Our advice to importers and carriers is to be proactive in understanding how eManifest impacts their supply chains, and to work at fully implementing the program well before the mandatory period begins, when penalties will be applicable, and unnecessary stresses imposed, that will ultimately have negative commercial consequences.
Our friends at Thompson Dorfman Sweatman LLP, or TDS law have spent some time looking into the new regulations in Canada surrounding the implementation of e-manifest. During the research of this piece Reynold Martens, Executive VP of GHY International and author of the white paper titled “A Case for An Integrated Trade Compliance Strategy”, was consulted for his insight on this matter.
This and other hot topics are presented in their most recent newsletter. You can read their newsletter here.
About Thompson Dorfman Sweatman LLPThompson Dorfman Sweatman LLP (TDS) is one of the leading full-service business law firms in Manitoba, with over 120 years of history providing legal services to its clients locally, nationally and internationally. From our offices in Winnipeg, Manitoba, TDS has the expertise necessary to help clients take advantage of every opportunity and to develop creative solutions to legal challenges experienced in their business in a timely and cost-effective way. The full-service firm’s seventy-eight lawyer team covers over 20 areas of practice and offers services in seven languages including English, French and Spanish. TDS has long been recognized as a centre of excellence in the areas of business law, labour relations law, employment law, civil litigationand dispute resolution. LEXPERT® The Business Magazine for Lawyers recognized TDS as the leading corporate law firm in Manitoba, being the only Manitoba corporate law firm at the centre of its “Bulls-Eye” ranking of Manitoba corporate law firms. A number of our lawyers have been recognized by LEXPERT® and THE BEST LAWYERS IN CANADA® and other legal publications as being among the leading Canadian lawyers in their areas of practice.
Multiple service providers complicate the channels of communication when an importer has reason to believe from CBSA.
The Case Defined:
A large Canadian electronics speciality firm geographically divided its imports across multiple professional service providers. When Canada Border Services Agency (CBSA) did an audit they found an issue and communicated that to the importer. Upon receipt of that information, from a CBSA perspective, the importer had ‘reason to believe’ that the information they had reported was in error, and therefore a compliance issue. The importer did notify the one professional services provider to address the issue that CBSA had found on a transaction that provider had processed for them, no other communication to other parties was done, thereby leaving a compliance hole open for the importer.
Communication is Key:
The key issue is lack of communication with the 4 providers in their trade program, the communication channels of an integrated trade compliance strategy would have helped them be transparent to all providers. It also raises the issue of why they diversified so much and created a more complex trade program then necessary?
Responsibility Matrix Key Tool for Accountability
A secondary issue is that of process. How did each provider arrive at the determination of tariff? The answer again goes back to the up front strategy. We would recommend a responsibility matrix or standard operating procedures is necessary to define up front how the relationship will work and who is responsible for what, clarity of risk.
Both of these issues are addressed in an Integrated Trade Compliance Strategy. Do you need one?
A leading US distributor of metal and plastic products, with clients worldwide, lacked a system to track country specific duties or anti-dumping levies. To remedy this, a comprehensive database of all products was built, and then cross-referenced with the regulatory elements of each market. As a result, the company was able to minimize trade related costs, and exposure to fines and penalties in this highly regulated industry sector.
The Case:
A leading distributor of metal and plastic products took it upon themselves to minimize their risk by making trade a competitive advantage for their organization. The steel industry is highly monitored; consequently, the company was paying multiple fees as a result of the anti-dumping duties. With such a massive database, and with no effective procedures in monitoring the inventory, the organization could not keep track of which products were subject to anti-dumping duties in which countries. Wanting to remain a leader within the industry, the organization incorporated an advanced technological system to monitor all inventory. The products subject to the anti-dumping duties would be flagged and a notice would be sent out to inform the organization to verify with their customs broker in which countries the duties applies. With this technological implementation, the company was substantially able to save on the amount paid in duty fees.
The Issue:
Once again we see communication as a key issue when importers/exporters want to take control of their international trade compliance program. In this specific case it was the volume of their product sku’s that drove them to find a better way to control the communication in order to reduce their duty payouts.
