Originally published by the Journal of Commerce in February 2021

As we move into the new year and things start to settle into more of a routine, one issue that simply will not go away is port congestion. There are lots of reasons for the current mess. Just as it took a long time for things to get this bad, there are no quick fixes.

When the topic of port congestion comes up, everyone has an opinion. Here are the most popular causes cited – truckers, steamship lines, terminals, labor and, of course, port management. Each bears some of the blame, but let’s first provide some perspective, and then talk about actions which can be taken now.

Let’s start with the steamship lines, terminals and port management, as a group. Los Angeles, Long Beach and Oakland are unique in that they are owned by local governments. However, the problem is obviously not limited to those ports. When one looks at the situation more broadly, here are some of the more critical factors this group controls:

  • Until maybe 5 to 10 years ago, each vessel was operated by a single steamship line, holds were stowed so that shipments being discharged at a given arrival port were stowed together in a designated set of holds, and most of the organization of the cargo was overseen at the loading ports. In other words, there was an effort made to make unloading as smooth as possible for one simple reason – time always costs money!
  • Now, vessels are operated by consortia and the process has become members are designated which holds to stuff rather than stuffing by location. As a result, there appears to be very little real attempt to organize the cargo based on unloading ports. Carrier 1 in the consortia gets holds 1 through 5, Carrier 2 gets 6 through 10, and so on. As such, you can quickly see the mess that lack of discharge port organization can cause. And part of that mess is containers having to be taken off at one port to unload cargo destined for that port, only to have the same containers be put back on the vessel so they get to their actual port of discharge.
  • Then, the U.S. is one of the few countries where there is no widespread use of grey boxes, meaning containers which are used by multiple carriers. As such, there is no uniform pool of empties from which to pull for exports and a very erratic pooling for the return of empties after the imported cargo is unloaded.
  • Add to that the mass of containers that were in the U.S. when the pandemic hit and were not rerouted in the most efficient manner once it was possible to again move them. The rush to get them back to Asia has led to empty containers being shipped because that is more economically beneficial than allowing them to be stuffed with U.S. export cargo!
  • Add to that the consortia themselves. These are groups of steamship lines which enjoy anti-trust immunity and so operate as cartels. They are all headquartered outside the U.S. So, decisions are made in Copenhagen, Hong Kong, Singapore and other company headquarters for global reasons, not based on what is good for U.S. companies.
  • On the export side, it is now quite common for a company located a state or two away from a coast, to not be able to bring an empty container to their location to stuff and export. Assuming an empty can be found, the cargo must be trucked to where the container is instead of where the cargo can be found! On the import side, it is equally common for containers to come off vessels, be positioned within a large mass of other containers which are situated in such a way that individual containers cannot be accessed until many other containers around them are delivered. As a result, goods end up stuck until long past when they are permitted to stay on the dock free of charge. The carriers or terminals are assessing the storage charges anyway! Why? Because they make money at it! One carrier was recently heard to say these demurrage and detention charges made up about 20% of their gross revenue in 2020. The government jurisdictions which own the ports are in a similar position. Because many other forms of revenue are way down, they need/want these storage charges as income to spend to support other programs. The situation is so bad right now that recent news out of Asia indicates space for a container on a vessel was auctioned and the winning bid was $16,000!
  • Making matters more complicated is the divide between the haves and the have-nots is widening. There are any number of large shippers who are negotiating with individual carriers to get more free time on imports and get containers to inland locations, which they can do because of their buying clout. Similarly, these same larger shippers have service contracts with these carriers and can be expected to negotiate more concessions when the next contract negotiations take place. The smaller shippers have no recourse!

While not an exhaustive list, these factors by themselves are causing significant disruption, but there is more. What about labor and trucking? Turning first to labor, let’s just say there is plenty of evidence that labor could move containers more efficiently but does not. It is also worth talking about the average age of longshore workers. In 1995, the New York Times published an article about the greying of this workforce, and found the average age to be 55. It is most often thought of now as at least 60 years old. The point is this workforce is aging, has fought automation tooth and nail, and now may lose the fight due to mere maturity!

