How NAFTA Negotiations Affect You


 

 

 

 

 

 

Do the NAFTA Negotiations Really Affect You?

If you are engaging in cross-border trade and investment you need to stay informed on the recent news in NAFTA negotiations and other trade agreements with Canada;

  • Canada-European Union (EU) Comprehensive Economic and Trade Agreement (CETA)
  • Trans-Pacific Partnership (TPP)

This week marks the start of the 5th round of NAFTA talks in which Mexico, the U.S. and Canada hope to make considerable progress on the NAFTA text.

For the past 23 years, NAFTA has tied together North America’s economy through predictability, openness, and collaboration.  The creation of NAFTA in 1994 marked the largest free trade agreement in the world. NAFTA removed previous barriers to encourage the flow of goods and labor between the U.S., Canada, and Mexico.

U.S.’s NAFTA Priorities

In 2017 the U.S. is prioritizing employment for American citizens. Along with the renegotiation of NAFTA, the U.S. government withdrew from the Trans-Pacific Partnership (TPP) negotiations. This would have seen 12 of the top economic countries eliminate trade barriers to encourage international trade. The U.S. ultimately decided to withdraw from the TPP to prioritize protecting American jobs.

With the latest rounds of negotiations, the U.S. released a series of what Canadian Foreign Affairs Minister, Chrystia Freeland, considered “unconventional proposals” challenging the 23 years of predictability and collaboration. The two main concerns, specifically highlighted by Freeland are:

  • The auto industry’s supply chain management system
  • The currently enforced dispute-resolution system (Chapter 19)

The U.S. auto-industry has stated that cars containing less than 50 percent U.S. auto parts should be subject to a tariff since this will encourage Americans to buy and sell cars locally. This is a problem for Canada and Mexico because it will affect current supply chains leading to an international disadvantage, as well as a loss of jobs for Canadians and Mexicans.

For the currently enforced dispute-resolution system the U.S. wants to ensure enforcements on disputes are non-binding or voluntary, therefore, eliminating the importance of any future rulings.

The U.S. has been aggressive in the negotiations because they are less dependent on NAFTA than Canada and Mexico. If NAFTA were to fall apart for all three countries, Canadians and Mexicans would lose a substantial amount of jobs and opportunities. However, Canada has leverage as the current largest export market for the U.S. The two nations also have the previously established Canada – U.S. Trade Agreement. Although the agreement is outdated, it does provide a fallback for ongoing trade.

Canada’s NAFTA Priorities

Canada’s priority in the negotiations is to stop the U.S. from implementing tariffs on goods that were previously being traded freely. While the U.S. has prioritized the removal of Chapter 10, which allows foreign access to Government procurement, Canada intends to safeguard it.

Furthermore, Canada is also looking elsewhere to strengthen trade ties. CETA was introduced on September 21st, 2017 and will reduce and in some cases possibly eliminate tariffs between Canada and Europe. These changes will open up new opportunities for Canadians and Canadian business. In November of 2017, Canada and the 11 remaining signatories of the TPP reached an agreement to move forward with the free trade deal.

Mexico’s NAFTA Priorities

Mexico’s priorities in the negotiations are similar to Canada. They want to prevent the United States from placing tariffs on products that are currently being traded freely. The United States imports approximately 80 percent of all Mexican exports. Mexico is the second largest export market for the U.S. As a result, any further complications would encourage Mexico to strengthen its trade relations with other countries.

How NAFTA Affects You?

Changes in trade can be extremely disruptive to your business and investments. Whether NAFTA folds or is successfully re-negotiated is still to be determined. However, one thing is certain, international traders who utilize this trade agreement can expect to see a change in how they trade after a decision on NAFTA is reached.

 

Pacific Customs Brokers is always here to help you stay informed with NAFTA and the ongoing negotiations between the U.S., Canada, and Mexico.

 


Interested in learning more about what Free Trade Agreements your goods might fall under? Leave me a comment below.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

How Bombardier may Avoid Anti-Dumping and Countervailing Duties


It was announced earlier this week that Bombardier, a Canadian rail and air transport manufacture and AirBus, an aeronautics maker from France, have struck a deal which will avoid the U.S. anti-dumping and countervailing duties that were to be imposed on them upon importation.

 

How are some companies able to avoid these duties while others are not?

The Background

In 2016 Bombardier landed a contract to sell 75 of their C-Series jets to Delta Airlines in the U.S. In a move that was considered to be protectionist, U.S. air plane manufacture Boeing argued that Bombardier was able to sell their jets to Delta at low cost due to Canadian government subsidies. This complaint was heard by the U.S. Commerce Department which ruled in agreement with Boeing. The result was an almost 300% combined countervailing and anti-dumping duty to be placed against Bombardier C-Series jets upon importation into the U.S.

What are Anti-Dumping and Countervailing Duties?

In our previous post The Potential Perils of Anti-Dumping and Countervailing Duties, we explain anti-dumping and countervailing duties. In a nutshell, the intent of anti-dumping is to protect domestic industry through a government imposed increased duty on foreign imports and importers that it believes are priced below fair market value, and below what they would normally sell the goods from in their own domestic market.

 

Countervailing, is an import tax imposed on certain importers, and importers that may receive subsidies from their country which allows them to sell the goods for under market value in the U.S. Market. Countervailing is also referred to as anti-subsidy duties.

Why Were the C-Series Jets Considered to be Unfairly Subsidized?

The Government of Quebec’s has a 49.5% interest in the C-Series jets. Additionally, the Canadian Government  provided a $344-million dollar loan to Bombardier when sales for the jet were lagging.

How Will Bombardier Possibly Avoid Paying Anti-Dumping and Countervailing Duties?

As mentioned above, anti-dumping and countervailing duties are imposed on foreign importers. If the company manufactures goods within the U.S., they are no longer foreign nor would there be an import.

 

Bombardier partnered with Airbus on the C-series jet recently, which effectively provided a 50.01% interest to Airbus. The C-series jet will not be manufactured in Canada, but on a secondary Bombardier assembly line at the U.S. Airbus facility. Therefore any sales into the U.S. would not be considered foreign and import duties not applicable.

What’s Next?

It is too soon to tell if this move by Bombardier and Airbus will indeed successfully avoid countervailing and anti-dumping duties. In some cases where an importer avoids anti-dumping and countervailing duties by moving manufacturing they could still face these duties and taxes on the parts they import. It is expected that there will be research into this deal and subsequent comment for the U.S. Commerce Department in weeks to come.

Which view do you take on this story? Has the U.S. unfairly penalized Bombardier or has Canada unfairly subsidized them? Please leave a comment below.

 

 

 
 

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.