The Summary:
The end result of any good strategy is to enhance the way work is getting done with a goal to address a key strategic element of the organization. Communication channels alone do not make a good strategy, in this case they developed database supports to trigger proper communications regarding anti dumping when required. The net result was a savings in duty pay outs which improves their cash flow.
Two of the world’s leading organizations in oil and gas equipment services incurred penalties of $610,000 and $800,000 in 2009 due to a licensing and classification violation. Both of the companies exported and re-exported various valve types and spare parts to a wide range of countries without the required licenses.
Bureau of Industry and Security (U.S. Department of Commerce) – FMC Technologies Inc and BJ Services Inc
Two of the world’s leading organizations in oil and gas equipment services incurred a $610,000 and an $800,000 penalty on August 13, 2009 due to a licensing and classification violation. Both of the companies exported and re-exported various valve types and spare parts to a wide range of countries without the required license. The typical maximum penalty for one of the organizations’ violation is $2,106,000. On average, the fine pertaining to this violation in which most companies incur is $7,820.51. With a settlement agreement, this organization incurred 30% of the maximum penalty and 78-times the average fine. The maximum fine for the second companies’ violation stands at $1,907,000, with an average fine of $5,128.21. This company incurred 42% of the maximum fine and 156-times the average fine.
Link to Original Source for this piece.
These cases represent the disconnect that comes from a silo based approach. The requirements of trade compliance go beyond tariff, origin, and value. In this case there is tariff related issues, but what creates the largest impact financial is the licensing issues when exporting goods, most obvious when outside the NAFTA countries.
A major organization, specializing in vehicle manufacturing, gained significant financial benefits as a result of duty drawbacks.
A major organization, specializing in vehicle manufacturing, gained significant financial benefits as a result of duty drawbacks. The company had been operating on a compartmentalized approach to trade in which classifications of parts were disordered, and duty payments were veiled from the organization’s CEO and Executive Team. Desperately needing a change to the current trade strategy, the organization began to integrate all communications and trade related processes throughout the entire company. This created visibility of duty payments thus allowing the organization to choose which duties to recover.
Case Analyzed
This case is a textbook study of the models we presented earlier this year. The first is that silo based approach and the problems it causes, that was presented in an article Risky Business the Problem with Silos. This firm had that exact issue and it did not have visibility to the organization vertically in order to allow the CEO and Executive Team to understand cash flow for duty payments, as well as provide support in order to pursue duty refunds where applicable.
The answer for this firm was an Integrated Trade Compliance Strategy which addressed the visibility within the organization, but also the horizontal communication across divisions and 3rd party providers in support of providing better cash flow management for the organization. We covered that with the presentation of an Integrated Trade Compliance Strategy, what is it?
United States Customs and Border Protection estimates that 3 billion dollars per year of US import duties are eligible for drawback, of which 80% are not recovered.
Do you use imported merchandise to produce or manufacture products for export ?
Are you paying import duties on finished goods which are eventually exported ?
If the answer is “yes”, Duty Drawback is an opportunity to increase profitability and reduce costs. You may be entitled to duty recoveries and not even know it !
United States Customs and Border Protection estimates that 3 billion dollars per year of US import duties are eligible for drawback, of which 80% are not recovered.
Although there are no published statistics available from Canada Border Services Agency, it is our belief that the unrecovered amounts are also significant.
Up to 99% of all US Customs duties can be refunded on imported merchandise subsequently exported, or in some cases used to manufacture a new article for export. Duties paid up to 6 years ago may be refunded against exports over the past 3 years.
Up to 100% of all Canadian Customs duties can be refunded on imported merchandise subsequently exported, or in some cases used to manufacture a new article for export. A claim for drawback must be filed within 4 years of the date the goods were released from Customs.
The growth of off-shore and near-shore sourcing has made it increasingly important for Canadian and United States firms to adopt strategies that factor into account opportunities to reduce or eliminate cost inputs through programs like Duty Drawback.
You should talk to your professional trade services provider about filing for retroactive duty drawback claims in both Canada and USA, or to establish a new drawback program, so you can take advantage of costs savings on a regular basis.
