Archive for the ‘Canada Customs’ Category


 

NAFTA Certificate of Origin: Top 5 Mistakes and How to Avoid Them

NAFTA Certificate of OriginPacking slips, commercial invoices and customs invoices are all documents that can be easily completed. What I mean is that you are simply taking shipping or invoicing data – shipper, consignee, carrier name, description of goods, etc. – and plugging it into the respective area on one of these documents.

But how about the North American Free Trade Agreement (NAFTA) Certificate of Origin? Can you use the same document completion philosophy?

In a quick glance at a NAFTA Certificate of Origin, one might assume that the answer is yes. Exporter — yes. Producer — yes. Importer, description of goods, blanket period — yes, yes, yes. Sounds like we’re on a roll! We read the NAFTA Certificate of Origin completion instructions, understand what information is required and we finish this form off to satisfy the foreign purchaser’s request. Right?

Wrong!

The main difference between an NAFTA Certificate of Origin and the aforementioned documents is that all the products you list on this document must qualify under the North America Free Trade Agreement. That’s right – do not simply complete the document. There are rules that must be observed.

As we already noted, some fields on the NAFTA Certificate of Origin are fairly basic and you can easily fill them in. The focus of this article is to provide clarification on the less understood areas to raise awareness of their complexity.

Five Common Errors on a NAFTA Certificate of Origin:

#1. Field 6 — Harmonized System (H.S.) Tariff Classification Number

As emphasized in a previous article, it is very important that the H.S. tariff classification is correctly assigned to each product, as the first six digits will determine which of the NAFTA “Specific Rules of Origin” will apply (Go to page 141  to see the list).  If you are unsure regarding the tariff classification a customs broker can help.

#2. Field 7 — Preference Criterion

The completion of this field is going to depend on where a product was sourced or manufactured, the extent of the manufacturing and transformation process, and/or the source and place of manufacturing for any raw materials. Note that the preference criterion chosen for one product might not be the same as for another, and each situation will need to be evaluated on its own merit.

#3. Field 8 — Producer

Hey, you get a lucky break! This is one of the easier ones. YES, NO(1), NO(2), and NO(3) are your options. The ‘NO’ options of (1), (2), and (3) refer to what you are basing your NAFTA claim on — whether you ‘just know it is NAFTA eligible’ (1), or you have documentation from the producer that it is NAFTA eligible (other than an NAFTA Certificate of Origin ) (2), or you have a voluntarily provided and accurately completed NAFTA Certificate of Origin from the manufacturer (3). We respectfully advise that you go for (3), as this assures that the actual producer has done his due diligence in confirming NAFTA eligibility of the product he is providing to you.

#4. Field 9 — Net Cost

In order to properly complete this field, you will need to understand the NAFTA “Specific Rules of Origin” applying to a product to determine if Regional Value Content is a factor and whether the Net Cost method will be used. In this field, you will either show ‘NC’ if the Net Cost method was used, or ‘NO’ (all other situations). By the way — do not place a dollar amount in this field, as this merely indicates to a customs agency that you did not read the instructions!

#5. Field 10 — Country of Origin

This one sounds simple, doesn’t it? You would be amazed, however, at the number of NAFTA Certificate of Origins  we receive that indicate countries other than the U.S., Canada or Mexico (remember, it’s the North American Free Trade Agreement). Another common mistake is for someone to automatically assume that just because certain products are made in Canada, the U.S., or Mexico they qualify for NAFTA. In fact, if they do not qualify, they must not be listed on this document.

Sound complicated? In some cases, it is straight forward, but in so many others (for example, products with many foreign components), NAFTA qualification can be an onerous task. The point we are making is for companies and individuals to realize that much care needs to be exercised (before signing, please read the disclaimer at the bottom of the form so you understand your responsibilities).

Repercussions of incorrectly filled out NAFTA Certificate of Origins:

Your worst nightmare would be a situation where a company has been importing a product for many years assuming that it qualifies under NAFTA (i.e. duty free), then discovering through a customs audit that the goods do not qualify. Regular Canadian or U.S. duty rates range from duty free to over 200%; fines and penalties could also be assessed. Need we say more?

