Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Canada Commences Consultations Regarding A Canada-China Free Trade Agreement

Posted in Agriculture, Antidumping, Border Security, Canada's Federal Government, Canada-China FTA, Corporate Counsel, Cross-border deals, Cross-border litigation, Cross-Border Real Estate, Cross-border trade, Customs Law, Energy, Environment, Export Controls & Economic Sanctions, Government Procurement, Immigration law, Imports Restrictions, Intellectual Property, International Arbitrations, Labour, origin, tariff classification, valuation

Business team on top of the globe. European and African side. Conceptual business illustration. Isolated

On March 4, 2017, Global Affairs Canada announced consultations concerning a possible free trade agreement between Canada and China.   Consultations means that Global Affairs Canada is consulting with Canadian interested stakeholders (the free trade agreement negotiations have not started yet – Canada is in a preliminary exploratory stage). Global Affairs Canada has posted information on the consultations. The Canadian public and interested Canadian stakeholders may make submissions until June 2, 2017.  There is an online consultation form. It is also helpful to read the Canada Gazette Notice concerning the consultations.

Canadian stakeholders would include Canadian businesses and Canadian subsidiaries of U.S. companies (and other foreign companies), business associations, experts/academics, civil society and NGOs, labour unions, provincial/territorial and local governments, individuals (including, indigenous peoples, youths, students) and others who are interested.  What U.S. companies cannot do directly from the United States, may be accomplished indirectly through Canadian legal entities.

Canadian entities interested in a free trade agreement with China and those who have concerns have an opportunity to communicate with the people who will comprise a Canadian negotiating team. The focus of consultations is to determine how Canada should best proceed regarding a possible FTA with China.  The negotiators need the assistance of Canadian businesses to know (1) what rates of duty they pay on goods that they export to China (e.g., what goods should be in Canada’s market access ask), (2) whether Canadian goods exported to China are subject to quantitative restrictions or quotas or other restrictions that prevent access to China’s market, (3) what technical barriers to trade they experience when exporting to China (e.g.,  what inspection processes delay market access, what fees must be paid in China, which standards/certification requirements impede market access, etc.), (4) which categories of service providers are active in China (what should be Canada’s market access ask for services), (5) what approval processes/certification requirements impede access to Canadian service providers,  (6) which categories of Canadian service providers would like greater labour mobility, (7) whether China’s intellectual property rules impede market access and/or negatively affect Canadian businesses in China (the Canadian Government has significant knowledge about China’s intellectual property issues, but may not know all the problems experienced by Canadian businesses in China), (8) what Chinese government departments (at the federal, province and local levels) Canadian businesses sell goods and services which should be included in government procurement schedules, (9) whether Canadian companies doing business in China and/or Canadian individuals have experienced a lack of transparency or certainty in outcome in legal proceedings and what areas of China’s legal process need improvement, and (10) any other issues Canadian stakeholders would like addressed in the free trade agreement negotiations, etc.

The Canada Gazette Notice goes further than my list to include the following:

  • Trade and investment interests:
    • Canadian goods of export or import interest (identified by HS/Tariff codes) that would benefit from expedited or phased-in removal of tariffs and other barriers by China or Canada;
    • Trade in services (identification of sectors, activities of export interest for Canadian service providers, market access barriers and domestic regulatory measures that either restrict or affect their ability to conduct business or deliver their service in China);
    • Temporary entry of business people from Canada into China and from China into Canada (e.g. any impediments when entering China, or Canada, to work on a temporary basis);
    • Electronic commerce (e.g. restrictive measures faced by Canadian suppliers of digital products and services in China);
    • Non-tariff barriers (such as import licensing, administration of tariff-rate quotas, taxes, lack of transparency), technical barriers to trade (including technical regulations, standards or conformity assessment procedures), and sanitary and phytosanitary measures;
    • Rules of origin, including the appropriate rules of origin for specific products or sectors;
    • Border and customs issues that have an impact on the movement of commercial goods into and out of China;
    • Investment barriers faced by Canadian investors in China, including restrictions imposed on foreign ownership or entry to market, questions of transparency of regulation and performance requirements;
    • Priority government procurement markets for Canadian suppliers in China at the central, provincial and local levels, the goods and services that Canadian suppliers are interested in selling to those government organizations, and barriers faced when selling or attempting to sell to governments in China;
    • Any incident affecting business practices when interacting with Chinese state-owned enterprises (in Canada or in China);
    • China’s application and enforcement of intellectual property (IP) laws, regulations, policies or procedures that may result in discrimination against foreign intellectual property, and any requirements for the sharing or transfer of IP or confidential business information;
    • Competition policy matters, including competition law enforcement or other measures affecting competition in China;
    • Preferred approach to trade remedies taken on trade between China and Canada; and
    • Any incidents of unfair business practices.

 

  • Reflection of the interests and values of Canadians:
    • Sustainable development;
    • Corporate social responsibility;
    • Transparency;
    • Equality;
    • Good governance;
    • Rule of law;
    • Non-discrimination;
    • Respect for the environment;
    • Culture;
    • Labour rights; and
    • Human rights;

 

  •  Enhancement of the bilateral economic relationship:
    • Co-operation on science and technology;
    • Climate change; Cultural and creative industries; and
    • Health and the environment.
  • Other topics:
    • Risks to Canadian consumers and to Canada’s plant and animal resource base resulting from the import of goods from China; and
    • Any other topics of interest or potential concern to Canadians related to a potential free trade agreement.

