Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

What Should You Do When Canada Releases A New List of Persons Subject to Economic Sanctions and Asset Freezes?

Posted in Export Controls & Economic Sanctions, Exports

On September 22, 2017, Canada did something it has not done in a while – Canada imposed unilateral economic sanctions and asset freezes against 40 officials in the Venezuelan Maduro regime.  A new list of designated persons (Canada’s term for sanctioned persons) was publicly releases – the persons against whom the unilateral economic sanctions, trade restrictions and asset freezes would be imposed.  Canada does not have a consolidated list of designated persons – so, this is a brand new list to be reviewed, implemented and monitored.  Canada also has not released guidance to Canadian businesses setting out what is expected of them when a new list of designated persons is released – Canadian companies are just expected to know and get it right immediately.

Many Canadian companies (especially small and medium sized businesses) do not know what they should do or how they should start implementing the economic sanctions, trade restrictions and asset freezes.  We have put together a short list of recommendations (which does not cover every step required).

  1. Arrange an internal meeting and bring together of team of people within your organization to implement the required changes to your business activities necessary to implement the economic sanctions, trade restrictions and asset freezes. For example, bring is the person in charge of compliance, head of the sales department, the head of the purchasing department, legal department, someone for risk assessment and someone from human resources.  You may also wish to include someone from your IT department if computerized systems will need to be updated.
  2. Review the computer systems to determine if your sell any goods or services or provide technical data to the sanctioned country.  Yes, the economic sanctions, trade restrictions and asset freezes are against individuals – but all the individuals are from a particular country or are associated with a particular country.  Printout any list of names that you find as connected with the country (e.g., Venezuela).
  3. Check the list of names against the new list of designated persons and names in your system that closely resemble the names of designated persons – it is common for Canadian companies to misspell foreign names. Remove any names that are dissimilar from the list of designated persons and keep a list of matching and similar names (“Matched/Similar List of Names”).
  4. Review your customer lists for the Matched/Similar List of Names.  Take steps to stop doing business if you match a name to the designated persons list or a similar name. Inform the head of sales and the sales persons connected with the account that they can participate in no further business with the Matched/Similar Name.  However, be prepared to review any challenges by persons with the same or similar names.
  5. With respect to corporations who are customers/clients, check your records for a list of shareholders, directors, senior management, etc. Check the names of shareholders, directors and senior management against the new list of designated persons and identify names in your system that are the same as or closely resemble the names of designated persons. Take steps to stop doing business if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  6. With respect to partnerships who are customers/clients, check your records for a list of partners. Check the names of partners against the new list of designated persons and identify names in your system that are the same as or closely resemble the names of designated persons. Take steps to stop doing business if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  7. With respect to trusts who are customers/clients, check your records for a list of settlors and beneficiaries. Check the names of settlors and beneficiaries against the new list of designated persons and identify names in your system that are the same as or closely resemble the names of designated persons. Take steps to stop doing business if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  8. Check open purchase orders relating to the List of Names and any corporations, partnerships or trusts connected with the designated individuals (the “Expanded List of Names”). Check the new list of designated persons against the Expanded List of Names. Take steps to terminate the purchase order (that is not ship the goods or technical data or provide the services) if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  9. Check existing contracts relating to the Expanded List of Names. Check the new list of designated persons against the Expanded List of Names. Take steps to stop further activities under that contract if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  10. Check letters of credit and any financial arrangement relating to the Expanded List of Names. Check the new list of designated persons against the Expanded List of Names. Take steps to stop further issuance or credit or other financial dealing if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  11. If you hold property for clients (e.g., you are an investment portfolio manager), check for assets belonging to persons in the the Expanded List of Names. Take steps to stop any transfer of property to that individual, corporation, partnership or trust if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  12. Condominium corporations and real property management companies should for assets belonging to persons in the the Expanded List of Names. Take steps to stop any transfer of property to that individual, corporation, partnership or trust if you match a name to the designated persons list.  However, be prepared to review any challenges by persons with the same or similar names.
  13. If the designed persons are found in your computer systems (including corporations, partnerships and trusts associated with the designated persons), update for systems to flag those persons (and persons with similar names) so that you do not conduct any future business with those designated persons and that you freeze any existing assets.
  14. If the designed persons are not found in your computer systems (including corporations, partnerships and trusts associated with the designated persons), update for systems to flag designated persons (and persons with similar names) so that you do not conduct any business with any designated persons.
  15. Inform employees, agents, representatives, etc. that if they continue to do business with a designated person, they could cause the company to be subject to severe penalties and they may be subject to severe penalties under Canadian law.  Inform them that circumventing the sanctions could lead to their termination with the company. Opening a new account in the  name of a person not of the designated persons list in order to circumvent the computerized checks and balances should led to termination with cause.
  16. Update your End Use Certificates precedent. If you do not currently use End Use Certificates, consider implementing a process to require end-use certificates for transactions with persons in sanctioned countries.
  17. Update your Compliance Policies. If you do not currently do not have a Compliance Policy, consider preparing a Compliance Policy covering economic sanctions, export controls, trade restrictions and asset freezes.
  18. Update any online training or in-person training you provide to employees, agents, representatives or schedule a training session with employees, agents and representatives. If you do not currently do not have a training program, consider preparing a training program covering Canadian laws.
  19. If you have subsidiaries located in foreign jurisdictions (and in particular the region of the new sanctioned country), determine to what extent they are required to implement the new list of designated persons and repeat the above listed steps for each subsidiary.
  20. If this is all too much for you or you do not know how to get started, call a lawyer who knowledgeable about economic sanctions and internal compliance.

