Customs Issued You a Ruling. Are You Protected?

Most people would say yes, but a recent Federal Court of Appeal decision might make us think twice about the answer to this question.  In the case referred to, the importer relied on a ruling issued by the Canada Border Services Agency (CBSA) and as a result, was refunded duty (by way of drawback).  This ruling was later replaced with a new ruling, and the CBSA demanded repayment of the duty that had been refunded.  In the end, the Federal Court of Appeal agreed that CBSA’s request for repayment of the duty was reasonable.

In light of the circumstances of this decision, and that CBSA recently advised that they will begin to publish their rulings in January 2015, it seems like a good time to talk in some detail on the subject of CBSA Rulings and how you can ensure that you are protected by the ruling that was issued for your goods.

 

Background:

The Canada Border Services Agency (CBSA) has long offered the administrative service of providing rulings of the following types:

  • Advance Ruling  For Tariff Classification
  • National Customs Rulings
  • Advance Rulings for Origin Under Free Trade Agreements

 

What’s the difference between the types?

Advance Ruling for Tariff Classification (AR) – is a written statement on the tariff classification of a product.  As the term would suggest, an AR is intended to be requested in advance of the import of the goods.

National Customs Ruling (NCR) – is a written statement by the CBSA outlining how provisions of existing customs legislation apply to an importation of a specific commodity. NCR’s can be requested concerning the valuation, origin or marking of goods (but, not for the application of an FTA preferential tariff treatment or marking under NAFTA).  NCR’s are provided as an administrative service for the convenience and guidance of importers. There is no legal provision that requires CBSA to issue NCR’s.

Note: An NCR (for tariff classification or any of the above) may also result from a CBSA decision on an appeal filed by an importer or may be CBSA initiated in the course of an audit.

Advance Rulings for Origin Under Free Trade Agreements – is a written statement issued by the CBSA concerning the origin of a good under a free trade agreement.

 

Publication of Rulings by CBSA Beginning January 2015

The publication of advance rulings by the CBSA is intended to provide a resource to the importing community to assist with the tariff classification of their goods.  Because you will now be able to see rulings that were issued to others, it is extremely important that you know an advance ruling benefits only the ruling recipient (or persons importing the good in question from the ruling recipient, if the ruling recipient is an exporter or producer).  Although an importer may quote an advance ruling number that was issued to someone other than themselves, the CBSA is not bound to recognize and adhere to the ruling content with regard to that importation.  But, a reference to the ruling on the import documents will make the CBSA aware that there is an advance ruling which “may” relate to the goods in question, which can be beneficial to you.

 

What if you don’t want your ruling published? 

To respect the right to privacy, the CBSA will only publish rulings for which consent has been provided by the applicant.  The requirement to indicate consent or no consent has been added to the list of information required by CBSA before they will issue a ruling.

 

Review of rulings by CBSA:

CBSA can chose to review a ruling at any time to ensure its’ continued validity.  After review, they may retroactively revoke or replace an invalid or incorrect ruling.  They do so when they determine that there was a change to, or was an omission to the material facts or circumstances on which the advance ruling was based.  The replacement ruling would be considered in effect from the date of the initial importation of the goods covered by the replacement ruling, or such earlier or later date (if specified in the replacement ruling). This is similar to what happened in the scenario that lead up to the aforementioned Federal Court of Appeal Decision.

 

CBSA makes mistakes too:

If CBSA discovers that a ruling issued is incorrect due to a CBSA interpretive or administrative error, the ruling will be revoked and replaced with a revised ruling. In these cases, the agency will consider and treat the original incorrect ruling as being valid for the period beginning from the effective date the original ruling letter, to the date it is expired and replaced by a revised ruling with its own effective date.

 

Read between the lines:

You’ve read in the previous 2 paragraphs how CBSA deals with incorrect rulings issued as a result of their error versus “your” error.   If you apply this reasoning to the chain of events leading up to the Federal Court of Appeal decision above, you may surmise that it was not CBSA who had erred in the original ruling.  This is a very unfortunate situation for an importer to find themselves in, especially if they truly believed that they had done the right (and safe) thing by obtaining the ruling in the first place.

 

How can you protect yourself?