A number of areas of the economy will have an interest in the Canada-China Free Trade Agreement, including, without limitation, academia/education, agriculture and agri-food, autos and auto parts, energy, financial services, ICT, infrastructure, mining, legal services, accounting services, engineering services, telecommunications, steel, and water.

For more information about Canada-China trade, please contact Cyndee Todgham Cherniak at 416-3407-4168 or at Cyndee@LexSage.com. Cyndee was a director of the Canada China Business Counsel for over 7 years.  The Canada China Business Council prepared a report concerning a possible free trade agreement with China.  For more information about Canadian trade law, please go to the LexSage web-site.

 

Canada-Ukraine Free Trade Agreement Implementation Act Passes Second Reading In Canada’s Senate

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

Cyrstal Ball MoneyOn March 7, 2017, BillC-31 “An Act to implement the Free Trade Agreement between Canada and Ukraine passed second reading in Canada’s Senate.  Bill C-31 is now being reviewed by the Senate of Canada Standing Committee on Foreign Affairs and International Trade.  After the Report is prepared by the Standing Committee on Foreign Affairs and International Trade, Bill C-31 returns to the Senate for third reading and debate.  After third reading, the Canada-Ukraine Free Trade Agreement (“Canada-Ukraine FTA”) can be ratified.

Canada has agreed to reduce most customs duty rates to “free” or 0% immediately upon implementation on goods that meet the rules of origin.  Pursuant to Chapter 2 of the Canada-Ukraine FTA, each party shall reduce or eliminate customs duties on goods originating in either party in accordance with the tariff elimination schedules in Annex 2-B.  In Article 1 of Annex 2-B, Canada agrees to eliminate customs duties on all goods in Chapters 1-97 of the Harmonized System that provides for Most-Favoured-Nation rate of duty, with the exception of any goods Canada has listed in Annex 2-B (which is a short list).

We have prepared the following chart, which sets out the H.S. Chapters and Canada’s commitments to reduce customs duties when the Canada-Ukraine FTA enters into force:

H.S. Chapter Description 2016 MFN Rate of Duty In Canada What Canada’s Schedule Says
1 Live animals Up to 238% Some items duty free immediately

 

Some items excluded from duty relief

2 Meat and edible meat offal Up to 249% Some items duty free immediately

 

Some items excluded from duty relief

3 Fish and crustaceans, mollusks and other aquatic invertebrates Up to 5% Entire Chapter is duty free immediately
4 Dairy produce; birds’ eggs; natural honey; edible products of animal origin, not elsewhere specified or included Up to 313.5%

 

Some items duty free immediately

 

Some items excluded from duty relief

5 Products of animal origin, not elsewhere specified or included Free Entire Chapter is duty free
6 Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage Up to 16% Entire Chapter is duty free immediately
7 Edible vegetables and certain roots and tubers Up to  $10.31/kg Entire Chapter is duty free immediately
8 Edible fruit and nuts; peel of citrus fruit or melons Up to 14.5% Entire Chapter is duty free immediately
9 Coffee, tea, maté and spices Up to 3% Entire Chapter is duty free immediately
10 Cereals Up to 94.5% Entire Chapter is duty free immediately
11 Products of the milling industry; malt; starches; inulin; wheat gluten Up to $397.30/tonne Entire Chapter is duty free immediately
12 Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medicinal plants; straw and fodder Up to 10% Entire Chapter is duty free immediately
13 Lac; gums, resins and other vegetable saps and extracts Free Entire Chapter is duty free
14 Vegetable plaiting materials; vegetable products not elsewhere specified or included Free Entire Chapter is duty free
15 Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes Up to 218%

 

Some items duty free immediately

 

Some items excluded from duty relief

16 Preparations of meat, of fish or of crustaceans, mollusks or other aquatic invertebrates Up to 253% Some items duty free immediately

 

Some items excluded from duty relief

17 Sugars and sugar confectionery Up to $30.86/tonne Some items duty free immediately

 

Some items excluded from duty relief

18 Cocoa and cocoa preparations Up to 265% Some items duty free immediately

 

Some items excluded from duty relief

19 Preparations of cereals, flour, starch or milk; pastry cooks’ products Up to 267.5% Some items duty free immediately

 

Some items excluded from duty relief

20 Preparations of vegetables, fruit, nuts or other parts of plants Up to 17% Entire Chapter is duty free immediately
21 Miscellaneous edible preparations Up to 277% Some items duty free immediately

 

Some items excluded from duty relief

22 Beverages, spirits and vinegar Up to 11% Some items duty free immediately

 