When it comes to the truckers, they are stuck between the proverbial rock and a hard place! Whereas long awaited appointment systems were finally implemented. Most of them are dysfunctional, to be polite. The stories are no longer myth, they have simply been heard too consistently – the trucker gets their appointment and shows up on time, only to take their place in a very long line (typically well over 1 or 2 miles) and sit for many hours waiting for access to the terminal. Once finally in, all too often, the driver gets turned away because the terminal cannot dig out the container and release it for delivery to the driver. Of course, that assumes there is a chassis available for that container. No wonder we are seeing drivers leave the trucking industry in droves.  They are really more a victim than a cause, but this lack of drivers is a huge contributing cause to the ongoing chaos.

So, now that some of the major causes have been outlined, what are possible solutions?  Some would say, the anti-trust immunity enjoyed by steamship lines/carriers should be repealed. Importers and exporters cannot wait for that relief, assuming it was even possible given the current fractured times. So, what can be accomplished?

Well, last November, the Federal Maritime Commission expanded its Fact Finding Investigation 29, having to do with the “International Ocean Transportation Supply Chain Engagement.”  As the FMC said in its press release: “[t]he expanded Commission investigation will seek to determine if the policies and practices of those shipping companies related to detention and demurrage, container return, and container availability for U.S. export cargoes violate 46 U.S.C. 41102(c).” The investigation is focused on Los Angeles, Long Beach, and New York/New Jersey. More details can be found here: https://www.fmc.gov/fact-finding-29/.  You may also want to engage the local FMC representative in your area. You can find their contact details here: https://www.fmc.gov/about-the-fmc/bureaus-offices/area-representatives/.

If you are shipping through the listed ports, here are some suggestions. First, the trade community banded together and made recommendations to Los Angeles and Long Beach, which have so far been ignored:

  • At least 48-hours of advanced notification of empty receiving locations by the ocean carriers published and displayed in a centralized location that will be easy for the truckers and shippers/importers to find.
  • Establish a minimum threshold for dual-transactions of at least 50% at each marine terminal and facilitate a strategy to incentivize this benchmark.
  • Work towards strategies and best practices that reduce costs to shippers, increase gate productivity, and reduce the carbon footprint of the maritime community through operational efficiencies and not onerous and expensive mandates.

Then, when (not if) you run into challenges with a given shipment, remember the standard the FMC will need to follow is the party is being “unreasonable.”  Frame your complaint so you address the specifics. Are there no containers? No chassis? Are you getting charged storage when the container is not available? Which carrier or terminal is engaging in this practice? What happened and when? What did it cost you? The more clear details you can provide, the better. Send your complaint to the highest person you can identify at the carrier or terminal and then also copy the FMC. The more of these situations they see, the more clear it is to the FMC this is a significant problem. The FMC email addresses are Director, FMC Bureau of Enforcement BTrogdon@fmc.gov, with a copy to rdye@fmc.gov.  Commissioner Dye is the designated Fact Finding Officer.

To this point, the trade community is discussing a means whereby parties who do not want to be identified will be able to submit information anonymously, but that option does not exist right now.

The other step that can be taken is to educate your Member of Congress and Senator. There is a PORTS Caucus in the House (Ports, Opportunity, Renewal, Trade, and Security (PORTS) Caucus). Whether or not your Member or Senator sits on the committee with jurisdiction over ports and transportation, if cargo cannot move due to port congestion, goods do not get to market, and everyone suffers!

There are on-going discussions within the trade community about creating a short list of talking points for Congressional visits, but that is still early in the process. So, call up your Member and Senator’s office, arrange a visit and tell them your story. What is this port congestion costing you? How does it impact your business? Economic development? Jobs? There are a number of trade associations involved with this effort. More would be welcome. Regardless of your political persuasion, this is one time when no one can afford to sit on their hands!

