It's always a good idea to regularly check in with your vendors to make sure your goods still qualify for the applicable Free Trade Agreement (FTA).
As a Canadian, U.S. or Mexican company, it is all too easy to be chugging along in your business, sourcing components or even whole goods from other free trade participants when you decide to change your source to another country. If that other country is a non-free-trade participant (e.g. China, Taiwan), whatever your company is sourcing will no longer meet the necessary criterion to qualify for duty-free status.
What you may not realize is that the vendor is obligated to report the change. And if they don't, you as the importer are the one at risk of having to repay duties if an audit is conducted.
Keeping this in mind, it’s essential to routinely check in with your vendors to revalidate whether your goods qualify for the applicable free trade agreement. Failing to do so could cost your business.
For the purposes of this article, we'll explore this within the context of USMCA/ CUSMA certificates. Let’s get into the nitty-gritty.
The USMCA/ CUSMA has been around for a long time, as it is the evolution of NAFTA. Part of this agreement allows for all goods qualifying for USMCA/ CUSMA to be duty free. Other FTAs have been ratified or implemented so duty rates will lower gradually until they are free. As each country has their own regulations, rules and forms, it is important to be cognizant of each country’s requirements.
As the importer, you are responsible for ensuring you have a valid, completed, correct certificate of origin, signed by a company signing officer with knowledge of customs and logistics.
Commonly, the importer uses the USCMA/ CUSMA certificate as supplied by their vendor. They trust that the certificate qualifies for USCMA/ CUSMA and that the vendor has done their due diligence.
Should the product claimed under USCMA/CUSMA be under Customs audit or review and the certifier is unable to or fails to present documents (or even enough information for tariff classification) the CBSA officer may rule that without proper information on the product qualification (including HS codes, etc.) there is not sufficient information to determine whether or not goods qualify under USCMA/CUSMA.
But here’s the kicker – if this happens, as the importer, you will be asked to pay back the Customs duty retroactively.
For instance, if you decide to switch supplier from any USCMA/ CUSMA territories to one outside of it, even if you are only switching for a single component, the change may prevent the manufacturer from benefiting from the USMCA/ CUSMA preferential tariff treatment unless the right record or document is provided proving that the origination of the imported goods has not changed.
What’s essential to keep in mind here is that creating and issuing a certificate is not as easy as you may have thought. If you as the certifier are unsure if the products qualify, it’s best to refrain from issuing a certificate.
The following are common blind spots we see importers missing when it comes to this issue —and sometimes to their detriment.
Mistakes to avoid making include:
Mistakes like the above are common, but they can have impacts. If you don’t check in and your vendors make a change, the certificate will be incorrect and thus invalid. The tariff (the 10-digit classification that specifically identifies the product) also determines the duty rate, so you risk no longer having duty-free status, and thus have to pay the applicable duties.
If you are caught in any of the above blind spots, however, rest assured that this issue does not delay shipments. Rather, the review of the FTA takes place once your shipment is released, at which time the Customs officer reviews documents.
The good news is, with knowledge and support, you can proactively stay on top of this in a way that allows you to avoid the risk of paying duty. Here are some best practices, as shared by our consulting and compliance experts:
Our trade consulting team is here to help you navigate the ins and outs of tariff classification and FTAs. In a world of ever-changing regulations and requirements, you need an experienced partner by your side. Connect with our team of consulting professionals today.