What is CETA?


CETA Agreement

CETA is the Comprehensive Economic Trade Agreement between Canada and the European Union (EU).  It is the 14th trade agreement that Canada has entered into. CETA received Royal Assent on May 16, 2017, and has been provisionally applied on September 21, 2017.

 

The European Union is (currently) comprised of 28 countries:

  •  Austria
  • Belgium
  • Bulgaria
  • Croatia
  • Cyprus
  • Czech Republic
  • Denmark
  • Estonia
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • Ireland
  • Italy
  • Latvia
  • Lithuania
  • Luxembourg
  • Malta
  • Netherlands
  • Poland
  • Portugal
  • Romania
  • Slovak Republic
  • Slovenia
  • Spain
  • Sweden
  • United Kingdom

This agreement will allow Canadian importers and exporters improved access to these markets through reduced or eliminated duties.

 

This agreement intends to break down trade barriers between the signatory nations and create both jobs and economic growth through new opportunities for importers and exporters.  Since the Comprehensive Economic Trade Agreement between Canada and the European Union is now in force, it will provide sweeping tariff reductions for almost all sectors of industry immediately.  Approximately 99% of products will be eligible for reduced duty rates immediately, and after 7 years all customs duties on industrial goods will be eliminated.   

 

With that in mind, CETA does have provisions for Canada and the EU to protect certain commodities from duty reduction or elimination, such as chicken and turkey imports into Canada and beef into the EU.   

 

For items to take advantage of the Comprehensive Economic Trade Agreement between Canada and the European Union preferential treatment, the commercial invoice or another commercial document must identify the originating product(s) in the shipment and  include the statement for originating goods such as the below:

 

(Period: from___________ to __________)

The exporter of the products covered by this document (customs authorization No …) declares that, except where otherwise clearly indicated, these products are of Canada/EU preferential origin.

 

……………………………………………………………………………………………………

(Place and date)

…………………………………………………………………………………………………

(Signature and printed name of the exporter)

 

The “Period from ___ to ___”  field can be left blank, or if it is completed, it cannot be for a period of greater than one year.  It is important to note that although a blanket period may be indicated, the origin statement must still accompany each shipment. The “customs authorization No” is only to be completed by approved EU exporters, otherwise, it can be omitted or left blank.

If the product being exported from the EU contains non-originating materials the supplier should also provide the following statement:

 

I, the undersigned, supplier of the goods covered by the annexed document, declare that:

The following materials which do not originate in the European Union/in Canada (1) have been used in the European Union/in Canada to produce the following supplied non-originating products.

Any other materials used in the European Union/in Canada to produce these products originate there.

 

I undertake to make available any further supporting documents required.

…………………………………………………………………………………………………………………………

(Place and Date)

…………………………………………………………………………………………………………………………

(Name and position, name and address of company)

…………………………………………………………………………………………………………………………

(Signature)

 

Unlike NAFTA, there is no CETA certificate of Origin, and therefore a certificate is not required for imports into Canada to utilized the CETA tariff treatment.

 

The products must also meet the origin and transshipment requirements applicable to them.  For the most part, this means the items, must be shipped directly from any EU Country or remain in customs control when in transit through a third country.

 

Already Canadian cheese importers can apply for tariff rate quota from Global Affairs Canada to enjoy reduced duty rates upon enforcement (without quota, cheese from the EU, as with other countries, will be subject to prohibitively high duty).  

 

The text of the agreement can be found on Canada Border Services Agency’s website here.

 

Are you an importer who is interested in Importing EU goods or already do so and want to know if your items will qualify for reduced duty under CETA?  Ask us a question below, and I will be happy to answer.

 

 

 

 
 

Attn Online Shoppers, A De Minimis Increase Means More Duty-Free Importing


De Minimis Increase

Do you shop online from retailers outside of Canada? Have you ever ordered something online that arrived alongside a sizable Customs duty and tax bill? If so, then the North American Free Trade Agreement (NAFTA) renegotiation may affect you. How? The answer is in Canada’s de minimis threshold. What is the de minimis threshold and why does it matter to Canadian consumers? We have unpacked the details below.

What is De Minimis Threshold?

The de minimis level is the threshold which a package sails through the border with neither tax nor duty applied. In other words, Canada’s de minimis threshold is a duty-free threshold on imported goods.

Up to What Value Can be Imported Duty-Free Under De Minimus?

