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CERTIFYING ORIGIN - NOT JUST A "FORMALITY"

RULES OF ORIGIN NEED TO BE CONSIDERED WHEN PREPARING CERTIFICATIONS

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Canada has a significant network of free-trade agreements which direct sellers can make good use of covering numerous countries including the United States and Mexico ("CUSMA"/"USMCA"), the countries of the European Union ("CETA"), and twelve trans-pacific countries (plus the UK) (the "CPTPP").

However, before claiming treaty benefits, importers are required to have either a Certificate of Origin or an equivalent certification confirming the goods qualify as originating under the relevant free trade agreement.

In this Direct Selling Report, we consider the importance of this certification, and the unfortunate practice of exporters certifying goods as originating for purposes of a free trade agreement without considering the relevant (and highly technical) rules of origin.

The Trouble with Exporter Certifications

Under most free trade agreements, it is the exporter or the producer of the goods who is required to provide the certification of the origin of the goods. While the producer is the party best placed to complete such a certification, it is often the exporter who actually completes the certification, usually at the request of the importer.

Unfortunately, we frequently see situations where the exporter treats the importer’s request for a certification as just “another customs form” and fails to give any consideration to whether the goods technically satisfy the rules of origin in the relevant free trade agreement and are therefore eligible for certification. Certifications given without thought are often incomplete or inaccurate.

These issues are extremely common where the exporter has limited import and export experience themselves and lacks the resources and understanding to appreciate what the certification means.

The Consequences for Importers

Importers relying on improperly completed or inaccurate certifications can find themselves facing significant assessments when the Canada Border Services Agency (the “CBSA”) attempts to verify that the imported goods qualify for duty-free status under the relevant free-trade agreement.

The CBSA may even contact the foreign exporter or producer directly to confirm the accuracy of the certification of origin. If that foreign exporter or producer does not cooperate (e.g., refuses to fill out the requested questionnaires or provide input-related documentation), or is otherwise unable to substantiate the originating status of the goods, the CBSA is entitled to deny the importer’s claim for duty-free treatment – even if the importer acted honestly and in good faith!

Takeaways

With the current international trade climate bringing a greater focus on customs compliance, direct sellers should take this opportunity to conduct their own "due diligence" and review the origin certifications to make sure that they have been completed properly and that the certifier has turned their mind to the relevant rules of origin.

In cases where the origin of the goods is not clear, Direct Selling Counsel with experience in Customs and Trade can assist in considering the relevant rules of origin. The consequences of getting things wrong can be DISASTEROUS for direct sellers!

For help with an Origin Verification matter, please click here.