Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

GST/HST Measures in the 2016 Federal Budget

Posted in GST/HST

Canadian parliamentToday, the Federal Government of Canada tabled the Budget.  There are a few GST/HST Measures.  The following is an excerpt from the Budget:

Medical and Assistive Devices

Medical and assistive devices that are specially designed to assist an individual in treating or coping with a chronic disease or illness or a physical disability are generally zero-rated under the Goods and Services Tax/Harmonized Sales Tax (GST/HST). Zero-rating means that suppliers do not charge purchasers GST/HST on these medical devices and are entitled to claim input tax credits to recover the GST/HST paid on inputs in relation to these supplies. The medical devices eligible for zero-rating are listed in the GST/HST legislation.

Budget 2016 proposes to add insulin pens, insulin pen needles and intermittent urinary catheters to the list of zero-rated medical devices to reflect the evolving nature of the health care sector.

Insulin Pens and Insulin Pen Needles

Insulin infusion pumps and insulin syringes are currently included in the list of zero-rated medical devices. These devices are used to inject insulin for the treatment of diabetes. Insulin itself is currently zero-rated as a drug.

Insulin pens are also used to inject insulin for the treatment of diabetes, and are an alternative to infusion pumps or syringes. Budget 2016 proposes to add insulin pens and insulin pen needles to the list of zero-rated medical devices.

This measure will apply to supplies made after Budget Day and to supplies made on or before Budget Day unless the supplier charged, collected or remitted GST/HST in respect of the supply.

Intermittent Urinary Catheters

Urinary appliances that are designed to be worn by an individual are currently included in the list of zero-rated medical devices.  Intermittent urinary catheters are an alternative to catheters that are left in place.

Budget 2016 proposes to add intermittent urinary catheters, if supplied on the written order of a medical doctor, registered nurse, occupational therapist or physiotherapist for use by a consumer named in the order, to the list of GST/HST zero-rated medical and assistive devices.

This measure will apply to supplies made after Budget Day.

Purely Cosmetic Procedures

Supplies of purely cosmetic procedures are not considered to be supplies of basic health care and are intended to be subject to the GST/HST, regardless of the status of the supplier.

Budget 2016 proposes to clarify that the GST/HST generally applies to supplies of purely cosmetic procedures provided by all suppliers, including registered charities. Taxable procedures will generally include surgical and non-surgical procedures aimed at enhancing or altering an individual’s appearance, such as liposuction, hair replacement procedures, hair removal, botulinum toxin injections and teeth whitening.

A cosmetic procedure will continue to be exempt if it is required for medical or reconstructive purposes, such as surgery to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. As well, cosmetic procedures paid for by a provincial health insurance plan will continue to be exempt.

This measure will apply to supplies made after Budget Day.

Exported Call Centre Services

Under the GST/HST rules, exported supplies are generally relieved (i.e., zero-rated) from the GST/HST. This means that suppliers do not charge purchasers GST/HST on these supplies and are entitled to claim input tax credits to recover the GST/HST paid on inputs used in relation to these supplies.

Budget 2016 proposes to modify the zero-rating rules for certain exported supplies of call centre services. Specifically, the supply of a service of rendering technical or customer support to individuals by means of telecommunications (e.g., by telephone, email or web chat) will generally be zero-rated for GST/HST purposes if:

  • the service is supplied to a non-resident person that is not registered for GST/HST purposes; and
  • it can reasonably be expected at the time the supply is made that the technical or customer support is to be rendered primarily to individuals who are outside Canada at the time the support is rendered to those individuals.

This measure will apply to supplies made after Budget Day. It will also apply to supplies made on or before Budget Day in cases where the supplier did not, on or before that day, charge, collect or remit an amount as or on account of tax under Part IX of the Excise Tax Act in respect of the supply.

Reporting of Grandparented Housing Sales

Under the transitional rules that applied when a province either joined the harmonized value-added tax system since 2010 or increased its HST rate, certain sales of newly constructed or substantially renovated homes were grandparented for HST purposes. This meant that the housing sale was not subject to the provincial component of the HST or the increased HST rate, as applicable. A housing sale was generally grandparented if the agreement of purchase and sale was entered into in writing on or before the announcement date of the transitional rules and ownership and possession of the housing was transferred on or after the date on which the HST, or the increased HST rate, came into effect.

Under the current rules, builders are subject to special reporting requirements, which involve reporting their grandparented housing sales where the purchaser was not entitled to a GST New Housing Rebate or a GST New Residential Rental Property Rebate. The rules also include penalties for misreporting (i.e., under-reporting, over-reporting or failing to report).

Budget 2016 proposes to simplify builder reporting by:

  • limiting the reporting requirement to those grandparented housing sales for which the consideration is equal to or greater than $450,000; and
  • providing builders with an opportunity to correct past misreporting and avoid potential penalties by allowing them to elect to report all past grandparented housing sales for which the consideration was equal to or greater than $450,000.

This measure will apply in respect of any reporting period of a person that ends after Budget Day. In addition, if the above election is made, the measure will also apply to any supply of grandparented housing in respect of which the federal component of the HST became payable on or after July 1, 2010. Builders will generally have between May 1, 2016 and December 31, 2016 to make the election.

GST/HST on Donations to Charities

The GST/HST does not apply to a donation if the donor does not receive anything in return. However, if the donor receives property or services in exchange for the donation, even if the value of the donation exceeds the value of the offered property or services, the GST/HST generally applies on the full value of the donation. (A number of exceptions to this treatment apply, including where the service or property offered by the charity relates to a special fundraising event, such as a gala dinner, annual cookie sale or charity auction, or where the charity provides the donor goods that were previously gifted to the charity. Such supplies are exempt from GST/HST. In addition, a charity that qualifies as a “small supplier” (e.g., makes under $50,000 of taxable sales annually) is not required to collect GST/HST.)

Special rules are provided under the Income Tax Act to deal with transactions where property or services are supplied in exchange for or in recognition of a donation to a charity. Under the Income Tax Act “split-receipting” rules, where a charity encourages or recognizes a donation by supplying property or services in exchange, the charity generally may issue a donation receipt for the amount paid by the donor less the value of any property or service that the donor receives. Consequently, such donations are treated less favourably under the GST/HST than under the Income Tax Act.

To bring the GST/HST treatment of this type of exchange into line with the treatment under the Income Tax Act split-receipting rules, Budget 2016 proposes a relieving change to provide that when a charity supplies property or services in exchange for a donation and when an income tax receipt may be issued for a portion of the donation, only the value of the property or services supplied will be subject to GST/HST. The proposal will apply to supplies that are not already exempt from GST/HST. It will ensure that the portion of the donation that exceeds the value of the property or services supplied is not subject to the GST/HST.

This measure will apply to supplies made after Budget Day.

In addition, where a charity did not collect GST/HST on the full value of donations made in exchange for an inducement, for supplies made between December 21, 2002 (when the income tax split-receipting rules came into effect) and Budget Day, the following transitional relief will be provided:

  • If GST/HST was charged on only the value of the inducement, consistent with the income tax split-receipting rules, or if the value of the inducement was less than $500, the donors’ and charities’ GST/HST obligations will effectively be satisfied, resulting in no further GST/HST owing.
  • In other cases, the charity will be required to remit GST/HST on the value of the inducement only (i.e., the relieving split-receipting rules will apply).

