To this point, nothing official has been published about changes to the 301 tariffs on Chinese goods, not even a Tweet!  What has circulated is the comments from President Trump on October 11 from the White House that negotiations with the Chinese were going well enough that the rise in tariffs from 25% to 30% to take effect on October 15, 2019 will not happen. There had been expectations that steps would also be taken regarding the List 4B tariffs which take effect on December 15, 2019.  While some general press reports stated the List 4B tariffs were also impacted, the most reliable sources are quoting U.S. Trade Representation Lighthizer as saying if the “Phase 1” deal is consummated in writing, those tariffs could be cancelled.

Originally published by the Journal of Commerce in October 2019

As the deadline to file List 3 exclusions requests for goods from China (the 301 investigation) has now expired, there is the opportunity to take a bit of a deep breath and survey the trade landscape. Doing so serves as a reminder, there is much more than “just” the 301 tariffs to be concerned about. Here is a sampling of relevant topics, in no particular order of importance:

  • More Vigorous Pest Searches: USDA/APHIS and CBP seem to be ratcheting up their inspection of soft wood lumber packing materials, said to be based on risk factors, with the net result that the finding of the presence of pests has increased, even with properly marked wood packing materials. Is the wood not properly treated from the outset? Is the wood being reinfested? Is the challenge the nature of the chemicals with which treatment is permitted? Methyl bromide is not permitted in Europe. Does the infestation come from other cargo in the same hold as your shipment?  The amount of wood and the nature of the commodity in your shipment may make the difference between whether you are permitted to remove the infested wood and clear the goods or are ordered to export the entire shipment.
  • Substantial Transformation Definition Changed? Much was made at the time of the decision in Energizer Battery, Inc. v U.S., 190 F.Supp.3d 1308 (2016). Therein, the Court of International Trade held that because the foreign parts being imported had a pre-determined end use when delivered for assembly in the U.S., the manner in which Energizer assembled its flashlight did not meet the substantial transformation test.  The court was asked to reach its decision in the context of the Buy America provisions for government contracting.  While seen as significant at the time, a reasonable reading of the situation is this case further clarified when assembly is taking place, and typically assembly does not confer origin. Whether any broader application of this decision will occur remains to be seen.
  • CBP Enforcement. There has been a noticeable increase in the number of audits conducted by CBP, along with a serious increase in the number of Requests for Information (CBP Form 28) and Notices of Action (CBP From 29) and the related inquiries regarding classification and value, especially as relates to free trade agreement and similar duty deferral claims.
  • FDA’s Shot Across the Bow re FSVP. Also well publicized earlier this year was the FDA warning letter to Brodt Zenatti Holdings LLC. The basis for the warning was described as the lack of a Foreign Supplier Verification Program. The matter arose due to a finding of Salmonella in Tahini imported by the company. FDA conducted an on-site visit and cited the company for its lack of an FSVP program. Worse yet, FDA issued its Form FDA 483a, the report of inspection findings,  and two months later, the importer had still not responded. That lack of response caused the warning letter to be issued. While FSVP inspections have been occurring since 2017, this was the first warning letter made public, and is that proverbial shot across the bow to remind importers, FSVP programs are mandatory and FDA is not kidding around. Of course, if FDA applied similar standards to U.S. domestic companies, importer would sense a more level playing field, but still seems a pipedream!
  • Cyber Concern Is On the Rise. There were several reminders about the scourge of cyber breaches.
    1. CBP Cyber Breach. CBP found itself with a black eye when an employee of one of its contractors broke protocol and as the result of mishandling confidential data, traveler photos and license place images were taken. The contractor had suffered its own breach which resulted in a data dump on the dark web.
    2. Fitness Devices. There are the ever popular health apps on the market. When was the last time you read the related privacy policy? Is there any security protecting your personal information on that app? The U.S. military is concerned about fitness trackers as they are web connected and so make it that much easier for U.S. enemies to determine where troops are stationed – check out the map and related article at https://www.stripes.com/news/us/wearable-tech-could-be-a-challenge-for-us-military-experts-say-1.509666.
    3. FDA and Medical Devices. The FDA has published several articles on the topic of medical device cybersecurity. In them, FDA consistently makes the point there are quality system regulations which require medical device manufacturers to address all risks, including pre- and post-market guidances. FDA also underscores that device makers are free to update their software at any time, and runs the expected risks using off-the-shelf software.
    4. FDA has focused on software, too. It has identified software as its own medical device and defines that term as “software intended to be used for one or more medical purposes that perform these purposes without being part of a hardware medical device.” Due to the international nature of medical devices, there are on-going discussions about international standards and documentation, see in particular the efforts of the International Medical Device Regulators Forum.
    5. Then, just a few days ago, the FDA issued a news release to “inform” patients and others about potential cybersecurity concerns. In particular, the FDA advised about URGENT/11, a set of cybersecurity vulnerabilities found in IPNet software, which could impact “certain medical devices connected to a communications networks, such as wi-fi [sic] and public or home Internet” as well as routers, connected phones and other critical infrastructure equipment. The identified vulnerabilities could allow “a remote user to take control of a medical device and change its function, cause denial of service or cause information leaks or logical flaws, which may prevent a device” from functioning properly.