Some items excluded from duty relief

23 Residues and waste from the food industries; prepared animal fodder Up to 205.5% Some items excluded from duty relief
24 Tobacco and manufactured tobacco substitutes Up to 13% Entire Chapter is duty free immediately
25 Salt; sulphur; earths and stone; plastering materials, lime and cement Up to 2.5% Entire Chapter is duty free immediately
26 Ores, slag and ash Free Entire Chapter is duty free immediately
27 Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes Up to 12.5% Entire Chapter is duty free immediately
28 Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes Up to 6.5% Entire Chapter is duty free immediately
29 Organic chemicals Free Entire Chapter is duty free
30 Pharmaceutical products Up to 6.5% Entire Chapter is duty free immediately
31 Fertilizers Free Entire Chapter is duty free
32 Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and other colouring matter; paints and varnishes; putty and other mastics; inks Up to 6.5% Entire Chapter is duty free immediately
33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations Up to 8% Entire Chapter is duty free immediately
34 Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial waxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modelling pastes, “dental waxes” and dental preparations with a basis of plaster Up to 6.5% Entire Chapter is duty free immediately
35 Albuminoidal substances; modified starches; glues; enzymes Up to 270% Some items duty free immediately

 

Some items excluded from duty relief

36 Explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible preparations Up to 6.5% Entire Chapter is duty free immediately
37 Photographic or cinematographic goods Up to 6.5% Entire Chapter is duty free immediately
38 Miscellaneous chemical products Up to 15.5% Entire Chapter is duty free immediately
39 Plastics and articles thereof Up to 6.5% Entire Chapter is duty free immediately
40 Rubber and articles thereof Up to 15.5% Entire Chapter is duty free immediately
41 Raw hides and skins (other than fur-skins) and leather Free Entire Chapter is duty free
42 Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silk-worm gut) Up to 15.5% Entire Chapter is duty free immediately
43 Fur-skins and artificial fur; manufactures thereof Up to 15.5% Entire Chapter is duty free immediately
44 Wood and articles of wood; wood charcoal Up to 9.5% Entire Chapter is duty free immediately
45 Cork and articles of cork Free Entire Chapter is duty free
46 Manufactures of straw, of esparto or of other plaiting materials; basket-ware and wickerwork Up to 11% Entire Chapter is duty free immediately
47 Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Free Entire Chapter is duty free
48 Paper and paperboard; articles of paper pulp, of paper or of paperboard Free Entire Chapter is duty free
49 Printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans Free Entire Chapter is duty free
50 Silk Free Entire Chapter is duty free
51 Wool, fine or coarse animal hair; horsehair yarn and woven fabric Free Entire Chapter is duty free
52 Cotton Up to 8% Entire Chapter is duty free immediately
53 Other vegetable textile fibres; paper yarn and woven fabrics of paper yarn Free Entire Chapter is duty free
54 Man-made filaments; strip and the like of man-made textile materials Up to 8% Entire Chapter is duty free immediately
55 Man-made staple fibres Up to 8% Entire Chapter is duty free immediately
56 Wadding, felt and non-wovens; special yarns; twine, cordage, ropes and cables and articles thereof Up to 16% Entire Chapter is duty free immediately
57 Carpets and other textile floor coverings Up to 14% Entire Chapter is duty free immediately
58 Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery Free Entire Chapter is duty free
59 Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use Up to 18% Entire Chapter is duty free immediately
60 Knitted or crocheted fabrics Free Entire Chapter is duty free
61 Articles of apparel and clothing accessories, knitted or crocheted Up to 18% Entire Chapter is duty free immediately
62 Articles of apparel and clothing accessories, not knitted or crocheted Up to 18% Entire Chapter is duty free immediately
63 Other made up textile articles; sets; worn clothing and worn textile articles; rags Up to 18% Entire Chapter is duty free immediately
64 Footwear, gaiters and the like; parts of such articles Up to 20% Entire Chapter is duty free immediately
65 Headgear and parts thereof Up to 15.5% Entire Chapter is duty free immediately
66 Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof Up to 7.5% Entire Chapter is duty free immediately
67 Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair Up to 15.5% Entire Chapter is duty free immediately
68 Articles of stone, plaster, cement, asbestos, mica or similar materials Up to 15.5% Entire Chapter is duty free immediately
69 Ceramic products Up to 8% Entire Chapter is duty free immediately
70 Glass and glassware Up to 6.5% Entire Chapter is duty free immediately
71 Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal and articles thereof; imitation jewelry; coin Up to 8.5% Entire Chapter is duty free immediately
72 Iron and steel Free Entire Chapter is duty free
73 Articles of iron or steel Up to 8% Entire Chapter is duty free immediately
74 Copper and articles thereof Up to 9.5% Entire Chapter is duty free immediately
75 Nickel and articles thereof Up to 3% Entire Chapter is duty free immediately
76 Aluminum and articles thereof Up to 6.5% Entire Chapter is duty free immediately
77 (reserved for possible future use)
78 Lead and articles thereof Free Entire Chapter is duty free
79 Zinc and articles thereof Up to 3% Entire Chapter is duty free immediately
80 Tin and articles thereof Up to 3% Entire Chapter is duty free immediately
81 Other base metals; cermets; articles thereof Free Entire Chapter is duty free
82 Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal Up to 11% Entire Chapter is duty free immediately
83 Miscellaneous articles of base metal Up to 7% Entire Chapter is duty free immediately
84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof Up to 9% Entire Chapter is duty free immediately
85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles Up to 9% Entire Chapter is duty free immediately
86 Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signalling equipment of all kinds Up to 11%

 

Entire Chapter is duty free immediately
87 Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof Up to 13% Some items duty free immediately

 