De Minimis Financial Institutions

Under the GST/HST, special rules apply to financial institutions, particularly in determining their entitlement to input tax credits. For GST/HST purposes, financial institutions include persons whose main business is providing financial services such as banks, insurance companies, investment dealers and investment plans. The GST/HST legislation also includes rules to ensure that other persons that provide a significant amount of financial services, such that they may be in competition with traditional financial institutions, are also treated as financial institutions for GST/HST purposes. For example, a person will generally be treated as a financial institution throughout a taxation year if the person’s income for the preceding taxation year from interest, fees or other charges with respect to the making of an advance, the lending of money, the granting of credit, or credit card operations, exceeds $1 million.

Under this rule, a person that earns more than $1 million in interest income in respect of bank deposits in a taxation year will be considered to be a financial institution for GST/HST purposes for its following taxation year even though the earning of such interest would generally not, by itself, bring that person into competition with traditional financial institutions.

To allow a person to engage in basic deposit-making activity without that activity leading it to being treated as a financial institution for GST/HST purposes, Budget 2016 proposes that interest earned in respect of demand deposits, as well as term deposits and guaranteed investment certificates with an original date to maturity not exceeding 364 days, not be included in determining whether the person exceeds the $1 million threshold.

This measure will apply to taxation years of a person beginning on or after Budget Day and to the fiscal year of a person that begins before Budget Day and ends on or after that day for the purposes of determining if the person is required to file the Financial Institution GST/HST Annual Information Return.

Application of GST/HST to Cross-Border Reinsurance

The GST/HST applies to domestic purchases as well as to importations of property and services. GST/HST rules require certain recipients of imported taxable supplies of services and intangible personal property to pay tax on a self-assessment basis.  Additionally, special GST/HST imported supply rules for financial institutions require a financial institution, including an insurer, with a presence outside Canada (e.g., in the form of a branch or a subsidiary) to self-assess GST/HST on certain expenses incurred outside Canada that relate to its Canadian activities.

Budget 2016 proposes to clarify that two specific components of imported reinsurance services, ceding commissions and the margin for risk transfer, do not form part of the tax base that is subject to the self-assessment provisions contained in the GST/HST imported supply rules for financial institutions and to set out specific conditions under which the special rules for financial institutions do not impose GST/HST on reinsurance premiums charged by a reinsurer to a primary insurer.

This measure will apply as of the introduction of the special GST/HST imported supply rules for financial institutions (i.e., in respect of any specified year of a financial institution that ends after November 16, 2005). In addition, this measure will allow a financial institution to request a reassessment by the Minister of National Revenue of the amount of tax owing by the financial institution under the special GST/HST imported supply rules for a past specified year of the financial institution, as well as any related penalties or interest, but solely for the purpose of taking into account the effect of this measure. A financial institution will have until the day that is one year after the day that these amendments receive Royal Assent to request such a reassessment.

Closely Related Test

Under the GST/HST, special relieving rules allow the members of a group of closely related corporations or partnerships to neither charge nor collect GST/HST on certain intercompany supplies. To qualify for these relieving rules, each member of this group must, among other requirements, be considered to be closely related to each other member of the group, supporting the assumption that the members effectively operate as a single entity.

In the case of a subsidiary corporation owned by a parent corporation or partnership, the closely related concept is reflected in a test that requires the parent to have nearly complete ownership and voting control over the subsidiary corporation. The current test requires that the parent corporation or partnership own 90 per cent or more of the value and number of the shares of the subsidiary corporation that have full voting rights under all circumstances. However, due to the complexity of share capital structures, it has been suggested that a parent corporation or partnership could be considered to be closely related to a subsidiary corporation even if it lacks nearly complete voting control over the subsidiary corporation.

To ensure that the closely related test applies only in situations where nearly complete voting control exists, Budget 2016 proposes to require that, in addition to meeting the conditions of the current test, a corporation or partnership must also hold and control 90  per cent or more of the votes in respect of every corporate matter of the subsidiary corporation (with limited exceptions) in order to be considered closely related.

This measure will generally apply as of the day that is one year after Budget Day. The measure will apply as of the day after Budget Day for the purposes of determining whether the conditions of the closely related test are met in respect of elections under section 150 and section 156 of the Excise Tax Act that are filed after Budget Day and that are to be effective as of a day that is after Budget Day.

New Customs Bill Is Now Law

Posted in Aerospace & Defence, Agriculture, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Intellectual Property, Legal Developments, Trade Remedies

Originally published in the Journal of Commerce in March 2016

On February 24, 2016, President Obama signed into law H.R. 644. Entitled the “Trade Facilitation and Trade Enforcement Act of 2015,” it contains a good many technical revisions to existing Customs and Border Protection (“CBP”) processes, procedures, laws and regulations. Much more is included, so there are many topics of widespread interest to the broader trade community, import and export.

A good starting point is to note the first section of the law deals with trade facilitation side-by-side with trade enforcement. The CBP Commissioner is directed to coordinate with the Director of U.S. Immigration and Customs Enforcement (“ICE”) regarding developing a joint strategic plan. CBP is further directed to continue to solicit and consult with the private sector, while being directed to coordinate with customs authorities in other countries and other federal agencies to facilitate legitimate trade and commerce, and enforce U.S. trade laws.

The next section deals with partnership programs and mandates any such programs provide “commercially significant and measurable trade benefits.” While geared to those which attain the “highest levels of compliance,” these programs are directed to provide an “integrated and transparent system of trade benefits and compliance requirements.”  CBP is directed, absent good cause, to consolidate partnership programs. Many Customs-Trade Partnership Against Terrorism (“C-TPAT”) member-companies continue privately to question the cost-benefit ratio.  One fortunately good reason this has not come to a test is the international trade system within the U.S. has not again been shut down, so CBP’s pledge to release C-TPAT member cargo first upon reopening has not been tested.  While many companies concur that C-TPAT is helpful to some degree in managing damage or loss of goods in transit, many still conclude there are not enough benefits to offset the cost of membership, but for good corporate citizenship reasons remain members.

Regardless of your feelings about Apple resisting the efforts of the FBI to be required to crack the iPhone of the San Bernardino terrorists for, among other reasons, the precedent set in more closed societies by being required to create the technology to do so, in some sense that same “what precedent does it set” concern arises with supply chain security programs. In open societies like the Five Eyes (an intelligence consortium consisting of the U.S., United Kingdom, Australia, New Zealand and Canada), the rules are transparent, as they are in a number of other countries. However, the same is not true with many other governments/regimes, and so concern about otherwise proprietary and highly sensitive data having to be shared with a government with different priorities, and how that information could be misused or misappropriated is a legitimate concern.

Even conceding that point, the ideal situation for most American companies would be one supply chain security program which applies to all the federal agencies, with discrete segments for particular types of cargo (for example, one segment that focuses on FDA regulated merchandise, a different segment for CPSC regulated goods, and so on). That uniformity is not mandated in this bill, nor is it likely to happen in the foreseeable future. We are some 15 years post-9/11, and the 20+ Congressional committees with jurisdiction over some aspect of homeland security still have not consolidated their efforts. In the face of that, the likelihood of requiring the agencies to truly coordinate their efforts seems a pipedream.  On the plus side, Congress reiterated several times in this law, these supply chain security or trusted trader programs are to provide tangible benefits for legitimate traders and immediate release of compliant shipments, absent some national security or compliance threat.

