With few exceptions, those importing food into Canada now or soon (July 15, 2020) will require an import license issued pursuant to the Safe Food for Canadians Regulations:

    • The Safe Food for Canadians Regulations issued pursuant to the Safe Food for Canadians Act (“SFCA”) came into force on January 15, 2019.
    • These regulations and the SFCA  prohibit any person from importing food into Canada unless that person holds an import license issued by the Canada Food Inspection Agency (“CFIA“) in accordance with and when required by the regulations.
    • While there are a few exceptions, this requirement applies to most food importers and the food they import.
    • For some foods (e.g. meat, fish, dairy, eggs,), a license was required for imports made on and after January 15, 2019.   For certain other foods (e.g. manufactured foods), the license is not required until July 15, 2020. It is important to review the requirements set out in the SFCR to confirm the timing.
    • Before an importer may apply for an import license, several requirements must be met.  The imported food must be safe, and meet a number of product specific requirements.  The importer must establish a preventive control plan, implement tracing and recall procedures, and in many instances, establish a fixed place of business in Canada.

For more information, or for assistance securing your import license, please contact Heather Innes at 416-350-1234 or heather@lexsage.com.

When it was announced that Canada, the United States and Mexico had reached an agreement to amend the North American Free Trade Agreement (“NAFTA”), one of the important changes was an increase to the de minimis threshold, which is the monetary value of courier shipments that can enter Canada without payment of duties and taxes. On May 2, 2020, the Canada Border Services Agency (“CBSA”) posted Customs Notice 20-18 “Implementation of the Canada-United States-Mexico Agreement (CUSMA) De Minimis Thresholds with Respect to Customs Duties and Taxes for Courier Imports” in which the CBSA clarified the thresholds that will be in effect starting on July 1, 2020 (the date that CUSMA (aka USMCA, NAFTA 2.0) enters into effect).

The de minimis rules will be applied based on the place of direct shipment, and not based on where the goods originate.  Courier companies do not need to apply the CUSMA/USMCA rules of origin to determine whether the lower de minimis thresholds would apply – this would undermine the intention to expedite low value shipments.  Goods shipped from the United States or Mexico that do not meet the CUSMA rules of origin will be subject to the higher de minimis threshold rules below.

However, goods that are transshipped through the United States or Mexico that do not enter the commerce of the United States or Mexico will be subject to lower de minimis thresholds applicable to other countries. Also, goods that were manufactured in the United States that transshipped or shipped from another country (other than Mexico) will be subject to lower de minimis thresholds applicable to other countries.

The words “courier” means a commercial carrier that is engaged in scheduled international transportation of shipments of goods, other than goods imported by mail.

1. Goods entering Canada from the United States or Mexico by courier: If a consumer is the importer of record and if the value of the shipment is $CDN 150.01 or above: Customs duties, goods and services tax (“GST”), harmonized sales tax (“HST”) and/or provincial sales tax (“PST”) will be payable. Certain types of imported goods are excluded from the rule.

2. Goods entering Canada from the United States or Mexico by courier: If a consumer is the importer of record and if the value of the shipment is between $CDN 40.01 and $CDN 150.00: Customs duties will not be payable but, GST, HST and/or PST will be payable. Certain types of imported goods are excluded from the rule.

3. Goods entering Canada from the United States or Mexico by courier: If a consumer is the importer of record and if the value of the shipment is $CDN 40.00 or less: Customs duties, GST, HST and/or PST will be waived.

4. Goods entering Canada from the United States or Mexico by courier: If a business is the importer of record and if the value of the shipment is $CDN 150.01 or above: Customs duties and GST will be payable.

5. Goods entering Canada from the United States or Mexico by courier: If a business is the importer of record and if the value of the shipment is between $CDN 40.01 and $CDN 150.00: Customs duties will not be payable, but GST will be payable. Certain types of commercial transactions and imported goods are excluded from the rule and customs duties will be payable.

6. Goods entering Canada from the United States or Mexico by courier: If a business is the importer of record and if the value of the shipment is $CDN 40.00 or less: Customs duties, GST, HST and/or PST will not be payable.

7. Goods entering Canada from any country (other than the U.S. and Mexico) by courier: If a consumer is the importer of record and if the value of the shipment is over $CDN 20.01: Customs duties, GST, HST and/or PST will be payable.

8. Goods entering Canada from any country (other than the U.S. and Mexico) by courier: If a business is the importer of record and if the value of the shipment is over $CDN 20.01: Customs duties and GST will be payable.