Some items customs duties reduced over 8 years

88 Aircraft, spacecraft, and parts thereof Up to 15.5% Entire Chapter is duty free immediately
89 Ships, boats and floating structures Up to 25% Entire Chapter is duty free immediately
90 Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof Up to 8.5% Entire Chapter is duty free immediately
91 Clocks and watches and parts thereof Up to 14% Entire Chapter is duty free immediately
92 Musical instruments; parts and accessories of such articles Up to 7% Entire Chapter is duty free immediately
93 Arms and ammunition; parts and accessories thereof Up to 7.5% Entire Chapter is duty free immediately
94 Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated signs, illuminated name-plates and the like; prefabricated buildings Up to 15.5% Entire Chapter is duty free immediately
95 Toys, games and sports requisites; parts and accessories thereof Up to 8% Entire Chapter is duty free immediately
96 Miscellaneous manufactured articles Up to 8% Entire Chapter is duty free immediately
97 Works of art, collectors’ pieces and antiques Up to 7% Entire Chapter is duty free immediately

There are other restrictions such as quotas and rules of origin that must be considered.

The Canada-Ukraine FTA should be in effect soon after ratification by Canada.  Canadian importers should start to consider what opportunities are available to import goods originating in Ukraine on a duty free basis.

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  For more information about Canada’s customs laws and the Canada-Ukraine FTA, please go to the LexSage web-site.

Canada-EU CETA Implementation Act Passes Second Reading In Canada’s Senate

Posted in Canada-EU CETA

CETAOn March 7, 2017, Bill C-30 “An Act to implement the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States and to provide for certain other measures passed second reading in Canada’s Senate.  Bill C-30 is now being reviewed by the Senate of Canada Standing Committee on Foreign Affairs and International Trade.  After the Report is prepared by the Standing Committee on Foreign Affairs and International Trade, Bill C-30 returns to the Senate for third reading and debate.  After third reading, the Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) can be ratified.

On February 15, 2017, the Canada-EU CETA was ratified by the European Parliament.  This means that as soon as Canada ratifies the Canada-EU CETA, the market access provisions may be provisionally implemented.  The Canada-EU CETA covers virtually all sectors and aspects of Canada-EU trade.  Provisional implementation means greater market access.  Most customs duty rates will reduce to “free” or 0%.

According to Article 30.7 of the Canada-EU CETA, the Agreement can enter into force on the first day after the month of ratification by the parties. If the Senate passes Bill C-30 at third reading in March 2017 and Canada ratifies the Canada-EU CETA in March 2017, it is possible that the Canada-EU CETA will be provisionally implemented as at April 1, 2017.

Pursuant to Chapter 2 of the Canada-EU CETA, each party shall reduce or eliminate customs duties on goods originating in either party in accordance with the tariff elimination schedules in Annex 2-A.  The staging categories for Schedule 2-A are as follows:

  • Category A – duties on originating goods shall be eliminated on the date this Agreement enters into force;
  • Category B- duties on originating goods shall be removed in four equal stages beginning on the date this Agreement enters into force, and such goods shall be duty-free, effective January 1 of year 4;
  • Category C – duties on originating goods in a Party’s Schedule shall be removed in six equal stages beginning on the date this Agreement enters into force, and such goods shall be duty-free, effective January 1 of year 6;
  • Category D – duties on originating goods in a Party’s Schedule shall be removed in eight equal stages beginning on the date this Agreement enters into force, and such goods shall be duty-free, effective January 1 of year 8;
  • Category E  – duties on originating goods are exempt from tariff elimination in a Party’s Schedule are exempt from tariff elimination;
  • Category S – duties on originating goods shall be removed in three equal stages beginning on the fifth anniversary of the date of entry into force of this Agreement, and these goods shall be duty-free, effective January 1 of year 8; and
  • Category AVo+EP – the ad valorem component of the customs duties on originating goods shall be eliminated upon the date of entry into force of this Agreement; the tariff elimination shall apply to the ad valorem duty only; the specific duty resulting from the entry price system applicable for these originating goods shall be maintained.

When you review Annex 2A, refer back to this reference on the staging categories. Also, where duties are eliminated according to Categories B, C, D or S, the starting point is the MFN rate of duty that applied on June 9, 2009.  When reviewing Canada’s Annex 2-A commitments for tariff elimination, refer to the Customs Tariff 2015 tariff codes.  This is when the Canada-EU CETA tariff elimination provisions were negotiated/finalized and the negotiators were using these H.S. Codes.

Most goods become duty free upon provisional application.  Belgian and Spanish chocolate will become duty free upon importation into Canada at the time of provisional implementation.  I can hardly wait.  Most products that are not agri-food, fish/seafood or automotive become duty free upon entry into Canada.

The Government of Canada has posted a helpful chart.

For more information about the Canada-EU CETA, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  We have posted articles and presentations about the Canada-EU CETA on the LexSage web-site.

Canadian House of Commons Approves Canada-EU CETA Implementation Act at Third Reading

Posted in Canada-EU CETA, Trade Agreeements

CETAOn February 14, 2017, the Canadian House of Commons passed Bill C-30 “An Act to implement the Comprehensive Economic and Trade Agreement between Canada and the European Union and its Member States and to provide for certain other measures at Third Reading. There were three days of debates at third reading on February 8, 2017, February 13, 2017 and February 14, 2017.  Bill C-30 moves to the Canadian Senate.  This is good news as Prime Minister Trudeau is leaving for Europe to witness and celebrate the ratification of the Canada-European Union Comprehensive Economic and Trade Agreement by the European Union.