It should be noted that similar rules apply for any Certificate of Origin relating to a free trade agreement. For instance, if you grab a copy of a Canada-Chile FTA Certificate of Origin, you will notice many similarities.

Still baffled over the completion of this document, or whether or not your goods qualify under NAFTA? If you require advice or have questions related to NAFTA,  please contact one of our Trade Compliance Specialists. They will help you take full advantage of the benefits provided by NAFTA.

Additionally, take an in depth tour of NAFTA, by attending an upcoming NAFTA Workshop wherein you will gain a better understanding of NAFTA, learn how to manage NAFTA compliance and utilize this free trade agreement to your benefit.

 

You may also leave your comments or questions on completing a NAFTA Certificate of Origin in the comments section below.

Related Blog Articles:

Related Customs Forms:

 Related Video:

The Most Crucial Aspect of Global Trade: HS Tariff Codes

HS Tariff CodesEvery commodity that clears through customs must have an accurate and correct Harmonized System code (HS code) applied to it. This code identifies the item to Canada Border Services Agency (CBSA), as well as indicates the duty rate payable.

The Canada Customs Invoices or Commercial Invoices prepared must provide enough detail to identify the goods and correctly establish the H. S. tariff classification code.

Tariff classification can be very complex and speaks to the essential character of the article being imported:

  • What article is being imported?
  • What is the article made of?
  • What is the item used for?

Almost 200 countries, representing about 98 percent of world trade use the Harmonized System as a basis for trade negotiations collecting international trade statistics, quota controls, rules of origin and for statistical and economic research and analysis.

Anatomy of an HS Code:

The HS code is a 10 digit code. The first six (6) digits of the HS code are universal (meaning that all countries use the same first six digits to classify a commodity); the remaining four (4) digits that make up the HS Code are unique from country to country and used for statistics.

Classifying commodities correctly is key with regards to the importer paying the correct amount of duty and avoiding Administrative Monetary Penalty System (AMPS) penalties, or worse, seizure of your goods.

The Customs Tariff book is a comprehensive list of all HS codes laid out in 99 chapters; the progression being from raw products to the most highly processed. These 99 chapters are also broken into 21 sections for ease of reference. The tariff book contains over 10,000 detailed tariff options. In order to select the correct tariff code, you or your customs broker are required to understand the rules contained in the tariff book, and have detailed knowledge of the item(s) being imported.

All imported items must be classified in the Harmonized Tariff System (HTS) using the General Rules of Interpretation and other aids.

 Commodities entering Canada are classified based on:

  1. Six (6) Universal General Interpretive Rules (GIR) and
  2. Three (3) Canadian Rules

 The Six Universal General Interpretive Rules (GIR):

Rule No.1:

The titles of Sections, Chapters and Sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or notes do not otherwise require, according to the following provisions.

Rule No.2:

2. (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this Rule), presented unassembled or disassembled.

2. (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of Rule 3.

Rule No. 3:

3. When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows:

3 (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

3 (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to Rule 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.

3 (c) When goods cannot be classified by reference to Rule 3 (a) or 3 (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

Rule No. 4:

Goods which cannot be classified in accordance with the above Rules shall be classified under the heading appropriate to the goods to which they are most akin.

Rule No. 5:

5. In addition to the foregoing provisions, the following Rules shall apply in respect of the goods referred to therein:

5(a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This Rule does not, however, apply to containers which give the whole its essential character.

5(b) Subject to the provisions of Rule 5 (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, this provision is not binding when such packing materials or packing containers are clearly suitable for repetitive use.

Rule No.6:

6. For legal purposes, the classification of goods in the subheadings of a heading shall be determined according to the terms of those subheadings and any related Subheading Notes and, mutatis mutandis, to the above Rules, on the understanding that only subheadings at the same level are comparable. For the purpose of this Rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.

