On April 16, 2020, the Government of Canada issued Notice to Exporters Serial 992 “Notice to Exporters – Export of items listed on the Export Control List to Turkey” in which Canada announced that it will presumptively deny any new export permit application with respect to military goods on the Export Control List where the destination is Turkey.  On October 19, 2019, the Government of Canada announced a temporary suspension in the issuance of export permits to Turkey due to Turkey’s incursion into Syria.  This temporary suspension is now indefinite (“until further notice”).

While Canadian exporters may continue to submit applications for export permits for military goods and those export permit applications will be reviewed on a case-by-case basis, the Minister of Foreign Affairs has indicated that the applications will be presumptively denied.  This means that the Minister will not sign off on any export permit for military controlled goods when the destination is Turkey.

While there is a possibility that an export permit will be approved, the new requirement in the Export and Import Permits Act limits the Minister’s ability to issue an export permit in respect of arms, ammunition, implements or munitions of war if, after considering available mitigating measures, he or she determines that there is a substantial risk that the export or the brokering of the goods or technology specified in the application for the permit would result in certain negative consequences.  The negative consequences that the Minister must consider are whether the goods or technology specified in the application for the permit

(a) would contribute to peace and security or undermine it; and

(b) could be used to commit or facilitate

(i) a serious violation of international humanitarian law,

(ii) a serious violation of international human rights law,

(iii) an act constituting an offence under international conventions or protocols relating to terrorism to which Canada is a party,

iv) an act constituting an offence under international conventions or protocols relating to transnational organized crime to which Canada is a party, or

(v) serious acts of gender-based violence or serious acts of violence against women and children.

Given the incursion into Syria, these criteria are presumptively satisfied.

That being said, it has been reported that Charles-Marie Matte, the Deputy Director of the Export Controls Division at Canada’s Global Affairs stated that there are “exceptional circumstances” where the ban may not apply, including the export of components for any “NATO missile defence system”.

For more information about Canada’s export controls laws, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  We have posted a number of articles of export controls on the LexSage website.

On March 31, 2020, Canada’s Federal Court of Appeal (“FCA”) released its decision in Angang Steel Company Limited v. Attorney General (Canada) et al., 2020 FCA 67 in which it dismissed a judicial review of the Canada Border Services Agency’s (“CBSA”) final calculation of a dumping margin for Angang in the dumping investigation against corrosion-resistant steel sheet from China.  This is an important case because it means that if an exporter disagrees with a dumping calculation or determination of the CBSA, judicial review is not an option to correct the CBSA’s mistakes (if mistakes were made).

Facts

The President of the CBSA determined that the Angang Request for Information (“RFI”) and supplemental RFI responses were not sufficient to allow the determination of the normal value and export prices for the subject goods (corrosion-resistant steel originating in or exported from China). As a result, the President of the CBSA calculated the normal value and export price pursuant to a ministerial specification made under subsection 29(1) of the Special Import Measures Act (“SIMA”). The normal value for Angang was determined to be the export price plus an amount equal to 53.3% (the “All Others” exporters’ rate) of that export price.  Usually the “All Others” dumping margin is prohibitively high and prevents exports to Canada of subject goods.

If the President had calculated normal values and export prices, Angang would have received normal values for the models or SKUs or types of corrosion-resistant steel sheet shipped to Canada during the period of review for the dumping investigation.  If, for future exports to Canada Angang sold the goods at prices above normal values, then no antidumping duties would be collected by the CBSA at the time of importation.  Importers would have certainty when buying corrosion-resistant steel sheet from Angang.

However, due to the decision by the President of the CBSA to not calculate normal values to Angang, all imports into Canada would be subject to a 53.3% antidumping duty and the importer would not know if they could appeal and get any portion of the antidumping duties refunded.  Due to the uncertainty, it is less risky to purchase from other sources, including the domestic industry.

The Issue

Angang took the position that the President of the CBSA should not have used the ministerial specification under subsection 29(1) of SIMA to determine its margin of dumping.  The CBSA should have calculated a lower dumping margin rate.

The Proceeding

There is no right of appeal to the courts for a calculation of a dumping margin.  An aggrieved party may file a judicial review in limited circumstances to correct errors made by the President of the CBSA or to address issues related to the use of discretion.  That being said, the right to a judicial review is limited in section 96.1 of SIMA.