Another topic of general interest is the section dealing with effective trade enforcement. In this context, Congress focused on undervaluation, transshipment, the legitimacy of importers of record, revenue protection, fraud detection and prevention, penalties (including misclassification, inadequate bonding and other misrepresentations).   While this next point will undoubtedly be viewed as heresy by some, the simple fact is the CBP personnel who really understand trade fraud are, for the most part, retired. This is true for ICE, too. As a result, “real” trade fraud cases simply are not being undertaken by either CBP or ICE to any meaningful extent. As such, those looking to break the law see no serious downside.  The consequence is to just pay some amount of money and move on. To minimize that possibility, there is a provision in this new law seeking to have CBP do a better job of tracking corporate shareholders, officers, directors and employees, but without real enforcement teeth (meaning trained staff and adequate funding) this mandate is likely to not have much impact, especially in light of the fact most states require limited, if any, reporting of individuals in the company formation or other reporting contexts.

To its credit, Congress does note the need for more and better training of CBP staff and even goes so far as to recommend CBP hire private sector trainers, but even if there were better training and greater resources, there is no assurance trade would flow more smoothly. One need look no further than how trademarks and copyrights are enforced.  Admittedly one complication in this context is CBP and ICE coordinate their efforts regarding IP enforcement, and that means all the decisions are made in D.C., but that does not change the fact CBP officers simply do not understand trademark or copyright law. If a shipment is held,  any response from an importer which does not rely on here is a valid licensing agreement or letter of authorization leads to seizure, with many of those seizures later yielding release due strictly to the complexity of the applicable law. And, let’s not even talk about the difficulties CBP has in figuring out patent rights once an ITC exclusion order is issued!

In the context of private sector instruction, the law calls out physical inspection, reviewing manifests and accompanying documentation, valuation and industry supply chains as the topics to be covered. Regarding trade enforcement, the training topics cite to private sector training regarding collecting antidumping and countervailing duties, duty evasion regarding textile imports, IP protection and enforcement of child labor laws.

As was to be expected, there is support for ACE, AES and ITDS, and reports are mandated regarding progress towards full implementation by all the relevant agencies. In fact, there are yet again a myriad of reports on a variety of topics mandated by this bill, frankly likely too many. The Centers of Excellence and Expertise (“CEE”) are also mentioned. Again, there is to be consultation with the trade, but honestly, does anyone really think the CEEs will work until the definition of trusted trader is finalized? It is true, many of the CEEs are fully functional, but try getting attention for an importer who is not a trusted trader!  As this continues, everyone’s worst fears are being realized.  CEEs have little to no benefit for smaller importers, the very parties that require most of the agency’s attention and resources, and for whom CBP will never have enough staff, and the Broker Known Importer Program is of limited benefit as the final approval correctly lies with CBP.

The law itself is some 156 pages in length. Naturally, that means many more topics were covered including the first drawback reform in many years; preferential trade status for Nepal; classification changes/breakouts for “recreational performance outerwear” and certain footwear; federal – state partnerships to support small business trading; direction to CBP to identify “acts, policies, or practices” of foreign governments which significantly impact U.S. economic growth; enforcement of cultural property, archaeological and ethnological materials, and fish, wildlife and plants whose importation, exportation and trafficking violate U.S. law; honey transshipments (with CBP tasked to compile a database of honey characteristics by country); creation of a Chief Innovation and Intellectual Property Negotiator at USTR; reporting/notice requirements in the case of electronic devices being searched; increasing the di minimis value from $200 to $800; and changes to headings 9801 and 9802, HTSUS;

The current list of priority issues for CBP is antidumping and countervailing duty, import safety, intellectual property rights, textiles/wearing apparel, trade agreements and “comprehensive” trade enforcement. With the new law, that list must, at the very least, consist of: agriculture programs, antidumping and countervailing duty, import safety, intellectual property rights, revenue, textiles and wearing apparel and trade agreements and preference programs. The Commissioner is free to name other trade priorities and otherwise consolidate, modify or eliminate any priorities, but only upon advance notice to Congress.

What is troubling about this list of priorities is how many of these topics could be better addressed at time of entry if CBP and ICE really understood the technical issues. For example, one common topic is valuation. As a broad general statement, it is fair to say that if the value for a given shipment is other than FOB, C&F or CIF, CBP staff have difficulty with it. If the term of sale is DDP, the comprehension of CBP depends entirely on the person looking at the issue. If one gets to computed or deductive value, it’s a real crapshoot! Sadly, this is an area where more attention during training, and proper refreshers courses, would make life so much easier for CBP and the trade community – and a good part of the reason why value and these other technical topics are such a challenge for CBP comes especially from the fact that when Congress authorizes staffing for CBP, all too often the positions authorized are for inspectors  and not the “other”  positions where technical knowledge is really helpful and sufficient and fully trained staff is sorely lacking.

Finally, parents generally raise their children to learn to play nicely in the sandbox. What this means is literally to be nice to other people but also to honor their presence. In the context of international traders, it seems a reasonable conclusion to say to the myriad of federal agencies with criminal and/or civil jurisdiction over American individuals and companies, need to also learn to play nice with the agencies that actually understand the import and export laws, regulations and processes. It is costly and frustrating to the trade community as these non-trade agencies time and again waste their limited resources and industry’s time and money on wild goose chases! Unfortunately, there is nothing in the new law addressing that on-going headache.

Trade Facilitation and Trade Enforcement Act of 2015 and Intellectual Property Rights

Posted in Aerospace & Defence, Border Security, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border trade, Customs Law, Government Procurement, Intellectual Property, Legal Developments, Trade Remedies

This article was co-authored with Kevin M. Rosenbaum of MS&K.

On February 24, 2016, President Obama signed into law the Trade Facilitation and Trade Enforcement Act of 2015, PL 114-125 (TFTEA), which includes an assortment of trade facilitation and trade enforcement provisions, including a number of provisions focused on intellectual property rights (IPR). Section III of the new law provides a number of enhancements to U.S. enforcement of intellectual property rights (IPR) at the border.  In addition, included among a variety of new trade enforcement provisions in Section VI, the new law provides additional resources to assist the Office of the United States Trade Representative (USTR) improve IPR protection and enforcement in foreign markets.  These IPR provisions were primarily championed by Senator Orrin Hatch of Utah, Chairman of the Senate Finance Committee, who spoke on the Senate floor and in other public settings leading up to Senate consideration of the law on their importance for his support.

The first substantive provision in Section III, Section 302, requires CBP to share with rights holders unredacted images of merchandise suspected of infringing trademark or copyright laws, if CBP determines that sharing such images will assist it in making an infringement determination. The provision also provides CBP with the authority (but does not require it) to share with rights holders unredacted samples of  suspected infringing merchandise.  This provision explicitly supersedes section 818(g) of the 2012 National Defense Authorization Act (NDAA), which allowed for sharing of unredacted images in cases of merchandise suspected of bearing a counterfeit trademark.  While the NDAA provision was strictly permissive, the new information sharing provision includes stronger language that requires CBP to share unredacted images with rights holders whenever such sharing will help CBP to make an infringement determination.  The new provision also expands the scope of violations for which CBP is authorized to share unredacted images and samples to include violations of copyright laws, including the DMCA prohibitions against importation of unlawful circumvention devices.

