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The Value in Classifying, Assessing and Managing Import Programs
In late November I spent a day at the Annual General Meeting of the Canadian Highway Sufferance Warehouse Operators Association (CHWSA). Schenker Stinnes Logistics has been a member for several years through our Transcargo division. The meeting was lively as it focused on the major changes pending with respect to licensing conditions of class B warehouses, the lifeblood of existence for the sufferance industry, due to its large real estate investments.
The legislative changes to the highway sufferance regulations are but one example of the sweeping wave of regulatory change and emphasis on enforcement that we are starting to experience.
Sufferance warehouse operators are not alone. The representatives from Canada Customs present at the AGM were meeting the next day with a group from the Ontario Trucking Association (OTA ). No doubt, the news cargo manifests required, with tariff items to the umpteenth digit, was as pleasing to the carrier as the news to members warehouse operators that a new sufferance warehouse licence would be available to all applicants on the basis of fitness and need.
The proposed changes, coupled with the increased emphasis on enforcement, are about to affect all participants in the import supply chain. The customs broker, for example, had operated to a degree within a set of regulations under which the only punitive measure available to Customs for infractions was the revocation of the licence. This is a drastic measure that Customs would find difficult to justify imposing for anything but the most grave of offences, as the result would surely result in insolvency of the broker. In the new environment, complete with its fiscal penalties, the brokers who operate on the lower end of the compliance spectrum will clearly face additional costs, either in terms of quality assurance or fines - if they manage to remain in business.
The party most effected, however, will clearly be the importers themselves. Similar to the customs brokers, the recourse of Customs for infractions were by and large limited to suspension of the importers importing privileges. New schedules of fixed penalty provisions have been drafted. Failure to maintain records on an import transaction for the designated six-year period could potentially result in a fine of up to $25,000. While it is becoming less so, it is still not uncommon to run across importers who believe that they can abdicate the responsibilities to their custom broker, based on a belief that that is somehow included in their brokerage fee arrangement. This is, of course, neither a legal nor an economic reality. It is more important than ever before that importers familiarize themselves with the regulations under which they are bound.
The rules of origin, for example, will be a key area of interest to customs auditors.
An unfortunate interpretation or simple lack of knowledge of the regulations by the exporter completing the North American Free Trade Agreement (NAFTA) certificate will, for many companies, represent a retroactive and unaccounted for reassessments of duty against the importer as a result of an audit.
Recently, I had a discussion with a colleague who had just returned from visiting a client. This small importer of sporting goods had just returned from a trade show in the United States that he attended to look for a new line to include in his distribution business. He related the story of visiting a booth and entering into some promising discussions with the potential vendor. But this discussion went down hill fast when they exchanged cards and the supplier realized his potential customer was in Canada. After some initial concerns about the paperwork requirements, the supplier responded by taking a firm stance with the claim that while not having knowledge of NAFTA,... and its requirements, he did know enough to stay away from it. One can debate the merits of the suppliers position. However, this kind unfavorable trade perspective is not uncommon and governments should be aware of it.
Every cloud has a silver lining, so heres part of the good news! At least, there is a likelihood its good news. For those importers that are able to demonstrate to Customs they have the systems and competence to internally classify, assess and manage their import program in accordance with the regulations, there are opportunities to move toward self-assessment. While on the surface this may seem a great opportunity to save on customs brokerage fees, the cost of these fees should be measured against the cost of properly managing an import program. There will be no change in the information requirements just the time and form in which it is generated.
Our company was recently involved in a bid to provide customs clearance services to a large U.S. exporter located in the North East. We were delighted to find out that the result of the tender was a favorable decision for our company. What was interesting in this case, however, was that the client went out of their way to advise us that out of four potential suppliers, two had lower rates than we did. The customers concern with compliance and the opportunity to access the trade consulting services we offer completely outweighed the savings in brokerage fees that would have been available from the other service providers.
One could argue that it is a redundant exercise and a waste of our money as taxpayers to have a government that has negotiated an agreement and lacks the capacity and tools to enforce it. It is also clear that an unfair trading condition exists where companies who elect to be compliant are put at a competitive disadvantage against others that have less regard for the regulations. On the other hand, a number of the proposed provisions as they currently stand in draft form, create additional hurdles for those engaged in fast paced transborder distribution. Smaller service providers as well as the less technologically savvy, such as the sporting good supplier already mentioned, will also likely feel their needs are not being addressed. What effect will penalties, which do not realistically reflect the severity of the offence, have on our trade in North America? Lets not get into a situation where the cost of compliance in itself becomes a barrier to trade.
It would be good advice for all companies engaged in the cross border trade and importing in general to become familiar with the proposed legislation and make their concerns known either directly or through the trade associations they are members of.