Pursuant to subsection 96.1(1) of SIMA, a judicial review is only possible in respect of the following decisions:

Subject to section 77.012 or 77.12, an application may be made to the Federal Court of Appeal to review and set aside

(a) a decision of the President of the CBSA under paragraph 41(1)(a);

(b) a final determination of the President of the CBSA under paragraph 41(1)(b);

(c) a decision of the President of the CBSA under subsection 53(1) to renew or not to renew an undertaking;

(c.1) an order or finding of the Canadian International Trade Tribunal (“CITT”) under subsection 43(1);

(c.2) a decision of the President of the CBSA under subsection 75.1(1);

(c.3) a decision of the President of the CBSA under subsection 75.4(6);

(c.4) a determination of the President of the CBSA under subsection 75.6(5);

(d) an order of the CITT under subsection 76.01(4) or 76.03(5);

(d.1) a determination of the President of the CBSA under paragraph 76.03(7)(a);

(e) an order or finding of the CITT under subsection 76.02(4) respecting a review under subsection 76.02(1);

(f) an order of the CITT under subsection 76.01(5) or 76.03(12); or

(g) an order or finding of the CITT under subsection 91(3).

Subsection 96.1(2) of SIMA limits the grounds for the judicial review to situations where the President of the CBSA or the CITT:

(a) acted without jurisdiction, acted beyond the jurisdiction of the President or the Tribunal or refused to exercise that jurisdiction;

(b) failed to observe a principle of natural justice, procedural fairness or other procedure that the President or the Tribunal was required by law to observe;

(c) erred in law in making a decision or an order, whether or not the error appears on the face of the record;

(d) based a decision or order on an erroneous finding of fact that the President or the Tribunal made in a perverse or capricious manner or without regard for the material before the President or the Tribunal;

(e) acted, or failed to act, by reason of fraud or perjured evidence; or

(f) acted in any other way that was contrary to law.

If the issue does not fit with the above, the FCA lacks jurisdiction to consider the matter.

The Decision

The FCA dismissed the judicial review of a decision of the President of the CBSA under paragraph 41(1)(a) of SIMA.  The FCA took the position that it could not set aside the decision of the President of the CBSA with respect to Angang because there was no basis to set aside the entire decision of the CBSA made pursuant to paragraph 41(1)(a) of SIMA.  The dumping margin for China as a whole was not insignificant (less than 2%) and, therefore, the final determination of dumping against China would not be affected.

The FCA stated:

“The text requires separate actions of the President – the making of a final determination of dumping and the specification of the particular goods and the margin of dumping. The right of review provided in paragraph 96.1(1)(b) of SIMA is specific and only applies to the final determination of the President.”

The Federal Court went on to conclude:

“In my view, the change in the wording of section 41 does not change the result that a final determination of dumping cannot be set aside by this Court simply because the margin of dumping for a particular exporter, rather than a particular country, would be less than the amount as found by the President, if the margin of dumping would still be significant. The threshold for the final determination that goods have been dumped under paragraph 41(1)(b) of SIMA is the finding that the margin of dumping is 2% or more. The same final determination that the goods of a particular exporter have been dumped and that the margin of dumping is not insignificant will be found whether the margin of dumping is 15% or 50%. “

Relief Still Available to an Exporter

The FCA commented that relief is still available to the exporter for goods imported during the provisional period (between the preliminary determination of dumping by the CBSA and the final injury determination of the CITT) and after the final determination of injury by the CITT.

Within 6 months after the final determination of injury, the CBSA conducts a review under section 55 of SIMA to recalculate the antidumping duties owing during the provisional period.

With respect to the period during which an antidumping order is in place, the FCA stated that “[i]t is clear that Parliament did not intend that the margin of dumping, as specified by the President, would be used to impose the anti-dumping duty.”

After the Tribunal’s injury determination, section 56 of SIMA contemplates that a designated CBSA officer will make a determination of the normal value and export price for any subject goods that are imported. Section 56 of SIMA does not state that the margin of dumping will be the amount as specified by the President of the CBSA in making the final determination of dumping. Sections 56 to 62 of SIMA set out the rights of re-determination and appeal applicable to any determination made under subsection 55(1) or subsection 56(1) of SIMA.   In other words, a new calculation may be undertaken for each importation of subject goods while an antidumping order is in place.

Next Steps

Based on the decision in the Angang case, exporters who disagree with an antidumping calculation by the CBSA should work with their importers to appeal every importation of subject goods.  This will trigger a normal value review.  If complete and verifiable information is provided by the exporter, the CBSA must calculate the actual amount of antidumping duties that are payable within one year of filing the appeal.  Overpayments of antidumping duties at the time of importation will be refunded.