 

We have seen cases where the Canada Border Services Agency (“CBSA”) has taken away a Canadian citizen’s NEXUS card due to non-essential travel by the individual. In particular, where the Canadian citizen traveled by car to the United States for what the CBSA determined to be non-essential reasons, the CBSA officer at the land border crossing confiscated the person’s NEXUS card and the NEXUS membership was subsequently cancelled.  In both cases that we have recently seen, the Canadian citizen lived in Canada and worked in the United States.

The Government of Canada has imposed restrictions on foreigners traveling to Canada for non-essential reasons (e.g., shopping, vacationing, visiting family or a cottage), but has not passed any regulation prohibiting Canadians from traveling.  That being said, all levels of government in Canada (federal, provincial and municipal) have recommended that Canadians avoid foreign travel unless it is necessary. In other words, it in not illegal to travel during COVID-19 lock downs, it is merely not recommended.  Canadians returning to Canada after foreign travel (including the United States) must quarantine for 14 days.

Based on the current wording of the Presentation of Persons (2003) Regulations, the CBSA has no basis to revoke a NEXUS membership for reasons of non-essential travel.  The CBSA, acting as a delegate for the Minister of Public Safety and Emergency Preparedness, has authority under subsection 22(1) of of the Presentation of Persons (2003) Regulations to cancel or suspend a person’s NEXUS membership for the following limited reasons:

If the person

(a) no longer meets the requirements for the issuance of the authorization;

(b) has contravened the Act, the Customs Tariff, the Export and Import Permits Act or the Special Import Measures Act, or any regulations made under any of those Acts; or

(c) has provided information that was not true, accurate or complete for the purposes of obtaining an authorization.

Since there is no law prohibiting travel, the CBSA must be taking the position that the person no longer meets the requirements for issuing a NEXUS membership. Subsection 6.1(1) of the Presentation of Persons (2003) Regulations sets out the NEXUS eligibility requirements.  Paragraph 6.1(1)(a) and 5(1)(b) requires that the person be “of good character”, which is not a defined term.  What this means is that the CBSA must be taking the position that a Canadian who travels for non-essential purposes is not “of good character”.

We do not agree with the CBSA if this is their position.  Canadians and residents of Canada (and other persons who are otherwise eligible for NEXUS) may file an appeal of a NEXUS confiscation by the CBSA if the reason for the confiscation is that they have traveled during COVID-19 restrictions. Pursuant to section 23 of the Presentation of Persons (2003) Regulations, a person may request a review of a NEXUS confiscation/cancellation/suspension.

If you would like to file a NEXUS Request for Review, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. LexSage has posted many articles about NEXUS appeals on its website.

Here is a list of some of the articles:

How do I get my NEXUS Card reinstated when it is cancelled by the CBSA?

Can the CBSA confiscate my NEXUS Card if they smell cannabis in my car?

If you give the CBSA an incorrect value for a new puppy, it will be a costly mistake

What are the Top 10 Reasons for CBSA NEXUS Card Cancellations in 2020?

 

 

 

 

CUSMA/USMCA will come into force on July 1, 2020, at which time increased and more complex Regional Value Content (RVC) requirements for both vehicles and automotive parts will be effective.  The RVC for passenger vehicles and lights trucks will increase to 66% on July 1 and for heavy trucks, it will be 60%.  The chart below summarizes the transition of those requirements to their final RVC of 75% and 70%, respectively.

Class of Vehicle Timing RVC – Net Cost
Passenger Vehicles July 1, 2020 66%
July 1, 2021 69%
July 1, 2022 72%
July 1, 2023 and thereafter 75%
Light Trucks July 1, 2020 66%
July 1, 2021 69%
July 1, 2022 72%
July 1, 2023 and thereafter 75%
Heavy Trucks

 

 

 