It should be noted that Section 302 is Congress’s response to industry concerns regarding CBP’s implementation of the 2012 NDAA provision. In implementing the NDAA, CBP stated it was attempting to balance the protection of importer’s confidential business information with enhancement of enforcement against counterfeits, but many in industry believed the process it developed to share unredacted information with trademark holders was unwieldy and ultimately ineffective.  The legislative history of the TFTEA is critical of this process, which involves notification to the importer and a 7 business day response period before sharing can take place, stating that the process “does not provide effective enforcement for trademark holders.”[1]  While not prescriptively providing an alternative, Congress makes clear that it intends for CBP to take a different approach to implementing Section 302 and that it must be done “in a manner that ensures effective border enforcement of IPR.”[2]

Section 303 of the TFTEA improves CBP’s enforcement against the importation of unlawful DMCA circumvention devices, explicitly authorizing the seizure of these devices and requiring CBP to provide information regarding the seizure to injured persons. To manage this process, CBP must establish and maintain a list of injured persons to be provided the seizure information.  CBP has one year from the enactment of the TFTEA to publish notice in the Federal Register of the establishment of this list and must publish a notice whenever the list is altered.  This provision is intended to ensure CBP’s enforcement against importation of unlawful circumvention devices is as robust as its enforcement against importation of counterfeit and pirated merchandise.  The provision provides that CBP must share information with persons injured by seized unlawful circumvention devices that is equivalent to the information CBP shares with copyright owners upon seizure of piratical articles.  The legislative history provides that persons injured by the importation of unlawful circumvention devices may include, “the producer of a hardware device that includes the technological means of protection that the seized merchandise is designed to circumvent, the publisher of copyrighted material that is designed for use on the same device, or both.”[3]

Section 304 provides that CBP has 180 days to establish a process for border enforcement of copyrights that are pending registration at the Copyright Office. Currently, only owners of registered copyrights may record their copyrights to receive border enforcement from CBP.  Section 304 ensures that a delay in registration at the Copyright Office will not result in a delay in enforcement at the border.

In Section 305, Congress for the first time authorizes the National Intellectual Property Rights Coordination Center. Although the Center was first established back in 2000 within the old U.S. Customs Service as a multi-agency task force to fight intellectual property crime, Congress had never actually authorized it.  The TFTEA establishes the Center in law, within U.S. Immigration and Customs Enforcement (ICE), as the focal point for federal criminal enforcement of IPR.  Among other things, the Center is to coordinate criminal intellectual property rights investigations, provide training to domestic and international law enforcement agencies on best practices for investigations, and collect information regarding intellectual property infringement from Federal and other sources.  In carrying out these duties, the Center is required to coordinate with a host of federal agencies, including the Department of Justice, the U.S. Patent and Trademark Office, and the Office of the U.S. Trade Representative.  The Center is also required to conduct outreach with the private sector to determine trends in enforcement of IPR and to share information and best practices regarding enforcement of IPR.

The TFTEA includes some new reporting requirements for CBP and ICE on IPR enforcement. Section 306 requires CBP and ICE to submit a Joint Strategic Plan on IPR enforcement to Congress every two years beginning one year after the law’s enactment.  The Joint Strategic Plan on IPR includes a review of enforcement efforts over the prior two year period, and recommendations on resources needed to ensure adequate enforcement.  Section 310 requires CBP and ICE to jointly submit an annual report on intellectual property rights that includes specific IPR criminal and border enforcement metrics, and a summary of outreach efforts, including collaboration with the private sector, coordination with foreign governments and international organizations, and training activities.  The report must also include a description of efforts by CBP and ICE to address the challenge of stopping infringing merchandise sold online, particularly when transited in small packages.

The TFTEA also includes a number of provisions intended to improve the overall effectiveness of enforcement of IPR at the border. Section 308 requires CBP to ensure its officers are trained to effectively combat infringing merchandise.  As part of this requirement, CBP must consult with the private sector and must identify technologies to assist it in detecting and identifying infringing merchandise.  In addition, within 180 days after enactment, CBP must develop regulations to enable it to receive technologies and accept training from the private sector.  Section 309 requires CBP and ICE to improve coordination and collaboration with foreign customs authorities, including information sharing, to enhance IPR enforcement.  Lastly, section 311 requires CBP to develop and carry out an educational campaign at the border to educate travelers about the dangers of acquiring IPR infringing merchandise.  In addition, this provision requires CBP to update its declaration form for travelers to include a written warning to inform travelers arriving in the United States that bringing in infringing merchandise may subject travelers to civil or criminal penalties and may pose serious health and safety risks.

In addition to these new border enforcement requirements on IPR in Section III, Section VI of the TFTEA also includes a couple of new trade enforcement provisions that are intended to strengthen USTR’s ability to improve the IPR protection and enforcement of U.S. trading partners. U.S. international trade policy is a delicate balance between the Congress and the Administration. These new provisions reflect Congress’s desire to raise the profile of IPR protection and enforcement issues in U.S. international trade policy, and to increase the Administration’s accountability to Congress on these issues.

The first provision, section 609, establishes the Chief Innovation and Intellectual Property Negotiator (Chief IP Negotiator) at USTR to conduct trade negotiations, enforce trade agreements, and take appropriate actions to address acts, policies and practices of foreign governments that adversely impact “the value of United States innovation.” Presently, the IP and Innovation Office at USTR, which handles many of these functions, is led by a career staff person at the “Assistant” USTR level, who reports to a Deputy USTR.  The Deputy USTR is a political appointee with the rank of Ambassador who also handles a broader portfolio that includes responsibility for the entire range of trade issues for one or more geographical regions.[4]  The new Chief IP Negotiator position, which has the rank of Ambassador, will be appointed by the President with the advice and consent of the U.S. Senate and will solely focus on IPR issues.  The Chief IP Negotiator will report directly to the U.S. Trade Representative, not a Deputy USTR.  Signaling Congress’s desire for more accountability on IPR issues, along with the other duties, the Chief IP Negotiator must submit an annual report to Congress detailing enforcement and other actions USTR has taken to improve IPR protection.

The second provision, section 610, bolsters USTR’s annual “Special 301” review of IPR policies and practices of U.S. trading partners. This provision is clearly intended to strengthen and improve the effectiveness of the Special 301 process and to increase congressional oversight.  Special 301 was first enacted in 1988 to provide a strategy to improve IPR protection and enforcement abroad and to eliminate market access barriers against U.S. exporters that rely on IPR protection.  Under Special 301, a country that most egregiously denies adequate and effective protection of IPR or fair and equitable market access for U.S. exporters that rely on IPR protection must be designated as a “Priority Foreign Country” (PFC).  A PFC designation triggers an investigation that in rare cases results in trade sanctions.  While the PFC designation has been rarely used, to facilitate Special 301 USTR also identifies countries with IPR problems that do not rise to the level of a PFC designation.  Countries with more significant problems, such as China and India, are placed on the “Priority Watch List,” while countries with less severe problems are placed on the “Watch List.”  For countries that have been on the “Priority Watch List” for more than one year, section 610 requires USTR to develop an action plan with benchmarks to assist that country to improve IPR protection and remove market access barriers.  USTR must also submit an annual report to Congress detailing the progress such countries have made in meeting the action plan benchmarks.  Countries that fail to meet action plan benchmarks will be subject to “appropriate action” by the President.  The new law is noticeably silent on what “appropriate action” might mean, although obviously any actions taken pursuant to this provision must be consistent with U.S. trade obligations.

[1]See H. Rept. 114-114 at 71 and S. Rept. 114-45 at 30.  To implement the 2012 NDAA provision, CBP issued a Rule (finalized on October 19, 2015) providing that, within 5 business days of detention, CBP must first notify the importer of merchandise suspected of bearing a counterfeit mark that it would share unredacted images or samples with the right holder unless the importer provides information within seven business days of the notification establishing that the detained merchandise does not bear a counterfeit mark.   See 19 CFR § 133.21.