Without meaning to make light of these serious issues, it certainly seems only a matter of time before one of these scenarios makes its way into the plot of a movie or television show. No one wants to be the poster child for that story line! Of course, for all of us as international traders, we know the many ways in which the international trading system has already been, or could in the future be, compromised. We had an unpleasant reminder earlier this year with all the general press coverage of the North Korean vessel M/V WISE HONEST.  Among the allegations made in the complaint were that it turned off its AIS or automatic identification system signal (to conceal its route) and was carrying documents which stated the shipment originated in Russia, when, in fact, the cargo was North Korean coal. These actions are not a terribly new set, and, in the end, obviously not successful in concealing DPRK actions!

Originally published by the Journal of Commerce in September 2019

As we continue to be engulfed by the ever changing landscape of the China 301 tariffs, a bit of fresh air – meaning other topics – were actually discussed as a recent trade event. The Foreign Trade Association hosted a program in Los Angeles at which the Port Director spoke. Her comments were followed by a panel discussion at which the speakers were the Special Agent in Charge for Homeland Security Investigations (“HIS”), the Director of the Customs and Border Protection (“CBP”) Electronics Center For Excellence and Expertise, and another trade lawyer. Yours truly had the pleasure of moderating.  What made the situation even more informative was none of the speakers came to make speeches. Rather, the format was a list of pre-set questions.

What came out were some key points for international traders to keep in mind in addition to the 301 tariffs.  First, the di minimis or Section 321 entries are really limited to $800 in value and one per entity per day. This means one must make sure to not look like you are structuring shipments – meaning you cannot divide them up so the individual values are $800 or less so as to avoid formal entry.

Another point that was repeated is the need to screen business partners and know with whom you are dealing.  This is a mantra of the C-TPAT program and the concept of trusted traders, so nothing new there.

Given the current enforcement environment, a point was made that seemed obvious and surprising – do not loan out your bond. In other words, do not allow others to use your bond.  What makes this point remarkable is CBP has for some time been carefully looking at shipments out of China, and this pre-dates the current efforts by the Trump Administration. For the last 3+ years, CBP has been challenging the right of companies stated as the importer to be the importer of record, mostly foreign entities but often U.S. based companies. CBP has approached this as a right to make entry issue, and so not subject to the detention process or timeline.  Rather, CBP rejects the entry, demands a laundry list of documents establishing who ordered the goods, who is paying for them, and so on. It then generally takes several weeks to get a decision and typically, in the end, CBP demands the U.S. buyer make entry, not the originally designated purchaser.  It does not take long to sort out what triggered the inquiry was the original value declared on the first entry was seen as too low.  What this also points out is the amount of game playing being conducted by foreign importers. The goods are sold  on a DDP term of sale, but by depressing the price, the overall amount of duty paid is reduced, thereby lowering the overall cost. As the cost of labor in China has gone up, the incidence of these attempts has become more widespread.

