Travels in Canada: May 2018

Canadian business leaders greeted the President’s announcement that the exemptions for Canada (and Mexico) from the double-digit “Section 232 tariffs” on certain steel and aluminum imports will be extended an additional month, or May 31, 2018.

What happens next is anyone’s guess. That in itself is disturbing, especially for the hundreds of companies across Canada who produce, distribute, or consume these critical sources of raw materials, let alone the thousands of companies in the US and Mexico who must be able to rely on long term and uninterrupted supply commitments.

One border agency, the US Customs and Border Protection (CBP), has already decided to take a strong enforcement approach to ensure that importers do not try and evade these new tariffs. And no country and no company is immune to this.

In their own words:

John Leonard is the Executive Director of Trade Policy and Programs at US Customs and Border Protection – the key agency that decides the red and green lights at the border. In an interview on April 10, he signaled that, various country exemptions aside, CBP will scrutinize all imports from all countries.

Asked how the agency will enforce these new tariffs, Leonard made clear that CBP has many new and powerful tools in its arsenal to detect efforts to evade these tariffs, including technology and import audit powers. Specifically, he warned, CBP will be focusing on product classification, valuation and country of origin declarations. “Classification is a way to play with it, valuation as well but these are things we will have to look at,” he stated. 

Leonard’s colleague, Brenda Smith, Executive Assistant Commissioner in CBP’s Office of Trade, furthered that “I think we are ready (for these new tariffs) with our regulatory auditors, and our import specialists are on the alert, our National Commodity Specialists certainly are very engaged.”

These remarks should not be surprising. Chilling perhaps, but not new news. They should however underscore that CBP will be watching with eagle eyes for instances of tariff evasion by companies masking import declarations or using exempted countries as transshipment avenues.

Trade compliance and company prestige have become the new corporate risks for many business executives. The US marketplace is not the market of 1994. The pending NAFTA re-write, possible new US tariffs on imports from China, the use of “Section 232” tariffs, and possible product expansion will cumulatively focus renewed attention on import transactions from all countries and all products.

No company should feel comforted by any talk of “exemption.” Everyone should be taking steps now to protect their audit risk exposure during the very messy months ahead.

Audits are expensive and intensely resource consuming, even when no fraud activity has been found.

These are turbulent times. The consequences of and company executives will need to stay well apprised of their cross-border transactions and take all necessary steps to mitigate the risk of border delays, import audit or NAFTA verification.

The trade community is in crisis mode. Executives must manage that crisis. When the call comes from the truck driver at the border or the notice from CBP arrives at the company, executives will want well informed and thoughtful response options.

Ms. Smith could not have made the point any clearer: “There’s not a lot of places you can go to evade.”

Arent Fox LLP has assembled a core NAFTA analysis team, led by David Hamill, a Partner in the International Trade Practice. David comes to our firm from the Office of General Counsel at the US Department of the Treasury where he advised the 1993 NAFTA automotive rules of origin committee negotiators.


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