9. Goods entering Canada from any country (including the U.S. and Mexico) by courier: If a consumer or business is the importer of record and if the value of the shipment is under $CDN 20.00: Customs duties, GST, HST and/or PST will not be payable.

10. Goods entering Canada from any country (including the U.S. and Mexico) by mail: The postal rules continue to apply and the CUSMA de minimis threshold does not apply.  In other words, shipments by mail will be subject to the lower $CDN 20.00 threshold.

11. Goods entering Canada from any country (including the U.S. and Mexico) in the possession of a person: The personal exemption limits have not changed.

12. Exception – Goods: Customs duties, excise tax and GST/HST/PST will not be waived on alcohol, tobacco products, and cannabis.  See definition of “goods” in section 2 of the Commercial Imports Remission Order.

13. Exception – Commercial Transactions: Customs duties, excise tax and GST/HST/PST will not be waived on certain commercial transactions:

  • imported goods that are purchased from a retailer in Canada and shipped to the purchaser directly from a place situated out of Canada;
  • imported goods that are purchased or ordered through or from an address, a post office box or a telephone number in Canada; and
  • goods that are imported by a person other than the person in Canada who ordered or purchased the goods.

See section 3 of the Commercial Imports Remission Order.

14. Anti-Avoidance Rule: The value for duty must reflect all items in the order by the customer that are to be imported.  An order cannot be broken into multiple shipments in order to effectively increase the de minimis threshold.  In other words, if a consumer purchases goods from a U.S.-based e-retailer for $CDN 250.00 and the order is broken into two shipments of $CDN 125.00 and $CDN 125.00, customs duties and GST/HST/PST would apply.  However, if the consumer places two separate overs that are each valued at under $CDN 150.00, then the customs duties would be waived and the GST/HST/PST would not be waived.  If a consumer places two separate orders for under $CDN 40.00, then customs duties and GST/HST/PST would be waived on both orders.

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

In a recent ruling on February 24, 2020, the Canadian Federal Court determined in the decision of Tamba Thomas and Minister for Public Safety and Emergency Preparedness (MPSEP), 2020 FC 290 [Thomas v. MPSEP] that diamonds being imported into Canada must be imported in accordance with Canada’s Import and Export of Rough Diamonds Act, Import and Export of Rough Diamonds Regulations, and accordingly with Canada’s obligations as a participant of the Kimberly Process. The absence of the required certificates and paperwork will result in diamonds being seized and incapable of being imported into Canada, even if the paperwork was missing as a mistake.

 

Facts and Procedural History

Tamba Thomas is an Australian diamond merchant. In November 2009, Mr. Thomas travelled from the United States to Canada. Mr. Thomas had several rough (uncut) diamonds from Sierra Leone in his luggage that he had forgotten about. A CBSA Officer found the rough diamonds, and the diamonds were seized after Mr. Thomas explained that he did not have the necessary Kimberly Process Certificate. Furthermore, the rough diamonds were not packaged in a tamper-proof container which is another requirement for importation.

Mr. Thomas requested a review by the Minister for Public Safety and Emergency Preparedness for the seizure of the rough diamonds. It was determined that the rough diamonds were not formally imported into Canada because they did not meet the requirements of the Kimberly Process. The CBSA released the rough diamonds to Mr. Thomas on the condition that he immediately export the diamonds from Canada.

This situation placed Mr. Thomas in a legal “limbo” for the next 10 years because the diamonds had never been deemed as imported into Canada and the original Kimberly Process Certificate from Sierra Leone had expired. Although the CBSA released the rough diamonds to Mr. Thomas, he did not have the required Kimberly Process Certificate to export the rough diamonds to a participating country. Mr. Thomas asked to have the diamonds imported into Canada so that he could obtain the required Kimberly Process Certificate to export the diamonds to either the United States or Australia. His request was denied.

Mr. Thomas raised the issue in Federal Court where it was determined that the decision of the Minster was reasonable. The Federal Court of Appeal dismissed Mr. Thomas’ appeal and also held that the decision was reasonable.

 

What is the Kimberly Process?

The Kimberly Process is an international agreement involving governments and the diamond industry with the intention to restrict the flow of blood diamonds, also known as conflict diamonds. The sale of blood diamonds is used to fund violence and political conflicts.

The Kimberly Process prevents the sale of blood diamonds by ensuring that all diamonds bought and sold in member states are from legitimate sources. The Kimberly Process requires that a Kimberly Process Certificate (“KPC”) be obtained from the participating country to certify that the diamonds are conflict-free. A KPC issued to export rough diamonds from Canada is only valid for 60 days. Additionally, the diamonds must be transported in tamper-resistant containers.