A new tool that CBP has begun to implement is to audit the customs broker, and use documents collected in the course of that audit to then initiate audits of the DDP/foreign importers.  Very often, the first step by CBP is to reach out to the foreign importer and demand a copy of each power of attorney that importer has issued to its customs brokers, with the caveat, the importer may not ask the broker for a copy of the power of attorney it received!

A dead giveaway in this context is those shipments which are marked as subject to a DDP term of sale, but when the invoice is produced, it states on it the freight and duty are not included. Obviously, if the freight and duty are not included in the invoice price, the shipment was not sold on a DDP term of sale. As such, the foreign seller does not qualify as the importer of record.  If that is the case, then the U.S. buyer is the importer and duty should be paid on the FOB value of the goods at which the U.S. buyer purchased those goods.

Interestingly, the prudent brokers are asking the foreign sellers to confirm the accuracy of the invoice values presented.  More often than not, the foreign seller is smart enough to not tip his hand to the customs broker. How those foreign sellers/importers will handle CBP’s demand for proof of payment in any subsequent inquiry remains to be seen. Not surprisingly, many of the owners simply close one company and open another.  For that reason, the bonding companies have become much stricter in what they are willing to underwrite for foreign importers of record.

In addition to the focus on value, another point made at the FTA program was that CBP’s priority trade issues continue to be where CBP and HSI put their efforts: Agriculture and Quota, Antidumping and Countervailing Duty, Import Safety, Intellectual Property Rights, Revenue, Textiles and Wearing Apparel and Trade Agreements.  Not to be lost in the shuffle is transshipment and the Enforce and Protect Act, and forced labor, including North Korea.

One equally remarkable point is despite being given several opportunities to do so, neither the HSI nor the CBP speaker directed comments to the making of traditional trade fraud cases, i.e., those related to classification or value. Certainly the news has made clear that evasion for the purpose of avoiding, for example, antidumping duty will result in criminal convictions and civil fines. However, what this session again made clear is the challenges and limited resources both agencies face when it comes to bringing trade fraud cases. In the face of this fact, both agencies have had to get creative in catching violators and so we see CBP asserting right to make entry as a means to deal with those challenges.

Effective on January 1, 2019, SB 1402 requires beneficial cargo owners to be jointly and severally liable if their port trucking company has unpaid wage or worker’s compensation debts. Adding to the cost of doing business in California, now we have AB 5, which is expected to totally upend the relationship between port truckers and their drivers. As is common knowledge, those drivers are generally paid as independent contractors. AB 5 has been signed into law. Its effect is that port truckers will either have to treat their drivers as employees or adopt a different business model. In the background lurks a legal challenge and, with it, the possibility the Federal Aviation Administration Authorization Act could preempt California law. This is because the Act gives the federal government and not the states regulatory authority over interstate trucking.

Also in the legal arena comes the August decision in U.S. v Cano, 2019 WL 38500607 (April 10, 2019). In this decision, the Ninth Circuit has reinforced the basic rules about search and seizure when it comes electronic devices. A manual search in the context of a border search of an electronic device is permitted because border searches are an exception to the Fourth Amendment right against unreasonable search and seizure.  However, the ability of the government to conduct such a search ends when that search becomes “too intrusive”.  The court went on to confirm that a manual search is permitted under the border search exception, but a forensic search is not.  One can easily understand the border search exception is designed to allow government officials to determine if someone is admissible (and this is understandable even in the face of recent news regarding foreign students returning to school  who are barred entry into the U.S.; this leaves us to debate how far the results allow that official to go in exercising his or her discretion, but that is an altogether different topic). Such a manual search is also understandable in the context of identifying and seizing contraband, but no further. If there is a reasonable suspicion to conduct a forensic search, the Ninth Circuit underscored the basic rule of law – if you want that evidence, go get a search warrant!  Travelers are warned to keep in mind, this is the rule in the Ninth Circuit only. Other federal circuits have not reached the same result.