For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

Canada Has Imposed Economic Sanctions and Asset Freezes On The Venezuelan Maduro Regime

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

On September 22, 2017, Canada has finally imposed unilateral economic sanctions on the Maduro Regime in Venezuela.  Global Affairs has issued a Press Release entitled “Canada imposes sanctions on Maduro regime in Venezuela”.  Canada has imposed unilateral targeted economic sanctions against 4o Venezuelan officials and individuals under the Special Economic Measures Act The Special Economic Measures (Venezuela) Regulations (to be released soon) impose asset freezes and dealings prohibitions on the targeted individuals by prohibiting persons in Canada and Canadians outside Canada from dealing in any property of these individuals or providing financial or related services to them.  The specific prohibitions have not been announced today.

The names of the individuals targeted by these Regulations are:

  • Nicolás MADURO MOROS
  • Tibisay LUCENA RAMÍREZ
  • Elías José JAUA MILANO
  • Tareck Zaidan EL AISSAMI MADDAH
  • Tarek Willians SAAB HALABI
  • Néstor Luis REVEROL TORRES
  • Roy Antonio María CHADERTON MATOS
  • María Iris VARELA RANGEL
  • Pedro Miguel CARREÑO ESCOBAR
  • Diosdado CABELLO RONDÓN
  • Susana Virgina BARREIROS RODRÍGUEZ
  • Freddy Alirio BERNAL ROSALES
  • Delcy Eloína RODRÍGUEZ GÓMEZ
  • Tania D’AMELIO CARDIET
  • Aristóbulo ISTURÍZ ALMEIDA
  • Jorge Jésus RODRÍGUEZ GÓMEZ
  • Francisco José AMELIACH ORTA
  • Carlos Alfredo PÉREZ AMPUEDA
  • Sergio José RIVERO MARCANO
  • Jesús Rafael SUÁREZ CHOURIO
  • Carmen Teresa MELÉNDEZ RIVAS
  • Bladimir Humberto LUGO ARMAS
  • Gustavo Enrique GONZÁLEZ LÓPEZ
  • Elvis Eduardo HIDROBO AMOROSO
  • Remigio CEBALLOS ICHASO
  • Antonio José BENAVIDES TORRES
  • Hermann Eduardo ESCARRÁ MALAVÉ
  • Sandra OBLITAS RUZZA
  • Socorro Elizabeth HERNÁNDEZ HERNÁNDEZ
  • Maikel José MORENO PÉREZ
  • Gladys Maria GUTIÉRREZ ALVARADO
  • Juan José MENDOZA JOVER
  • Luis Fernando DAMIANI BUSTILLOS
  • Lourdes Benicia SUÁREZ ANDERSON
  • Carmen Auxiliadora ZULETA DE MERCHÁN
  • Arcadio de Jesús DELGADO ROSALES
  • Calixto Antonio ORTEGA RÍOS
  • Andrés Eloy MÉNDEZ GONZÁLEZ
  • Manuel Enrique GALINDO BALLESTEROS
  • Vladimir PADRINO LÓPEZ

To the extent that Canadian companies do business with these individuals or Venezuelan entities that may be connected with these individuals, they may have to cease doing business with those persons.

We called for sanctions earleir this summer.  See Michelle Zillio’s articles in the Globe and Mail “Opposition, activist call on Liberals to sanction Venezuelan government” and “Ottawa says it lacks law to sanction Venezuelan government officials“.   Michelle Zillio wrote:

“According to SEMA, cabinet – through the governor in council – can take economic measures against a state if it believes that “a grave breach of international peace and security has occurred that has resulted or is likely to result in a serious international crisis.” Trade lawyer Cyndee Todgham Cherniak, who advises businesses on how to navigate Canada’s sanctions regime, wonders why Canada has used SEMA to sanction countries such as Burma, but not Venezuela.”