Many countries participate in the Kimberly Process, including Canada, the United States, Australia, and Sierra Leone. In Canada, the initiative is administered by the Kimberly Process Office of Canada (KPOC) in Natural Recourses Canada.

 

Be Careful at the Border

Thomas v. MPSEP is a reminder for diamond merchants, business owners, and all other travellers that it is very important to be extremely careful with required paperwork when importing goods, particularly when the paperwork expires on a periodic basis. If you have valuable goods that require paperwork to be imported, it is fundamental to ensure that the paperwork is always up-to-date and completed. Having updated, completed paperwork will ensure that the goods are always prepared to be imported.

 

Many Canadian import businesses have implemented remote working arrangements for employees as a result of COVID-19 government directives.  Social distancing in business organizations can give rise to costly mistakes because business is not as usual.  Importers have to adjust to the new normal and identify new (and existing) business risks.  Most employees and managers are working from home, which means the control over information is diminished or, quite frankly, non-existent.  While there are hundreds of issues that arise in the remote working / teleworking environment, we are going to share a “top ten list” to get you thinking.

1. Record-keeping:  In the remote working or teleworking environment, it is possible that employees are saving their work on a home computer or USB key, rather than a work computer or centralized server.  As a result, when remote working ends, it may be that there are months of electronic documents that are not in their proper electronic databases.   In the future, the CBSA may ask for these documents and they will need to be quickly located and produced.  If important customs documents cannot be produced, the CBSA may impose a $25,000 fine.

Given that documents may be needed for a verification or audit, it is very important for importer employers to ask employees returning to the office whether they saved documents somewhere other than the centralized server.  It is important to implement a written policy for import-related documents to be moved to a centralized electronic database so that the documents can be retrieved when needed in the future if a verification should be undertaken. This should be done as soon as possible.  If key employees have to be terminated, it is important that they be required to provide any documents saved on home computers and to return all USB keys.

2. Missing Documents: In the remote working environment, employees may not have the same attention to detail when it comes to preparing, giving and receiving paperwork.  For example, an employee may not ask for a Certificate of Origin, or a Certification of Origin on goods imported from a supplier in a free trade agreement country (e.g., the United States, Korea, the EU, etc.) and may claim preferential tariff treatment.  The employee also may not ask for supporting documentation to justify the use of a particular H.S. Code (they might not verify the H.S. Code is even correct). The employee may not implement an effective filing method at home to ensure all documents are maintained.  An employee may misfile documents.

As stated above with issue #1, given that documents may be needed for a verification or audit, it is very important for importer employers to ask employees returning to the office to bring all printed documents with them and to create a team to ensure all documents are in their proper files.

3. Failure to obtain government import and sale approvals: Canadian import companies may need a license to sell certain goods and should ensure that they know which licenses are required and obtain those licenses.  For example, Canadian importers who have imported personal protective equipment (PPE) during the COVID-19 pandemic (such as masks, gowns, gloves and hand sanitizers) are required to have certain information from the vendors and have in place Health Canada licenses at the time of importation. Most importers of N95 masks, surgical masks, medical gowns (and other medical devices) must hold a valid  Medical Device Establishment License (MDEL) issued by Health Canada. The MDEL license is issued for the activities of importing medical devices into Canada and selling them for human use in Canada.  If the medical device is a Class II Medical Device (e.g., oxygen masks, gas masks, aerosol administration masks, gloves for examinations of patients), or a Class III and Class IV Medical Device, the importer may also need to obtain a Health Canada Medical Device License for the masks.

Hand sanitizers, antiseptic cleansers, disinfecting products, etc. are considered to be natural and non-prescription health products.  Importers of hand sanitizer and antiseptic cleansers must have a valid Product License issued by Health Canada.  The CBSA must approve of the formulation for the hand sanitizer before it can be imported so that risks to human health can be identified.  The CBSA issues an approval after receiving a properly completed Request for Formula Approval form.

It is important that the license applications and the licenses be saved in a place that is accessible in the future.  It is also important that all documentation related to the importation of the PPE be maintained.

4. Fraudulent Documents: During the COVID-19 crisis, many opportunists have surfaced to profiteer.  If you have imported goods from a new foreign supplier, it is important to review the paperwork carefully because the fraudsters often have errors in their fraudulent documents.  For example, a seller of fraudulent personal protective equipment (“PPE”) may provide paperwork showing that they have CBSA approval, but use “Canada Customs and Revenue Agency” on the paperwork – a government entity that has not existed for years.  The exporter may provide Drug Identification Numbers (DIN) or Natural Health Products Numbers (NPN) that do not match the goods in the publicly available databases.