Case in Point, Engineering a Product to meet a Beneficial Tariff Classification. The fact is that by understanding the how on both sides of the trade compliance equation can you maximize the ultimate value of a integrated Trade Compliance Strategy for your organization and make international trade a strategic benefit for your organization.
Recently an article by Lauren Meling of the software firm, Management Dynamics, was brought to my attention. The article is titled, Understanding the Science of Importing for Small to Mid-sized Companies, Lauren was writing a summary of an article that appeared in the CFO Magazine website titled, Import Duties: Bend Me, Shape Me, Any Way You Want Me.
Portions of Lauren’s article is reprinted here with permission.
Lauren did an excellent job summarizing 5 key tips from the CFO article.
From this article, I have composed 5 simple tips on how to reduce costs in your company as an importer:
1. View your import tax policy.
2. Understand the subtle differences with the tariff schedule.
3. Audit your Supply chain.
4. Discuss tactics with your vendor.
5. Practice “tariff engineering.”
For this case in Point article I want to focus on her #5 item, Practice “Tariff Engineering”, in which she defined in her article as;
5. Practice “tariff engineering.”
According to CFO, “tariff engineering is the practice of designing and marketing a product with a tariff schedule in mind.” Understand how you will market the product. The terms and use of the product derives back to tip #2, how you classify your product can help you save money.
“How you import products is actually a science. If you know the [importing] categories and how to work with the categories, you’ll save your company money.” states Billy Pymm, CFO of Maverik Lacrosse
Understand the ‘How’
The fact is that by understanding the how on both sides of the trade compliance equation can you maximize the ultimate value of a integrated Trade Compliance Strategy for your organization and make international trade a strategic benefit for your organization. The how questions being how is it manufactured (sourcing) and how it is sold (sales) in reference to end use and markets.
Here is a case in point to demonstrate what I mean;
A ‘L’ shaped metal bracket when imported is classified as a metal bracket. But that bracket is welded onto a machine and therefore the bracket is no longer a bracket but a part of a larger machine. So when that bracket breaks and requires repair, the bracket is removed and needs to be exported for repair, is it a metal bracket again? NO it is a part of a machine and therefore can benefit from tariff classification as part of that machine, and not a metal bracket.
Disassemble of items from source can create tariff shift and thereby qualify for tariff benefits such as NAFTA or duty free status, because work to remove items must be considered as further rework, disassembly of an item is really manufacturing in reverse.
What about goods that require Quota?
Products subject to quota have conditions that make them quota applicable, question is what conditions make it quota applicable and what can be changed to no longer make that product quota applicable.
By adding or removing something that changes the definition of the end product while not changing it’s use, may in fact allow the product to be engineered to have a tariff shift that is in fact not quota applicable.
In Closing
While each case is unique and must be reviewed by your professional trade services provider, you can see that you can in fact engineer products to meet with tariff changes that benefit your organization once you understand the ‘how’ questions.
Tell us about your experience with this? Did it work out for you?
A multi-national vehicle manufacturer, serving markets in Europe and North America, failed to accurately classify a major component
A multi-national vehicle manufacturer, serving markets in Europe and North America, failed to accurately classify a major component imported by one of the their Canadian divisions, resulting in overpayment of duties by $250,000 annually. It is estimated that the impact of this omission after production burden costs and overheads were applied, was double that amount at the point of sale, resulting in margin erosion.
we cant create a dialogue if we don’t know each other, in this post we introduce the key players behind tradecompliance.ghy.com
We can’t establish a relationship if we don’t know each other:
I am Nigel Fortlage, Vice President Information Technology at GHY International. I have been in this industry since 1988 and before that I worked for an importer/distributor/Manufacture as their in-house customs specialist. For the last 16 months I have had a second hat I have been wearing in partnership with our Executive VP, Reynold Martens working on understanding the social media space and how we can connect with you in a two-way conversation. We will be specifically sharing details around the concept we have been introducing you to, an Integrated Trade Compliance Strategy. We believe by providing you good information, education and awareness that we hope to engage in a conversation that results in helping you solve problems, creating that Ah Ha moment for you, or addressing moments of truth in your international trade operations that adds value
Martin Rayner is an independent consultant with more than 27 years of diverse experience working in various operational facets of the customs brokerage and international trade logistics field. Martin has also held executive-level positions in the industry with a number of the leading trade service providers across Canada and during his career has acted in both professional advisory and advocacy capacities for companies seeking to leverage opportunities in the regulatory environment to their benefit.