We recommend that exporters prepare a spreadsheet to properly calculate normal values before setting prices for shipments of subject goods to Canada.  We also recommend that exporters carefully consider how to persuade the CBSA to calculate antidumping duties.  If the CBSA has raised an issue with data during an antidumping investigation, reinvestigation, or normal value review, it would be best to correct those errors and solve those problems.

If you have any questions, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

During the COVID-19 global pandemic, an important humanitarian issue has arisen for individuals (friends and family), companies, and non-governmental organizations.  Many Canadians and residents in Canada have asked whether they can export humanitarian goods (including personal protective equipment (“PPE”)) to countries against whom Canada has imposed sanctions (called “Sanctioned Countries”). Canada clearly exempts humanitarian activities. That being said, there is red tape that causes serious challenges and delays – especially if the exports take place without the proper permits in place.

Canada imposes economic sanctions in various forms and various degrees against the following countries: Burma/Myanmar, Central African Republic; the Democratic Republic of Congo; Eritria, Iran, Iraq, Lebanon, Libya, Mali, Nicaragua, North Korea, Russia, Somalia, South Sudan, Sudan, Syria, Ukraine, Venezuela, Yemen and Zimbabwe.  When we talk about humanitarian goods, we primarily are focusing on Canada’s sanctions and trade restrictions sanctions under the Special Economic Measures Act.

The question that is being asked is whether goods can be exported from Canada to the sanctioned countries. The answer is there is a way to export goods for humanitarian purposes.

What are the goods to be exported?

The first question that must be asked is “what are the goods to be exported?”.  This is the starting point because it is important to know whether an export permit is needed under the Export and Import Permits Act before the goods can be exported. While North Korea is not a significant export destination from Canada, North Korea is on the Area Control List and all exports to North Korea (even if transhipped through another country, such as China) require an export permit from Global Affairs Canada.

An export permit is required for goods listed in the Export Control List.  The Export Control List mostly includes military and strategic goods, which are unlikely to be considered to be humanitarian goods.  That being said, certain dual use goods, U.S.-origin goods, chemicals and goods containing lasers, goods containing encryption software, etc. may require an export permit.  It is important to ask and answer this question.

Where are the goods being shipped to?

If the goods to be exported are not listed in the Export Control List (or you plan to obtain the necessary export permits), the next question is whether the goods are being sent to a Sanctioned Country or to Cuba (there are export controls on U.S.-origin goods going to Cuba). If the answer is “no”, you will be able to ship the goods.

Are the goods being shipped to a designated person?

If the answer is “yes”, you need to determine whether person you are shipping the goods to is a designated person.  Canada primarily imposes sanctions against listed individuals and entities and parties related to those person (individuals and companies) or buying on behalf of those persons.  If the intended user of the goods is not a designated person, it will still be necessary to determine if the goods themselves are subject to sanctions.

What if there are applicable sanctions or trade restrictions?

You still might be able to ship humanitarian goods – but you need to obtain a Ministerial Authorization to do so.  What is important to understand is that there is a mechanism, usually in a regulation, to apply for permission from the Minister of Foreign Affairs to export goods to a sanctioned country or a designated person.  The Canadian regulations made pursuant to the Special Economic Measures Act listing the sanctions against countries often contain an exception for :

“any activity, or the provision or acquisition of financial services in relation to an activity, that has as its purpose

i) the safeguarding of human life,

(ii) disaster relief, or

(iii) the provision of food, medicine and medical supplies.”

See the following regulations for examples:

It is important to apply for and receive a Ministerial Authorization before exporting goods to a designated person in a Sanctioned Country and to ask the right questions.  The Canada Border Services Agency might intercept packages going to a designated country if you do not have the proper paperwork, which will cause delays.

North Korea

If you are shipping goods to North Korea, you will have to obtain both an export permit and a Ministerial Authorization.

Cuba, Iran, Syria

If you are shipping U.S.-origin goods or technology to Cuba, Iran, North Korea or Syria, there are special export controls considerations.

U.S. Secondary Sanctions

The United States imposes secondary sanctions.  Proposed transactions from Canada may be caught by the U.S. secondary sanctions.

For more information about Canada’s export controls of economic sanctions or to apply for a Ministerial Authorization, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

Please see the following as published by my law firm, MSK, on April 17, 2020:

Our COVID-19 response team is committed to providing you with the latest updates on COVID-19’s effect on various policies and laws.

Below please find our latest alerts. Feel free to read and share, and contact us if there is anything we can do to help you or your business maintain compliance in this ever-evolving situation.