July 1, 2020 60%
July 1, 2024 64%
July 1, 2027 and thereafter 70%

Similarly, the regional value content requirements (RVC) for automotive parts will increase, but determining the applicable RVC for a particular part will be more complex.  The RVC for a part will depend not only on its description and tariff classification, but also on how it is used and into which of the parts categories it fits.  To qualify as originating, some parts may require a change in tariff classification requirement, an RVC or both.  Where a part must satisfy an RVC requirement, the following chart generally describes the RVC that will apply following the applicable transition periods, based on the category of part and the type of vehicle into which it will be incorporated.  The transition period for the listed parts categories for use in passenger vehicles and light trucks is 3 years, ending July 1, 2023.  For heavy trucks, the transition period will end on July 1, 2027.  The higher RVC for the listed engines and gear boxes incorporated into Other Vehicles (e.g. ambulances, motor homes, vehicles for the transport of more than 15 persons, etc.) kicks in immediately on July 1, 2020.

Detailed descriptions of the Parts Categories can be found in Tables A.1 – G of the Uniform Regulations . The Uniform Regulations were posted on June 3, 2020 on the USTR website and, as of June 28, remain subject to legal review and authentication.

Most vehicle producers also face new certification requirements in the form of:

  1. Minimum Steel purchase requirements where 70% of corporate purchases must be originating;
  2. Minimum Aluminum purchase requirements where 70% of corporate purchases must be originating; and
  3. Minimum Labour Value Content requirements where a certain minimum percentage of the vehicle must be produced using high-wage labour.

The detailed requirements of these three requirements remain somewhat unclear, but it is possible, if not likely, that vehicle producers will look to their auto parts suppliers for information that will support the vehicle producer’s certifications of compliance.  While the U.S. Government, as part of its Updated Interim Implementing Instructions (June 16, 2020), has issued non-binding guidance on their intended application of certain of these requirements, further guidance has not yet been provided by the Canadian Government.

We will continue to monitor for updates.  Please do not hesitate to contact me if you would like further information, training, or other support to implement the new CUSMA/USMCA requirements.  I can be reached at (416) 350-1234 or at heather@lexsage.com.

The Canada-United States-Mexico Agreement (CUSMA or USMCA) will introduce new and complex requirements for the automotive industry.  Not only will vehicle producers face increased Regional Value Content requirements starting July 1, 2020, but they will be required to meet the following requirements:

  1. minimum purchase requirements for North American steel and aluminum;
  2. labour value content requirements that at lease a certain portion of each vehicle be produced using high-wage labour (US $16/C $20.88 average wage rate); and
  3. certain parts (Super Core Parts) incorporated into a vehicle must be originating.

Both the CUSMA/USMCA Uniform Regulations posted on June 3, 2020 and the non-binding guidance issued by the U.S. Customs Authority (CBP)  in the form of Interim Implementing Instructions have started to provide some clarification regarding how the new requirements will work, at least from the U.S. perspective.  However, the Uniform Regulations are not yet final.  The posted version includes the following statement: “Subject to Legal Review in English, Spanish and French for Accuracy, Clarity and Consistency Subject to Authentication of English, Spanish and French Versions”.  We anticipate that the final Uniform Regulations will be published on or before July 1.

While Canada has provided helpful clarification on the new CUSMA certification of origin and certain other import requirements, there does not appear to be much information on their CUSMA Webpage regarding implementation of the new automotive rules.  There remain questions about what is required under the new automotive rules, including what will be required from automotive parts makers to support a vehicle producer’s Labour Value Content certification.

The updated version of the U.S. issued Interim Implementing Instructions provides the following direction:

  1. U.S. Customs & Border Protection (CBP) understands that the trade may need time to adjust business practices to comply with the new requirements under the USMCA (CUSMA), particularly relating to the preferential tariff treatment of goods. The instructions go on to state that during the first six months after entry into force, CBP will focus on supporting the trade’s efforts to fully comply with the USMCA requirements, including providing webinars and other outreach efforts to educate the trade;
  2. Importantly, it states that Importers are required to exercise reasonable care when making a claim under USMCA (CUSMA), including ensuring that they are in possession of a complete and valid certification of origin at the time of making a claim and meeting all recordkeeping obligations;
  3. However, the instructions go on to provide that In order to provide the trade sufficient time to adjust to the new requirements and in consideration of the business process changes necessary to achieve full compliance, CBP may in appropriate cases show restraint in enforcement during the six-month period after USMCA’s entry-into-force.  Note that it does not say that the RVC and certification of origin requirements will be delayed;
  4. In connection with a vehicle producer’s requirement to meet minimum Labour Value Content requirements it states that vehicle producers will be required to submit details about their auto parts suppliers (including the average hourly wage rate), if they rely on that supplier to meet the Labour Value Content requirement.  The auto parts industry, wanting to support their vehicle producing customers, may find this requirement quite challenging; and
  5. Automotive producers, exporters, and importers will be allowed until December 31, 2020 to obtain and submit necessary certification and documentation to support their Labour Value Content certification, steel certification, and aluminum certification for passenger vehicles, light trucks, and heavy trucks.

We expect to see final Uniform Regulations and a further updated CBP Interim Implementing Instructions before July 1 and with just over a week before CUSMA/USMCA comes into effect, we will continue to watch for developments and clarifications.

Please do not hesitate to contact Heather Innes (416) 350-1234 if you have questions or would like assistance managing any of these requirements.

The Canada-United States-Mexico Agreement (CUSMA), also referred to as the United States-Canada-Mexico Agreement (USMCA), comes into effect on July 1, 2020.  Are you ready?

The full CUSMA Agreement was signed in November of 2018, and later amended in December 2019.  In April of this year each of the three parties notified that they had completed their respective ratification processes.  This meant that the agreement could be implemented on July 1.

The CUSMA Uniform Regulations containing important clarifying details, were posted by the United States on June 3 with the qualifier that they remain subject to legal review and authentication by each of the three countries. The U.S. Customs and Border Protection posted non-binding guidance in the form of Interim Implementing Instructions that were updated on    June 16 (“CBP Implementing Instructions”). The CBP Implementing Instructions provide insight as to how the U.S. intends to implement many of the CUSMA requirements.  There were some surprising interpretations regarding the Labour Content Value requirement for the auto industry.  Similar guidance from the Canadian government, particularly on some of the more complex automotive rules has not been published.

All said, we are faced with little time to implement some complex, and in some instances, unclear, requirements to ensure that goods continue to enjoy preferential duty treatment when exported/imported across North America.

CUSMA introduces many changes to the rules for securing preferential duty treatment when your parts, material inputs and finished products cross a North American border. CUSMA is NOT NAFTA and having a NAFTA process and NAFTA certificates of origin will not be enough to secure and support duty free treatment for goods that are imported/exported in North America.  If your products or production inputs don’t meet the CUSMA origin requirements, or if you don’t secure or are not able to provide the required CUSMA certification of origin, your products may be subjected to duties.

For many industries, the rules of origin and the methods of qualifying are similar to those under NAFTA.  However, for others, such as the automotive and textile industries, the rules have changed and compliance with the new rules will require a detailed reassessment of the goods that you export to customers in the United States and/or Mexico.

For all industries, the certification process has changed, and CUSMA certifications of origin will be required to support your claim for CUSMA preferential tariff treatment.  As of July 1, 2020, NAFTA certificates of origin will no longer qualify.  Nor will NAFTA advanced rulings remain valid for imports/exports made on or after July 1.

With little time to prepare for CUSMA, many organizations are left scrambling.  With the July 1 entry date fast approaching, here are some suggestions:

  1. Assign and train designated individuals, including a CUSMA Lead within your organization to organize, complete and be accountable for product assessments and CUSMA certifications of origin;
  2. Complete an inventory and detailed CUSMA assessment of your current and future product programs. To effectively conduct your assessment you need to: (i) start with the correct HS tariff codes; (ii) collect complete CUSMA based information from your own suppliers to support your review; (iii) ensure that you are working with the appropriate CUSMA product rule; and (iv) ensure that your calculations comply with detailed CUSMA rules;
  3. Address shortfalls where your products don’t meet the CUSMA origin requirements. If your customers demand CUSMA originating goods and your goods don’t qualify, you risk losing critical business.  If your products don’t meet the requirements, establish a process that includes coordination with your Legal and Customs teams to identify options to attain qualifying status;
  4. Complete your CUSMA certifications of origin. These are not NAFTA certificates of origin and while CUSMA does not require a specific format, it does require the inclusion of certain information;
  5. Ensure that your document systems and retention processes meet the CUSMA documentary support and retention requirements; and
  6. When in doubt, seek an Advanced Ruling: The CUSMA rules are complex and, in some instances, unclear.  If your organization is not certain that your good meets the CUSMA origin qualifying requirements, work with your Legal team to seek an Advanced Ruling.

We continue to monitor the implementation of CUSMA and expect further clarification from both the Canadian and U.S. governments.

Should you wish further information or assistance for your organization, please don’t hesitate to reach out to Heather Innes at (416) 350-1234 or heather@lexsage.com.

On May 20, 2020, Prince Edward Island’s Premier, Dennis King, announced that the province will begin the approval process for seasonal residents starting on June 1, 2020. In order to be approved, seasonal residents must show that they are the owners of the residence in P.E.I., and must also guarantee that they will self-isolate for 14 days.

Members of the NEXUS program must be very cautious when entering P.E.I. as seasonal residents. The CBSA requires that all seasonal residents prepare a list of goods that will remain in Canada. In the past, members of the NEXUS program have had their NEXUS cards revoked because they did not have a complete list of personal effects prepared, and had to go through the appeals process to be reinstated in the NEXUS program.

What do I have to include on my list?

The CBSA explains in Memorandum D2-2-3 that seasonal residents must prepare a detailed list in duplicate of all personal effects that are to be imported, meaning all the personal goods and household goods that will remain in Canada.

The CBSA requires that the list include the make, model, serial numbers (where possible) and approximate value of each item. General household items can be listed in a group with the overall value (e.g., kitchen utensils –$XXX). Seasonal residents can also use the BSF186 form, which can be downloaded here. The CBSA defines “household effects” as furniture and goods that are found in a home, and tools and equipment that are used in the maintenance of a home.

Do construction materials and electrical fixtures count as household effects?

The CBSA does not include construction material, electrical fixtures, or any other goods that are permanently attached or incorporated into a home to be “household effects”. These goods must be declared at the border to the CBSA Officer.

How can I declare goods that are going to be delivered, or brought into Canada later on by my family members?

If some goods are scheduled to be delivered or brought in at a later date, a second list with all “goods to follow” must also be provided to the CBSA. The list of “goods to follow” must be provided when seasonal residents first arrive, despite the fact that the goods are going to be imported at a later date.

What happens if I did not complete my list?

If a seasonal resident has not completed a list, the CBSA may ask that a list be prepared prior to entering Canada. However, NEXUS members should be extremely careful and should always prepare a list prior to arriving at the border in order to avoid jeopardizing their NEXUS status.

For more information, please contact LexSage Professional Corporation at 416-307-4168 or at cyndee@lexsage.com.

On March 26, 2020, the Canada Border Services Agency (“CBSA”) notified certain importers under verification that the CBSA was temporarily suspending trade compliance activities due to COVID-19 – see The CBSA Temporarily Suspends Trade Compliance Activities due to COVID-19.

On May 19, 2020, importers received an update from the CBSA informing external stakeholders that the suspension has been extended until further notice.  A CBSA Verification Officer wrote the following in an email:

“The details of this suspension, both in terms of scope and duration is currently being reviewed by NHQ.  For now, we will continue to hold off on trade compliance interactions with stakeholders. The CBSA is reviewing this approach and will have more information in the coming days. For greater clarity, the CBSA is continuing to process drawback claims, applications for the Duties Relief Program, and B2 requests for adjustments, and these are unaffected by this temporary suspension. If your company wishes to continue the verification process, please email me. ”

What this means is that all trade compliance verification (audit) activities with respect to Canadian customs laws (e.g., origin, tariff classification, valuation, etc.) continue to be suspended and no end date to the suspension is being provided.The CBSA Verification Officers are not being called back to work at this time.