“We impose sanctions against Burma for their human-rights violations and the instability in that country,” she said. “It’s consistent with Canadian values to impose sanctions against Venezuela. We can’t accept this sort of behaviour.”

I am happy to see that the Government of Canada agrees with me.

For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

Canadian Companies Should Be Aware Of President Trump’s Executive Order Imposing Sanctions on North Korea AND Those Who Do Business With North Korea

Posted in Export Controls & Economic Sanctions, Exports, U.S. Federal Government

On September 21, 2017, President Trump signed “Presidential Executive Order on Imposing Additional Sanctions with Respect to North Korea“.  This Presidential Executive Order blocks U.S. assets of persons to be identified by the Secretary of State.  The perameters that the Secretary of State may consider in listing any person determined:

(i) to operate in the construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles, or transportation industries in North Korea;

(ii) to own, control, or operate any port in North Korea, including any seaport, airport, or land port of entry;

(iii) to have engaged in at least one significant importation from or exportation to North Korea of any goods, services, or technology;

(iv) to be a North Korean person, including a North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea or the Workers’ Party of Korea;

(v) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to this order; or

(vi) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order.

Item (iii) should be of particular interest to Canadian companies and should cause Canadian companies to ensure they have proper compliance programs in place to prevent intentional and inadvertent exports to North Korea (imported from North Korea are less of an issue).  If a Canadian company sells goods to, say China, and those goods are subsequently sol to North Korea, it is possible that the Secretary of State will consider the export to be “at least one significant exportation to North Korea of any goods”.

The Executive Order contains many other provisions that should be reviewed carefully.  The Executive Order has extra-territorial application and the U.S. may block a Canadian company’s or person’s assets located in the U.S. (e.g., a subsidiary).

The Executive Order also can impact funds held by foreign financial institutions. The Excutive Order states that “[a]ll funds that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person and that originate from, are destined for, or pass through a foreign bank account that has been determined by the Secretary of the Treasury to be owned or controlled by a North Korean person, or to have been used to transfer funds in which any North Korean person has an interest, are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in.”  The term “foreign financial institution” is defined as meaning “any foreign entity that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent. The term includes, among other entities, depository institutions; banks; savings banks; money service businesses; trust companies; securities brokers and dealers; commodity futures and options brokers and dealers; forward contract and foreign exchange merchants; securities and commodities exchanges; clearing corporations; investment companies; employee benefit plans; dealers in precious metals, stones, or jewels; and holding companies, affiliates, or subsidiaries of any of the foregoing. The term does not include the international financial institutions identified in 22 U.S.C. 262r(c)(2), the International Fund for Agricultural Development, the North American Development Bank, or any other international financial institution so notified by the Secretary of the Treasury.”

The Executive Order specifically states that “there need be no prior notice of a listing or determination made pursuant to this order.”  As a result, the freezing and blocking of assets can occur without notice.

This post does not cover all aspects of the Executive Order.  We have selected a few elements of the Executive Order to highlight the seriousness of the Executive Order.   It is more important that ever before for Canadian companies to ensure they have a robust compliance program in place and that internal systems work.  It is possible to be off-side this Executive Order with significant financial consequences.

For more information or to arrange an export controls diagnostic, please contact Cyndee Todgham Cherniak at 416-307-4168 or at Cyndee@LexSage.com. If you would like assistance in managing the process, Heather Innes, formerly in-house counsel at a company with export controls processes, would be happy to assist. Please call Heather at 416-350-1234.

CETA Is Not NAFTA: 7 Things That Are Different In CETA

Posted in Canada-EU CETA

Today, September 21, 2017, the Canada-European Union Comprehensive Economic and Trade Agreement (the “Canada-EU CETA”) entered into effect provisionally.  Importantly, the customs duty reductions and eliminations took effect today.  The rules of origin took effect today.  The customs procedures took effect today.  The quota requirements took effect today.  Most of the Canada-EU CETA is in effect today.

There is a lot that Canadian businesses need to know and need to learn.  Canadian businesses are used to NAFTA rules.  The Canada-EU CETA did not adopt all the same rules as NAFTA.  If you do what is required for NAFTA, you may run into problems with Canada-EU CETA.