Under the Canadian Postal Imports Remission Order and Courier Imports Remission Order, the current de minimis level is $20 CDN. Therefore goods with values equal to or less than $20, would not be subject to duties or taxes upon import.

De Minimis and the NAFTA Renegotiation

The U.S. Administration released its wish list for the overhaul of NAFTA in mid-July of this year. This wish list is long with the Canadian de minimis threshold appearing high on the list.

U.S. based couriers and online merchants have been pushing hard for a de minimis level increase. They would like it to be increased from $20 to at least $200 CDN. The U.S. may likely want Canada to raise the threshold to one similar to their $800 USD level.

What is the Case for a De Minimis Increase?

De minimis is a legal maxim: de minimis non curat lex. This translates to the law does not concern itself with trivial things. In this context, de minimis regimes are intended to streamline border clearance. The rationale is that the administrative burden and processing cost does not justify collecting taxes or duties on very small shipments. In other words, if it costs more to collect the duty and tax than the amount collected then it is a financial and administrative burden to the government.

The Canadian Government currently allows goods valued at $20 to enter the country either by mail, courier, or transported by distributors without charging duty or taxes. This Canadian de minimis threshold has not changed in over 35 years. It is one of the lowest in the world. Many other countries have raised their thresholds in response to the growth of e-commerce.

Until last year the U.S. de minimis limit was $200 USD. In March 2016, U.S. President Barak Obama quadrupled the limit to $800 USD. This meant any Americans ordering from a retailer outside of the U.S. could expect any package worth less than $800 U.S. to arrive promptly without interference at the border. Neither would they receive an additional bill to cover duties and taxes and any other fees to process those duties and taxes.

All indications suggest that the Canadian consumer is on board with raising the de minimis threshold. There are many reasons why Canadians shop online, and they are no different than anywhere else in the world. They include the convenience of technology, accessibility, a wider selection of goods, targeted marketing, and sales promotions. Raising the threshold would save the Canadian consumer money they would normally pay for duties and taxes and processing fees.

What is the Case for the De Minimis Threshold to Remain Unchanged or Kept Low?

The de minimis value increase is already a hotly contested issue with retailers in Canada. Domestic retailers are concerned that a higher de minimis threshold would place them at a competitive disadvantage. This is because they would be required to levy Goods and Services Tax (GST) and Harmonized Sales Tax (HST) on the goods they sell. However, foreign retailers would not. Canadian merchants would be required to collect sales taxes on competing items sold in Canada whether in store or online and also pay duties and taxes on the imported goods.

The U.S. merchants on tax alone would have an advantage over Canadian merchants ranging from 5% in Alberta to 15% in Atlantic Canada. The Retail Council of Canada argues the U.S. online merchants would experience a 12.3% (at least) price advantage over the Canadian merchant in Canada.

The Retail Council of Canada fears that an increase in the de minimis threshold would lead to a massive increase in cross border orders with a negative impact to retailers in Canada. U.S. online merchants may start to offer free shipping as they do their U.S. customers. The investment made by retailers in Canada could be in jeopardy impacting wage jobs in IT, logistics, and distribution. The Council argues “Allocation of capital for U.S. and other international firms operating in Canada would be difficult to persuade their headquarters to invest in Canadian online offerings or bricks and mortar where customers could be easily serviced online from outside Canada.”

Some argue that the Canadian federal and provincial governments would experience a significant loss of tax and duties. The Retail Council of Canada argues that Canada and the U.S. are not on a level playing field when it comes to the acquisition of online customers. There is no tax advantage created for inbound shipments as the U.S. does not have a federal sales tax. The U.S. does not collect state and local sales taxes at the border or for interstate shipments. Also, the U.S. dominates its online retail space; with only 22% of the U.S. customers reporting to have purchased from a non-U.S. seller. By comparison, 67% of Canadians report having made online purchases in the U.S.

The recent Auditor General of Canada Report concluded that the Canadian federal government is spending more money collecting duties and taxes on shipments than those duties and taxes are worth. Simply put the government spends two dollars to collect one dollar.

The C.D. Howe Institute released a report in 2016 stating the Federal Government would save $161 million per year by raising the de minimis threshold to at least $200. The report also stated there would be a net positive benefit to Canadian consumers, governments, and businesses combined of $648 million. The C.D. Howe Institute is an independent nonprofit research institute in Canada. They are considered one of Canada’s influential think tanks on essential economic policy.

What Happens Next?