Reynold Martens is Executive Vice President and Corporate Secretary of GHY International, and he is the President and co-founder of the firm’s subsidiary, GHY USA, Inc. He is the Author of the white paper titled, a Case for an Integrated Trade Compliance Strategy. Reynold is also actively involved outside of GHY, he is active in various industry and community leadership roles, including directorships with the Canadian Manufactures and Exporters Association, current chair for IE Canada Manitoba Chapter and member of the National Board
Rick Riess, President & CEO, GHY International. We can not talk about our current president and 4th Generation owner of the firm without, acknowledging the background from which he comes,
GHY–over a century old and still “Young.”
Yes it’s true. Geo. H. Young & Co. Ltd. turns 110 in 2011, making the company one of the oldest and most established privately held enterprises in Canada that continues to grow and evolve as both a pioneer and innovator in the Customs brokerage industry.
In the late 1800’s, Canada was a work in progress, with only seven provinces (Alberta and Saskatchewan joined in 1905). The young nation was struggling to protect its development by means of high tariffs on goods that were manufactured—or could be—in Canada. Duty rates of 20 – 40 percent accounted for most of the government’s revenue of about $50 million, as income taxes weren’t initiated until 1917.
At the time, George Henry Young was the Chief Inspector of Customs Ports stationed in Winnipeg. In 1901, recognizing the opportunity when he saw it, he opened one of the first brokerage houses in Western Canada. This pre-dated the automobile era, and the majority of goods moved by rail. However, the winds of change were blowing, and in 1903, Wilbur and Orville Wright took their first flight, and by 1929 the first international commercial flight into Winnipeg arrived from Minneapolis. That was likely Northwest Airlines, one of the company’s longest standing international relationships. George led the company for its first 43 years until 1944, when the reins were turned over to his son George Donald Young, known as Don.
In 1950, under Don Young’s leadership, Geo. H. Young & Co. Ltd. formally incorporated, and so began an exciting era of growth in revenue and clients. News of those years is well documented in the formal corporate minute books, which include colourful details about the business of the day, the people and events, as well as the challenges and opportunities. There is reference to some of our long-term clients who have become pillars of the Manitoba business community, and indeed some of these relationships span more than eight decades and have contributed significantly to our success.
In 1968, GHY’s leadership transitioned to Charles Riess, son-in-law to Don Young. As the Prairie economy continued to expand and with it cross-border trade, so did the company, which opened an office at Emerson, Manitoba to accommodate the growing volume of truck traffic originating in the US bound for the Prairies. Charles’ son, Richard Riess, became President in 1992, and so began an unprecedented period of growth and expansion in products, services, locations, and strategic partnerships.
Today, GHY International as it is known, is recognized as a leader in the industry for its strategic focus on trade facilitation and regulatory risk management, use of innovative technologies, solid core values, and principled approach to working with clients, associates, Customs regimes of Canada and the US, supply chain partners in all modes of transportation, and yes, even competitors.
The scope of the enterprise has expanded to include locations in British Columbia (1994), Ontario (2005), a strategic partnership in Alberta (2005), a nationally licensed US subsidiary based in North Dakota (1995), and numerous strategic partnerships. It has grown to include over 100 employees serving a client base from a broad cross-section of industries, including many top 500 companies in Canada and the US.
Canada Border Services Agency (CBSA) ranks GHY Canada 13th out of 504 reporting entities; United States Customs Border Patrol (CBP) ranks GHY USA 39th out of 2523 reporting entities; GHY Canada is the largest prairie-based member of the Canadian Society of Customs Brokers (CSCB), which includes the vast majority of Brokers in Canada.