The last thing you want to do is find yourself in a position where you have already sold your goods for a price that excluded duty, only later to find out that the ruling that you used is invalid and CBSA assesses duty retroactively!  Nor do you want to be found non-compliant and exposed to penalties by CBSA.  So, how can you protect yourselves?

  • Ensure that you provide complete and accurate information in support of your ruling request. In the absence of product literature or technical information, a physical sample of the good may be submitted with the ruling request. Physical samples can be particularly useful for those goods whose essential character is dependent on knowing the good’s precise composition and/or constituent elements, or when seeing or touching a physical sample will facilitate or expedite the classification of the good.
  • It is your responsibility to advise CBSA of any changes to the information upon which the ruling was based.  A simple change to the manufacturing process or the addition of one small ingredient in a product could change the HS classification, making your original ruling invalid, the goods subject to duties and possibly subject to penalties.
  • Utilize a professional, like Cole International.  When you need your car fixed, you don’t go to a baker or plumber, right?  The same philosophy applies to your “Customs” needs.  Customs is a complicated, intricate industry with significant consequences for errors.

In the ever-changing, increasingly complex world of international trade, it is better to be safe than sorry.  With Cole International’s experienced Consulting department in your corner, assisting you through the ruling application process and beyond, you can be assured that your interests are protected.  We encourage you to contact us to discuss your concerns and needs.

 

References and Contacts:

Cole National Consulting Manager: Cheryl Corbeil

Ph: 905-672-6255

email: Cheryl.corbeil@cole.ca

http://www.cbsa-asfc.gc.ca/publications/dm-md/d11/d11-11-3-eng.html

http://www.cbsa-asfc.gc.ca/publications/dm-md/d11/d11-11-1-eng.html

http://www.cbsa-asfc.gc.ca/publications/dm-md/d11/d11-4-16-eng.html

http://www.cbsa-asfc.gc.ca/publications/cn-ad/cn14-024-eng.html

 

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Canada – Korea Free Trade Agreement Date: January 1/15

The Canada – Korea Free Trade Agreement (CKFTA) is on track to come into force on January 1, 2015.

This landmark agreement constitutes Canada’s first free trade agreement in the Asia-Pacific region and will provide new access for Canadian businesses and workers to the world’s 15th-largest economy and the fourth-largest in Asia. The Canada-Korea Free Trade Agreement (CKFTA) will benefit a wide range of industry sectors, including (but not limited to):

  • Industrial goods, chemicals & plastics, information and communications technology, aerospace, metals & minerals)
  • Agricultural and Agri-food products
  • Wine and spirits
  • Fish and seafood
  • Wood and forestry products

Will the CKFTA Benefit You?   If you currently import goods of Korean origin, directly from Korea, the CKFTA will benefit you.

Here is a brief summary of the how the duty on imported goods will be reduced or eliminated by the CKFTA:

  • Non-Agricultural Goods: Over 80% of non-agricultural goods will be duty-free as soon as the CKFTA comes into force.   Duty on the remaining 20% of non-agricultural goods will be reduced to 0% in stages from 1 to 12 years.
  • Agricultural Goods: Just over 50 % (50.7%) of agricultural goods will be provided immediate duty free status upon implementation of the CKFTA.  Duty on a further 36% of agricultural goods will be reduced to 0% over a 5 year period.  13% of agricultural items will be EXCLUDED from duty elimination (i.e. dairy, poultry, eggs, etc).

Interesting Facts:

  • Korea is a key market for Canada – it is the world’s 15th-largest economy (GDP of $1.1 trillion), and the fourth-largest in Asia, with a population of 50 million people.
  • Korea is already Canada’s seventh-largest merchandise trading partner and its’ third-largest in Asia (after China and Japan). Total merchandise trade between the two countries reached approximately $10.1 billion in 2012.
  • Tariff elimination will be particularly advantageous for Canadian businesses, as average Korean tariffs are three times higher than Canada’s.
  • The U.S. and the EU already enjoy free trade agreements with Korea. The CKFTA will level the playing field for Canadian exporters and investors.
  • Korea’s economic growth in the last 30 years has been remarkable. Since 1980, Korea’s GDP has grown more than six-fold and experienced an average annual growth rate of 6.5 per cent.

What do you need to do?