[2] See H. Rept. 114-114 at 71 and S. Rept. 114-45 at 30.

[3]See H. Rept. 114-114 at 72 and S. Rept. 114-45 at 31.  The House Ways and Means Committee Report and the Senate Finance Committee Report contain identical language.

[4] Presently, Ambassador Robert Holleyman is the Deputy USTR whose portfolio includes IP.

New Customs Bill Becomes Law

Posted in Antidumping, Border Security, Corporate Counsel, Cross-border deals, Cross-border trade, Customs Law, Exports, Government Procurement, Intellectual Property, Legal Developments, NAFTA, origin, tariff classification, Trade Agreeements, Trade Remedies, Transportation, valuation

On February 24, 2016, H.R. 644 was signed into law by the President. While yet another trade-related bill was signed without any public ceremony, this new law contains a number of timely provisions. The first section deals with trade facilitation side-by-side with trade enforcement. The CBP Commissioner is directed to coordinate with the Director of U.S. Immigration and Customs Enforcement (“ICE”) and develop a joint strategic plan. CBP is further directed to continue to solicit and consult with the private sector, plus coordinate with customs authorities in other countries and other U.S. federal agencies to facilitate legitimate trade and commerce, while, at the same time, enforcing U.S. trade laws.

What makes for more interesting reading is the Senate debate which led up to that body’s approval. The transcript tells us what the legislators saw as the priorities. Senator Hatch highlighted the goals of the bill as to: 1) facilitate and streamline the flow of legitimate trade; 2) improve enforcement of U.S. trade laws; and 3)  strengthen trade promotion authority.  Senator Wyden talked in terms of the bill “coming down hard on the trade cheats…” There was also repeated reference to “merchandise laundering,”  meaning where goods made in one country are transshipped through a second country, relabeled as if made in that second country, and shipped into the U.S. to evade antidumping or countervailing duty.  Whether it was honey, crawfish, garlic or mushrooms (the commodities cited), U.S. domestic producers are up against strong and sometimes unfair competition. For that reason, the U.S. Trade Representative is designated to lead the newly created Center on Trade Implementation, Monitoring and Enforcement. USTR is also, along with other tasks, to lead the effort to identify acts, policies and practices of foreign governments the elimination of which will lead to a significant potential increase in the growth of the U.S. economy.

CBP’s current list of priority issues consists of antidumping and countervailing duty, import safety, intellectual property rights, textiles/wearing apparel, trade agreements and “comprehensive” trade enforcement.  This new law mandates that list must, at the very least, consist of: agriculture programs, antidumping and countervailing duty, import safety, intellectual property rights, revenue, textiles and wearing apparel, and trade agreements and preference programs. The Commissioner is free to name other trade priorities and otherwise consolidate, modify or eliminate priorities, but only upon advance notice to Congress.

To the satisfaction of industry, the new bill frequently mentions partnership programs, those between CBP and the private sector, and makes clear these programs should be consolidated where possible and provide tangible benefits. Trusted traders are to be given “immediate clearance,” absent evidence of national security or compliance threats.  The bill also underscores the importance of the new computer system by mentioning ACE, ITDS and AES in the context of on-going accountability. With the full support of the trade community, there is a provision calling for regular reports by CBP regarding implementation of ACE by all the affected agencies, including CBP. GAO is also to report on ACE’s progress. To that end, by June 30, 2016, CBP is to receive the criteria and data elements from each agency by which release of goods is to be authorized. The December 31, 2016 deadline for full implementation of ACE was also reiterated.

When it comes to trade enforcement, the focus is, not surprising: undervaluation; transshipment; legitimacy of entities making entry; protection of revenue; fraud detection and prevention; and penalties, including intentional misclassification, inadequate bonding and other misrepresentations.  Also a focus of trade enforcement, but equally of trade facilitation are: ACE; the priority trade issues identified earlier; the Centers of Excellence and Expertise (“CEEs”); drawback; in-bond merchandise; collection of countervailing and antidumping duty; expedited release of cargo; issuance of regulations and rulings; and issuance of audit reports.

It has long been felt by many in the trade community, one reason for sloppiness, if not rampant cheating, is the staffs at both CBP and ICE who really understand trade fraud have retired. The institutional knowledge is gone, and so there has been a remarkable absence of significant trade fraud cases. Equally baffling is why so few audits are being conducted. Certainly the loss of institutional knowledge was cited by CBP as a major reason for creation of the CEEs. ICE acknowledged that same fact in creating the National Intellectual Property Rights Center (its primary trade fraud enforcement program). Congress endorsed the Center in the new law and then went further. It specifically recommended more and better training for CBP, going so far as to call for private sector assistance in such areas of physical inspection of goods, reviewing manifest and other documentation, valuation and supply chain programs, along with collection of countervailing and antidumping duties, evasion of duty on imported textiles, protection of intellectual property and enforcement of child labor laws.

Protection of the revenue is defined to include collection of antidumping and countervailing duties; commercial fines and penalties; use of bonds; in-bond tracking; the number and outcome of investigations; and the effectiveness of training when it comes to accountability, performance and collection of revenue.

Regarding importers of record, CBP is given 180 days from enactment to assign and maintain an importer of record program. Given the emphasis on collection of antidumping and countervailing duty, this new law requires CBP to collect sufficient information to verify the existence of the importer; identify linkages and affiliations to and between that importer and others; changes in address and corporate structure; and to maintain a centralized database in which CBP is able to evaluate the accuracy of the data and minimize the issuance of duplicate numbers to the same importer.  As part of this process, CBP is also mandated to establish an importer risk assessment process, especially for new and nonresident importers, that includes increased screening of their imports. However, if the importer is C-TPAT Tier 2 or Tier 3, it is exempt. Minimum standards will be established for customs brokers and importers to be used to identify importers. What weighs in favor of the seriousness with which this information is to be gathered is the fine for failing to follow these information gathering requirements is not the maximum fine of $10,000, but rather, that failure to do so could lead to suspension or revocation of the broker’s license.

The Interagency Safety Working Group is formalized but expanded to include engagement with foreign governments, identification of best practices for the safety of merchandise, inspection of manufacturing facilities, inspection of merchandise, protection of the international supply chain, and best practices so government at all levels and ports are able to more easily communicate and ensure the safety of merchandise. Also mandated is a Joint Import Safety Rapid Response Plan to deal with any health or safety threat by merchandise.

When it comes to intellectual property rights, there are some points of interest to rights holders. First, greater support for making unredacted samples available to rights holder so they may inspect the allegedly infringing goods.  This option is limited to trademarks and copyrights recorded with CBP. However, the bill goes further and now provides that any copyright submitted to the Copyright Office may also be enforced. One interesting omission is, when discussing the ICE IPR Center and the scope of agencies with which it is to consult, the Copyright Office is notably absent from the list. There is a catchall provision and undoubtedly, the IPR Center will consult with the Copyright Office, but its omission is glaring.  IPR is also impacted by the training recommendation for CBP. CBP is to consult with the private sector to identify opportunities for training collaboration. The law goes so far as to require CBP to come up with ways to receive donations of “hardware, software, equipment and similar technologies” and also to receive “training and other support services” so as to be able to better enforce IPR.  Finally, the bill mandates CBP is to provide an educational program to arriving and departing travelers about the dangers of buying infringing goods, even mandating a declaration from travelers whether they are importing any infringing goods!  More details about the new IPR provisions will be addressed in a separate Alert.

