveyance, examine any goods thereon and open or cause to be opened any package or container thereof and direct that the conveyance be moved to a customs office or other suitable place for any such search, examination or opening.”

The term “goods” is defined in subsection 2(1) of the Customs Act as “any document in any form”.  This includes electronic records.

The CBSA takes the position that they have the authority under the Customs Act to examine any electronic document because goods include any document in any form, which would include electronic form.

It is well established that the CBSA does not require a warrant when conducting searches at the border.  The Supreme Court of Canada acknowledged in R. v. Simmons that the CBSA has wide power of search at the border.  The Supreme Court of Canada wrote:

“The degree of personal privacy reasonably expected at customs is lower than in most other situations. Sovereign states have the right to control both who and what enters their boundaries. Consequently, travellers seeking to cross national boundaries fully expect to be subject to a screening process. Physical searches of luggage and of the person are accepted aspects of the search process where there are grounds for suspecting that a person has made a false declaration and is transporting prohibited goods.”

The best way to prevent the CBSA from looking at naked photos (or drug photos) on your phone is to not have them in the first place.  There is nothing wrong with traveling with a clean laptop that does not connect to your email.  There is nothing wrong with deleting your email accounts before you arrive at the border.  Review your text messages and delete ones that you do not want anyone (including your Granny) to read.

More information about searches at the border is contained in a PowerPoint “Hot Topics in Privilege: New Things To Think About!” (April 2015)

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