Canadian consumers appear to be on board with raising the de minimis threshold. According to the Nanos Research Poll, 76% want it raised to at least $200. Thousands have also signed a petition organized by the Canadian American Business Council pushing for change.

What will the Federal Liberal Government do? Well, we will have to wait and see for when NAFTA renegotiations conclude.

Do you have a questions or comments regarding Canada’s de minimis threshold? Share them in the comment section below and I will be happy to respond.

 

 

 

 

 

 

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Why Do I Need an IRS Number When Importing Into the U.S.?


{This post was last updated on August 9, 2017}

You have made your sale, shipped the goods to the U.S. buyer, and the shipment is on its way to the border. And then, without warning, the goods get stopped at the port of entry, and the customs broker for this shipment requests an IRS number. At this point, you are likely wondering what an IRS number is and why it’s needed. To help you understand, let’s dive into this scenario a little deeper.

What is Internal Revenue Services (IRS) Tax Number and Why is it Required?

First off, all goods entering the U.S. from overseas are considered Imports and U.S. Customs and Border Protection (CBP) must approve all Imports for entry. CBP requires documentation which includes shipment details such as the identification of the Ultimate Consignee. An Ultimate Consignee is a person, party, or designee that is located in the U.S. and will receive the shipment (which is usually the buyer of the goods). An Internal Revenue Service (IRS) number, is used by CBP to identify the Ultimate Consignee.

There are two types of IRS numbers:

  1. Employer Identification Number (EIN): Issued to business entities
  2. Social Security Number (SSN): Issued to individuals

 

Without an IRS number, CBP does not know who the Ultimate Consignee is and therefore will not accept the shipment into the U.S.

U.S. Customs states the following.

 

(Source: CUSTOMS DIRECTIVE NO. 3550-079A )

 

Will One IRS Number Cover a Host of Different Goods Sold to One Consignee?

The IRS/EIN or SSN is specific to the Ultimate Consignee as the IRS issues these numbers directly to the company or individual. Therefore, if someone in the U.S. buys a host of products from you, you would declare the IRS number for that buyer on the entry declaration to U.S. Customs.

If you have more than one buyer, then it is best to make a declaration per transaction and declare the IRS number for each buyer in each transaction.

My Shipment DID Have an IRS Number. Why Was it Stopped?

If you run into this scenario, and your import documentation included an IRS number, it could be for one of two reasons. First, the Ultimate Consignee of the shipment had never purchased goods from a foreign party and therefore is not in U.S. Customs database.

Another likely culprit for this delay could be a deactivated account. Deactivation happens when more than a year has passed since the Ultimate Consignee last received an import.  

If the IRS number is not on file or has been deactivated by U.S. Customs, then it will need to be added to their database by filing a Customs Form 5106.

What is a Customs Form 5106?

A Customs Form 5106 is used by U.S. Customs to input the name, physical address, and IRS number of the Ultimate Consignee into their database.  The Customs Form 5106 must be on file for all consignees at the time of entry.

Is a 5106 Required for Every Shipment I Send to the U.S.?

U.S. Customs states that “An importer identification number shall remain on file until one year from the date on which it is last used on Customs Form 7501 or request for services.” This means that as long as the Ultimate Consignee continues to receive goods on a regular basis, this form will only have to be completed once.  If their 5106 importer record is not used for over a year, then they will have to reactivate their number.

How Can I Determine if the U.S. has a Customs Form 5106 on File for the Consignee/Buyer?

Your customs broker can query the Ultimate Consignee information with U.S. Customs and advise you if they have an active 5106 on file.   This is a simple, and proactive step that can save you a lot of hassle.

How Do I File a Customs Form 5106?

If a 5106 is not on file,  you need not worry as your customs broker can supply you with one. You can then ask your buyer to fill it out. One you have received it back from your buyer, you can provide it to your custom broker, who will then submit it to Customs. CBP will then add it to their database.

In summary, if you are selling to U.S. buyers from outside of the U.S. and you are responsible for declaring the goods at the port of entry, you must ensure your buyer has an IRS number. If they do not, work with your customs broker to get one. We are here to help!

 

 

What to learn more about importing into the U.S.?

Get a comprehensive understanding of the process involved with our webinar on U.S. Importing for Beginners [Part 1] (just so you know…it’s free!). Take your learning a step further by attending the U.S. Importing for Beginners [Part 2] webinar and delve into the details previously touched upon in part one of the series.