According to Article 30.7(2), the Canada-EU CETA will “enter into force on the first day of the second month following the date the Parties exchange written notifications certifying that they have completed their respective internal requirements and procedures or on such other date as the Parties may agree.”  What this means is that the CETA will enter into force one month after the Senate passes Bill C-30 and the Government of Canada sends the formal written notification of ratification.

All eyes will be on the Senate to move quickly.  Assuming the Senate can work quickly (no pressure), the Canada-EU CETA can enter into force in the Spring of 2017.  Article 30.7(3) allows for provisional implementation of CETA “from the first day of the month following the date on which the Parties have notified each other that their respective internal requirements and procedures necessary for the provisional application of this Agreement have been completed or on such other date as the Parties may agree.”  What this means is that CETA can have provisional application up to a month earlier.  So, if the Senate passes Bill C-30 in March 2017 and the Government of Canada ratifies CETA in March 2017, provisional application can start on April 1, 2017.

Move over BRIC, the Acronym of 2017 Will Be MIC

Posted in Trade Agreeements

Business team on top of the globe. European and African side. Conceptual business illustration. Isolated

It used to be we talked about BRIC (Brazil, Russia, India, China).  We will now be talking about MIC (Mexico, India, China). We used to talk about the developing markets of consumers.  We are now going to be talking about trade.  However, MIC means different things to different countries.  The United States wants to reduce inbound trade from MIC.  Canada, on the other hand, will/should be talking free trade agreements with MIC.  Canada is starting free trade agreement exploratory discussions with China.  Canada and Mexico will discuss a bilateral trade agreement if Mexico-US irritants escalate.  India is quiet now, but Canada has a concluded free trade agreement that has stalled.  It might be time for Canada to re-engage with India before India becomes a country of concern for President Trump.

Over-Compensation Is An Issue In Export Controls/Economic Sanctions Compliance

Posted in Export Controls & Economic Sanctions

Which-way-150x150On February 10, 2017, the CBC posted an article entitled “PayPal freezes Canadian media company’s account over story about Syrian family“.  A community newspaper (Flin Flon Reminder) in Canada saw PayPal freeze its account.  What prompted the freeze was the local newspaper entering an article entitled “Syrian family adapts to new life” in an awards competition.  When the payment for entry into the competition was made, it referenced the article and the message contained the word “Syrian”.

This caused PayPal’s export controls/economic sanctions internal compliance mechanisms to kick in.  The payment was flagged as a suspicious transaction. Under economic sanctions, PayPal cannot facilitate payments for prohibited goods and services.

What happened is that PayPal’s internal compliance procedures over-compensated and caught a transaction that  was not prohibited.  The over-compensation is in response to an OFAC fine in 2015 of $7,658,300.  In 2015, PayPal entered into a Settlement Agreement with the United States Department of the Treasury after violations of U.S. economics sanctions laws.  The Settlement Agreement stated that the penalty was paid because “[f]or several years up to and including 2013, PayPal failed to employ adequate screening technology and procedures to identify the potential involvement of U.S. sanctions targets in transactions that PayPal processed. ”

It is not just U.S. sanctions. Canada imposes economic sanctions against Syria under the the Special Economic Measures Act and the Special Economic Measures (Syria) Regulations. Canada could impose fines against PayPal if PayPal facilitated prohibited transactions.  Global Affairs Canada describes the sanctions, which are quite broad, as follows:

“In addition to the restrictions on dealings with designated persons, the Regulations prohibit:

  • The import of goods, excluding food for human consumption, from Syria;
  • The provision or acquisition of financial services to, from or for the for the benefit of or on the direction or order of Syria or any person in Syria;
  • New investments in Syria;
  • The export to Syria of goods, including technical data, used for monitoring telecommunications;
  • The export of luxury goods to Syria;
  • The exports of goods listed in Schedule 2 of the Regulations, including any technical data related to such goods.

Causing, assisting or promoting prohibited activities is likewise prohibited.”

PayPal is exercising caution and legitimate transactions are going to be frozen from time to time.  This is an unfortunate consequence of compliance programs – in order to ensure that all improper transactions are stopped, some legal transactions are prevented or delayed.

Over-compensation is a consequence of targeted economic sanctions.  For this reason, countries try to target their unilateral economic sanctions and trade restrictions. However, the system is not perfect and fines for non-compliance can be significant.

For more information about export controls and economic sanctions, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  We have posted many Guidances about economic sanctions on the LexSage website.

What Will Trudeau Talk To Trump About?

Posted in Agriculture, Border Security, Buy America, Canada's Federal Government, Canada-EU CETA, Cross-border trade, Customs Law, Energy, Export Controls & Economic Sanctions, Government Procurement, Harmonization, Immigration law, Imports Restrictions, Labour, NAFTA, Softwood Lumber, State Governments, Trade Agreeements, U.S. Federal Government

Kids Plastic Letters Spelling Abc As Symbol For Education And Learning

On February 13, 2017, Prime Minister Trudeau will travel to the United States to visit with President Trump. The most important topic for discussion is that Canada-United States relationship. The most important goal is to ensure that trading relationshiop remains strong.