LA Takeaways

The City of Los Angeles published guidance on the city’s emergency paid sick leave ordinance. Here are our top five takeaway for employers. Read more…

ERC vs. PPP

Benefits offered to businesses under the CARES Act include the Employee Retention Credit (ERC) and the Payroll Protection Program (PPP), but you can’t have both. Whether a business is better off with the ERC or PPP is a complex determination. Read more…

COVID-19 Tax Relief

The CARES Act and the FFCRA are designed to provide tax and other relief to employers, but the rules governing the available tax credits and the businesses that are eligible to claim them are complex. We break them down in our latest alert. Read more…

Originally published by the Journal of Commerce in April 2020

We are clearly in unchartered territory at the moment, and most people have the same question – when will things get back to normal? Right now, the truth is no one knows, so all we can concentrate on is the work we have and how to manage our expectations. Those of us in international trade already understand how the supply chain works. It requires international cooperation, and for the regulators to be in the loop from the beginning as active participants in expediting cargo movement. It is also equally obvious there is a shortage of personal protective equipment (PPE), but not food. When it comes to food, the supply chain is seriously disrupted (for reasons that include the current pandemic), but that can be fixed more easily than the very serious PPE shortage.

When it comes to PPE, we see a plethora of activities taking place with one goal – trying to figure out where the items are and getting them where they will do the most good and quickly, plus – get more and fast! The public arguments revolve around which destinations are being serviced and the quantities each is receiving, but that is all about supply and demand, and those of us in international trade know you have to plan for supply chain disruption, and that is a pro-active not a reactive exercise.  At this moment, regretfully, all we see is reaction not implementation of well thought out disaster planning.

Nonetheless, in the last few days, we have seen activity by many different federal agencies seeking to address their piece of the process. In no particular order, Customs and Border Protection issued CSMS 42320854 on April 9, 2020. There was coverage in the general press about PPE being seized at ports upon arrival with the reasons not clearly explained. International traders know if that really happened, there had to be serious non-compliance.  While those stories are isolated, this CSMS makes clear that if the PPE (or anything else) is imported for relief efforts related to the COVID-19 pandemic, the donation may only occur once the Federal Emergency Management Agency (FEMA) has exercised its gift acceptance authority and the State Dept. sanctions the transaction.  For the goods to be entered duty free, the receiving entity must be a tax-exempt charitable organization and the standard risk assessment is first conducted. Any items imported that do not comply with these procedures, and are not government-to-government assistance, are subject to the usual import process and duty payment.

Also on April 9, 2020, CBP issued a guidance regarding “… Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use”  which is focused on the exporting of PPE and related products. Scarce resources are defined as:

“(a) N95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth of the wearer to help reduce wearer exposure to pathogenic biological airborne particulates.

(b)  Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway (nose and mouth) and offer protection from particulate materials at an N95 filtration efficiency level per 42 CFR 84.181.

  • Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges.
  • PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials, and
  • PPE gloves or surgical gloves, including those defined at 21 CFR 880.6250 (exam gloves) and 878.4460 (surgical gloves) and such gloves intended for the same purposes.”

In its guidance, CBP makes clear that FEMA’s focus is on commercial quantities, meaning  shipments valued at $2,500 or more and containing more than 10,000 units of gloves, masks or the other commodities referenced above.

The following exports are excluded: 1) To Canada or Mexico; 2) To U.S. Government entities, such as military bases; 3) By U.S. Government agencies; 4) By U.S. charities; 5) By critical infrastructure industries for the protection of their workers; 6)  By 3M Company; 7) Express or mail parcels that are not of commercial quantities; and 8) In-transit shipments. The 3M exclusion was noteworthy, and is discussed later in this article.

For shipments that do not meet these criteria, document reviews and/or physical examinations should be expected. The ground for detention will be 50 U.S.C. §4511(a) which states:

(a)Allocation of materials, services, and facilities

The President is hereby authorized (1) to require that performance under contracts or orders (other than contracts of employment) which he deems necessary or appropriate to promote the national defense shall take priority over performance under any other contract or order, and, for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders in preference to other contracts or orders by any person he finds to be capable of their performance, and (2) to allocate materials, services, and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate to promote the national defense.

Also worth keeping in mind  is 50 U.S.C. § 4511(b):

(b)Critical and strategic materials

The powers granted in this section shall not be used to control the general distribution of any material in the civilian market unless the President finds (1) that such material is a scarce and critical material essential to the national defense, and (2) that the requirements of the national defense for such material cannot otherwise be met without creating a significant dislocation of the normal distribution of such material in the civilian market to such a degree as to create appreciable hardship.