The new law also includes creation of the Trade Remedy Law Enforcement Division which is to reside within CBP in the Office of Trade and oversee and coordinate CBP’s efforts to deal with evasion. Not surprisingly, it will be supported by the National Targeting and Analysis Group. This Division is to receive and act on evasion complaints (on a specific timeline), but also to provide assistance to small businesses which are harmed by evasion activities. One interesting provision calls for the Division to share information publicly, but without specific guidance. Rather, the criteria is to be developed with private sector input.  Given the broad mandate of this Division, and the ability for CBP to determine an importer was uncooperative when asked to provide documentation about an evasion claim, how well these provisions will serve to protect an importer is another question. Nonetheless, importers would be wise to make sure they have properly vetted their suppliers (including retaining the supporting documentation of that process). Their commercial agreements should also include cooperation clauses and penalties for failure to cooperate.  Importers would be prudent to also keep records of any research done by them or on their behalf to determine if specific goods are subject to any antidumping or countervailing duty assessment.

Small business interests are also to be supported through the efforts of the Chief Counsel for Advocacy at the Small Business Administration and the Interagency Working Group he is to head. This new process was established in order to facilitate input from the private sector regarding manufacturing, services and agriculture about the potential economic impact of trade agreements.

The next topic worth mentioning is honey. CBP is now tasked with compiling a database of the characteristics of honey as produced in individual countries. Fortunately, the directive includes cooperation with the FDA Commissioner and foreign customs services in doing so.  Given past history and the abysmal shellacking the CBP Lab keeps taking in court and other fora, one is wont to ask – is CBP really the best lab to rely on to accomplish this goal? The question is especially relevant since the law calls on the FDA Commissioner to establish “a national standard of identity” for honey so it may be classified correctly and denied entry if any presents a health risk.

Next, we see the creation of a Trade Enforcement Trust Fund to be administered by Treasury.  Its purpose is to fund any of the following:

(A) To seek to enforce the provisions of and commitments and obligations under the WTO Agreements and free trade agreements to which the United States is a party and resolve any actions by foreign countries that are inconsistent with those provisions, commitments, and obligations.

(B) To monitor and ensure the full implementation by foreign countries of the provisions of and commitments and obligations under free trade agreements to which the United States is a party for purposes of systematically assessing, identifying, investigating, or initiating steps to address inconsistencies with those provisions, commitments, and obligations

(C) To thoroughly investigate and respond to petitions under section 302 of the Trade Act of 1974 (19 U.S.C. 2412) requesting that action be taken under section 301 of such Act (19 U.S.C. 2411)

(D) To support capacity-building efforts undertaken by the United States pursuant to any free trade agreement to which the United States is a party and to prioritize and give special attention to the timely, consistent, and robust implementation of the commitments and obligations of a party to that free trade agreement, including commitments and obligations related to trade in goods, trade in services, trade in agriculture, foreign investment, intellectual property, digital trade in goods and services and cross-border data flows, regulatory practices, state-owned and state-controlled enterprises, localization barriers to trade, labor and the environment, currency, foreign currency manipulation, anticorruption, trade remedy laws, textiles, and commercial partnerships

(E) To support capacity-building efforts undertaken by the United States pursuant to any such free trade agreement and to include performance indicators against which the progress and obstacles for the implementation of commitments and obligations can be identified and assessed within a meaningful time frame.

The law also makes clear, none of these Trust Funds may be used to offset the costs of conducting any trade negotiations, only to support implementation and capacity building prior to any free trade agreement entering into force.

There is another new provision having to do with currency exchange rates. It calls for one of the many reports required under the law. Here, the currency practices of all the U.S. major trading partners are to be reviewed and analyzed. If the Treasury Secretary determines a given country has not adopted “appropriate” policies to correct undervaluation or surpluses, the President is to prohibit the Overseas Private Investment Corp. from providing any new financing, the federal government is generally barred from contracting for goods or services from those countries, the U.S. Executive Director at the International Monetary Fund is to seek additional “rigorous” surveillance of macroeconomic and exchange rate policies and formal consultations, and the U.S. Trade Representative (USTR) is to take this finding into account when negotiating any bilateral or regional trade agreement. The President may waive the requirements in the face of adverse impact on the U.S. economy or where there would be serious harm to national security. An Advisory Committee on International Exchange Rate Policy is to be established to counsel the Treasury Secretary regarding exchange rates and financial policy.

The bill also includes a revised de minimis value for postal and courier shipments. It encourages USTR to establish “commercially meaningful” de minimis values when negotiating trade agreements. Section 321’s di minimis value is increased from $200 to $800.  Penalties for customs brokers are expanded to include committing or conspiring to commit acts of terrorism.

Fungible 9801 articles may now be commingled and their origin, value and classification determined by inventory management methods. Interestingly, 9801.00.10 has been expanded from including only those products which are of American origin to include any product exported and returned within three (3) years which is not advanced in value or improved in condition.

Additionally, seeking to settle the long-standing debate about how much residue left in a bulk carrier is too much to be considered an empty, the new law sets the empty level at not to exceed 7% by weight or volume with no de minimis value.

In future Alerts, we will provide details about specific sections of this new law. Many of the provisions take effect immediately, some only set periods of time after enactment, and there is a lot to digest and implement for all international traders.  While this Alert highlighted primarily import issues, exporters are impacted too, especially when it comes to ACE, ITDS, grants and other forms of export financing. Stay tuned for more details in the near future.

The CITT Does Not Like Messy Appeals

Posted in Customs Law, Legal Developments, Legal Writing, origin, tariff classification, valuation

Good BadThe Worldpac Canada v. President of the Canada Border Services Agency case (AP-2014-021) released by the Canadian International Trade Tribunal (“CITT”) on March 8, 2016 contains a few paragraphs that do not hide the CITT’s frustration with the appeal paperwork in this case.  Member Downey states in the Reasons:

“… the Tribunal also wishes to note the general disorganization of the present case from its inception. For some time, it was quite difficult for the Tribunal to determine, with any given degree of precision, which goods were actually the subject of the appeal. The submissions filed by Worldpac were incoherent, and it was difficult to understand precisely what was being appealed. Only after a series of interventions, teleconferences and a preliminary hearing did the relevant subject matter actually become ascertainable. In that context, it is worthwhile going through a detailed timeline of these events in order to circumscribe the debate.”

This is code to Customs lawyers who appear before the CITT that the CITT is voicing frustration and customs lawyers should take note.  In a few paragraphs later in the Reasons, we read more about the state of the filings:

  • Paragraph 10 – “On March 25, 2013, the CBSA issued a notice of cancellation in respect of one of the above blanket authorizations, identified as T0324002 (for tariff classification), on the basis that mutual benefits could not be realized. It would later become apparent to the Tribunal that this cancellation occurred because of an apparent lack of general organization and diligence by Worldpac in supplying documents and responding to the CBSA’s queries.”
  • Paragraph 19 – “The current appeal was filed with the Tribunal on September 3, 2014. After several delays caused by Worldpac, the Tribunal identified a need to hold three separate teleconferences in an effort to establish which importations were the subject of the appeal and to oblige Worldpac to organize its case and supply adequate documentation in support of its claims.”
  • Paragraph 20 – “On May 12 and 14, 2015, the CBSA filed motions with the Tribunal, requesting that the appeal be dismissed on the basis that Worldpac had not complied with the Tribunal’s repeated instructions to clarify the list of transactions under appeal.”
  • Paragraph 21 – “Despite the Tribunal’s best efforts, the matter still remained unresolved until a hearing was held on June 10, 2015, at which time the Tribunal, through extensive chronological work with Worldpac, was able to determine that the appeal related to two reject notifications issued by the CBSA on June 5 and 13, 2014….”