And finally, because 301 tariffs are consuming us all, there are two quick points to add on this topic. First, China has filed its complaint about the 301 tariffs against the U.S. at the World Trade Organization – https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds587_e.htm. Also, as U.S. companies purchase goods from foreign suppliers, prudence dictates a careful study be done as to the origin of those goods.  Just because the supplier tells you the goods are not made in China does not mean those goods are not Chinese origin.  Upon importation, origin is determined under U.S. law and each country defines origin differently. The simplest illustration to show how complex the analysis can become is the U.S. does not recognize simple assembly (5 or fewer steps) or dilution to change origin. As such, the time has come for international traders to ask many more and very probing questions before agreeing to any deal, especially in the face of the 301 tariffs. Make sure you have the right trade advisers around you and rely on their talents early and often. Yes, there is a cost associated with doing so, but it will consistently be less than the cost of the huge problems you will face if things go wrong! In other words, this is money well spent!

Today (September 11, 2019), President Trump announced a short reprieve for goods on Lists 1, 2 and 3. The 301 tariff on those Chinese goods will still rise from 25% to 30%, but now instead of that happening on October 1, 2019, the effective date will be October 15, 2019. The stated reason for the delay is October 1, 2019 is the 70th Anniversary of the People’s Republic of China.

Original article starts here —

As has been widely reported, on Friday, first President Trump announced and then USTR Lighthizer confirmed the 301 tariffs on goods out of China will increase. Specifically, the tariffs on the goods on Lists 1, 2 and 3 will rise from 25% to 30% starting October 1, 2019, while the tariffs on the List 4 products will start at 15% on September 1, 2019 or December 15, 2019, rather than the original 10%, depending on whether your product is on List 4A or List 4B. USTR also acknowledged there will be a notice and comment period provided in the Federal Register notice to follow. While no doubt many American traders hope the possibility exists to remove products from any of the lists, that seems highly unlikely. While this upheaval continues, companies should also keep in mind the ability to seek exclusions for goods on List 3 expires on September 30, 2019. The exclusion process for goods on List 4 has still not been published.

The current action was triggered by the announcement by China that it would be raising its tariffs on $75 billion worth of American goods imported into China by 5% or 10%. Perhaps most surprising was the language in the President’s tweet wherein he stated he was ordering U.S. companies to “immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.” In later comments, President Trump stated he believes he has the authority to do so. All he needs to do is declare a state of national emergency and thereby make his “order” enforceable!

In the background of these fireworks came word a U.S.-Japan trade agreement is nearing completion, and a U.S.-U.K. deal is being discussed.

As the tit-for-tat continues, China has decided to impose a 25% tariff on American autos and auto parts. The other shoe everyone is waiting to drop is China’s publication of its “unreliable entity list.” Bearing in mind this would be a relatively “easy” way for China to take restrictive action against major American companies, it seems reasonable to think the list will be published shortly, and is likely to be focused on well-known American companies. What is known about this list is it will be focused on “foreign companies, organizations or individuals that violate market rules, break the contractual spirit, boycott or cut off suppliers to Chinese companies for non- commercial reasons, and causing serious damages to the legitimate rights and interest of Chinese companies.”

Adding to the excitement, the White House also released on the 21st an announcement about cracking down on opioids and directed its effort towards how the private sector should assist. The announcement coincided with the addition of individuals to the kingpin list, a list of individuals involving in the trafficking of drugs with whom no business (international or domestic) may be done, and oddly includes an admission the mails are being used successfully to complete these transactions. As is often the case with those named to the kingpin list, the announcement was intended to notify the financial sector that it needs to “better” identify red flags and other indicators of these “complex schemes.” This is, of course, relevant to international traders since it may well result in additional questions about transactional parties, but also may slow down access to capital, and delay shipments. Periodically, the Dept. of Justice brings seizure cases against funds where it has information leading to the assertion one of the parties to the transaction is involved with money laundering, and thereby withholds funds wired to pay for goods delivered by legitimate sellers in good faith. This announcement is another reminder that the need to know your business partners is alive, well and should be taken seriously!