For these purposes, national defense is defined at 50 U.S.C. § 4552(14) to mean: “programs for military and energy production or construction, military or critical infrastructure assistance to any foreign nation, homeland security, stockpiling, space, and any directly related activity. Such term includes emergency preparedness activities conducted pursuant to title VI of The Robert T. Stafford Disaster Relief and Emergency Assistance Act [42 U.S.C. 5195 et seq.] and critical infrastructure protection and restoration.”

This agency activity follows on the heels of President Trump’s April 3, 2020 memorandum bearing the same name – “Memorandum on Allocating Certain Scarce or Threatened Health and Medical Resources to Domestic Use.” Therein the DHS Secretary through FEMA is directed to “use any and all authority available …. to allocate to domestic use, as appropriate,” the very products listed in CBP’s guidance. Issued earlier was Executive Order 13910, dated March 23, 2020, dealing with efforts to stop any hoarding and price gouging related to PPE, along with sanitizing and disinfecting products in particular, and health and medical resources more broadly, including delegating to the Health and Human Services Secretary the ability to accumulate resources,  and designate material as scarce or if its supply is threatened.

The most recent action is the April 10, 2020 Federal Register notice in which FEMA issued a temporary rule (effective for 120 days) dealing again with how to allocate these same scarce and threatened materials for domestic use.  Relying on the Defense Production Act of 1950 and specifically 50 U.S.C. §§ 4511 and 4554, along with various Executive Orders, and other authorities, FEMA directs CBP to detain all shipments of any covered goods (those listed in CBP’s guidance) until FEMA approves their export. FEMA also states it will make its decision in a reasonable period of time once notified about the proposed export, and will either return the good for domestic use, issue a rated order (equivalent to a purchase order or purchase contract) for the shipment or allow its export in whole or in part.

Factors that FEMA says it will consider are: 1) the need to ensure that scarce or threatened items are appropriately allocated for domestic use; 2) minimization of disruption to the domestic and international supply chain; 3) the circumstances surrounding the distribution of the materials and potential hoarding or price-gouging concerns; 4) the quantity and quality of the materials; 5) humanitarian considerations, and 6) international relations and diplomatic considerations.  The rule contains an exemption for shipments made by U.S. manufacturers having continuous export agreements with foreign buyers in place since at least January 1, 2020, provided at least 80% of that manufacturer’s domestic production on a per item basis was distributed in the U.S. in the preceding 12 months. The FEMA Administrator, of course, reserves the right to take any other needed action, while working with manufacturers, brokers, distributors, exporters and shippers to gain compliance.

What all of this tells us is the process will take some time to get properly organized and run relatively smoothly. However, before concluding this article, as was obvious, 3M was singled out from having its products exported.  On April 2, 2020,  President Trump issued a “Memorandum on Order Under the Defense Production Act Regarding 3M Company” permitting the FEMA Administrator to use all of his authority to obtain “any and all” N-95 respirators as deemed appropriate from 3M and any subsidiary or affiliate.  Not surprisingly, 3M took exception to being called out, pointing out publicly its existing efforts to work with the Administration regarding the PPE supply. This action came against a backdrop where orders of 3M’s N-95 masks destined for Province of Ontario, Canada were detained by U.S. authorities. News outlets reported a separate shipment destined for the Berlin Federal Police was en route and got turned around by U.S. authorities.  To some extent, the uproar which followed makes clear why the exclusions published were selected. However, as with any new regulatory procedure, some amount of chaos is inevitable. The rollout here was particularly disorganized because no apparent advance disaster planning had been done.

To borrow a phrase from Carnegie Endowment, we are at a point in time where how the U.S. moves forward regarding medical devices and equipment, medicines, and food, will be a “Make or Break Test for U.S. Diplomacy.”  The temptation has been to reshore all such production, but frankly, that is too costly and just plain impossible in the intertwined world in which we live. Every country that exports also imports and vice versa (goods and/or services), so good luck shutting that off!   The solution rather is to diversify the supply chain relying on data and transparency. Also, tariffs for critical products should be temporarily suspended and permanently eliminated in the future by international agreement, and the clearance process expedited. Well-thought out and flexible supply chains make all the difference, and the U.S. government is no exception.

The Canada Border Services Agency (“CBSA”) has published a written statement on its website that when the CBSA conducts an examination of electronic devices (e.g., laptops, smart phones, USB keys, etc.) at the Canadian border, CBSA officers must not search electronic documents marked as “solicitor-client”.  The CBSA has published a webpage entitled “Examining digital devices at the Canadian border” in which it clearly states the following:

Solicitor-client privileged information

The CBSA is committed to respecting privacy rights while protecting the safety and security of the Canadian border. If a BSO encounters content marked as solicitor-client privilege, the officer must cease inspecting that document. If there are concerns about the legitimacy of solicitor-client privilege, the device can be set aside for a court to make a determination of the contents.”