There is a risk that importers have received fraudulent documents from vendors and have provided the fraudulent documents to the CBSA or have relied on the information in providing information to customs brokers and on forms filed with the CBSA.  The CBSA may impose administrative monetary penalties for providing false information and, in serious cases, may charge an importer with an offence under section 153 of the Customs Act.  As a result, the importer needs to exercise proper due diligence when dealing with foreign sellers and exporters.

5. Errors made by customs brokers are not caught: The importer of record is responsible for errors made in customs documentation – not the customs broker.  As a result, it is important to review information submitted to your customs broker and by your customs broker. Even in normal times, customs brokers can make mistakes.  It is the obligation of importers to review the B3s and other filings and correct any mistakes.

In the tele-working environment, ongoing internal reviews of customs documentation should continue. If you have not been receiving copies of your B3s from your customs broker, there is no time like the present to start.

6. Reason-to-believe deadlines are missed:  Canadian importers are required to correct errors within 90 days of a reason to believe that they have made a tariff classification, origin, or valuation error.  If documentation provided to the CBSA is incorrect, it must be corrected within the 90 days statutory deadline.  The deadline has not changed due to COVID-19.

7. Importation of Counterfeit Goods: Counterfeit goods are prohibited goods and cannot be imported into Canada.  The CBSA will seize counterfeit goods and destroy them because they are not permitted in Canada.  There have been many examples of counterfeit PPE, luxury items, electronics, car parts, etc. being imported into Canada.

When employees are working from home and they are approached by a new source of supply, it might be that the goods being offered are counterfeit.

8. Failure to obtain import permits: Employees may be forgetful to apply for and obtain import permits when working from home.  It is possible that employees will forget to obtain an import permit before asking for goods to be shipped to Canada.  As a result, when the goods arrive, they may be detained by the CBSA or the CBSA may charge a higher rate of duties.

A Canadian importer is permitted to import goods listed on Canada’s Import Control List; however, the importer must have a valid import permit prior to importing the goods. Goods on Canada’s Import Control List include:

  • Military goods, firearms and weapons;
  • Certain aluminum products;
  • Ammunition;
  • Certain chemicals;
  • Certain steel products;
  • Certain apparel goods and textiles;
  • Poultry products;
  • Certain eggs and chicks;
  • Certain bovine (beef and veal) products;
  • Certain pork products;
  • Cheese products;
  • Dairy products;
  • Margarine;
  • Certain wheat, barley and malt products;
  • Alcohol;
  • Roses; and
  • Textiles and clothing.

9. Confidentiality:  Customs-related documents are generally confidential.  The CBSA is prohibited from sharing an importer’s customs documents with third persons. Remote working can exacerbate certain risks associated with the unintentional and intentional dissemination of confidential information by employees.  Many importers do not want the public to know what they import, the valuation they use for the goods they import, the tariff classification they are using for their imports, the name of the supplier of the goods they import, whether they have any issues with the CBSA, etc.

(a) Employment Confidentiality: Many businesses have had to lay off and terminate employees during COVID-19.  Some of those employees may go to competitors.  Some of the employees may be angry.  This is a time where companies may find employees taking information.  As a result, it is important for companies to ensure employees sign confidentiality agreements that last for a necessary period of time.

(b) Security over Intellectual Property: Employees may not have proper security at home.  Employees working from home may not have any firewalls in place and may work on a public or shared internet network, which is susceptible to hacking.  Competitors and other third parties may access company information and steal it.  Employees may print documents on home computers and may not have shredders.  As a result, it is possible that sensitive company information is available at the curb on garbage day.

(c) Confidentiality over commercial/financial information: Customs documentation can contain very sensitive commercial and financial information.  If your employees are working on a valuation, origin or tariff classification issue and communicating with the CBSA, there may be information that is very sensitive.

10. Not keeping up-to-date on new developments: Employees may not be working very hard while teleworking from home and may not keep up to date about CBSA published information (e.g., changes that will occur due to CUSMA coming into effect).  As a result, the company may not have implemented required changes and may not be ready for developments in customs law.

If you are concerned that you may have customs issues, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.  More information has been posted on the LexSage web-site.

As of June 30, 2020, Canadian exporters will no longer be able to file paper copies of the  B13A Export Declaration Form or use the CAED system to report exports of commercial goods. Canada’s export reporting will be paperless.

Exporters and customs service providers must be prepared and ready as of June 30, 2020 to report exports of commercial goods using one of two electronic methods:

1) Canadian Export Reporting System (CERS) – which is a new, free, web-based self-service portal; or

2) G7 Export Reporting Electronic Data Interchange.