The Canadian International Trade Tribunal (“CITT”) has changed their website and have added a page listing all the target dates for expiry reviews (5 year sunset reviews) of existing antidumping and countervailing duty orders.

This is helpful to importers and foreign producers because Canada made changes to the Special Import Measures Act a few years ago.  It used to be easy to determine when the CITT Decision in an expiry review case would be issued – it was five years minus one day from the date of the CITT order in the original inquiry or last expiry review.

Now, the CITT LE decision is issued five years minus one day from the date of the CITT order in the original inquiry or last expiry review. In an LE proceeding, the CITT asks whether an expiry review is warranted.  Importers and foreign producers are will be aided by the CITT schedule of dates, which is as follows:

Measure Expiry Date Latest Possible Date of Notice of Expiry Tentative Date of Notice of Expiry
Fasteners 5 January 2020 5 November 2019 September 6, 2019
Concrete reinforcing bar 1 9 January 2020 8 November 2019 October 18, 2019
Steel plate 6 30 January 2020 29 November 2019 November 29, 2019
Oil country tubular goods 1 2 March 2020 2 January 2020 December 20, 2019
Oil country tubular goods 2 2 April 2020 31 January 2020 January 31, 2020
Photovoltaic modules 3 July 2020 1 May 2020  
Whole potatoes 9 September 2020 9 July 2020  
Refined sugar 30 October 2020 28 August 2020  
Steel line pipe 29 March 2021 29 January 2021  
Steel grating 18 April 2021 18 February 2021  
Fat hot-rolled steel sheet and strips 12 August 2021 11 June 2021  
Large line pipe 20 October 2021 20 August 2021  
Copper pipe fittings 28 November 2021 28 September 2021  
Gypsum board 4 January 2022 4 November 2021  
Pup Joints 7 April 2022 7 February 2022  
Concrete reinforcing bar 2 3 May 2022 3 March 2022
Fabricated industrial steel components 25 May 2022 25 March 2022
Line Pipe 4 January 2023 4 November 2022
Stainless Steel Sinks 8 February 2023 8 December 2022
Copper Pipe Fittings 25 May 2023 25 March 2023
Liquid Dielectric Transformers 1 June 2023 1 April 2023
Piling Pipe 4 July 2023 4 May 2023
Pasta 26 July 2023 26 May 2023
Steel Plate 3 9 August 2023 9 June 2023
Carbon Steel Welded Pipe 2 15 October 2023 15 August 2023
Seamless Casing 28 November 2023 28 September 2023

Please note that the CITT may amend these dates – so, please check the CITT website.

If you require information about Canada’s expiry review process, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

On August 15, 2019, the Canada-United States Preclearance Agreement (officially known as the Agreement on Land, Rail, Marine and Air Transport Preclearance between the Government of Canada and the Government of the United States of America) entered into effect. The Canada-United States Preclearance Agreement was signed on March 16, 2015.

Global Affairs Canada announced “New Canada-U.S. Preclearance Agreement comes into force, opening the door to enhanced travel and trade“.  The Canada-United States Pre-Clearance Agreement allows for preclearance of goods and people.

Canada had completed all the steps to implement the Canada-United States Pre-Clearance Agreement. On June 17, 2016, the Minister of Public Safety and Emergency Preparedness introduced Bill C-23 “an Act respecting the preclearance of persons and goods in Canada and the United States” (to be known as the “Preclearance Act 2016″) in the House of Commons. Bill C-23 received Royal Assent on December 12, 2017.

This Agreement is a component of the Beyond the Border Action Plan that was announced in February 2011. The Agreement was previously tabled in the House of Commons on April 22, 2015 by the Harper Government. So, this is not a new initiative.

The main purpose of the Agreement and Bill C-23 is to facilitate and expedite travel between Canada and the United States for goods and services. Canada and the United States have one of the most important trading relationships in the World. As a result, mechanisms such as preclearance, make a lot of common sense.