Below, we briefly discuss 7 areas where there are differences between the steps importers of EU-origin goods must take in order to benefit from the Canada-EU CETA:

  1. DO NOT use a NAFTA certificate of origin for CETA purposes.  Canada and the European Union did not adopt a certificate of origin like NAFTA.  Instead, each and every invoices for originating goods must include a signed Origin Declaration or Certification of Origin on the invoice or another commercial document.  The English Format (and other languages) for the Certification of Origin / Origin Declaration is contained in Annex 2 of the Protocol on the rules of origin and customs procedures.  The Certification of Origin may be provided on a separate commercial document, however, according to the Canada Border Services Agency, the separate document must identify the invoice on the originating goods. What this means for Canadian importers is more paper – rather than less paper.  We have heard that some computer systems for generating invoices are not able to incorporate a computerized signed statement. There will be situations where the paperwork is doubled. One certificate of origin similar to the NAFTA certificate of origin will not suffice as it will not link to particular invoices as required by the CBSA.
  2. DO NOT used a NAFTA rules of origin – use the Canada-EU CETA rules of origin.  Canada and the European Union negotiated rules of origin.  Some are the same as NAFTA and some are different.  As a result, you have to look up the applicable rule of origin in the Canada-EU CETA.  The product-specific rules of origin are found in Annex 5 of the Protocol on rules of origin and customs procedures.
  3. Use tariff abbreviation CEUT and tariff code 31 on your B3 Canada Customs Coding form for goods originating in the European Union and included territories. For more information, see Are You Ready To Benefit From The Canada-EU CETA?
  4. The Origin Verification Process is different in the Canada-EU CETA. The Canada-EU CETA Protocol on rules of origin and origin procedures establishes an origin verification process whereby the European Union verifies EU company certifications of origin / Origin Declarations made by EU exporters and producers and the CBSA verifies Canadian suppliers’ certifications of origin / Origin Declarations made by Canadian exporters and producers. The CBSA will not travel to the EU to verify EU certifications of origin / Origin Declarations.  For more information, see The Origin Verification Process in the Canada-EU CETA is Different From NAFTA and Other Free Trade Agreements.
  5. If you are importing textiles or apparel, make sure you have any required import specific import permit prior to importation.  You may not be able to claim CETA preferential tariff treatment if you do not have an import permit and you may not obtain quota if others have already accounted for the allotted amount. See Notice to Importers SER No. 899 “Textiles and Apparel for Import to Canada from the European Union and its Member States (Items 86.98 and 86.99 on Canada’s Import Control List)”
  6. If you wish to import cheese on a duty-free basis, you must participate in the cheese quota application process.  The 2017 cheese quota allocation process is now closed.  The 2018 cheese quota allocation process will start in October 2017. For more information, see Canada Announces Canada-EU CETA Cheese Quota Process.
  7. Have your proof of EU testing: Canada’s rules with respect to product standards continue to apply.  However, the Canada-EU CETA reduces administrative delays relating to certain goods (not all goods) by eliminating the need for double-testing.  In the Protocol on the mutual acceptance of results of conformity assessment, Canada has agreed to accept assessment certificates issued by EU members with respect to 11 categories of goods (such as toys, electrical equipment, construction products, recreational craft, etc.).

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

 

 

The Origin Verification Process In CETA Is Different From What Canadian Businesses Are Used To

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

Canadian businesses are used to the North American Free Trade Agreement (“NAFTA”) customs procedures for verifying certificates of origin that effectively state that exported goods are “made in Canada”. The NAFTA origin verification procedures have been adopted in most other Canadian free trade agreements.

Under NAFTA, United States Customs and Border Protection (“US CBP”) officers can ask for permission to come to Canada to attend at the Canadian premises of a Canadian supplier of NAFTA goods to verify statements of origin in a certificate of origin.  Similarly, Canada Border Services Agency (“CBSA”) officers can ask U.S. exporters of NAFTA goods if they can attend at a U.S. supplier’s premises on U.S. soil to review documents and computer records (and other records) to verify statements of origin in a certificate of origin.

The Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) establishes a very different origin verification process. The Canada-EU CETA Protocol on rules of origin and origin procedures establishes an origin verification process whereby the European Union verifies EU company certifications of origin / Origin Declarations made by EU exporters and producers and the CBSA verifies Canadian suppliers’ certifications of origin / Origin Declarations made by Canadian exporters and producers. The CBSA will not travel to the EU to verify EU certifications of origin / Origin Declarations. The Canada-EU CETA will be provisionally implemented on September 21, 2017.

The new origin verification procedures are found in Article 29 of the Canada-EU CETA Protocol on rules of origin and origin procedures.  In Article 29, Canada and EU Members have agreed assist each other, through their customs authorities, in verifying whether products are originating and ensuring the accuracy of claims for preferential tariff treatment.

