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TRQ IMPORT ALLOCATION INSPECTIONS

OBTAINING A TRQ IS NOT THE END OF THE STORY!

We have previously written about tariff rate quota (“TRQ”) applications for dairy and poultry here.  While many businesses may view obtaining a TRQ import allocation as the final step of the process, the reality is that it is very much the beginning of the TRQ process.

Both Applicants and Allocation Holders (i.e., persons/organizations issued a TRQ import allocation) remain subject to ongoing importer compliance obligations under the Export and Import Permits Act (“EIPA”), the Import Allocation Regulations (“IAR”) and associated TRQ policies (collectively, the “TRQ Regime”).  As EIPA inspectors have broad inspection powers, failing to adhere to these compliance obligations could lead to significant financial (and other more serious) consequences.  

TRQ Compliance & Inspection Risks

Under the provisions of the EIPA/IAR, Applicants and Allocation Holders are required to maintain detailed records demonstrating compliance with the TRQ Regime, and Global Affairs Canada (“GAC”)  – through its EIPA inspectors – has statutory inspection powers which allows it to inspect, audit or examine these records and make copies. 

To facilitate such inspections, EIPA inspectors are given broad authority to enter any place where such records may be kept (including a dwelling-house provided a warrant is obtained), and to require any individual to be present during an inspection and require them to answer questions and provide all reasonable assistance. 

Under-Utilization: A Key Inspection Focus

One issue that GAC is concerned with is eligibility for TRQ import allocations, and more specifically, unfairly qualifying for increases in allocations (or the maintenance of an already significant allocation).  As a result, a key focus of many inspections is determining whether Applicants under-utilized their TRQ import allocation in the previous year (i.e., used less than allocated).

Accordingly, a significant compliance risk for many businesses operating in the TRQ regime is an under-utilization penalty (the “Penalty”), which is a reduction of their TRQ import allocation!   The Penalty is triggered by failing to meet the applicable utilization rate for the TRQ steam in question (i.e., 95% for CPTPP Butter TRQ). 

Given the significant financial risk of the Penalty, any business facing an inspection should consult with experienced trade counsel, as the TRQ Regime rules are complex and responding to information/document requests from EIPA inspectors is time-sensitize and requires accuracy and completeness.

Other Potential Consequences

EIPA also contains a number of prohibitions that Applicants/Allocation Holders need to be mindful of, such as transferring a TRQ import allocation without GAC’s consent.  Contravening these prohibitions (or any provision of EIPA/IAR) is an offence under s. 19 EIPA, which may result in a significant fine or prison sentence, or both.  Officers or directors of an organization may also be held liable for such offences as well!

Takeaways

As the TRQ Regime contains complex rules, compliance obligations, and is full of pitfalls, businesses should consult with experienced trade counsel to ensure they are meeting their compliance obligations and are well-prepared in the event of a potential TRQ inspection by GAC.

For help with TRQ compliance or inspections, please click here.

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