Tax & Trade Blog
July 2021 Trade Compliance Verification Update
Canada Border Services Agency (“CBSA”) resets it “audit priority areas” twice a year. This sees CBSA designate certain tariff classification codes as CBSA’s priority areas for custom verifications (i.e., “audits”), which is based on program areas that the CBSA believes pose significant risks for non-compliance. The non-compliance risk is generally in tariff classification, valuation and origin of goods imported.
Right on schedule, CBSA has now released its July 2021 Trade Compliance Verifications, which update where CBSA started in January of this year.
From a TARIFF CLASSIFICATION perspective, some of the more interesting audit priority areas are as follows:
- LED - Heading 85.39 – CBSA identified the risk that imported lights are misclassified as light-emitting diode (LED) lamps under Heading 85.39, instead of being properly classified under Heading 94.05 which has a higher duty rate of 7%. CBSA found a 100% non-compliance rate when initially auditing in this area!
- Footwear ($30 or more per pair) – Heading 64.03 – CBSA identified certain footwear being misclassified under various possible Headings, leading to an avoidance of the typical 18% if classified under Heading 64.03. CBSA found a 46% non-compliance rate when initially auditing in this area!
(Footwear was also highlighted as a “valuation” risk which means that importers of footwear can likely expect verifications focusing on both tariff class and value!)
- Bags – Heading 42.02 – CBSA is also focused on the proper classification of certain “bags”, under Heading 42.02, as depending on the Subheading chosen, duty rates can range between 0% and 11%. CBSA found a 57% non-compliance rate when initially auditing in this area!
- Air heaters & Hot Air Distributors - Heading 73.22 – A similar problem seems to exist with Air Heaters and Hot Air Distributors, which are also a focus for CBSA, and properly classified could have duty rates of up to 7.5%. CBSA found83% non-compliance rate here!
- Chemical Products - Heading 38.24 - CBSA also identified a misclassification risk in chemical products of Heading 38.24, which sometimes ought to be classified in Chapters 15 or 38 and be subject to duty rates of up to 11%. CBSA found a 69% non-compliance rate here!
From a VALUATION perspective, one of the more interesting audit priority areas continues to be Apparel - Chapters 61 and 62 - which is subject to duties of 10% to 20%, and is focused on a number of valuation issues in this area, including “price paid or payable” and dutiable assists. CBSA found up to 60% non-compliance in this area.
CBSA has also made ORIGIN a priority, but designated only Bedding & Drapery - Headings 63.01, 63.02 and 63.03. CBSA seems to believe that manufacturers in the US are not using fabrics produced under the applicable preferential agreement (e.g., the former NAFTA or the current CUSMA). CBSA has apparently discovered a potential 53% non-compliance in this area!
The takeaway point for all importers is that CBSA is getting back to business in its enforcement of the three main customs programs (tariff class, valuation and origin), and getting back to business, means an increase in audits.
Importers of goods in any of CBSA’s “audit priority areas” should expect to be audited soon and should already be looking for pre-emptive advice!
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