This is a fun post, which is based on trade issues between Canada and the United States at the present time.  It is not intended to pick sides or criticize any leader or country. To lighten the mood, I will set out the trade issues in an ABCs format.

A = Autos – Auto jobs must be protected on both sides of the border.  There in an integrated automobile industry involving Canada, the United States and Mexico. There are integrated supply chains that have been developed over many years.

B = Buy North America – Any Buy America provision envisioned by President Trump should treat Canadian manufacturers the same as U.S. manufacturers.  Many manufacturers and distributors have bi-national operations which compliment and supplement each other.

C = Canada – Prime Minister Trudeau will discuss how Canada and the United States cooperate with each other, compliment each other and co-exist.

D = Defence – Defence of the North American perimeter is a military issue, a foreign policy issue and a trade issue.  Prime Minister Harper and President Obama worked hard to establish the North American perimeter so that trade could flow securely and efficiently across the Canada-United States border.  It is critically important for Prime Minister Trudeau and President Trump to find common ground on joint defence – otherwise, cross border trade will be negatively affected. It many be necessary to develop another security program (beyond FAST, NEXUS, C-TPAT, PIP, pre-clearance, IBETs, ghost rider, etc.) – not because safety is an issue, but President Trump may have his own ideas.

E = Exemption – Any border adjustment tax should contain exemptions for Canada.  For example, there should be an energy exemption.  Energy should not be subject to a border adjustment tax as that would increase the costs of U.S.-made goods (manufacturers are significant users of energy) and the costs for U.S. consumers.

F = Farmers – Both countries want to protect the livelihoods of their farmers.  The three large trade issues are (1) supply management (the United States wants it gone), (2) country of origin labeling (the United States wants it reinstated), (3) the Farm Bill (the United States wants to subsidize its farmers).

G = Government Procurement – Both Prime Minister Trudeau and President Trump have announced infrastructure projects.  NAFTA Chapter 10 (Government Procurement) could be advanced to include state/provincial and local procurements.  This would allow Canadian companies to bid on US infrastructure projects and American companies to bid on Canadian infrastructure projects.  It also would allow companies to operate cross-border (many of the big infrastructure firms and steel companies have operations in Canada and the United States).

H = Harmonization of regulations – Canada and the United States have been talking about regulatory cooperation for years.  President Trump has announced that he would like to reduce regulations that impede business.  This can be beneficial for Canadian businesses.  Deregulation and harmonization of regulations can benefit companies in both countries and improve two-way trade flows.

I = Import Taxes – The border adjustment tax and import tax proposals being discussed in the United States would be particularly detrimental to integrated Canada-United States trade and businesses/jobs/the economy.  Import taxes would affect businesses across the country/across the board.  For that reason, the border adjustment tax/import taxes are the single most important trade issue facing Canada.

J = Jobs – This is easy – both Canada and the United States would like new jobs to be created.  The question is whether there can be mutually beneficial job-creating trade policies for both countries. The answer to this question is “YES”.

K = Keystone XL – Prime Minister Trudeau should discuss with President Trump Keystone XL, which was recently given the green light by President Trump.  An application has been submitted by TransCanada Pipeline.

L = Labour Mobility – The Labour Mobility chapter of NAFTA allows a limited number of categories of Canadians and Americans to work in the other country without a visa. The categories can be expanded.  For example, actors are not a category that can enter without a valid visa.

M = Mexico – Mexico is a party to NAFTA.  What Canada needs is for trade to continue even if the U.S.-Mexico trade relationship hits major bumps in the road.  Is is possible for Canada and the United States to remain NAFTA partners if the United States and Mexico separate and head towards a contested divorce.

N = NAFTA – President Trump would like to renegotiate NAFTA.  There are many areas where NAFTA can be improved, such as rules of origin, e-commerce, intellectual property, energy, services, labour mobility, investment dispute settlement, etc.

O = Oil – The United States needs Canadian oil so that it becomes less dependent on Venezuela and Saudi Arabia (more unstable supply sources).  Prime Minister Trudeau has approved two pipeline projects.  President Trump has signaled he will approve two stalled oil pipeline projects.  These projects will result in jobs in both countries.

P = Protectionism – President Trump’s “America First” platform is a protectionist platform.  Protectionist policies have short-term gains and long-term problems.  The key topic for discussion will be how to maximize short-term gains for both countries (and improve re-election opportunities) while minimizing long-term problems for Canada and the United States.

Q = Quotas – As a result of NAFTA, quantitative restrictions (quotas) on most trade between Canada and the United States has ceased.  That being said, the supply management regime involves quotas on dairy, cheese, eggs, and poultry.  In TPP, Canada offered greater access for supply managed products.  The United Stated negotiated for higher quota limits. The United States will want those concessions even though President Trump has announced that the United States will not ratify TPP.  The position of the United States will be that either supply management must end or greater access must be granted to U.S. products.

R = Rules of Origin – The rules of origin in NAFTA can be revisited.  There are many cases where U.S.-made goods do not enter Canada duty-free and the rules can be revisited to improve market access for goods.  There are categories of sensitive goods (such as autos) where the rules may become more restrictive to the benefit of both countries. The rules of origin in the Canada-EU CETA and TPP moved from the 62.5% regional value content in NAFTA.  It is possible to improve the NAFTA rules of origin on autos without upsetting the existing North American supply chains.