However, this is just a delay in trade compliance verification activities – during the COVID-19 crisis, new trade compliance verification activities will not commence and importers under verification will not be contacted by CBSA compliance officers to provide information to the CBSA. Importers who were under trade compliance verification at the time of the temporary suspension started should take the opportunity to continue to gather information requested by the CBSA and should continue to research any issues that may be under verification.

That being said, even though trade compliance verification activities are suspended, importers still must comply with Canada’s import and customs laws. Trade compliance activities actions will start again. Any tariff classification, origin, valuation or other errors made during the COVID-19 temporary shutdown period may be the subject of a future trade compliance verification and enforcement action.

If you have further questions, please do not hesitate to contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

Canada has indicated that the Canada-U.S. border will remain closed to non-essential travel until June 21, 2020.  “Non-essential” travel includes travel that is considered as tourism or recreational in nature.

The restrictions may be extended again.  On March 21, the restrictions on essential travel across the border were implemented for a 30-day period in an effort to stem the transmission of COVID-19.  The 30-day period was thereafter extended to May 21, 2020. The restriction may be extended again.

That being said, the Canada-U.S. border has remained open to trade in goods and services. The partial closure of the border does not affect essential travel, including truck and rail traffic carrying food, fuel, essential medicines, personal protective equipment, and other goods essential to supply chains.

Individuals who must travel for essential work (e.g., nurses) and for urgent reasons continue to be able to cross the border.  Several categories of people are permitted to travel because they provide critical services, if they have no symptoms. These include people who:

  • are making necessary medical deliveries required for patient care, such as:
    • cells;
    • organs;
    • tissues;
    • blood and blood products; and
    • other similar lifesaving human body parts,
  • work in the trade and transportation sector who are important for the movement of goods and people, including:
    • truck drivers; and
    • crew on any plane, train or marine vessel,
  • cross the border regularly to go to work, including in the health care sector or critical infrastructure workers; or,
  • have to cross the border to provide or receive essential services, including emergency responders and personnel providing essential services to Canadians related to the COVID-19 outbreak.

Flights between Canada and the United States still continue, however there are fewer flights per day.

For more information about Canada’s import restrictions, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  There is more information posted on the LexSage website.

The Canadian Minister of National Revenue (“Minister”) may, under subsection 231.2(3) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) and subsection 289(3) of the Excise Tax Act, R.S.C. 1985, c. E-15, seek information from third parties in order to look for tax cheats. The request by the Minister is known as an “Unnamed Persons Requirement” or “UPR”.  An UPR is filed by the Minister (the Attorney General of Canada on behalf of the Minister) with the Federal Court of Canada to seek an order for a person (a third party) to disclose specified information relating to an unnamed person or unnamed persons.

The Federal Court of Appeal unanimously upheld an UPR in Roofmart Ontario Inc. v. Minister of National Revenue, 2020 FCA 85.  In this case, the Minister filed an application with the Federal Court of Canada for an UPR and included a supporting affidavit from the CRA official responsible for addressing the issue. The application was brought against Roofmart Ontario Inc. (“Roofmart”) and targeted the following unnamed persons:

  • Roofmart customers whose total annual purchase and/or billed amount was $20,000 or greater (for the period from January 1, 2015 to December 31, 2017); and,
  • Roofmart customers whose total annual purchase and/or billed amount was $10,000 or greater (for the period from January 1, 2018 to June 30, 2018).

The Minister sought the following information related to the group of persons described above:

a) The customers’ legal name, business or operating name, contact person, business address, postal code, and all telephone numbers on file;

b) The customers’ business number, if known;

c) The customers’ itemized transaction details including invoice date, invoice number, total sale amount, method of payment, and address of delivery; and,

d) All bank account information for the customers (including transit, institution, and account numbers) from credit applications and/or otherwise maintained by Roofmart in its records.