Part 1 of Bill C-23 addresses the performance of U.S. preclearance officers in Canada. Part 1 of Bill C-23 authorizes United States customs officers to conduct preclearance in Canada of travellers and goods bound for the United States. Bill C-23 also authorizes a federal Minister to designate preclearance areas and preclearance perimeters in Canada, in which preclearance may take place. Bill C-23 gives United States preclearance officers powers to facilitate preclearance.

The exercise of any power and performance of any duty or function by a United States preclearance officer is subject to Canadian law, including the Canadian Charter of Rights and Freedoms, the Canadian Bill of Rights and the Canadian Human Rights Act. Canadian police officers and the officers of the Canada Border Services Agency are authorized to assist United States preclearance officers in the exercise of their powers and performance of their duties and functions.  Bill C-23 allows a traveller bound for the United States to withdraw from the preclearance process, unless the traveller is detained under Part 1.  Bill C-23 limits the ability to request the extradition or provisional arrest of a current or former United States preclearance officer.

Part 2 of Bill C-23 addresses the performance of Canadian preclearance officers in the United States. Bill C-23 specifies how the Immigration and Refugee Protection Act will apply to travellers bound for Canada who are in preclearance areas and preclearance perimeters in the United States, and extends the application of other Canadian legislation that relates to the entry of persons and importation of goods into Canada to those preclearance areas and preclearance perimeters. Bill C-23 allows a traveller bound for Canada to withdraw from the preclearance process, unless the traveller is detained.

Part 3 of Bill C-23 contains amendments to the Criminal Code.

Part 4 of Bill C-23 amends the Customs Act.

Preclearance allows the inspection of goods and people before they leave the country of exit. A preclearance inspection at a point of embarkment is essentially the same inspection an individual would undergo at a U.S. port of entry (or at a point of disembarkment) and preclearance travellers do not have to undergo a second U.S. Customs and Border Protection inspection upon arrival in the United States.  Preclearance of goods occurs away from the border prior to the export from Canada and is also the same inspection goods would undergo at a U.S. port of entry and precleared goods do not have to undergo a second U.S. Customs and Border Protection inspection upon arrival in the United States. 

Many travellers from Canada are familiar with preclearance at airports, such as Toronto Pearson International Airport, Calgary Airport, Montreal Trudeau Airport, Vancouver Airport, etc. At previously approved preclearance airports, all travelers go through U.S. Customs Preclearance before boarding flights destined for a location in the U.S.  Inadmissible travelers are not permitted to board their planes and do not enter the United States.  High risk passengers are screened before being allowed to proceed.  Goods are also x-rayed to identify risks.

This preclearance will be expanded to other airports and land/rail/marine locations.  For example, preclearance will be available at a number of new Canadian locations, including Quebec’s Jean Lesage International Airport, Toronto’s Billy Bishop City Airport, Montreal Central Station and the Rocky Mountaineer.

Preclearance is good for Canadian businesses because preclearance strengthens economic competitiveness and mutual security, and expedites the export and import of goods. In principle, the expansion of preclearance should increase the flow of trade between Canada and the United States in both directions.

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

Direct sellers (also known as network sellers) enter the lucrative Canadian market, often without asking questions about whether there are any Canadian laws they should know about. Canadians sign up as independent sales contractors and start to build their sales networks before all questions are asked and answers are received about compliance with Canadian laws.  As a result, many direct sellers have not set up their computerized systems to comply with Canadian laws.  Often business in Canada increases exponentially and compliance with Canadian laws is not addressed before audits commence.