What this means is that lawyers now are able to refer to a public document when informing a CBSA Officer that they should limit their examination of electronic devices.  It also means that content must be marked as “solicitor-client privilege”.  We recommend that should lawyers travel with an electronic device such as a laptop, that they travel with a clean laptop used only for cross-border travel. On that laptop, there should be a folder clearly named or marked “Solicitor-client privileged documents”.  Only bring what is necessary for the travel.  Put all client related documents in that folder and do not put personal documents in the folder.

When traveling with paper documents, have a folder labelled “solicitor-client privilege”.  It is not very costly to obtain a stamp for file folders and envelopes.

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

 

On April 3, 2020, the Canada Border Services Agency (“CBSA”) published Customs Notice 20-14 “Implementation of the Canada-United States-Mexico Agreement (CUSMA)” in which the CBSA discusses the new Certification of Origin requirements under CUSMA and the new tariff codes.  When CUSMA enters into effect (the implementation date is not yet set), the rules for Canadian importers who import originating goods will change from the rules that must be followed under NAFTA.  All goods that meet the rules of origin in CUSMA will be customs duty-free (with the exception of certain agricultural goods).

Tariff Codes Changes

After implementation of CUSMA, tariff code MUST will no longer be used. CUSMA’s preferential tariff treatments are: the United States Tariff (UST – tariff treatment code 10) and the Mexico Tariff (MXT – tariff treatment code 11). The MUST tariff code will remain in place in the interim, for adjustments pertaining to importations that occurred while NAFTA was in effect.

Certification of Origin Changes

The NAFTA Certificate of Origin will no longer be used when CUSMA enters into force.  However, the requirement that a Certification of Origin be provided prior to the importation remains.

Importers must make sure that CUSMA exporters provide the new Certification of Origin.  A Certification of Origin shall include the following minimum data elements:

1. Importer, Exporter, or Producer – Certification of Origin

Indicate whether the certifier is the exporter, producer or importer in accordance with Article 5.2 of Chapter 5 of the CUSMA.

2. Certifier

Provide the certifier’s name, title, address (including country), telephone number and e-mail address.

3. Exporter

Provide the exporter’s name, address (including country), e-mail address, and telephone number if different from the certifier. This information is not required if the producer is completing the certification of origin and does not know the identity of the exporter. The address of the exporter shall be the place of export of the good in a Party’s territory.

4. Producer

Provide the producer’s name, address (including country), e-mail address, and telephone number, if different from the certifier or exporter or, if there are multiple producers, state “Various” or provide a list of producers. A person that wishes for this information to remain confidential may state “Available upon request by the importing authorities”. The address of the producer shall be the place of production of the good of the Party’s territory.

5. Importer

Provide, if known, the importer’s name, address, e-mail address, and telephone number. The address of the importer shall be in the Party’s territory.

6. Description and Harmonized System (HS) Tariff Classification of the Good

a) Provide a description of the good and the HS tariff classification of the good to the 6-digit level located in the Customs Tariff. The description should be sufficient to relate it to the good covered by the certification;

b) If the certification of origin covers a single shipment of a good, indicate, if known, the invoice number related to the exportation.

7. Origin Criteria

Specify the origin criterion under which the good qualifies, as set out in Article 4.2 (Originating Goods) of Chapter 4 of the CUSMA.

8. Blanket Period

Include the period if the certification covers multiple shipments of identical goods for a specified period of up to 12 months as set out in Article 5.2 (Claims for Preferential Tariff Treatment) of Chapter 5 of the CUSMA.

9. Authorized Signature and Date

The certification must be signed and dated by the certifier and accompanied by the following statement:

“I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.”

Importers should prepare themselves for the new Certification of Origin requirements and take the necessary steps to update their systems to obtain the new Certifications of Origin.  Exporters must also update their systems to be able to provide the new Canadian Certification of Origin.  Exporters who ship large volumes of originating goods to Canada (e.g., via electronic commerce platforms) may have to update their computer programs to be able to issue the Certifications with the invoice number included on the Certification of Origin.

Advance Rulings need to be Updated

Importers who have an advance ruling might not be able to rely on the advance ruling after the implementation of CUSMA.  There is a separate post on this subject entitled “When CUSMA enters into effect, NAFTA advance rulings are no longer valid”.

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

On April 3, 2020, the Canada Border Services Agency (“CBSA”) published Customs Notice 20-14 “Implementation of the Canada-United States-Mexico Agreement (CUSMA)” in which the CBSA makes it clear that NAFTA origin advance rulings will no longer be valid when CUSMA enters into effect.