GHY has survived the calamities of two world wars, the Great Depression, dozens of economic cycles, fast-paced growth in trade and the regulatory environment, and a technology revolution, and through all those waves of change, has been an innovator, while staying true to its core values, and maintaining a relentless pursuit of creating value for our clients.
Ascertaining NAFTA in motor vehicles is a complex process as referenced in the case of Duhamel & Dewar Inc. vs. the Department of National Revenue. Just because you have an NAFTA Certificate signed by the United States Exporter doesn’t ensure ‘duty free status’. When claiming NAFTA the importer is always in a position of ‘Buyer Beware’.
Importing a North American Made Vehicle – doesn’t mean it’s ‘Duty Free’
Ascertaining NAFTA in motor vehicles is a complex process as referenced in the case of Duhamel & Dewar Inc. vs. the Department of National Revenue. Just because you have an NAFTA Certificate signed by the United States Exporter doesn’t ensure ‘duty free status’. When claiming NAFTA the importer is always in a position of ‘Buyer Beware’, says Alan Dewar, Vice President Canadian Operations, GHY International
CBSA can request import duties up front or EVEN UP TO 4 YEARS LATER (perhaps after you no longer own the vehicle)
Importers should always exercise caution including a NAFTA indemnification clauses to minimize their risks on retroactive duty assessments
Be aware that when importing a vehicles there are 2 Canadian Government agencies that have regulations that must be met;
- Transport Canada – controlling the registration, recalls, etc. (which is really a hindrance to dealerships or organizations who buy vehicles for sale)
- Canada Border Services Agency (CBSA) import declaration purposes and taxation
Additional resources…….
We have worked with a partner who can add a LOT with respect to vehicles (challenges, regulatory elements, etc.) heading either north or southbound (including RIV process, Motorhomes, etc.) You can check out their offerings on this topic at:
Linkedin: Inspired Solutions International
Website: Inspired Solutions International
Canada Border Services Agency, commonly referred to as CBSA, has released their 2011 International Trade Compliance targets. Free Download Avilable
International Trade Compliance Targets for 2011
Canada Border Services Agency, commonly referred to as CBSA, has released their 2011 International Trade Compliance targets. They regularly do this to ensure the trade community knows where there focus is. As an importer or exporter it tells you that if you deal with these products you are at higher risk of being included in one of the various international trade compliance audit programs that CBSA has. If you are included in these groups, then your need to ensure your trade compliance strategy is solid and encompassing all aspects we presented so far is critical.
There are 2 specific trade compliance programs that CBSA conduct, Random and those deemed a National Priority.
Random Compliance Verifications
The key to note is that Random is usually related to hot spots that pop up during the year, either you or your trade service provider should be plugged into information sources that broadcast that kind of information. There are many ways to get that sort of information, a few of them are;
Canadian Society of Customs Brokers (CSCB)
National Customs Brokers and Forwarders Association of America (NCBFAA)
Canadian Manufactures and Exporters (CME)
Importers and Exporters Canada (IEC)
The government states that random trade compliance verifications;
“Random verifications are designed to measure compliance rates and revenue seepage and the results may be used for many purposes”
Some of those purposes include,
• Risk assessment,
• Establishing client service activities,
• Revenue assessment, and
• Promoting voluntary compliance.
National Priorities
The biggest shift in the past 12 months is that the Canadian government has gone from almost a sole focus on security to one that is now focused on the Health, Safety, and Security of Canadians. This change in focus is of course driven by events in the news that suggest the Government isn’t protecting it’s citizens. A few examples include the news surrounding children’s toys from China made with paints that contained products deemed toxic in Canada, or the baby bottles made using plastic containing Bisphenol A (BPA).
While the Canadian government shares this list of National Priorities that focus on areas’ of Tariff Classification, Valuation, or Origin the fact remains that while examining one aspect related to products in their target zone, it is very easy to expand that to the others and in doing so catch multiple issues relating to trade compliance. That of course is a worst case scenario, but one we have seen before. The aspect to keep in mind is that the government does not constrain itself to this list as it states;
“National priorities (NPs) are determined through a risk-based, evergreen process; i.e., new NPs may be added throughout the fiscal year. NP verifications may also be carried over from previous years.”