  • If you are an existing Cole client, please contact your Cole Customer Service Representative.  They can refer you to the appropriate person within Cole’s Consulting team who will work with your firm to prepare a detailed impact analysis based on your past imports.
  • If you are not currently a Cole client, we’d appreciate any opportunity to discuss how we can be of service to you!

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Delays at North America’s West Coast Ports

Back in September, Cole International published an article called “Know the Risks, International Trade & Transportation”.  The overall message in the article was – even though you have taken all necessary precautions upfront, there are still things beyond anyone’s control that can affect the timeliness of a shipment.

This is exactly where we find ourselves today – in a situation, out of our control that has created significant delays in receiving and sending international shipments.   There is extreme congestion at North America’s west coast ports which is being experienced for a number of reasons. The Canadian International Freight Forwarders Association (CIFFA) reports:

“A variety of causes have converged to create chaos and congestion at US and Canadian West Coast ports.    Labour negotiations between the ILWU and the Pacific Maritime Association are ongoing and negatively affecting all US west coast ports. Right now discussions have been postponed for 12 days due to the American Thanksgiving. Severe chassis shortages and trucking problems at Long Beach and Los Angeles add to the tension and delays. US destined cargo has been diverted north to Port Metro Vancouver and Prince Rupert. Congestion in Asia ports, larger vessels that take longer to handle in ports, and storms in the Pacific wreak havoc with vessel schedules. Some vessels are arriving 10 to 12 days late at Canadian and US ports.   Dozens of vessels are anchored at ports waiting, sometimes for weeks to discharge. Volumes have not been this high in over 2 years.”

There is significant impact to the international trade community as a whole.  CIFFA reported:

Exports are being delayed 

  • Across North America, exports are being severely hampered.  As vessels try to pick up time in their schedules, they discharge inbound containers and immediately depart, not waiting to load exports. In many cases, loaded export containers are being held at inland rail receiving terminals or held off-dock. 
  • Terminals are full and there is no room on the docks for empty containers that need to be evacuated back to Asia.  Vessels are not waiting to load empties.

Expect equipment shortages in Asia.  

  • Every week that goes by with thousands of containers landing in North America and few being returned to Asia, the problem worsens.  Soon we expect that the imbalance will be such that December and January exports from Asia will suffer as there won’t be sufficient numbers of containers there to load.

Expect even more surcharges.  

  • It costs money to keep vessels at anchor for days waiting to discharge and to manage container imbalances.  Carriers are beginning to implement congestion surcharges.  For example, on Friday MSC has announced that, “With several weeks of slowdown on U.S. West Coast port operations, our vessels are being worked at a slower pace, extending the stay at the port, which consequently leads to other vessels having to wait a significant number of days outside the port. Consequently, a costly recovery program, including a multitude of services, has been orchestrated to lessen the delay of U.S. exports, Asia exports and flow of equipment into Asia.” It added that it wished “to recover our expenses and mitigate our potential loss of revenue, and shall, therefore, effective Nov. 26, 2014 (gate-in date) charge a Port Congestion Surcharge. The amount of the surcharge is $800 per TEU, $1,000 per FEU and $1,125 per high-cube container”.  Other carriers are following suit. This surcharge could seriously affect freight forwarders’ treasuries and could substantially increase credit liabilities/ risk.  

Airfreight is not necessarily the answer. 

  • With weeks of delay in ocean freight, shippers desperate to have product on shelves for Black Friday and the Christmas retail season have diverted thousands of tons of ocean freight to air. Scheduled carriers are flying full and air charter rates inbound from Asia are through the roof.
  • Importers who are trying to negotiate air cargo inbound from Asia during the next several weeks must be advised of realistic transit times, possible booking delays and cost expectations.”

What to expect & what you need to know:

  1. These delays are totally beyond the control of Cole (or CIFFA) and there is no course of claim or cost recovery for increased fees, demurrage, detention, storage or surcharges.
  2. As Cole is made aware, we will communicate with our clients, any new or increased carrier surcharges or cost recovery programs.
  3. Delays of up to 3 weeks at West Coast ports are imminent.
  4. Be prepared for continued delays into 2015, and possible further delays with associated escalating costs until ILWU settles their labour contracts, productivity is stabilized and operations return to normal.
  5. Prepare for a strong peak Chinese New Year (CNY) season (Jan-Mar), with heavy volumes through West Coast ports including Canada.