S = Softwood Lumber – The next round of the softwood lumber dispute is underway.  Can a permanent solution to the softwood lumber dispute be part of a renegotiated NAFTA?

T = TPP – The United States has officially notified the TPP countries that it will not ratify the Trans-Pacific Partnership Agreement.  TPP is still important to the NAFTA renegotiation.  Some of the hard work on improving NAFTA has already been undertaken in the TPP negotiations and text.

U = Unions – President Trump has met with union leaders.  Prime Minister Trudeau is friendly with unions and wants the union vote.  The issue of the Labour Side Agreement to NAFTA will be important in the NAFTA renegotiation.  Free trade agreements (in both Canada and the United States) after NAFTA include labour protections as a chapter in the main agreement.  Labour and jobs go hand in hand.

V = Vetting Process – The immigration vetting process presents a trade issue. If President Trump is at all concerned about Canada’s vetting process, there can be thickening of the border.  Prime Minister Trudeau has indicated a willingness to increase immigration from the 7 countries at the centre of President Trump’s Executive Order.  President Trump is going to be clear that trade will be affected should Canada’s refugee and immigration plans proceed without extreme vetting. This is going to be a difficult subject and President Trump will be clear – “Security Trumps Trade” (no pun intended – well maybe).

W = Wine – The United States has filed a case recently with the World Trade Organization involving British Columbia legislation giving B.C. wine an unfair advantage in designated grocery stores.  Ontario may be next.

X = X-border trade – The core discussion will be about cross-border trade.

Y = Yes – “Getting to Yes” will not just be a famous book, it will be the slogan for Canada-US trade discussions. Both Prime Minister Trudeau and President Trump will want mutually beneficial solutions to show that they are the leaders who take action to create jobs.  The most progress will be made where both leaders can find common ground quickly.

Z = ZZZZZZ – Does President Trump sleep?

For more information about Canada-U.S. trade, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.  Cyndee has a LL.B. degree from Canada, a J.D. Degree from the United States and a LL.M. Degree in international trade law in Canada.  Cyndee has taught a course about NAFTA at Case Western Reserve University School of Law and a course in Trade Regulation at the University of Windsor, School of Law.  Cyndee is on the Advisory Committee on the Joint J.D./J.D. law degrees of the University of Windsor and University of Detroit Mercy.

Canada’s Big Anti-Bribery Case Ends in Dismissed Charges

Posted in FCPA/Anti-Corruption

Gavel and Scales of JusticeOn February 10, 2017, three former executives of SNC-Lavalin Group Inc. saw Corruption of Foreign Public Officials Act (Canada) charges withdrawn in the Ontario Superior Court. Former SNC vice-president of energy and infrastructure Kevin Wallace, former SNC vice-president of international development Ramesh Shah, and Bangladeshi-Canadian businessman Zulfiquar Ali Bhuiyana were charged with bribing an official in Bangladesh.  This is Canada’s most significant and high profile anti-bribery prosecution against corporate executives.

The charges related to a bid to win a $50 million contract to supervise the Padma Bridge construction.  The Crown’s case had been based on evidence obtained from a Royal Canadian Mounted Police (“RCMP”) wire tap.

Justice Ian Nordheimer ruled a month ago that the wire tap evidence had to be excluded because of problems with three applications the RCMP filed in 2011 to get court approval to use wiretaps.  This decision taken in January was subject to a publication ban until February 10th.

In the wire tap decision, Justice Nordheimer held:

“Reduced to its essentials, the information provided in the [wiretap applications] was nothing more than speculation, gossip and rumour. … Nothing that could fairly be referred to as direct factual evidence, to support the rumour and speculation, was provided or investigated. The information provided by the tipsters was hearsay (or worse) added to other hearsay.”

For more information about the background facts in Canada’s most significant Corruption of Foreign Public Officials Act case, it is important to read World Bank Group v. Wallace, [2016] 1 SCR 207, 2016 SCC 15 (CanLII).  In this case, the Supreme Court of Canada summarized in the head note certain facts relating to the evidence as follows:

“The RCMP then sought and obtained authorizations to intercept private communications in order to obtain direct evidence of the accused’s participation in corruption, as well as a search warrant. Sgt. D was assigned to prepare affidavits for the application. He largely relied on information the INT shared based on its communications with the tipsters, as well as knowledge of the bidding process of a senior investigator with INT. Sgt. D also spoke directly to one of the tipsters. Sgt. D did not make any handwritten notes of his work as affiant. All of his emails for the period of the investigation were lost because of a computer problem, though many were recovered through other sources.”

It is also necessary to review Drywall Acoustic Lathing and Insulation, Local 675 v. SNC-Lavalin Group Inc., 2015 ONCA 718 (CanLII) and Chowdhury v. H.M.Q., 2014 ONSC 2635 (CanLII).  While these cases are not about the charges against the three former executives, they do give background information about the underlying bribery allegations.

Without the wire tap evidence, the prosecution concluded there was not a prospect of conviction. The case against the individuals is now over – however the reputational damage against the individuals and the company (SNC-Lavalin) will continue.  All were convicted in the court of public opinion long ago.