CERS replaces the CAED reporting system.

Canadian companies will not be given a choice of filing paper copies.  The Canada Border Services Agency (“CBSA”) is offering training sessions – please go to the CBSA website for more information about how to sign up for a training session and when they will be offered.

Canadian companies must complete an export declaration for any export of goods and/or technology to any country (except the United States and Puerto Rico, and the U.S. Virgin Islands) valued at $CDN 2000 or more (subject to regulated exceptions).  Even small-sized packages can be valued over $2000 (most shipping containers exceed the threshold).

The filing of information about exports allows the CBSA to review the information and conduct a risk assessment and enables Statistics Canada to compile export trade data. The reporting requirement is found in section 95 of the Customs Act and the Reporting of Exported Goods RegulationsThe CBSA conducts a risk assessment as to whether the goods should have an export permit, or are destined for a sanctioned country or person.  If the package/shipment does not include an export declaration, the CBSA may detain the goods and, thereby, delay the transportation of the goods to its destination.

The general rule is that all goods valued at or over $CDN 2000 must be reported.  That being said, certain goods are not required to be reported on an export declaration. The exempt goods are listed in sections 6 and 7 of the Reporting of Exported Goods Regulations and are further explained in CBSA D-Memorandum D20-1-1, Export Reporting. Provided that the following goods are not prohibited goods or restricted goods (that require an export permit), the following limited classes of goods may be exported without being reported by the exporter:

  • personal and household effects, other than those of an emigrant, that are not for resale or commercial use;
  • conveyances that would, if they were imported, be classified at the time of importation under tariff item No. 9801.10.00, 9801.20.00 or 9801.30.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff;
  • cargo containers that would, if they were imported, be classified at the time of importation under tariff item No. 980l.10.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff;
  • reusable skids, drums, pallets, straps and similar goods used by a carrier in the international commercial transportation of goods;
  • goods exported by a diplomatic embassy or mission personnel for their personal or official use;
  • personal gifts and donations of goods, excluding conveyances;
  • goods that were imported into Canada and are exported from Canada after being transported in transit through Canada on route to a non-Canadian destination;
  • goods that were manufactured or produced in Canada and that are exported from Canada for the purpose of being transshipped through another country to another Canadian destination;
  • goods exported for repair or warranty repair that will be returned to Canada;
  • goods for use as ships’ stores by a Canadian carrier;
  • goods manufactured or produced outside Canada and removed for export from a bonded warehouse or sufferance warehouse;
  • goods, other than goods exported for further processing, that will be returned to Canada within 12 months after the date of exportation; and
  • goods that are described in or come within the scope of a written arrangement made between the Government of Canada and the government of another country.

The reporting MUST take place before the goods are shipped (the attempt to export).  The minimum time frames for reporting exports to the CBSA are as follows:

  • For goods exported by mail: not less than two hours before the goods are delivered to the post office in Canada that accepts mail for export;
  • For goods exported by marine vessel: not less than 48 hours before the goods are loaded onto the vessel;
  • For goods exported by aircraft: not less than two hours before the goods are loaded onboard the aircraft;
  • For goods exported by rail: not less than two hours before the railcar on which the goods have been loaded is assembled to form part of a train to be exported. Railcars are loaded at different places and then moved to a rail yard where the cars are assembled into a train to begin its journey from Canada;
  • For goods exported by any other mode of transportation: immediately before the exportation of the goods. In the case of goods being exported by highway or any other mode not previously mentioned, they must be reported immediately before being exported, which means before the conveyance that is transporting the goods crosses the border or leaves Canada.

If the CBSA randomly detains your goods (or is informed about the export by a competitor, or disgruntled employee, or another person, and selects the goods for inspection), you will be asked to provide information about the goods.  This could delay the export for weeks, months, or years.  It is possible that the detained goods will be seized as forfeit and destroyed.

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

Most Canadian export controls and controlled goods compliance programs are built with the assumption that relevant employees who have access to controlled goods and technical data will be working in an on-site work environment and use work computers and in-house servers where information is securely stored with access and release restrictions and where work-related activities are carefully reviewed and watched.  The current COVID-19 situation where most employees are working remotely from home was not contemplated as the export controls and controlled goods compliance program was not contemplated as being a possibility.  In fact, many compliance programs have a built in assumption that workers who have access to export controlled technical data will never be working from remote premises.