The lesson to be learned from this case is that an appeal filed with the CITT must be well organized. While the case was ultimately dismissed based on a jurisdictional issue, the disorganization of the appeal was highlighted in the decision  One can expect that the CITT is sending a message to importers and customs lawyers by highlighting the documentary issues.  The message is “We were not happy.”

What Is A “Blanket Authorization” And Why Does It Matter?

Posted in Customs Law, origin, tariff classification, Uncategorized, valuation

Gavel and Scales of JusticeAccording to the Canadian International Trade Tribunal (“CITT”) in Worldpac Canada v. President of the Canada Border Services Agency, AP-2014-021 (Order and Reasons released on February 18, 2016 and posted on the CITT website on March 8, 2016), a “blanket authorization” is a “mechanism involving a specific process by which an importer can apply to the [Canada Border Services Agency (“CBSA”)] for authorization to file several adjustment or refund requests at once.”

The CITT goes on to explain that:

“Instead of filing a large number of individual requests (often identical or in regard to the same subject matter), in certain circumstances, the CBSA allows importers to file a single request, under a blanket authorization, covering importations over a given period of time. This is meant to save time and effort for both the importer and the CBSA, which only has to deal with a single request as opposed to a larger number dealing with the same goods. According to its internal policies, however, the CBSA will only grant a blanket authorization, pursuant to an importer’s request, if it believes that, by doing so, it will be mutually beneficial to the CBSA and the importer—this makes sense. It is designed to facilitate matters for all.

The obvious implication here is that an importer can only file several adjustment requests under the authority of a single application if an authorization is granted by the CBSA. This authorization then becomes the understanding that the CBSA will process a multitude of importations as one request, under one umbrella, because, for example, the goods are all similar, deal with the same subject matter and, more generally, to which the same arguments would apply (e.g. a request for a change in tariff treatment).

The process of blanket authorizations is not stipulated in the [Customs Act] but comes from an administrative practice. It simply allows the CBSA to streamline formal processes in order to help importers. Importantly, it must be remembered that the process in no way alters imperative prescriptions of the Act, including the four-year time limit for filing refund or adjustment requests under subparagraph 74(3)(b)(i) of the Act. At all times, both parties are bound by the requirements of the Act, notwithstanding this administrative streamlining.”

The CITT’s description concerning “blanket authorizations” in the Worldpac case is important because the CITT determined that it did not have jurisdiction to hear the appeal and dismissed the case on a technicality.  The CITT explained in the “Procedural History” of the case that Worldpac had received blanket authorization letters from the CBSA, which included a caveat that the blanket authorizations could be cancelled if mutual administrative benefits were not realized.  The blanket authorizations in the Worldpac case permitted a change in tariff classification, which resulted in refunds owing on past importation transactions.  The CBSA had cancelled one or more of the blanket authorizations because of a lack of organization and diligence by Worldpac (apparently the paperwork was a bit of a mess). In the end, the CBSA accepted certain of the transactions covered by the blanket authorizations that were within the 4 year statutory limitation period and did not accept those that were filed outside the four year limitation period. Worldpac appealed the transactions considered to be outside the four year limitation period.

The case proceeded to a hearing and at the hearing the CBSA raised the jurisdictional issue – whether the CITT could hear the appeal because there was no decision under section 60 of the Customs Act and, therefore there was no section 67 appeal.  The CBSA argued that only where it makes a decision on the basis of origin, tariff classification or value for duty, or makes an implied decision on the basis of any of those three grounds, is there a statutory basis for review pursuant to section 59, 60 or 67 of the Customs Act.  Worldpac argued that the refusal of the CBSA to make a decision was a decision under section 60 of the Customs Act.  Worldpac also argued that many of its refund requests were legally filed under the first two blanket authorizations issued by the CBSA and thatthis had the effect of suspending the four-year time limit prescribed under subparagraph 74(3)(b)(i) of the Customs Act.

The CITT agreed with the CBSA. The CITT determined that the Customs Act prescribes certain time limits during which refund requests must be filed and that a blanket authorization, which is administrative in nature, does not modify the imperatives set out in the Act.  The CITT states that:

“Subparagraph 74(3)(b)(i) of the Act is prescriptive and does not provide for extensions of time. Furthermore, discussions and attempts to find mutually beneficial grounds between the parties, either informally or through the blanket authorization process, do not suspend the effect of time and the operation of the legislative scheme; parties must always be mindful that the Act operates notwithstanding their interactions.”

The CITT went on to state:

“…the time limits are clearly set out in the legislative scheme and the Act does not provide any way to extend or modify them. The blanket authorization letters themselves made particularly clear that they “. . . in no way remove or extend the time limits to file a required adjustment under section 32.2 … or the application of penalties under the Administrative Monetary Penalties System, nor [do they] extend the one year under paragraph 74(1)(c.1) or the four-year time limits to file a refund under section 74.” Furthermore, the blanket authorizations themselves have neither the effect nor the ability to extend the four- year time limit stipulated under the Act.”

The CITT then makes an important point that brings the CITT’s reasoning into clear perspective:

“Worldpac could have filed individual refund requests for each transaction. This would have been time-consuming and administratively complex but would have enabled Worldpac to ensure compliance with the time limits set out in the Act. Instead, it chose to dedicate its time and effort negotiating a third blanket authorization request with the CBSA, a process which took several months. As it did so, time was fleeting for those importations on the fringe of that four-year time limit.”

The morale of this story is that blanket authorizations case reduce paperwork burden for the importer and the CBSA.  However, the paperwork must be filed on time and within the statutory scheme.  If the blanket adjustments are not filed on time, the CBSA will not pay the refunds with respect to transactions outside the four year limitation period.  If an importer is near a 4 year deadline, they should file the blanket adjustments more quickly or separate the transactions that may fall off the table and get B2 adjustments in on time.

Can US Customs Take My NEXUS Card at Toronto Pearson International Airport?

Posted in NEXUS, Uncategorized

Many QuestionsThe answer is “Yes”, and it happens on a regular basis.  Quite frankly, we have received more calls about NEXUS confiscations at Toronto Pearson Airport Pre-Clearance recently – and, it makes one wonder if a US CBP policy directive has changed.  The issues that arise at U.S. Pre-Clearance at Toronto Pearson Airport are different issues than the issues we see at Canadian border crossings.

In 2014/2015, the NEXUS issues we saw most frequently at U.S. Pre-Clearance involved muffins, cookies and bananas in individual’s carry-on luggage.  We would see an occasional Cuban cigar.

However, in the last few months, we are seeing more decisions by US CBP at Toronto Pearson Pre-Clearance to confiscate NEXUS Memberships of Canadian travelers for (1) immigration matters and (2) suggestions that answers where untruthful.

For example, a client had a valid visa and was legally working in the United States.  She was flying to the United States and arrived early to apply for a renewal of her Visa ahead of the expiration date.  US CBP at Toronto Pearson Airport refused to process the new Visa application and cancelled the NEXUS membership.

Another client was sent to secondary clearance and was asked the usual questions.  When the US CBP officer did not like the answers provided, he confiscated the person’s NEXUS Membership on the basis that answers were untruthful.

Another client (an entire family) had their NEXUS memberships cancelled because the nanny did not have a NEXUS membership.  The nanny helped push the children’s strollers to the US primary desk and was asked for her identification, She was not permitted to get into the line up and the family was informed that it was too late as the “nanny had crossed the line”.