According to Alan Dewar, Vice President, Canadian Operations of GHY International, “The most difficult part of this process for traders is that a single line item on the government’s list, may relate to ten’s of thousands of products, when in fact the government may be focused on a very specific item in those thousands of items”, he goes on to share, “as an example look at chapter 39, miscellaneous articles of plastic, what articles are they interested in, they government will never tell you.” This becomes a challenge when considering your trade compliance strategy as the specific focus in unknown, so the question must be asked how forensically do you need to go with your trade compliance efforts in order to ensure that you don’t leave a large compliance gap open. According to Alan, he suggests you consider looking at your products from a top down approach based upon import dollars spent. The largest risk financial is usually in correlation to the volume of dollars spent on that product.
Click below for the full report:
As a member of IE Canada we are pleased to share with you the following event that is coming to western Canada later this month, please read on for an outline of the event and registration information. Speakers for this event include Joy Nott, President of IE Canada, and Susan McDonald of Perseus Trade Solutions Inc.
Understanding Incoterms® 2010 & NAFTA Audit Workshops
IE Canada Incoterms 2010 & NAFTA Audit workshop Western Canada Series Brochure
As a member of IE Canada we are pleased to share with you the following event that is coming to western Canada later this month, please read on for an outline of the event and registration information. Speakers for this event include Joy Nott, President of IE Canada, and Susan McDonald of Perseus Trade Solutions Inc.
To raise your awareness before this event, Click here to watch a short video on these new Incoterms.
Sessions scheduled for the following dates and cities:
• November 15, 2010 – Winnipeg
• November 16 – Calgary
• November 18 – Vancouver
AM Session:
Effective January 1, 2011, Incoterms® 2000 will be replaced by Incoterms® 2010.
Incoterms® serve to allocate costs and responsibilities between buyer and seller and their use is expected to increase in drafting both international as well as wholly domestic contracts for the sale of goods. Incoterms® are considered by customs and tax authorities in conducting customs and tax audits and therefore a clear understanding of Incoterms and the implications of their use is critical by in-house counsel, CFOs, buyers, as well as those involved in customs, transportation and logistics functions. The changes from Incoterms® 2000 are intended to clarify the terms and the obligations they impose on the vendor and purchaser in each case and to expand the use of the terms for use in domestic transactions not involving any import/export of goods. Certain terms have been eliminated and new terms added. There are better distinctions between the terms, and cargo security obligations have been incorporated into the terms, among other changes. This workshop will: review the Incoterms® rules; review the changes; discuss best practices in using Incoterms® on contract negotiation and drafting; identify potential pitfalls; and discuss the interpretation of Incoterms® in Canadian law
PM Session:
Most importers and exporters are eager to take advantage of the duty relief granted under the North American Free Trade Agreement (NAFTA), but remain unaware of the risks and liabilities associated with claiming the NAFTA tariff treatment. Many still do not know that more than 50% of NAFTA Certificates of Origin either contain errors which render them invalid or are not supported with the necessary documentary evidence. With NAFTA origin audit activity on the rise, more importers are being shocked by assessments of financial penalties and/or retroactive duty and GST, while some Canadian manufacturers and exporters are losing their competitive advantage in the North American market. In this down to earth, easy to understand session, we’ll cover the following:
- What importers and exporters should expect during a NAFTA audit conducted by either the Canada or U.S. Customs Agencies.
- Learn from the mistakes of others – Common errors made on Certificates / Statements of Origin, and during NAFTA audits.
- Sharing NAFTA strategies used by manufacturers, exporters and importers.
- Do you really know how your Customs Broker is handling this issue? Are you at greater risk than you thought?
Registration Options:
Sessions scheduled for the following dates and cities:
• November 15, 2010 – Winnipeg
• November 16 – Calgary
• November 18 – Vancouver
Online: www.iecanada.com
By Phone: 416-595-5333 x 37 or 1-866-616-2243 x 37
By Fax: 416-595-8226 (attention: Jesse Arsenault)
By Mail: 160 Eglinton Ave. E, Suite 300, Toronto, ON, M4P 3B5 (attention: Jesse Arsenault)