With many Canadian businesses allowing remote working and teleworking, compliance departments and managers should review the company’s compliance program and corporate policies and identify new risks associated with remote working and develop and implement solutions to ensure their employees do not export and have not inadvertently exported controlled goods, intangible, controlled data or information without first securing an export permit.  It does not matter what is the size of your business – small and medium sized businesses who develop, manufacture and/or sell controlled goods need to consider is changes to their compliance programs and policies are necessary.

What are some of the things that could go wrong when employees are working remotely?

There are so many things that can go wrong that we could not possibly create a complete and exhaustive list.  We have attempted to create a list for you to ask yourself whether your compliance program covers the 12 risks listed below and whether your program contains gaps that could result in unauthorized or prohibited activities:

1) Employees utilizing automatic cloud storage features on home computers and smart phones and exporting technical information to servers located outside Canada or located in Canada that does not have adequate security features (quite frankly, not even knowing where that information will be stored is a problem);

2) Employees not having adequate security on their home networks (and those home networks can be hacked);

3) Employees using computers at home that are shared with other persons in the household (that is, anyone in the household can access the information stored on the computer and anyone can send it to someone outside the household);

4) Employees not seeking proper permission before sending/sharing/exchanging controlled technical information with third parties outside Canada (e.g., the specifications for a controlled good and/or technical data is sent to a prospective buyer outside Canada);

5) Employees verbally giving information to another employee, an existing customer or a potential customer who is located outside Canada at the time the advice is given;

6) Employees removing at-work security features from technical data for controlled goods in order to be able to download documents and work from home (which could then result in the transfer of data to a third party);

7) Employees sending/sharing/exchanging information with each other (including persons without proper security clearances and people using shared home computers);

8) Employees downloading technical data on USB keys in order to work from home and the USB keys are not password protected and/or are lost;

9)  Employees printing information at home and not using a shredder when disposing of paper copies;

10) Employees creating new documents and forgetting to add enhanced security features so that the documents are not accessed by persons who have not completed a personal security assessment for review by the designated officer; and

11) Employees taking a phone call from a designated/listed person outside Canada and engaging in a sanctioned activity.

It must be remembered that Canada’s export controls, economic sanctions and trade restrictions laws typically impose strict liability.  As a result, it is necessary for companies to consider whether there are risks associated with remote working activities and adjust their compliance programs to account for those risks.

Areas of Concern

COVID-19 has caused many Canadian companies to quickly shift towards remote work arrangements.  Because many employees are now working from home, the places from which controlled technology may be accessed, or to which controlled technology may be sent, has changed and there may be foreign persons taking advantage of the chaos that is associated with changed working arrangements.

There are three Canadian legal regimes that to be discussed in this post:

1) Export Controls;

2) Economic Sanctions; and

3) Controlled Goods.

Export Controls

Canada’s export control scheme imposes an export permit requirement with respect to certain listed goods and technology.  The term “technology” is defined in the Export and Import Permits Act to mean “technical data, technical assistance and information necessary for the development, production or use of an article included in an Export Control List or a Brokering Control List” . The items on the Export Control List (“ECL”) are further described in A Guide to Canada’s  Export Control List.  The technology related to the items of the ECL can take on many intangible forms.

It is important to understand that Canada’s export controls rules apply to the export of actual physical goods (that would be shipped) and the electronic transfer or transmission of technical data and information, provision of technical or consulting services to a person outside Canada.  There are many ways that an intangible item or service can be leave Canada and, therefore, technically be exported.

It is also important for Canadian companies to understand that certain dual-use items (goods that can serve both a civilian and military purpose) are on Canada’s ECL. There are also various items in Group 5 that are not military or defence-related or nuclear items.  There are items in Group 5 that neither Canada, nor the United States wishes to get into the wrong hands.

The ECL identifies specific goods and technology that are controlled for export from Canada to other countries, regardless of their means of delivery (e.g., shipment of goods, electronic transfer or transmission of information, provision of technical or consulting services, etc.).  Even the delivery of training with respect to an ECL item could be an activity requiring an export permit.

The Brokering Control List (“BCL”) identifies specific goods and technology that are controlled for the purposes of brokering, i.e. arranging or negotiating a transaction that would result in the movement of controlled items from one foreign country to another foreign country. As with ECL goods, all methods of delivery of BCL goods are captured.

An export permit may be required when an employee provides technical data to foreign persons whether by email, cloud uploading, or by giving advice or information over the telephone phone.  The risks identified in 1 – 6 above give rise to export controls issues for a company and could result in a breach of Canada’s export controls laws.