It is important to look at 8 CFR §235.12, which are the US rules relating to the Global Entry (NEXUS ) Program. 8 CFR §235.12(j)(2) provides for the suspension of a Global Entry participant as follows:

(2) A Global Entry participant may be suspended or removed from the program for any of the following reasons:
(i) CBP, at its sole discretion, determines that the participant has engaged in any disqualifying activities under the Global Entry program as outlined in § 235.12(b)(2);
(ii) CBP, at its sole discretion, determines that the participant provided false information in the application and/or during the application process;
(iii) CBP, at its sole discretion, determines that the participant failed to follow the terms, conditions and requirements of the program;
(iv) CBP, at its sole discretion, determines that the participant has been arrested or convicted of a crime or other-wise no longer meets the program eligibility criteria; or
(v) CBP, at its sole discretion, determines that such action is otherwise.

In short, the US CBP officers have wide latitude to cancel NEXUS privileges.

There is also an interesting article about the use of discretion by US CBP officers on the West Coast.  Jeff Nagel of the Abbottsford News reports that one US CBP officer has boasted that he has denied more Canadians entry into the Untied States than any other staffer.

The issue is not that bad people get their NEXUS passes confiscated.  The issue is that some good people get their NEXUS passes confiscated. Canadians used their NEXUS memberships to expedite the customs clearance process.  There is a business cost to the confication of a NEXUS pass.  For that reason, discretion should be used properly.

If US CBP confiscates your NEXUS membership, redress may be made to the US CBP Ombudsman.  Currently, it takes 7-8 months to hear back from the US CBP Ombudsman after a letter is filed.

Canada To Impose New Sanctions Against North Korea

Posted in Export Controls & Economic Sanctions


On March 2, 2016, Foreign Affairs Minister Dion made the following statement:

“Canada supports ‎imposing additional sanctions on North Korea, in accordance with Resolution 2270, adopted today by the United Nations Security Council. The Government of Canada will take further steps, as necessary, to implement the new elements of the UN Security Council sanctions against North Korea in Canadian law.

“This resolution, co-sponsored by Canada, sends an unequivocal message that the international community is resolved to halt North Korea’s reckless and illegitimate pursuit of nuclear and ballistic missile capabilities.

“Canada strongly denounces North Korea’s continued provocative actions in defiance of its international obligations, including a fourth nuclear test in January and a long-range missile launch last month.

“Going forward, coordinated international pressure will be needed to compel North Korea to abandon its current course and to resume dialogue aimed at finding a peaceful diplomatic and political solution.”

What we know s that Canada will implement additional sanctions pursuant to the United Nations Act that will include the latest measures agreed at the United Nations.  There are existing sanctions under the United Nations Act, the Special Economic Measures Act and the Export and Import Permits Act.  North Korea is on Canada’s Area Control List.

The placement of North Korea on Canada’s Area Control List is Canada’s most severe sanction.

The unilteral sanctions under the Special Economic Measures Act and Special Economic Measures (DPRK) Regulations provide for the following:

  • a ban on all exports;
  • a ban on all imports to Canada from North Korea;
  • a ban on all new investment in North Korea;
  • a ban on the provision of financial services to North Korea and to persons in North Korea;
  • a ban on the provision of technical data to North Korea, and
  • a ban on the docking and landing in, and transiting of, Canada by North Korean ships and aircraft.

The UN sanctions follow security council resolutions.

Canada-EU CETA Investment Arbitration Tribunal Is An Opportunity For Canadians

Posted in Trade Agreeements, Tribunals

iStock_000019169483XSmallOn February 29, 2016, the Honourable Chrystia Freeland, Minister of International Trade, and Cecilia Malmström, European Commissioner for Trade, announced that the legal review of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) English text has been completed.  More interesting, thy announced changes to the Investment Chapter and the establishment of a permanent investment arbitration tribunal to hear investment disputes.

Fifteen individuals will be appointed by Canada and the European Union (EU) to constitute a tribunal for the purpose of deciding investment disputes. Disputes will be decided by a division of the tribunal comprising three randomly selected members of the tribunal.

The permanent list of individuals is particularly interesting because Canada has rosters of panelists for NAFTA disputes (pursuant to Chapter 11 (Investment), Chapter 19 (Bi-National Panels) and Chapter 20 (State-to-State disputes)). The Members of Panels (NAFTA) Regulations (SOR/94-117) has not been updated since 1995. The Members of Committees and Special Committees (NAFTA) Regulations (SOR/94-225) has not been updated in about 15 years. Other lists of Canadians with trade experience have not been updated in years.

The development of a new list of Canadian lawyers with experience in trade matters, especially investment treaties and arbitrations, is welcome. There are many smart Canadian lawyers who do not receive the same opportunities as Washington DC trade lawyers.  The new Canada-EU CETA tribunal may level the playing field as US lawyers may not make Canada’s list.

For the most recent text of the Canada-EU CETA.

A Mistake That People Make After Getting Into Trouble With The CBSA

Posted in Customs Law, NEXUS

Many QuestionsI often receive calls from individuals who have had their NEXUS membership cards cancelled or confiscated by the Canada Border Services Agency (“CBSA”). Many of these individuals believe that the CBSA was sympathetic  to their situation and was trying to help when the CBSA officer suggested that they write a letter explaining their side of the story.  The CBSA officer instructed the individual to send the letter to him/her or the port.  The CBSA officer says that if a letter is written, the individual may get their NEXUS card back.  The individual writes the letter as soon as he/she get home and sends it in.  Then the question – was this the correct thing to do?

The answer is that it may not have been helpful to write the letter and the letter may have made matters worse.

First, the letter is a written confession.  The CBSA officer will use this letter to justify the confiscation of the NEXUS card.  If the individual admits to failing to declare goods, failing to declare currency over $CDN 10,000 or making a mistake, even an inadvertent or innocent mistake, it is grounds to cancel the NEXUS privileges for 6 years.

Second, the proper procedure for appealing a NEXUS confiscation is writing to the NEXUS program – not the CBSA officer.  The CBSA is requesting a confession to improve the evidence in their file.  It may be that the grounds or evidence is weak.  It could be that the letter is just what the CBSA needs to justify the actions of an CBSA officer.  I cannot tell you how many times I see the Recourse Directorate quoting the confession letter as evidence of a failure.

Third, if the CBSA officer has charged a penalty, issued a Seizure Receipt, issued a Statement of Goods Seized, issued  Notice of Violation or similar document, it is necessary to file an appeal (actually called a request for decision) with the CBSA Recourse Directorate AND succeed before the NEXUS program will entertain a request for a review of the NEXUS cancellation.  Many individuals think they have taken the appropriate steps when they write to the CBSA officer (as suggested by the CBSA officer) when they have not.  The Customs Act contains a statutory 90 day period for filing the appeal and if you miss the deadline, the Recourse Directorate will not open a file.  The CBSA officer may or may not send the letter to the Recourse Directorate (I have seen situations where it is sent and other situations where the CBSA office put the letter in the file at the port).

The best advice that I can give you is to point out that if the CBSA officer was sympathetic to you, he/she would have given you a warning (they can do that).  If the CBSA officer took enforcement action and confiscated your NEXUS card, that is an exercise of discretion to elevate the matter from “understandable error” to “blameworthy conduct”.  The CBSA officer now needs  to justify their use of discretion.  Don’t hand it to them in a written confession without talking to a specialist.