This is an unfortunate situation, but it is important that you stay informed to enable you to make important business decisions that lie ahead.  Cole will monitor the situation closely and will publish information on the latest developments at the West Coast ports as it becomes available.

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Important Deadline, USA Bound Food Products

Background:

The Food and Drug Administration (FDA) Food Safety Modernization Act (FSMA), signed into law on January 4, 2011, enables FDA to better protect public health by strengthening the food safety system.

The Issue:

A significant deadline for “food facilities” is fast approaching.  Among many other changes, FSMA amended Section 415 of the Federal Food, Drug, and Cosmetics Act (FD&C Act) [21 U.S.C. § 350D], which requires domestic and foreign facilities that manufacture, process, pack or hold food for human or animal consumption in the U.S. to register with FDA. Under FSMA, all food facilities that are required to register with FDA under Section 415 of the FD&C Act must renew their registrations with FDA, every other year, during the period of time beginning on October 1 and ending on December 31 of each even-numbered year.

Consequence of Non-Compliance:

Beginning on January 1, 2015, if a foreign food facility is required to register with FDA, but fails to do so, food from that facility that is being imported or offered for import into the U.S. is subject to be held under Section 801(l) of the FD&C Act.

Food Facility Registrations (FFR) that are not renewed by December 31, 2014 will be subject to invalidation of registration and could result in food shipments manufactured by those facilities without valid registrations to be held at the port upon arrival in the U.S.

More Information:

For more information on the FDA food facility registration requirement, see FDA’s website at:http://www.fda.gov/Food/GuidanceRegulation/FoodFacilityRegistration/default.htm. For assistance with registration issues contact FDA Industry Systems Help Desk at 800-216-7331 or 301-575-0156. For assistance via email, utilize the form on FDA’s website http://www.accessdata.fda.gov/scripts/email/cfsan/bioterrorismact/helpf2.cfm

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Date limite importante, Produits alimentaires destinés aux É.-U.

Contexte :

La Food and Drug Administration (FDA) Food Safety Modernization Act (FSMA), passée le 4 janvier 2011, permet à la FDA de mieux protéger la santé publique en renforçant le système de sécurité alimentaire.

Le problème :

Une data limite importante pour les « installations alimentaires » approche à grand pas.  Parmi d’autres nombreux changements, la FSMA a modifié la Section 415 de laFederal Food, Drug, and Cosmetics Act (FD&C Act) [21 U.S.C. § 350D], qui exige que les installations qui produisent, traitent, emballent ou entreposent de la nourriture destinée à la consommation humaine ou animale aux É.-U. soient enregistrées auprès de la FDA. Conformément à la FSMA, toutes les installations alimentaires qui doivent s’enregistrer auprès de la FDA dans le cadre de la Section 415 de la FD&C Act doivent renouveler leurs inscriptions auprès de la FDA, tous les deux ans, au cours de la période s’écoulant du 1er octobre au 31 décembre de chaque année dont le nombre est pair.

Conséquences en cas de non respect :

À partir du 1er janvier 2015, si une installation alimentaire étrangère doit s’enregistrer auprès de la FDA mais manque de le faire, la nourriture provenant de cette installation, qui est importée ou offerte à l’importation dans les É.-U. sera sujette à une saisie, conformément à la Section 801(l) du FD&C Act.

Les Food Facility Registrations (FFR) qui ne sont pas renouvelées avant le 31 décembre 2014 seront sujettes à une invalidation d’enregistrement, ce qui pourrait alors entraîner une saisie des cargaisons de la nourriture fabriquée par ces installations sans enregistrements valides lors de leur arrivée aux É.-U.

Plus de renseignements?

Pour plus de renseignements au sujet des exigences d’enregistrement des installations alimentaires de la FDA, consultez le site Web de la FDA sur :http://www.fda.gov/Food/GuidanceRegulation/FoodFacilityRegistration/default.htm. Pour obtenir une aide par rapport aux problèmes d’enregistrement, veuillez contacter l’Assistance des Systèmes d’Industrie de la FDA au 800-216-7331 ou 301-575-0156. Pour obtenir de l’aide via courriel, utilisez le formulaire sur le site Web de la FDA http://www.accessdata.fda.gov/scripts/email/cfsan/bioterrorismact/helpf2.cfm