Economic Sanctions

Canada’s economic sanctions regimes prohibit dealings with certain listed persons and entities in certain sanctioned countries.  Canada imposes economic sanctions in various forms and various degrees against the following Sanctioned Countries: Burma/Myanmar, Central African Republic; the Democratic Republic of Congo; Eritrea, Iran, Iraq, Lebanon, Libya, Mali, Nicaragua, North Korea, Russia, Somalia, South Sudan, Sudan, Syria, Ukraine, Venezuela, Yemen and Zimbabwe.

Most businesses implement screening programs to ensure that they do not engage in prohibited activities with listed persons in Sanctioned Countries.  The specific sanctions are contained in country specific regulations that can be changed by the Governor-in-Council (e.g., Cabinet).

Careful screening is required to prevent dealings with designated persons in sanctioned countries. The risks identified in 1, 2, 4, 5 (potential customer), 6 and 11 above give rise to economic sanctions issues for a company and could result in a breach of Canada’s economic sanctions laws.

Controlled Goods

Canada’s Controlled Goods Program is administered by the Controlled Goods Directorate (“CGD”). The CGD is responsible for administering Canada’s domestic industrial security program relating to the possession and/or examination of Controlled Goods with Canada’s borders and the transfer (including disposal or disclosing of contents) of any Controlled Good to another person within Canada. The focus of the program is to safeguard Controlled Goods within Canada from unauthorized possession, examination or transfer.

Companies who develop, manufacture, sell, provide services in respect of, or deal in any way with Controlled Goods must be registered with the Controlled Goods Directorate.

Controlled Goods are goods on the Controlled Goods List, which is a schedule to the Defence Production Act. Controlled Goods are primarily goods, including components and technical data (including blueprints and technical specifications in paper or electronic format) that have military or national security significance.  The Controlled Goods List includes (a) a good of U.S-origin that is a defense article as defined in section 120.6 of the International Traffic in Arms Regulations of the United States Code of Federal Regulations, and (b) a good, other than a good of United States origin, that is manufactured using technical data of United States origin, as defined in section 120.10 of the International Traffic in Arms Regulations of the United States Code of Federal Regulations, (if the technical data is a defense article).

Companies must have a written Security Plan in place before they register with the Controlled Goods Directorate.  Security Plans must include the various steps that are being taken by the company to prevent the unauthorized unauthorized possession, examination or transfer of Controlled Goods. This is like a form of or component of a Compliance Program.

Prior to any examining, possessing, or transferring Controlled Goods in Canada, every individual/employee who will have access to Controlled Goods must be assessed by a designated officer against security risks and be registered or exempted from registration under Defence Production Act and Controlled Goods Regulations. Based on the personal information obtained from the employee, an evaluation is undertaken by the designated officer of the risk of transferring Controlled Goods by the employee to someone who is not registered or exempt.  The designated officer must grant or deny access to the Controlled Goods or send the risk assessment to the CGD. The information is also reviewed on the basis of a security assessment to deny, suspend, amend or revoke existing registration or exemption of an employee or person.

Controlled Goods cannot be shared with persons inside the company who have not completed a risk assessment and been granted access.  As a result, employees might not be able to share goods with each other.

Controlled Goods cannot be shared with persons outside the company who are not also registered with the CGD.  Companies (and their employees) cannot send/transfer/store Controlled Goods with other companies without first determining whether the company is registered with the CGD and whether the person within the company has undergone a security risk assessment and been granted access to Controlled Goods.  This means that outside service providers (such as cloud storage companies) must have a CGD registration before electronic information can be sent to them.

Strict controls and risk management are required to prevent unauthorized possession, examination or transfer of Controlled Goods.  The risks identified in 1-10 above give rise to controlled goods issues for a company and could result in a breach of Canada’s controlled goods laws.

Disclosure for Non-Compliance

If you have identified breaches of Canada’s export controls laws as remote working arrangements were put in place, you should consider making a voluntary disclosure to the Export Controls Division.

If you think you may have a breach of the Controlled Goods Program rules, you are required to report that breach within 3 days.  That being said, the Controlled Goods Directorate has indicated on its website that it has limited activities during the COVID-19 shutdown.  Reports of breaches will be prioritized.  The requirements for reporting a breach are set out in Controlled Goods Registrants must notify the Minister of actual and potential data breaches

If you require assistance updating your compliance program to incorporate remote work activities or if you need to make a disclosure of a potential violation, please contract Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com.

 

 

We now know the dated that the Canada-United States- Mexico Agreement (CUSMA) (or USMCA under US terminology) will enter into effect to replace the North America Free Trade Agreement (NAFTA): July 1, 2020.  This does not mean that the governments are ready to enforce CUSMA – Canada, United States and Mexico must now negotiate and publish Uniform Regulations (that is, harmonized regulations relating to customs matters).  There will be new  regulatory changes that will be announced over the next weeks leaving less time for you to get ready.  It is best to start now.