Importers who have an advance ruling might not be able to rely on the advance ruling after the implementation of CUSMA.  The CBSA is requiring advance rulings for NAFTA related issues to be updated.  The CBSA wants to review the facts in the context of CUSMA.  In Customs Notice 20-14, the CBSA writes:

“Advance rulings for origin issued under NAFTA, will only remain valid for goods imported under NAFTA’s preferential tariff treatment. Therefore, an applicant wishing to have an advance ruling for origin under CUSMA, will need to submit a new application to the Canada Border Services Agency. For more information, please consult Memorandum D11-4-16, Advance Rulings for Origin under Free Trade Agreements.”

What this means is that if the CBSA disagrees with a past NAFTA advance ruling during a CUSMA origin verification, the CBSA may issue a retroactive assessment and take the position that the NAFTA advance ruling is no longer valid.  The CBSA might refer to Customs Notice 20-14 and take the position that Canadian importers were notified that they should have applied for a new CUSMA advance ruling.

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

We do not usually post blog posts asking the Government of Canada to change the law.  However, we are doing just that today.  Personal Protective Equipment (known as “PPE”) is taxable in Canada. Face masks, surgical masks,  plastic face shields, protective eyewear used in hospitals, protective gowns and garments used in hospitals, surgical and disposable gloves, rubbing alcohol, disinfectant wipes, hand sanitizer, etc. are all subject to Canada’s federally imposed sales tax (goods and services tax (“GST”) and harmonized sales tax (“HST”)).  This means that if PPE is purchased by a hospital, a health care provider, a police department, a nursing home or retirement home operator, a grocery store, etc. in Nova Scotia, New Brunswick, Prince Edwards Island or Newfoundland/Labrador, 15% GST/HST tax will be imposed.  If PPE is purchased in Ontario, 13% GST/HST will be imposed.  In Quebec, GST and Quebec Sales Tax (“QST”) will be imposed.  Please refer to Canadas Sales Tax Rates (as at May 1, 2019) for information about sales tax rates.

PPE should be zero-rated.  “Zero-rated” means that GST/HST would be charged at a rate of 0%.  This is better than PPE being exempt because if PPE is made to be exempt, Canadian manufacturers of PPE would not be entitled to claim input tax credits (the mechanism to  recover GST/HST paid on purchases and imports) with respect to the materials and other inputs used to make the PPE.  If Canada wants to have a thriving PPE manufacturing sector (which we do to protect our supply chains in future health crises), Canadian-based PPE manufacturers should not have to allocate their input tax credits for rent, factory overhead (e.g., energy) and office overhead (all general selling and administrative costs).  Administratively, there is a lot of work undertaken by those in the exempt sectors.  If PPE is zero-rated, the Canadian manufactures would be able to sell PPE to the front lines and consumers at a lower manufacturing and materials costs.

As a general rule, all property (including goods) and services supplied in Canada are subject to GST.  If the property or service is supplied in an HST province (Ontario, Quebec, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland/Labrador), the property or service is also subject to HST at the appropriate rate.  Only property and services specifically listed in Schedule VI to the Excise Tax Act (the Zero-rated Schedule) are zero-rated. Part II of Schedule VI to the Excise Tax Act relates to medical devices and is the most appropriate schedule to review.  We know by quickly reviewing Part II of Schedule VI to the Excise Tax Act that PPE is not currently listed. As a result, since there are no specific listings for PPE, it is taxable (unless they are exempt).

It is important to note that ventilators and respiratory assistive devices are listed. Eyeglasses and eyewear prescribed by a medical practitioner to a patient are zero-rated, but not eyewear and goggles to protect doctors, nursed and health care providers.  Blood sugar testing kits are zero-rated, but COVID-19 testing kits are not zero-rated.  Hand sanitizer, disinfectant and disinfectant wipes are not considered to be a medical device and are not basic groceries.  Part I of Schedule VI to the Excise Tax Act relates to prescription drugs and biologicals and PPE does not fit in this group.

