Customs and trade implications for 2020 year-end planning

Dec 21, 2021
Business tax Indirect tax International standards

By all accounts, 2020 was an eventful year with challenges, disruptions and the implementation of a new trade agreement with Canada’s top trading partner. Following are highlights to consider for year-end planning to 2020 and looking forward to 2021 on key trade related topics:

Canada–United States–Mexico Agreement (CUSMA)

In 2020, Canada, United States and Mexico completed all ratification steps and implemented the new trade agreement. Businesses should ensure implementation of CUSMA and that any goods that qualified under North American Free Trade Agreement (NAFTA) continue to qualify under CUSMA. NAFTA ended June 30, 2020, and was replaced by the new agreement, CUSMA, on July 1, 2020.

New rules of origin

There are many changes throughout sections of CUSMA that affect the qualification of manufactured goods. Using the assumption there is no change in the qualification of imports under CUSMA could result in future risk for importers using the agreement. The rules of origin under CUSMA rely on tariff shifts and the calculation of regional value content under a manufacturing process in order to qualify goods. One of the biggest changes importers will see as a part of this agreement is an increase in the requirement for North American content, which is meant to drive a resurgence in North American manufacturing.

New certification process

Under the CUSMA agreement, importers will not need to have a ‘certification of origin’ but instead will be required to place a certification of origin on an invoice or other document included in the import package when reporting goods to customs. This may also be included on a separate sheet containing only the certification of origin and an electronic signature, and be considered valid for claiming preferential treatment under CUSMA. The certification of origin has several data elements that must be present in order to make it valid, and persons certifying the origin should ensure all elements are included.

Under the CUSMA agreement, not only the producer or exporter can make the certification of origin, but an importer will be able to as well. If an importer has all of the data elements required to make a certification of origin, and maintains the backup documents to support this claim, then the importer may be the one to make the certification of origin as well.

Rulings under NAFTA

The Canada Border Services Agency (CBSA) has released a statement that any rulings that have been issued for NAFTA will only be eligible for goods imported while the agreement remains in place. Therefore, as of July 1, 2020, any importers who are relying on a ruling issued on the eligibility of their imports under NAFTA will no longer be able to rely on the decision of the ruling for imports under CUSMA.

Duty and tax exemption on imported goods

As a result of the CUSMA changes, there were amendments made to the Courier Import Remission Order (CIRO) which allows goods to enter Canada duty free when valued up to $150 and tax free up to $40 when shipped to Canada from the United States or Mexico. The goods qualify for the duty exemption under CIRO when they are shipped from the United States or Mexico regardless of the actual country of origin, and the only requirement is that the goods must either originate in the territory or be duty paid into the United States or Mexico.

Increase in low value shipment (LVS) threshold

The Low Value Shipment (LVS) program has been in place for many years. The program allows for expedited clearance and consolidated import accounting to assist in facilitating the movement of low value commercial shipments valued at $2,500 or less. As of July 1, 2020, the LVS threshold increased to $3,300 for any goods imported from a free trade partner, including the United States, Mexico and Europe. Further, to claim the benefits of a free trade agreement on an LVS shipment, an importer will no longer need a (written) statement certifying that the goods are originating.

Food licensing

The Canadian Food Inspection Agency (CFIA)’s Safe Food for Canadians Regulations (SFCR) came into force Jan. 15, 2019. As such, there will be new requirements that will be applied to business and individuals importing food into Canada.

As of Jan. 15, 2020, commercial importers will need a Safe Food for Canadians (SFC) license to import certain foods into Canada. Shipments without an SFC licence may experience delays or refusal of entry at the border, and importers may be subject to enforcement actions.

Previous licences or registrations issued under the previous CFIA food legislation (e.g., fresh fruit and vegetable regulations, dairy products regulations), will no longer be valid for registered foods. Instead, an SFC licence will be required to import certain foods, such as meat products, fish and seafood, dairy products, shell eggs, processed egg products, fresh fruits and vegetables, processed fruits and vegetables, honey and maple products.

COVID-19 duty relief on emergency goods

In response to COVID-19, the government issued the Certain Goods Remission Order (COVID-19), SOR-2020-101, which allows for the relief of customs duty for eligible goods imported on or after May 5, 2020. This relief can be claimed at the time of importation or within two years of the date of importation. The administration of this remission order is the responsibility of the CBSA.

The remission order provides a list and description of goods based on tariff classification which are eligible for relief. It also provides a list of other medical supplies that are not subject to this remission order as they are already eligible for most-favoured nation duty-free tariff treatment.

All claims for relief from customs duties under the remission order for these goods must also include all relevant documents (e.g., copy of original Form B3-3, bill of lading, sales invoice, waybill, sales contract, etc.) demonstrating that the imported good matches the list of goods and was imported into Canada on, or after, May 5, 2020, and subject to customs.

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