The Three Canadian Rules:

1. For legal purposes, the classification of goods in the tariff items of a subheading or of a heading shall be determined according to the terms of those tariff items and any related Supplementary Notes and, mutatis mutandis, to the General Rules for the Interpretation of the Harmonized System, on the understanding that only tariff items at the same level are comparable. For the purpose of this Rule the relative Section, Chapter and Subheading Notes also apply, unless the context otherwise requires.

2. Where both a Canadian term and an international term are presented in this Nomenclature, the commonly accepted meaning and scope of the international term shall take precedence.

3. For the purpose of Rule 5 (b) of the General Rules for the Interpretation of the Harmonized System, packing materials or packing containers clearly suitable for repetitive use shall be classified under their respective headings.

 

Correctly understanding and interpreting the General Interpretive Rules (GIR), and using them to apply the most accurate HS code, is the basis of tariff classification. A customs broker has years of practice using the GIR to apply true and accurate HS codes chosen from the 99 Chapters of the Customs Tariff book.

 

The Explanatory Notes

In addition to the GIRs contained in the Customs Tariff, a second publication, the Explanatory Notes, is used to assist in correctly classifying commodities. The Explanatory Notes is a list of definitions, explanations and rules that apply to and clarify headings and subheadings in the Customs Tariff.

As well as identifying the commodity and duty rate to CBSA, the HS code also indicates if the product requires additional clearances from other government agencies such as the Canadian Food Inspection Agency (CFIA) or Natural Resource Canada (NRCan).

 

Advanced Ruling

In the event that there is no obvious classification that fits the item being imported, an Advanced Ruling should be requested. An advanced ruling ensures that the item will be classified to CBSA’s satisfaction and there will be no penalty for misclassified items. This is recommended for any item that is not clearly stated in the Customs Tariff or appears to have more than one equally applicable tariff.

Should you get an advanced tariff classification ruling from CBSA?

Not all goods require an advanced ruling from customs in order to be properly classified, however the process remains complex and all imported items must be classified in the Harmonized Tariff System (HTS) using the General Rules of Interpretation and other aids. Getting an advance ruling ensures that the tariff classification number used is deemed correct by the CBSA. The advance ruling provides certainty to the importer, or his or her representative, as to how goods are to be classified and thereby facilitates the documentation and other governmental department requirements for clearing goods at the border.

 

Proper classification is the starting point of compliance. A thorough knowledge of the Harmonized System is essential for anyone involved in global trade. If you would like to further your understanding of tariff classification and find the correct commodity codes for your goods, attend our upcoming H.S. Tariff Classification Workshop. In this hands-on session you will learn how to classifying goods and parts , understand the complexities of the various rules of interpretations of the H.S. Tariff System, gain a better understanding of how duties are determined and learn about preferential tariff treatments. Register today!

 

Have questions or comments on H.S. tariff classification? Post your thoughts in the comments section below or email us at Ask Your Broker.

eManifest Regulatory Update — Current Status Outlined

Update ArrowThe Border Commercial Consultative Committee (BCCC) of the Canada Border Services Agency recently released a regulatory update regarding the ACI eManifest program, the details of which can be found below. While this document does not address the burning question of when compliance will become mandatory, it does offer some insight into the process and where we stand as of right now and hints that the “coming into force date” will be sometime in early 2015.

Regulatory Process

There are numerous steps prescribed by the Treasury Board Secretariat (TBS) in order to develop and implement regulatory amendments. The process has been outlined at the previous two BCCC meetings, and the CBSA has completed the majority of the process. The remaining steps are as follows:

  • The regulatory amendment package again requires “blue-stamps” from the DoJ.
  • Signed regulatory amendment package submission is then again presented to Privy Council Office (PCO)
  • The regulatory amendment package is again presented at a Treasury Board meeting (meetings are dependant on Parliament being in session).
  • The registration of the regulations can then occur along with their publication in Part II of the Canada Gazette. This is the mandatory “coming into force” date.