It Is Best To Sever Ties With Representatives Who Commit Export Controls Infractions

Posted in Aerospace & Defence, Corporate Counsel, Cross-border deals, Cross-border trade, Export Controls & Economic Sanctions, Exports

missile-1On February 9, 2017, Stewart Bell wrote an article for the Financial Post entitled Canadian company investigating branch in Iraq after logo spotted in photos of missile test. It is never good to see your company name in the news – let alone being associated with a missile test in a country subject to United Nations sanctions. This story should cause Canadian companies, even companies which are not in the aerospace and defense industries, to revisit their internal controls or consider ways to improve their business practices.

Advanced Development Group Ltd. (“ADG”), a Canadian company, was surprised to see their corporate logo and name on a piece of equipment associated with a missile test in Iraq.  ADG is a construction company and not in the defense industries.  So, ADG was not the manufacturer of the missile technology.   How could their name be so prominently displayed in a photograph on a missile?  More importantly, was their foreign agent/representative responsible?

To control the reputational damage and prevent future non-compliance, the company immediately took important steps:

  1. ADG severed its relationship with its agent/representative in Iraq;
  2. ADG commenced an investigation (on the ground in Iraq); and
  3. ADG commenced an investigation of their internal controls in Canada.

The issues for the company to determine are:

  1. Whether their logo was used without permission by the company’s Iraq agent/foreign representative and was he selling goods manufactured by some other company (passing the goods off as manufactured by the Canadian company)?
  2. Whether the Canadian company’s goods (parts of goods) were in the photo?
  3. If the goods were Canadian goods, were they exported without an export permit required under the Export and Import Permits Act or were they properly exported and re-transferred or diverted?
  4. Were the goods exported from Canada subject to Canada’s economic sanctions under the United Nations Act and United Nations Iraq Regulations (Canada imposes a prohibition on the export of arms and related material to any person in Iraq)?

The company also has many internal compliance issues to resolve.  When there is one rogue representative, there may be more. If their is a gap in the compliance program, it must be filled.

Canadian companies doing business in Iraq should be aware and learn from the experience of ADG. Canadian, U.S. and Western European firms have an advantage when bidding on contracts in Iraq because of their reputation for quality.

This situation provides an excellent lesson in export controls corrective action.  When an issue is uncovered, it is important to sever the company’s relationship with any rogue agent/representative.  To maintain a relationship might be perceived as approval of the behaviour.  A message needs to be sent to all foreign representatives.  Further, all foreign agents and representatives should be provided with a compliance policy and asked to sign the policy acknowledging that the policy has been read.  Further, the company should offer training to foreign agents/ representatives so that they know what is expected of them and, more importantly, they know what is required under Canadian laws.  Agents/representatives in countries that are higher risk (e.g., they are subject to Canadian economic sanctions or regularly do business with countries subject to Canadian sanctions) should undergo a review to ensure there are no problems.

What is also important is looking at the internal controls in Canada.  In the ADG case, they should determine whether goods were shipped without an export permit.

For more information about Canada’s export controls and economic sanctions, please contact Cyndee Todgham Cherniak at 416-307-4168 or cyndee@lexsage.com.

See also:

Why Should You Know About Canada’s Economic Sanctions Laws?

What Is An Export Control List Item Number?

What is a Ministerial Authorization?

What is the Canadian Process for Voluntarily Disclosing Export Controls/Economic Sanctions Violations?

Ten Compliance Problems Canadian Companies Face In Complying With Canada’s Economic Sanctions Laws

 

 

Drugs and Bugs: The CBSA Watches Flower Imports Carefully

Posted in Agriculture, Border Security, Customs Law, Imports Restrictions

cop and flowersEvery year around Valentine’s Day (and Mother’s Day and Easter), the CBSA is extra busy inspecting shipments of flowers from Colombia and Ecuador.  Shipments of flowers into Canada are most commonly shipped by air or transported from the United States after importation through Miami.

The two things the CBSA is looking for in fresh cut flower shipments are drugs and bugs. Historically, cut flower shipments were used as a hiding place by South American drug smugglers.  As a result, the CBSA continues to monitor flower shipments closely.  The drugs are no just hidden is solid form under the flowers, liquid or solid drugs have been injected into the flowers themselves.

Importantly, the CBSA agriculture specialists look for bugs and pests that can damage Canada’s ecosystem and which might bring diseases into the homes of Canadians. The most common type of plant pests intercepted in cut flower imports are Noctuidae (Moths), Aphididae (Aphids), Frankliniella sp. (Thrips), and Tetranychus sp. (Mites).

Canadian importers of flowers must be very careful to buy from reputable sources.  The CBSA will seize and destroy shipments of flowers if they find a bug/pest.  As a result, the flower importer may lose the money paid to the exporter and not have product to sell during lucrative periods, such as Valentine’s Day.

Canadian importers of flowers must also be careful to purchase flowers from companies that have a secure supply chain.  The importer is usually the importer of record for customs purposes.  Therefore, the importer is the party who may be charged if the shipment includes drugs.  The CBSA may seize the drugs or the CBSA may allow the flowers to be delivered under a controlled shipment so that the evidence can be gathered for a successful prosecution.

So remember:

Roses are Red,

Roses are White,

If the CBSA finds bugs,

Something ain’t right.

Roses are Pink,

Roses are Blue,

If you import drugs,

The CBSA will take them from you.