 

Do you have questions or comments regarding importing to the U.S.? Please leave them in our comments section below and I will be happy to provide an answer.

 

 

 

 

 

 
 

6 Methods of Determining Customs Valuation


Six Methods of Determining Customs Valuation

 

 

 

 

 

 

 

 

 

 

 

Are you uncertain of how to properly declare the value of your goods when importing into Canada? You are not alone, many importers are. This lack of clarity is partly due to the many rules and factors when determining value for duty. With an expectation to be compliant,  customs valuation is one of the three main targets for a Canada Border Services Agency (CBSA) audit. Unfortunately, we see many importers spending the least amount of attention to this area. Valuation can be an intricate area to navigate if your foreign purchases involve situations which could change the declared value to CBSA.

So, let’s take a look at the 6 Methods of Determining Customs Valuation by first understanding what valuations are.

What is Valuation?

Valuation is the determination of the correct value of goods. CBSA requires all goods imported and declared into Canada have a value for duty which is the base figure on which you must calculate the duty and taxes you may owe the CBSA on your imported goods.

With items like samples, replacements, warranty items, short-shipped goods, you are still required to declare a fair market value although in the end payment of duties and taxes may be unnecessary.

How is Customs Value Determined?

The Customs Act identifies six methods of customs valuation.

The World Trade Organization’s Valuation Agreement is the basis of the requirements of each of these methods. These rules ensure the value of the imported goods are in accordance with commercial reality, and they prohibit the use of arbitrary or fictitious customs values.

 

 

 

 

 

 

What is Transaction Value?

Importers should use this method when determining the value for duty on the price paid or payable for imported goods with consideration to certain adjustments. This method is the most commonly used. When selling goods for export to Canada to a purchaser in Canada, the Transaction valuation applies. We have outlined the difference between the price paid and payable below:

Price Paid is the total of all payments made directly or indirectly by the purchaser to the vendor.  Price Payable, however, is the total of all payments that are owed and made directly or indirectly by the purchaser to the vendor.

You must use the transaction value method whenever possible to determine the customs value of imported goods.

What is Transaction Value of Identical Goods?

When you cannot use transaction value, you must use an established value for duty of identical goods. Identical goods are considered the same in all respects as the goods being appraised. They have one exception however and that is for minor differences in appearance. These difference cannot affect the value of the goods. For goods to qualify, production would have to be in the same country as the identical goods.

What is Transaction Value of Similar Goods?

When you cannot use transaction and identical goods, you must use an established value for duty of similar goods. For goods to qualify, the value of goods must be:

  • Closely resembling the similar goods
  • Capable of performing the same function
  • Commercially interchangeable
  • Produced in the same country and by the same manufacturer as the similar goods

What is Deductive Method of Valuation?

If none of the above methods apply, the deductive value method is the next method to consider. The basis of this method is on the Canadian importers most common selling price (per unit) of the goods sold to Canadian customers.

What is Computed Method of Valuation?

The computed value is the cost of production, profit and general expenses of the imported goods. These must be realized by producers in the exporting country when selling the same type of goods to Canadian importers.

What is Residual Method of Valuation?

The residual method does not identify specific requirements for determining a value for duty. Instead, the value is based on one of the other methods (considered in sequence). It also requires the least amount of adjustment. The value must be fair market, and reflect commercial reality.

In the end, the final value for duty can also be influenced by:

  • The relation between the parties involved.( i.e. a related buyer and seller)
  • Condition where the goods were provided to the Canadian consignee at no charge (i.e. consignment)
  • Allowable additions or deductions to the value of the goods
  • Used goods
  • Goods not sold in Canada (i.e., for rent or lease)

Now that you understand the 6 different methods of determine value for duty, the next step is to learn how to calculate your value for goods and why it’s important to get it right. Receive in-class training from one of Sr. Trade Advisors. To be notified of the next Customs Valuation seminar, you can subscribe to our mailing list below. 

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If you have reason to believe that you have valuation situations which have the potential to raise flags during an audit leave a comment below and I will be happy to reply.

 

 
 

How U.S. Customs Determines Your Import Compliance Through Reasonable Care


Image: Best PracticeIf you are importing into the U.S., you will likely undergo a review by U.S. Customs and Border Protection. This review could be in the form of a regulatory audit, either a quick response audit, or focused assessment. During this time, Customs will review your transactions and procedures to determine your import compliance and see if you have exercised Reasonable Care, also known as, “Have you done enough to ensure import compliance?”