Canada is required to establish procedures to verify Canadian exporters’ statements of origin. The CBSA indicated on September 14, 2017 in Customs Notice 17-29 “Proposed Regulatory Amendments and Proposed New Regulations Related to the Implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA)” that regulations setting out the new procedures will be passed soon.  So, we do not yet know the exact Canada-EU CETA origin verification procedures yet.  In Customs Notice 17-29, we have been informed that with respect to exported goods from Canada:

“The new CETA Verification of Origin of Exported Goods Regulations are being proposed in order to implement Articles 26 and 29 of the Protocol on Rules of Origin and Origin Procedures of the CETA. The regulations set out methods, other than a verification visit, that may be used in order to verify the originating status of goods exported from Canada to an EU country or other CETA beneficiary. These methods are the review of a verification questionnaire completed by the exporter or producer of goods, the review of the written response of the exporter or producer to a verification letter, or the review of other information received by the exporter or producer or by the producer or supplier of a material used in the production of the goods. These regulations will also set out what premises or places may be entered for the purpose of a verification visit, indicate that a verification visit may only be conducted if a written notice of intention to conduct the visit has been sent, and specify the way certain documents are to be provided.”

With respect to goods imported into Canada that originated in the European Union and its included territories, we are informed that:

“The new CETA Verification of Origin of Imported Goods Regulations are proposed by CBSA to implement Articles 26 and 29 of the Protocol on Rules of Origin and Origin Procedures of the CETA. The Regulations describe the method for sending verification requests and provide for the review of the reports received in answer to these requests as well as for the review of any relevant supporting documents received.”

Based on the text of the Canada-EU CETA Protocol on rules of origin and origin procedures, Canadian businesses know that the new regulations will contain the following requirements/procedures:

  1. Record-keeping requirement (Exporters): Exporters who have completed an origin declaration must keep a copy of the origin declaration, as well as the supporting documents for three years after the completion of the origin declaration or for a longer period of time as the Party of export may specify.
  2. Record-keeping requirement (Producers): If an exporter has based an origin declaration on a written statement from the producer, the producer shall be required to maintain records for three years after the completion of the origin declaration or for a longer period of time as the Party of export may specify.
  3. Record-keeping requirement (Importers): Importers who have claimed and been granted preferential tariff treatment shall keep documentation relating to the importation of the product, including a copy of the origin declaration, for three years after the date on which preferential treatment was granted, or for a longer period of time as that Party may specify.
  4. Form of Records: Canada and the EU must permit, in accordance with that Party’s laws, importers, exporters, and producers in its territory to maintain documentation or records in any medium, provided that the documentation or records can be retrieved and printed.
  5. Denial of Preferential Tariff Treatment by Country of Importation: Canada and the EU may deny preferential tariff treatment to a product that is the subject of an origin verification when the importer, exporter, or producer of the product that is required to maintain records or documentation under this Article (a) fails to maintain records or documentation relevant to determining the origin of the product in accordance with the requirements of this Protocol; or (b) denies access to those records or documentation.
  6. Don’t Deny Preferential Tariff Treatment for Slight Discrepancies – Be Fair: The discovery of slight discrepancies between the statements made in the origin declaration and those made in the documents submitted to the customs authorities for the purpose of carrying out the formalities for importing the products shall not, because of that fact, render the origin declaration null and void if it is established that this document corresponds to the products submitted.
  7. Don’t Deny Preferential Tariff Treatment for Typos – Be Fair: Obvious formal errors such as typing errors on an origin declaration shall not cause this document to be rejected if these errors do not create doubts concerning the correctness of the statements made in the document.
  8. Cooperation: Canada and the EU shall cooperate in the uniform administration and interpretation of the Canada-EU Protocol on rules of origin and origin procedures and, through their customs authorities, assist each other in verifying the originating status of the products on which an origin declaration is based.
  9. Verification Procedures: Canada and the EU have agreed that the customs authority of the Party of import may verify whether a product is originating by requesting, in writing, that the customs authority of the Party of export conduct a verification concerning whether a product is originating. When requesting a verification, the customs authority of the Party of import shall provide the customs authority of the Party of export with (a) the identity of the customs authority issuing the request; (b) the name of the exporter or producer to be verified; (c) the subject and scope of the verification; and (d) a copy of the origin declaration and, where applicable, any other relevant documentation.
  10. Information Sharing: When appropriate, the customs authority of the Party of import may request, pursuant to paragraph 3, specific documentation and information from the customs authority of the Party of export.
  11. Verification Procedures: The customs authority of the Party of export shall proceed to the origin verification. For this purpose, the customs authority may, in accordance with its laws, request documentation, call for any evidence, or visit the premises of an exporter or a producer to review the records referred to in Article 25 and observe the facilities used in the production of the product.
  12. Producer Verifications: If an exporter has based an origin declaration on a written statement from the producer or supplier, the exporter may arrange for the producer or supplier to provide documentation or information directly to the customs authority of the Party of export upon that Party’s request.
  13. Length of Time of Verification: Verifications must be completed within 12 months, unless it is extended.
  14. Written Report/Results: The customs authority of the exporting country (e.g., the CBSA) must provide to the customs authority of the importing country (e.g., Spain) the following information in a written report in order for it to determine whether the product is originating or not, and that contains:
    1. the results of the verification;
    2. the description of the product subject to verification and the tariff classification relevant to the application of the rule of origin;
    3. a description and explanation of the production sufficient to support the rationale concerning the originating status of the product;
    4. information on the manner in which the verification was conducted; and
    5. where appropriate, supporting documentation; and
  15. Exporter Copy of Report: The customs authority that conducts the origin verification must provide the results of the verification to the exporter (that is, whether the goods are originating).
  16. Denial of Preferential Treatment If Unfavorable Report: Based on the information in the report (that is, a finding that goods are not originating under the Canada-EU CETA), the customs authority may deny preferential tariff treatment.
  17. Denial of Preferential Treatment: If the result of an origin verification has not been completed, the customs authority of the importing Party may deny preferential tariff treatment to a product if it has reasonable doubt or when it is unable to determine whether the product is originating.
  18. Preferential Tariff Treatment Pending Results: Pending the results of an origin verification the customs authority of the Party of import, subject to any precautionary measures it deems necessary, shall offer to release the product to the importer.
  19. Consultations: Where there are differences in the interpretation of the rules of origin by a customs authority conducting an origin verification, Canada and the EU member shall engage in consultations to resolve the differences.
  20. Advance Rulings: Canada and the EU Members have the authority to issue advance rulings to their own exporters.