We cannot cover all Canadian laws in this article. We are covering the tops 10 issues that we see on a regular basis when dealing with direct selling companies.  Direct sellers should take steps to comply with Canadian laws before they are selected for an audit.  Here are some of the areas of Canadian law to address:

  1. Provincial licenses: Most Canadian provinces require direct selling companies obtain a provincial license to engage in direct selling to consumers.  Here are some of the links: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland/Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec, Saskatchewan, Nunavut.
  2. Health Canada approvals for products: Many products require Health Canada approval before they can be shipped to Canada. Depending on the product, different approvals may be required.  With respect to cosmetics, manufacturers and/or importers must complete a Cosmetic Notification Form for each cosmetic product before offering cosmetics for sale in Canada. With respect to natural health products, manufacturers and importers must obtain a Health Canada license for each product. If approvals have not been obtained, the Canada Border Services Agency (“CBSA”) may detain the goods at the border and prevent future shipments by creating a lookout.
  3. Safe Foods for Canadians Act: If an item shipped to Canada is considered to be food, restrictions in the Safe Foods for Canadians Act may apply. There are restrictions on non-resident importers importing food into Canada for sale to consumers. See Do food import businesses need an import license to import foreign food into Canada?
  4. Goods and Services Tax (“GST”)/Harmonized Sales Tax (“HST”): If sales will be made in Canada, it will be necessary to register for Canada’s federal sales tax, the goods and services tax.  The provinces of Ontario, New Brunswick, Nova Scotia, Newfoundland/Labrador and Prince Edward Island have harmonized their sales taxes with the federal GST.  The direct seller will have to address many GST/HST issues, including: collecting the correct amount of GST/HST on invoices, filing GST/HST returns and remitting GST/HST collected from consumers, claiming input tax credits and determining whether it is possible to become an approved network seller to use an Alternative Calculation Method relating to commissions paid to independent sales contractors.
  5. Provincial Sales Taxes: If sales will be made in the provinces of British Columbia, Saskatchewan, Alberta or Quebec, it will be necessary to register to collect sales taxes in those provinces.
  6. Decide who will be the importer of record if goods are shipped into Canada:  This is an important decision.  If goods are shipped direct to consumers, the consumer will be the importer of record.  If the direct selling company is the importer of record, the company will have to obtain a importer number.  Depending on which option is selected, there will be a number of other issues to consider.
  7. Tariff Classification: When goods are shipped to Canada, even if shipped directly to a consumer, the correct Canadian tariff classification number must be provided to the CBSA.  Based on our experience, insufficient time is spent determining the HS tariff classification number for goods shipped to Canada.  Customs brokers do not always ask questions about the goods resulting in the incorrect tariff classification being used.
  8. Origin: When goods are shipped to Canada, even if shipped directly to a consumer, the correct origin of the goods must be provided to the CBSA.   Just because the goods are shipped from the United States does not mean the origin of the goods is the United States.  Often an analysis must be undertaken to determine the correct origin of the goods.
  9. Valuation:  When goods are shipped to Canada, it is necessary to report to the CBSA the value of each good.  The CBSA is actively auditing direct selling businesses because errors are common when Canadian customs laws have not been reviewed prior to starting to sell into Canada.  Often the manufacturer incorrectly uses the cost of the goods as the value for customs duties. The reason is that the direct seller does not want to limit sales opportunities in Canada because duties and taxes at the border add to the ultimate price paid by consumers.  Providing the incorrect value to the CBSA can lead to large assessments of customs duties. The CBSA could assess the consumer if the consumer is the importer of record – and this would be bad for future business.  The correct valuation method will depend on how Canadian sales are structured.  Valuation issues also arise with respect to replacement goods.
  10. Labeling: Labels on goods sold into Canada may require both French and English on the labels.

If you would like to discuss the Canadian legal requirements for direct sellers, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

On August 15, 2019, USTR issued a pre-publication version of the Federal Register in which the formal announcement regarding China 301 Tariffs List 4A/B will be made. In that notice, USTR clarified the September 1, 2019 effective date refers to the date of entry or withdrawal for consumption for the goods on List 4A/Annex A. Similarly, for List 4B/Annex C, the December 15, 2019 effective date is also based on the date of entry or withdrawal for consumption.  Oddly, the Federal Register notice also includes Annexes B and D which are intended for “informational purposes” only, with Annex B providing information regarding the goods on Annex A, and Annex D serving the same function for goods on Annex C.

See https://ustr.gov/sites/default/files/enforcement/301Investigations/Notice_of_Modification_%28List_4A_and_List_4B%29.pdf for the announcement.