What is Reasonable Care

Because U.S. Customs expects that importers be knowledgeable and proactive in the conduct of their regulatory responsibilities, during  their review they will determine the degree in which you have tried to meet these regulations. This is referred to as Reasonable Care.

Example of Reasonable Care

There are some very specific areas that form an importer’s foundation of compliance.  While all as laid out in the U.S.Customs and Border Protection Informed Compliance Manual entitled Reasonable Care, we have briefly outlined a `short list`of specific areas below.

Areas in which importers must exercise reasonable care:

All Transactions

  • Use of external or internal experts
  • Review of all customs documentation, inclusive of entry declarations, for accuracy
  • Practice consistency in same or similar transactions across ports and modes of transport
  • Search for errors and make the appropriate adjustments or Prior Disclosures

Merchandise Description and Harmonized Tariff Classification

  • Having procedures in place to ensure that you are fully knowledgeable of the products you are importing including composition, country of origin, end use etc.
  • Describing the merchandise to Customs according to regulations in a detailed manner
  • Ensuring that you are providing the correct tariff classification of the goods
  • Verification of whether your goods are eligible for specific duty-free status

Valuation

  • Create procedures to ensure accuracy of your declared transaction value, per Customs regulations
  • Ensure that you are declaring the correct values to Customs for any transactions between “related” parties
  • Declare assists, commissions, royalties, etc.

Country of Origin / Marking / Quota

  • Create reliable procedures to ensure correct declaration of the country of origin on your entry
  • Mark all imported articles with the country of origin/manufacture
  • Establish documentation processes to determine and ensure that all necessary documentation at time of entry

Intellectual Property Rights

  • Ensure that you have the legal right to import trademark or copyright protected merchandise

Miscellaneous Questions

  • Ensure to file all Participating Government Agency filings, while using the correct type of entry

It is especially important to document all of the above actions, reviews and approvals thoroughly.

Example of a Lack of Reasonable Care

Now that we understand what Reasonable Car is and what ares of international trade it relates to, let us now look at an example of what not to do. Unfortunately, after an audit has revealed non-compliance, we occasionally hear comments such as “I thought I did everything I was supposed to,” or “My broker never told me to do that.”

In a recent ruling by the U.S. Court of International Trade, a company was found negligent in this area. The importer was unsure of the Tariff Classification for the goods they wanted to import into the U.S. While they did contact a Customs Broker, who provided them with three different classifications in 20 minutes, they took not further action to ensure the information they received was correct. The importer chose to use the classification with the lower rate of duty and conducted no further due diligence.

Mistakes like these can be seemingly ‘harmless’ however, can result in being deemed non-compliant.  In this case it was considered negligence not to use the many resources available to help with tariff classification.

Reasonable Care Resources

And now for the good news! There are so many resources available to you to help you towards your import compliance goals. And what is especially important is that knowledge of, access to and use of are considered part of exercising reasonable care.

  • Experienced third parties: lawyers, accountants, customs brokers and trade consultants
  • Government Resources: CROSS database of CBP rulings, H.S. Tariff schedule, informed compliance publications

Create Internal Processes

Another resource is to create an efficient and compliant import process which starts with everyone involved understanding their role and responsibilities. It is especially crucial that importers:

  • Understand their risks and responsibilities
  • Meet Reasonable Care standards with established processes, and
  • Ensure to monitor and enforce standards therefore safeguarding your continued privilege to import

It is important to note that without having the proper knowledge of the responsibilities of an importer, and ensuring that you are both in compliance and have evidence of your actions, you may be at a higher risk for:

  • Penalties
  • Liquidated damages
  • Various customs audits
  • Increased costs of doing international business
  • Supply-chain disruptions and delays
  • Losing your import privileges

On the other hand, being knowledgeable about the expectations and acting with the expected due diligence, while not guaranteeing that you are not subject to an audit, does assure that you are taking full advantage of allowable reductions in duty.

Why conduct an internal import compliance customs audit?

A thorough internal audit will help identify areas of risk while also helping to lay the foundation for your customs compliance plan.

In conclusion, we encourage you to conduct regular internal audits on your Customs transactions to ensure import compliance. Furthermore, use the Customs guidelines in developing your internal controls and standard operating procedures. 

Do you have questions about conducting an internal customs compliance audit? Leave a comment below.