This origin verification process appears more fair. There is an incentive to be fair because the CBSA reviews the origin declarations provided to Canadian companies.  If the CBSA denies preferential Canada-EU CETA preferential tariff treatment (that is, tariff code CEUT), then the export orders may be reduced or cancelled.  Further, Canadian companies will be arguing Canadian law when there is a dispute and seeking redress in Canadian courts.  This may be more procedurally fair and cost-efficient than the NAFTA model where origin disputes are based on U.S. law, US CBP processes and procedures and resolves in U.S. courts.

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

Canada and the EU have taken the Necessary Steps for Provisional Implementation of CETA

Posted in Canada's Federal Government, Canada-EU CETA

On September 7, 2017, the Canadian Governor-in-Council published in the Canada Gazette an Order-in-Council that effectively sets the date of the provisional implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (the “Canada-EU CETA”) to be September 21, 2017.  SI/2017–47 “Order fixing September 21, 2017 as the Day on which the Canada-European Union Comprehensive Economic and Trade Agreement Comes into Force” also states which provisions of the Canada-EU CETA will not be provisionally implemented.

On September 16, 2017, the European Union published its official notice in the in the Official Journal of the European Union.  The Notice concerning the provisional application of the Comprehensive Economic and Trade Agreement (CETA) between Canada, of the one part, and the European Union and its Member States, of the other part also sets the provisional implementation date of the Canada-EU CETA on September 21, 2017 and states which provisions of the Canada-EU CETA will not be provisionally implemented.

These official documents follow formal ratification by the European Union on February 15, 2017 and the Canadian Governor General formally ratifying the Canada-EU CETA on May 16, 2017 by granting Royal Assent to the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act.  Ratification by each EU country is not necessary for provisional implementation.  So far, only Denmark, the Czech Republic, Latvia, Malta, and Spain have ratified the full Canada-EU CETA.  The EU considers the Canada-EU CETA to be a mixed agreement, meaning that the EU Parliament can ratify certain provisions and the EU member states must ratify certain provisions.  The provisions that have not been provisionally implemented are the provisions that the EU member states must ratify.  In other words, we are good to go for most of the Canada-EU CETA.

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

Are You Ready To Benefit From The Canada-EU CETA?

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

On September 14, 2017, the Canada Border Services Agency (“CBSA”) issued Customs Notice 17-30 “Implementation of the Canada-European Union Comprehensive Economic and Trade Agreement”, which sets out some of the final administrative details needed before duty-free imports are processed starting on September 21, 2017.  These final details supplement the Canada-EU CETA text, the Canada-European Union Comprehensive Economic and Trade Agreement Implementation Act and various regulations (see Canada Has Published Order-In-Council And Regulations For Canada-EU CETA Implementation).