Originally published by the Journal of Commerce in August 2019

Much has been said recently in the general press about the latest round of tariffs and what did or did not prompt President Trump to decide that August 1st was the right time to impose an additional 10% on the goods from China on the final version of List 4A/B.  Regardless of the reason (s), this additional tariff will take effect on September 1, and companies are once again forced to adapt. Just about every trade lawyer is providing the same list of options for companies to consider – and there really aren’t many and none of them are particularly good. The current situation feels very much like the scene in a boxing movie where the two heavyweight fighters stand in the middle of the ring looking like they are trying to beat the crap out of each other, but whatever blows are landed seem to be without any inkling either is doing real damage to the other, beyond wearing each other out!

What makes the current turn of events interesting is the choice of words on both sides. U.S. negotiators went to Shanghai and met for a relatively brief period of time with their Chinese counterparts. Shortly after their return home, the Trump Administration took language from a press release by the People’s Bank of China (“PBC”), shouted Eureka! and then claimed China admitted to being a currency manipulator.   The relevant press release can be found here: http://www.safe.gov.cn/en/2019/0805/1541.html. The language in question is found at the very end: “The PBC is fully equipped with the experiences and the capacity to support smooth operation of the foreign exchange market, and keep the RMB exchange rate basically stable at an equilibrium and adaptive level.”

Upon reading this, which was obviously a convenient trigger, Treasury Secretary Stephen Mnuchin invoked Section 3004 of the Omnibus Trade and Competitiveness Action of 1988, stating it required him to “‘consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.’ Secretary Mnuchin, under the auspices of President Trump, has today determined that China is a Currency Manipulator.’ As a result, Secretary Mnuchin now turns to the International Monetary Fund ‘for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the United States dollar to permit effective balance of payments adjustments and to eliminate the unfair advantage.'”

The PBC responded: “’This fluctuation is driven and determined by the market…” [according to Governor Yi.]  ‘Whether it is from the fundamentals of the Chinese economy or from the balance of market supply and demand, the current RMB exchange rate is at an appropriate level. Although the RMB exchange rate has fluctuated due to recent external uncertainties, I am confident that the RMB will continue to be a strong currency,’ Yi said'”. This press story goes on to quote the Chinese central bank as linking the RMB fluctuations to “unilateralism, trade protectionism measures and the increase of tariffs on China.” For the full story, see https://www.cnbc.com/2019/08/05/chinas-central-bank-denies-its-devaluing-countrys-currency-to-counter-tariffs.html

When Federal Reserve Chairman Jerome Powell announced the latest interest rate cut on July 31, 2019, he said:  “We decided today to lower the target for the federal funds rate by ¼ percentage point to a range of 2 percent to 2¼ percent. The outlook for the U.S. economy remains favorable, and this action is designed to support that outlook. It is intended to insure against downside risks from weak global growth and trade policy uncertainty, to help offset the effects these factors are currently having on the economy, and to promote a faster return of inflation to our symmetric 2 percent objective. All of these objectives will support achievement of our overarching goal: to sustain the expansion, with a strong job market and inflation close to our objective, for the benefit of the American people.” A transcript of the press conference can be found here: https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20190731.pdf.

If one takes the statements from the two financial authorities and reads them together, they say basically the same thing – we are responding to market conditions!  The general consensus is the move by the U.S. was an ill-guided attempt to try to put more pressure on China. Given the law on which Secretary Mnuchin relies has no enforcement teeth, see 22 USC 5304, a critical question is just how will his attempts be received? The steps undertaken by the Administration so far has been to challenge everyone, friend and foe alike. Given the current economic conditions in China, if all things are equal, does anyone question how the IMF will decide?  This is where skilled negotiators and a disciplined Administration could have made a  real impact. In fact, there was some smart money wagering that labeling China a currency manipulator would be among the first step taken by the new Administration. Does the current action have any steam at this point in time? Does anyone see this ending positively for Mr. Mnuchin’s efforts?