 

Current Status of the eManifest Regulatory Amendments:

  • Stakeholder issues and concerns have been heard and will be addressed through the regulatory process and the CBSA’s responses will also be contained within the final published RIAS.
  • All stakeholders that sent comments have been sent )either via email or mail) individual letter outlining the CBSA’s responses to your comments/concerns.
  • The regulatory amendments create and revise pre-arrival requirements. Any concerns viewed as “outside the purview” of the regulatory amendments )such as comments regarding the release of commercial goods, or comments regarding the carrier code application process) will be addressed by the appropriate areas within the CBSA and further consultation will take place.

Stakeholder Comments: A Thematic Overview

  • The CBSA received numerous stakeholder comments during the pre-publication period, all of  which were supportive of eManifest, and has been able to successfully address all concerns which were raised.
  • There were three specific requirements which required further clarification and education to resolve stakeholder queries:
    • ACI reporting of Empty Conveyances (Highway Carriers)
    • ACI reporting of Marks and Numbers on Cargo Submissions (Highway Carriers and Freight Forwarders)
    • ACI reporting of the Harmonized System (HS) Code on House BIll and supplementary cargo submissions (Freight Forwarders)

 

Proposed Solutions:

  • To assist carrier in providing pre-arrival empty conveyance information, the CBSA provides free of charge bar coded lead sheets through the eManifest Portal. Portal users can input data and print multiple lead sheets in advance for generic empty loads and the driver can keep a supply of printed lead sheets on hand in each vehicle.
  • Education of stakeholders is key in order to convey that they do not have to submit data that they do not visually see on a package (Marks and Numbers) or shipping document (HS Code). The CBSA will educate through the regulatory responses and program outreach.

 

Current Status of the eManifest regulatory amendments

  • At this time, the CBSA does not have an anticipated “coming into force” mandatory date, but the date is projected to be in early 2015. The Agency has committed to provide all stakeholder advance notice of the “coming into force date”/
  • The “coming into force” date will be communicated through various venues such as emails to current EDI clients and committee members (e.g. BCCC eManifest Sub-Committee), website postings, communiques, etc.
  • The CBSA will continue to work with clients to assist them with compliance with the new requirements.
  • The CBSA thanks the early adopters of eManifest and recommends that all other clients who have not yet begun transmitting begin now as the “coming into force date” will occur in the near future.

 

As always, Pacific Customs Brokers’ Border Pro for Carriers, strives to bring the latest updates on cross-border regulations. If you have any questions about ACI eManifest, how to register or  how it will affect your business, please contact our Border Pro eManifest Team at 855.542.6644  or via email at emanifest@borderpro.ca. We also welcome your questions regarding ACI eManifest and its implementation in our comments section below.

 

Pacific Customs Brokers’ Border Pro for Carriers offers a full and self eManifest filing service option that can take the hassle of getting registered with CBSA off of your plate.
For the latest updates on eManifest visit the Carrier News section of our website regularly or sign up for our weekly Border Pro newsletter. Additionally, you’ll find the ‘Your Broker Knows’ YouTube channel to be an excellent resource.

4 Reasons For Determining the Correct Harmonized Tariff Classification

Harmonized System Tariff and ClassificationThe dilemma: You are always getting calls from your customs broker asking for further information about your products. When asked “why”, they respond that they need to determine the correct harmonized tariff classification.

To the uninformed observer, why care? I mean let us be honest… all you want to know is… “Do I have to pay customs duty on these goods?” Right?

Like everything, you need to peel back the layers to see what lies beneath. First of all, let us briefly examine the complexity of the tariff schedule as defined by the harmonized system.

The Harmonized System (H.S.) Tariff Schedule:

The H.S. Tariff Schedule is comprised of 21 sections with 96 chapters; in Canada there are over 12,000 individual tariff classifications at the ten digit level. There is a specific hierarchy (the General Rules of Interpretation) which defines the methods used to determine a product classification. Additionally, there are sections, chapters and explanatory notes to consider, plus further rules defining how to navigate the punctuation and use of dashes or hyphens. Granted, some items can be classified easily but many require an expert with years of tariff classification experience.