It is important to note that Roofmart itself was not under tax audit at the time the Minister made the application. There was no suggestion that Roofmart had done anything wrong.  Roofmart opposed the application for an UPR to protect the privacy of its customers.

According to the legislative provisions, the Federal Court of Appeal may grant the UPR if the court is satisfied by information on oath that:

(a) the person or group is ascertainable; and,

(b) the requirement is made to verify compliance by the person or persons in the group with any duty or obligation under this Act.

The Federal Court of Canada held that the statutory preconditions were satisfied in this case. The judge concluded that the persons targeted by the application were ascertainable. In his view, the total annual purchase requirement was sufficient to establish the target group of residential and commercial contractors and their identities. The judge was also satisfied, on the evidence, that the Minister sought the information to verify the unnamed persons’ compliance with the Income Tax Act.  Since the Excise Tax Act provision is similar to the Income Tax Act provision, the same result could have occurred if the Minister had sought the UPR under the Excise Tax Act.

The Federal Court of Appeal upheld the Federal Court of Canada decision and rejected almost all of the arguments made by the appellant.  The Federal Court of Appeal remarked that there are only two statutory preconditions to the issuance of an UPR.  In this case, the two preconditions were satisfied.  There used to be other preconditions, but Parliament amended the legislation and removed other preconditions thereby giving more powers to  the CRA.  In 1996, Parliament repealed paragraphs 231.2(3)(c) and (d) of the Income Tax Act, doing away with two preconditions: that there be reasonable grounds to believe the subject of an UPR had not complied with the Act; and that the information or documents requested were not otherwise more readily available.

As a result, of this decision, it is clear that the Minister can ask the Federal Court of Canada to issue an UPR against a third party (such as Roofmart) and require that party to undertake a review of their records and provide information about their customers (contractors who meet the identified criteria).  The information can be used to identify tax cheats and commence audits.  Companies have few arguments that the court will accept to stop the issuance of the UPR.

If you have received a notice of an application for an UPR, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

It is unclear whether the import prohibition set out in the Customs Tariff for Tariff Code Item 9897 prohibits goods made in China’s detention camps.  Tariff Item 9897 prohibits the importation of a number of goods, including “[g]oods manufactured or produced wholly or in part by prison labour”.  Unlike the United States, Canada’s import prohibition does not extend the import prohibition to “goods manufactured by forced labour”.

Under Canadian law, any goods can be imported unless there is an explicit prohibition in a law or regulation. All of the prohibitions in Tariff Item 9897 are unilaterally selected and listed by Canada, and do not require approval by the United Nations or any international organization. Since Canada does not specifically exclude goods manufactured by forced labour, there is a real question as to whether the prohibition would apply to goods manufactured by Uyghurs in detention camps.  This is why I want to raise the issue.

D-Memorandum D9-1-6 “Goods Manufactured or Produced Wholly or in Part by Prison Labour”, which is the CBSA’s administrative guidance on this matter, is silent about goods produced in Uyghur detention camps.  As a result, the CBSA officers on the front line are not being told to detain goods manufactured by forced labour and contrary to human rights.

Canada can amend the Customs Tariff to ensure any prohibition is clear as to what goods are prohibited.  Canada can also add clarity to D-Memorandum D9-1-6, which has not been amended since 2012.  I hope that Canada takes this important step.

As reported by China Law Blog, on May 1, 2020, United States CBP issued a withhold release order (“WRO”) against hair products manufactured by a Xinjiang company called Hetian Haolin Hair Accessories Co. Ltd.  There are many WROs against goods from China.  Canadian companies should be mindful of the WROs as goods transshipped via the United States can be detained.  More importantly, the WROs, including the May 1, 2020 WRO, provide guidance to Canadian companies who wish to act responsibility and do not wish to support the human rights abuses in the Uyghur detention camps.