Customs Notice 17-30 provides the tariff rate code for imports of good originating in a European Union country or included territory. The tariff rate code is put in Box 28 of the B3 Canada Customs Coding Form. Can you use the CEUT tariff rate code?

First, you will have to know the 10-digit H.S. tariff classification number for the good that you wish to import.  Please refer to “What is an H.S. Tariff Classification Number?” for guidance.

Whether a good originating in the European Union or an included territory is duty free will depend on whether the good is listed in Canada’s Schedule of Commitments in Annex 2-1 of Chapter 2 of the Canada-EU CETA. We have prepared a helpful guide on tariff reductions based on Customs Tariff Chapter.  You will use the H.S. tariff classification number to review the Schedule of Commitments.

If the good you wish to import is in the list of Canada’s Schedule of Commitments and the duty rate will by 0% after September 21, 2017, you must be entitled to the preferential tariff treatment in order to claim the preferential treatment.  Entitlement to the preferential CEUT tariff rate will depend on whether the imported goods are originating under the CETA Protocol on rules of origin and origin procedures.  You will have to look up the rule or origin and determine, with the help of the exporter, whether the good satisfies the Canada-EU CETA rule or origin.

You then must follow the steps set out by the CBSA in Customs Notice 17-30.  Customs Notice 17-30 requires that you have proof of originating status at the time of importation.  The customs procedures are different than NAFTA and other free trade agreements.  Under the Canada-EU CETA, the required proof of origin is an Origin Declaration. The Origin Declaration and the various languages in which it may be completed are contained in Annex 2 of the Protocol on Rules of Origin and Origin Procedures.  This Origin Declaration may be provided on an invoice or any other commercial document that describes the originating product in sufficient detail to enable its identification. In order to claim the preferential tariff treatment accorded under the CETA, importers must have in their possession the Origin Declaration completed by the exporter in the EU country or other CETA beneficiary of export.

As a general rule, the Origin Declaration should be on each and every invoice you receive from the exporter and cover only the originating goods on the invoice.  We are finding that some exporters are not able to apply a digital signature on invoices or are running into difficulties inserting the required statement on invoices.  There are other alternatives that should be acceptable to the CBSA.

As a general rule, the goods must be shipped directly from the EU or included territory to Canada.  An exception to the general rule is contained in Article 14 of the Protocol on rules of origin and origin procedures, which permits certain transshipment.  Article 14 provides that:

1. A product that has undergone production that satisfies the requirements of Article 2 shall be considered originating only if, subsequent to that production, the product;

(a) does not undergo further production or any other operation outside the territories of the Parties, other than unloading, reloading, or any other operation necessary to preserve it in good condition or to transport the product to the territory of a Party; and

(b) remains under customs control while outside the territories of the Parties.

2. The storage of products and shipments or the splitting of shipments may take place where carried out under the responsibility of the exporter or of a subsequent holder of the products and the products remain under customs control in the country or countries of transit.

What this means is that if EU-origin goods are maintained by a U.S. distributor in a bonded warehouse, they may be able to enter Canada duty-free under the Canada-EU CETA. Please refer to Can Canadian Importers Claim CETA Preferential Tariff Treatment If Goods Are Transshipped?

Before importing the goods using the CEUT preferential tariff treatment, you must determine if the goods are subject to quotas.  Cheeses, textiles and apparel goods are subject to quotas.  If you do not have an import permit for your shipment of quota goods, you will not be able to claim CEUT tariff treatment even if the goods are listed in Canada’s Schedule of Commitments and meet the rule of origin.

With respect to cheese quota, Global Affairs Canada has received applications for import quota allocations and will issue quota on October 2, 2017 for 2017.  With respect to textile and apparel goods, the import must request an import permit from Global Affairs Canada. For 2017, import permits will be issued on a first come, first served basis until the 2017 quota is used.  The rules are set out in Notice to Imports No. 899 “Textiles and Apparel for Import to Canada from the European Union and its Member States (Items 86.98 and 86.99 on Canada’s Import Control List)” issued on September 1, 2017.

If your goods are originating in the EU and the duty is reduced to 0% in the Canada-EU CETA Schedule of Commitments and you have your Origin Declaration and any import permits required and the goods are shipped directly to Canada from the EU (that is, there is no transshipment or the goods may be proved to have been in a customs bonded warehouse if transshipped), you should be entitled to receive the benefits of the Canada-EU CETA.

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

What Are Canada’s Tariff Codes (As At September 14, 2017)?