Key Reasons Why “Getting It Right” Is So Important:

Let us start with the area that everyone is aware:

1. Duty rates: The tariff classification has a direct correlation to the duty rate that you will be expected to pay (and no, it is not a matter of “finding the one that says FREE”).

2. NAFTA: This is very important as one of the first steps in determining if goods qualify under NAFTA is to find the tariff classification for the product and to then check under the NAFTA Specific Rules of Origin to determine how the goods might qualify. A common misconception is that products will “automatically” qualify if they are made in Canada, the U.S. or Mexico.

3. Anti-Dumping Duty (ADD): If a government decides that they need to protect a domestic industry, they can impose an anti-dumping duty on specific imports. This is also driven by the harmonized tariff classification. Pay close attention to this area as anti-dumping duty rates are always very high – usually double or sometimes triple digit percentages.For a full list of Canadian imports subject to dumping duties visit this link » Goods subject to anti-dumping or countervailing duties

4. Exporting to countries other than the U.S. where the shipment value exceeds $2,000.00? You or your freight forwarder will be required to complete a B13A export document (or electronic equivalent), and you will need the eight digit harmonized system export code or the Canadian 10 digit import code for each product. Once again, export restrictions and permits governed by Foreign Affairs are driven by the tariff classification.The above topics are the primary reasons for determining the correct tariff classification. In addition, we should also include the controls through other governmental agencies, such as the Canadian Food Inspection Agency, Free Trade Agreements with other countries, and also the effects on Canada’s trade statistics.

 

Remember – If your company’s name is indicated as the importer on any customs documents, you (not your customs broker) are looked upon as the responsible party to ensure all declarations are correct. You may be able to avoid any future problems by getting it right the first time!

To learn more about the Harmonized System (HS) Code:

Proper classification is the starting point of compliance. A thorough knowledge of the Harmonized System is essential for anyone involved in global trade. If you would like to further your understanding of tariff classification and find the correct commodity codes for your goods, attend our upcoming H.S. Tariff Classification Workshop. In this hands-on session you will learn how to classifying goods and parts , understand the complexities of the various rules of interpretations of the H.S. Tariff System, gain a better understanding of how duties are determined and learn about preferential tariff treatments. Register today!

Have questions or comments on H.S. tariff classification? Post your thoughts in the comments section below or email us at Ask Your Broker.

4 Trade Incentives That May Delight Your Finance Team

Incentive-Money-600Trade agreements save companies money, but what about the other programs that can reduce importing and carrying costs for importers and manufacturers?

The Government of Canada recognizes the need for Canadian companies to be competitive in the global market. Special circumstances apply to some and every importer has a unique profile based on their business model. Various companies participate in manufacturing activities, while others provide goods for sale in Canada and internationally.

Administration costs and the rapid growth of small businesses can sometimes cause business owners to overlook opportunities for cost savings available through government programs for minimizing duty and tax liability. Canada Border Services Agency (CBSA) and Canada Revenue Agency (CRA) offer several of these programs. They are not suited for every business and certain conditions apply. Depending on the nature of your business, you may find benefit to exploring your options and taking advantage of the tax and duty relief plans offered.

 

Four trade incentive programs that could provide relief from duties:

1. The GST Direct Program

The GST direct program offers GST Registrants the option of paying their Goods and Services Tax (GST) directly to the Receiver General of Canada. A statement called a K84 Monthly Statement is generated on the 25th day of each month. It provides a breakdown summary of the GST owed for any importing activity within the previous month. Shipments imported after the 21st of the month, will appear on the following month’s K84.

Low value shipments valued under $2,499.99 get longer grace time before payment of the GST is required. Low value shipments must be accounted for by hard copy or electronic transmission by the 24th day of the month following the month the goods were release.