Exemptions (GST and HST is not charged on these items, but the providers cannot claim input tax credits) are set out in Schedule V to the Excise Tax Act. The relevant part of Schedule V to the Excise Tax Act is Part II, which relates to health care services.  A careful review of the exemptions in Part II of Schedule V to the Excise Tax Act shows that PPE is not included in the Schedule.  Also, a careful review raises issues as to whether COVID-19 testing that is not performed by a medical practitioner would be exempt.  For example, unless the Government of Canada makes changes to Part II of Schedule V to the Excise Tax Act, COVID-19 testing performed by persons who are not medical practitioners (this term is defined to only include doctors and dentists licensed to practice medicine in a province) will be taxable unless covered by a provincial health care plan.  There are many healthcare type services that are being rendered during the COVID-19 crisis that are not covered by Part II of Schedule V of the Excise Tax Act.  Many services provided to retirement homes and shelters (to protect vulnerable persons during the COVID-19 pandemic) also are not covered in this Schedule.  This means that in the future there many be a number of significant Canada Revenue Agency auditors raising large assessments if GST/HST is not charged, collected and remitted.  As a general rule, you must clearly fit within an exemption to be entitled to use it.  We will write another blog article of this subject.

This is the appropriate time for the Department of Finance to amend the Excise Tax Act to zero-rate all forms of PPE.  PPE and many other goods used in hospitals and the health care sector should never have been subject to GST/HST. Major changes are necessary to Part II of Schedule V to the Excise Tax Act to expand what is considered to be an exempt health care service. Times have changed and who can provide exempt health care must change fundamentally.  These changes need to be made without years of delay drafting the language of the exemptions and zero-rating provisions.

For more information about the GST/HST status of PPE or other goods, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. Please go to the LexSage website to review other articles about GST/HST.

 

 

The Government of Canada has determined that the trusted traveler programs are not essential and have closed NEXUS Processing Centres for an undetermined period of time.  This means that if a Canada Border Services Agency (“CBSA”) officer mistakenly confiscates a NEXUS Card from a traveler and sends it to a NEXUS Processing Centre, the traveler cannot get it back until such time as the NEXUS Processing Centres re-open.  The confiscated NEXUS Card cannot be processed by the CBSA officers at the NEXUS Processing Centre and will still appear as active in the CBSA’s records and in the Trusted Traveler Program portal.

Travelers who have had their NEXUS Cards confiscated by the CBSA (or the United States Customs and Border Protection) should no longer use the NEXUS lane at land border crossings or at airports as they will not be in a position to show or use their NEXUS Cards using the electronic readers and kiosks.  If a person who does not have their NEXUS Card with them uses a NEXUS lane, they would likely be considered to be breaching the rules of the NEXUS Program giving the CBSA another basis to not reinstate their NEXUS Card.

If a person would like to appeal the NEXUS Card confiscation, they may still file an appeal.  However, they will receive a letter from the CBSA Recourse Directorate stating that the NEXUS Card remains active in the system and they should wait to receive a letter from the NEXUS Processing Centre when it reopens.  We recommend filing the NEXUS Card appeal anyway so that the appeal can be refiled quickly when the CBSA cancellation letter arrives. Please note that if the CBSA also took an enforcement action (e.g., you received a Seizure Receipt), you must file the request for a review under the Customs Act within 90 days – this appeal is not affected by the NEXUS Processing Centres closures.  If the CBSA seized your currency under the Proceeds of Crime (Money Laundering) and Terrorist FInancing Act, you must file the request for review and return of the funds within 90 days – this appeal is not affected by the NEXUS Processing Centres closures.  Many other types of appeals for border enforcement actions are not affected by the NEXUS Processing Centres closures.

If your NEXUS Card has been taken by the CBSA, keep all paperwork provided by the CBSA Officer confiscating the NEXUS Card and keep it in an envelop in a place you will remember.  If you have a bulletin/cork board in your home office, pin in to the board.  Keep all receipts relating to goods at issue in that envelope.  If the CBSA is alleging that an item purchased in Canada was not reported as a purchase in your trip, find that receipt or paperwork to prove the CBSA is incorrect in their assumption and put it in the envelope with the other documents to support the appeal.

The other consequence of the closure of the NEXUS Processing Centres is that any travelers renewing their NEXUS memberships will have to wait longer.  There was already a 6-9 month delay in processing NEXUS application and renewals prior to COVID-19.  NEXUS members and approved persons already had to wait months to get their appointment at a NEXUS Processing Centre.  The delays will get worse after the NEXUS Processing Centres re-open.  That being said, if your NEXUS Card must be renewed in 2020, please remember to file your renewal via the Trusted Traveler Program portal.  If you do not file the renewal because you are not traveling, you will end up at the back of a very long line.  A number of people who filed renewals in 2019 and Q1 2020 will be in the line ahead of you and some will have to reschedule NEXUS appointments that were cancelled.

If you require more assistance or information about filing a NEXUS appeal or what you should safe-keep for your NEXUS appeal, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  We have a number of articles about NEXUS appeals on the LexSage website.