Posted in Canada's Federal Government, Canada-EU CETA, Canada-Ukraine FTA, Corporate Counsel, Cross-border trade, Customs Law, origin

Canada does not have a single customs duty or tariff rate for all imports. Over the years, Canada has entered into a number of free trade agreements.  A tariff rate code is assigned for every free trade agreement partner because tariff elimination commitments and tariff reduction schedules cause applicable tariff rates to be different from the MFN (most-favoured nation) tariff rate that Canada agreed to at the World Trade Organization.  The Canada-European Union Comprehensive Economic and Trade Agreement comes into effect on September 21, 2017.  As a result, of the new free trade agreement, a new tariff rate code has been announced on September 14, 2017.

The Tariff Rate Code (also known as “Tariff Code”) is put in Box 28 of the B3 Canada Customs Coding Form.  It is important to know what Tariff Code is applicable – otherwise, you may pay too much or too little customs duties to the Government of Canada.  Since goods and services tax (“GST”) and harmonized sales tax (“HST”) (where applicable) is charged on top of a customs duties included price, you would also pay too much or too little GST/HST.  You want to pay the right amount of customs duties and GST/HST so that the Canada Border Services Agency (“CBSA”) does not impose administrative monetary penalties (“AMPs”).  Customs duties are calculated as follows:

value for duty  X  applicable tariff rate (which aligns with a tariff rate code)

The following table sets out Canada’s Tariff Code categories under the Customs Tariff (Canada) and the CBSA reporting codes as at September 14, 2017:

Tariff Treatment Category Abbreviation CBSA Reporting Code
Most-Favoured-Nation (MFN) MFN 2
General Tariff GT 3
Australia Tariff AUT 4
New Zealand Tariff NZT 5
Commonwealth Caribbean Countries Tariff  CCCT 7
Least Developed Countries Tariff LDCT 8
General Preferential Tariff GPT 9
United States Tariff UST 10
Mexico Tariff MT 11
Mexico-United States Tariff MUST 12
Canada-Israel Agreement Tariff CIAT 13
Chile Tariff CT 14
Costa Rica Tariff CRT 21
Iceland Tariff IT 22
Norway Tariff NT 23
Switzerland-Lichtenstein Tariff SLT 24
Peru Tariff PT 25
Colombia Tariff COLT 26
Jordan Tariff JT 27
Panama Tariff PAT 28
Honduras Tariff HNT 29
Korea Tariff KRT 30
European Union Tariff CEUT 31
Ukraine Tariff UAT 32

 

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or a Cyndee@lexsage.com.  More information about Canada’s customs laws may be found on the LexSage website.

Canada Has Published Order-In-Council And Regulations For Canada-EU CETA Implementation

Posted in Canada's Federal Government, Canada-EU CETA, Customs Law, Export Controls & Economic Sanctions, Imports Restrictions, origin

On September 1, 2017, the Trudeau Cabinet (Governor-in-Council) promulagated many of the regulations necessary for the implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) on September 21, 2017. The Canada-EU CETA regulati9nos were published in in the September 7, 2017 Canada Gazette.

The most important document is an Order-in-Council fixing September 21, 2017 as the day the Canada-EU CETA provisionally comes into effect. SI/2017-47 Order Fixing September 21, 2017 as the Day on Which the Canada-European Union CETA Comes into Force, Other Than Certain Provisions is very important – the day has been set.  This Order-in-Council indicates which provisions of the Canada-EU CETA Implementation Act come into effect provisionally and which will not.  Free trade agreements become law in Canada via domestic legislation.  The Canada-EU CETA Implementation Act has completed Canada’s legislative requirements having been passed by the House of Commons and the Senate.  The EU has determined that the Canada-EU CETA is a mixed agreement and, therefore, under EU Law, each EU member must pass certain Canada-EU CETA provisions.

Canada promulagated 21 regulations to supplement that Canada-EU CETA Implementation Act, which cover a range of issues from patent protection, the Investment Canada Act, rules of origin, import controls, export controls, government procurement, standards, etc.:

For more information about the Canada-EU CETA, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  There are other articles on the LexSage website about the Canada-EU CETA.

 

 

Canada Considering FTA With ASEAN Countries

Posted in Trade Agreeements

On September 8, 2017, Canada announced free trade agreement exploratory discussions with the 10 Association of Southeast Asian Nations (ASEAN) countries (Cambodia, Brunei, Indonesia, Laos, Malaysia, Myanmar (Burma), the Philippines, Singapore, Thailand, and Vietnam).  An ASEAN-Canada free trade agreement is possible and the timing is opportune (with the United States leaving the TPP).

The ASEAN Countries and Canada issued a Joint Statement and Global Affairs Canada issued a press release.