The GST direct program allows importers to claim the GST input tax credit on the previous month, while allowing for almost a full extra month to remit the GST payment for shipments released after the 21st of the previous month. For example, a high value shipment released October 21 would not require the GST to be paid until the last business day of the month in November. There is currently no online option for payment when it comes to GST Direct. The GST must be received by way of a cheque to Receiver General no later than 4:30 pm local time on the last business day of the month. Your customs broker can deliver the cheque on your behalf to CBSA, some lead time will be required to ensure it is delivered on time. Late payment of the GST to the Receiver General can result in a penalty from CBSA.

This program requires a small adjustment to your business’s accounting cycle. The benefit of this program for your company is improved cash flow and a reduction in your customs broker’s liability on their customs broker bond. Depending on your import activity and entry complexity, this program can sometimes translate into an opportunity for a discount on your entry fees by reducing the financial exposure your customs broker takes on when clearing your freight. Your customs broker must post security with CBSA through and independent surety company. There is a cost associated with the customs brokers bond, so the higher your company’s disbursements in duty and GST, the higher the cost to maintain a customs brokers bond to service your account.

To sign up for the GST direct program, a letter must be completed on your company letterhead. Your customs broker will need a copy to update your importer profile and activate GST direct on your import account.

 

2. Exporter of Processing Services Program (EOPS)

This program allows companies who further manufacture goods for export, to import goods without payment of the Goods and Services Tax (GST) at the time of import.

To qualify, participants in this program:

  • Must be a GST or HST Registrant
  • Must have no ownership interests in either the imported goods that are coming into Canada for further manufacturing or the processed goods after production
  • Must not be closely related to the supplier outside of Canada for whom you are processing the goods

To get approved for this program, a consultation with the Canada Revenue Agency (CRA) is required. Participants must keep detailed records for goods imported under this program as well as proof of export for the processed goods post manufacture. Goods imported under the EOPS program must be exported within four years from the date of accounting. Once approved for this program, Canada Customs assigns an Order in Council (OIC) number that must be shown on your import entries to allow for the GST exemption on imports entering Canada under this program. Pacific Customs Brokers can assist with the program application.

For more information on the EOPS program, please visit  the Exporters of Processing Services Program section of CBSA’s website.

 

3. Duties Relief Program

This program allows importers to bring in goods duty free if they will eventually be exported. The goods must be exported in the same condition or after using or consuming them in the manufacturing process. This program is best suited to companies who import goods attached to tariffs with high rates of duty. It is a proactive approach because it allows for duty relief at the time of accounting; prior to payment of the customs duties on import. The prescribed timeline for export is a maximum of four years. This program requires detailed record keeping to ensure compliance in case of a customs audit. Your customs broker can assist with the application.

For more information on the Duties Relief Program, please consult the Canada Border Services Agency’s D Memorandum D7-4-1: Duties Relief Program.

 

4. Duty Drawback Program

This program is similar to the Duty Relief Program but pertains to companies who have already paid customs duties on imported goods.  Detailed records are required for compliance purposes, but this program allows for duty recovery for importers, producers, and manufacturers. Goods that have not been further advanced in condition are eligible for duty drawback. For goods being exported to a NAFTA country that have been further processed, additional conditions apply.

For more information on the Duty Drawback Program, please consult the Canada Border Services Agency’s D Memorandum D7-4-2.

 

Good advice can save you money. When it comes to customs compliance, Pacific Customs Brokers’ Trade Advisory Services can assist in identifying your exposure to risk in your supply chain and help navigate the most complex trade issues. This often translates into a competitive advantage in the marketplace and a positive relationship with customs. Our Trade Advisors can help explore the strategies that fit your organization.

Want to know more about our Trade Advisory services and how they can benefit your organization?  Contact our Trade Advisory team at consulting@pcb.ca or visit the Trade Advisory Services section of our website.

 

Has your business benefited from trade incentives?

Do you have questions about these trade incentive programs? We welcome your comments below or email Ask Your Broker.