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Customs Report - 2

The Year Ahead Trends and Tips for Traders in 2000

by Tom Mountain

With the start of a new year there’s a valuable opportunity to look ahead and pinpoint emerging global trends, while providing key tips for traders as we enter the 21st century.

For 2000, there are ongoing issues and new developments of which traders must be aware. The overwhelming trend continues to be the importance of trade data. With the increasing frequency of post-entry audits, accurate trade data is critical and traders are now solely responsible for thorough and accurate data and record-keeping procedures.

It has been more than a year since the unveiling of the federal government’s Customs and Trade Administration Blueprint. At the end of 1999 the Canada Customs and Revenue Agency (CCRA) announced the much awaited Administrative Monetary Penalty System (AMPS) dollar amounts, which relate to the list of infractions released earlier in the year.

By the fall of 2000 the House of Commons should pass legislation enacting this new structure. Once the legislation has been passed, a tremendous amount of public and private sector training will be necessary. In fact, full implementation of the AMPS penalty system will not likely take effect for several years.

Another major issue that will rise in importance is the nature of enforcement. While it’s no surprise that the number of audits will continue to increase, the nature of those audits is changing.

Customs conducts preliminary investigations, asking traders to provide cross-referenced trade data (including purchase orders and accounts payable information) electronically. From this electronic file officials glean information and draw a sampling to determine initial compliance. If there are inconsistencies in a significant number of transactions, Customs drills deeper, conducting a more detailed investigation.

The audits themselves are in-depth and lengthy – an 18-month time frame is not uncommon. They can be costly, strain resources and lead to lost productivity. Certain commodity sectors may be targeted for more intensive review, depending on the government’s varied objectives.

Infractions discovered during these audits are handled in three stages. Upon initial discovery, a warning may be issued. Thereafter, Customs may re-investigate to ensure steps have been taken to be compliant. If no such effort has been made, there could be a penalty. Those facing penalties would not qualify for other initiatives that will be introduced as part of the Blueprint. In other words, to fully maximize the benefits of these proposed changes, one must be compliant and have a record of compliance.

With the growing importance of accurate trade data, centralized record keeping and the ability to maintain accurate records is another key issue for traders. A short case study illustrates the importance of accurate and integrated data.

A company receives a shipment of 1,000 widgets from the United States. The 1,000 pieces are declared, but upon receipt, an extra 200 widgets are discovered. Without a linked data system or central record keeping, the trader may not have the ability to track, record or report this “overage.”

Discovery of the failure to disclose this overage, when found during an audit, could lead to heavy fines. This overage has implications on GST payment, royalty payments and creates other shortfalls of a non-duty nature.

In this example, it is imperative that the department receiving the goods communicate this overage to the company customs department or broker. If such a communications link is not in place, an audit will uncover these inconsistencies and again could lead to penalties.

Another trend to watch in 2000 is the implementation of Customs Self Assessment (CSA). The design model of this proposal is being prepared and should be ready shortly, with the actual process likely to be launched in early 2001.

CSA is a combined new release and accounting service option. Key features of this concept include extended time frames to account for goods based on monthly reporting, minimized transactional and release documents, designed account management to assist in voluntary compliance and the replacement of Customs processes and inventory systems as the signal to provide assessment information.

In order to be eligible to take part in the CSA program, the trader must be Customs compliant, another reason for careful management of the Customs process.

The costs and benefits it provides will determine whether an importer will wish to take part in this program. CSA is initially restricted to goods arriving at the border points from the United States. A determination on the expansion of this program to include all modes and origins has yet to be made. Until that time, participants will have to work under two systems during this period. This will be cumbersome, costly and could produce inefficiencies.

With a focus on CSA, the government’s Carrier Re-engineering program will likely take a back seat in 2000. It’s most likely that full implementation of Carrier Re-engineering, which is an initiative intended to streamline and expedite the processes and roles of carriers and other trade chain players, is still two to three years away. In the future, however, it is likely we will see two separate Customs processes – Customs Self Assessment and Carrier Re-engineering.

At the same time, exports and the reporting of such goods, will not be immune from the watchful eye of CCRA. In 2000, traders can expect legislative changes that will impose strict mandatory reporting requirements on the exporting community as well as the carriers. The more stringent reporting requirements will ensure that CCRA’s mandate, from an enforcement and administrative aspect, is being met. Penalties for non-conformance will be imposed once AMPS has been enacted, some of which could reach $5,000 per shipment.

Another emerging trend is the need for global knowledge and access to international markets for Canadian exporters. As duties and other tariff barriers vanish, complex non-tariff barriers remain.

Logistics professionals and customs brokers are frequently called upon for assistance in dealing with these global issues. “How do I get my goods into global markets?” for example, is a frequently asked question.

Consulting a licensed professional is critical to ensure compliance in these global marketplaces. It’s important to remember that although duties are vanishing within North America, they remain a major revenue source for some developing countries in emerging markets.

Although the world continues to work towards a standardized trading system, this laudable goal is still many years off. In the meantime, exporters will need to consult proven experts to access foreign markets.

While accessing expertise is critical for exporters, importers face similar challenges. In 2000, more than ever, importers should be asking themselves “Just how compliant am I?” If they cannot answer this question, or aren’t confident in their compliance levels, they too should consult licensed professionals.

The new Canada Customs and Revenue Agency continues to play a pivotal role in determining the success or failure of traders. The mandate of this agency may have changed, but its far-reaching power and impact on the trading community remains.

Business conditions and expectations are shifting. The days of a broker providing release and confirmation on a transaction by transaction basis are disappearing. Trade facilitation, developing and implementing systems to meet compliance requirements that interface with Revenue Canada, importers, exporters and carriers will be required.

It’s an exciting time to be a trader. Opportunities abound and are endless in North America, while world markets are open as never before and the potential for growth and prosperity is limitless. In 2000 and the years to come, those who are compliant and in a position to leverage these opportunities, will succeed and flourish.