Timeline

July 1, 2020:  Enters into Effect;

April 24, 2020: The United States took the last step of the ratification process;

April 3, 2020; Canada notified the United States and Mexico that it completed its domestic ratification process of CUSMA;

April 3, 2020: Mexico announced it was ready to implement the agreement;

March 13, 2020: Bill C-4 “An Act to implement the Agreement between Canada, the United States of America and the United Mexican States” received royal assent;

January 29, 2020: President Trump signed Public Law No: 116–113 allowing USMCA to be ratified;

January 16, 2020: The United States Senate passed the USMCA;

December 19, 2019: The United States House of Representatives passed the USMCA with bipartisan support;

December 19. 2019: Canada, the United States and Mexico signed a revised CUSMA – see the following announcement;

December 12, 2019: Mexico’s Senate passed the revised NAFTA 2.0 allowing it to be signed.

June 19, 2019: The Senate of Mexico ratified NAFTA 2.0;and

November 30, 2018: In Buenos Aires, Argentina, Canada, the United States, and Mexico signed the first version of NAFTA 2.0.

What you might need to do you prepare for CUSMA?

Canadian businesses, exporters, importers, etc. have a little over 2 months to get ready.  What a company must do will depend upon the particular circumstances of the company.  We cannot list all the steps to get ready.  However, we set out a number of suggestions below:

1. Inform your customs broker that they should update their customs tariff codes to be used with respect to imports from United States (UST) and Mexico (MXT) and to stop using the MUST tariff code.  See Certification of Origin Requirements under CUSMA not the same as NAFTA;

2. Contact exporters from Mexico and the United States to ensure that the goods that they have reviewed the rules of origin and have applied the NAFTA 2.0 rules of origin to the goods and have verified that preferential treatment is appropriate. Review the rules of origin to determine whether the test for preferential treatment (duty free treatment or reduced customs duties) under CUSMA have changed;

3. Contact exporters from Mexico and the United States and ask that they update their computerized systems to ensure that all invoices contain the appropriate Certification of Origin (the blanket NAFTA Certificates of Origin cannot be used).  See – Certification of Origin Requirements under CUSMA not the same as NAFTA;

4. Update your computerized systems to ensure that all invoices contain the appropriate Certification of Origin (the blanket NAFTA Certificates of Origin cannot be used);

5. Seek updated advanced rulings relating to origin issues – Update: When CUSMA enters into effect, NAFTA advance rulings are no longer valid;

6. Review the rules of origin (some rules are very complex) to determine whether goods that you export that were subject to customs duties under NAFTA are no longer subject to customs duties under CUSMA;

  • Ensure you start with the right tariff classification for the good – this online tool might be helpful;
  • Review the rule of origin for that good to determine if the rule is a tariff shift rule or a regional value content rule or another rule;
  • Review your Bill of Materials and update the Bill of Materials if the components or ingredients have changed;
  • List the origin of each item in the Bill of Materials;
  • List the tariff classification number for each item that was not manufactured in Canada;
  • If you must a apply a tariff shift rule of origin, ensure that the tariff shift has occurred for each item in the Bill of Materials; and
  • If you must apply a regional value content rule, perform the calculations to determine if the rule of origin is satisfied.

7. If you will be importing or exporting vehicles or parts, review Are you ready for the new CUSMA/USMCA/NAFTA 2.0 Auto Rules of Origin?;

8. Determine whether the changes to transshipment rules affect your imports into Canada see Article 4.18 of Chapter 4 of the CUSMA and the associated documentation requirements are contained in Article 5.4(3) of Chapter 5 of the CUSMA;

9. If you import “specially defined mixtures”, determine if the changes to the definition affect your imports and/or exports – See Customs Notice 20-13;

10. Importers of record in Canada might be entitled to duty savings as the low value shipment thresholds increase – The CBSA announced new LVS threshold for use after CUSMA implementation;

11. Direct selling companies and other e-tailers (stores that sell over the internet) should update their computerized records to reflect that the online shopping duty-free threshold for Canadian consumers buying U.S. origin goods will be increased from $20 to $150 when the goods was shipped by mail or courier and

12. Importers of U.S. dairy, poultry and egg products should watch Global Affairs website for information about applying for new quota – more U.S. dairy, poultry and eggs will be entitled to enter Canada and you will need quota to take advantage of this benefit.

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

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.