GHY University - Free Trade Agreements: Understanding the Risks & Opportunities_Sept 25 2013
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Importers are subject to higher degrees of customs enforcement and penalties by claiming Free Trade Agreements. Using a ‘Case Study’ approach, this GHY University session will provide deeper understandings of benefits and pitfalls in claiming a FTA for goods entering into Canada or the United States.
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GHY University - Free Trade Agreements: Understanding the Risks & Opportunities_Sept 25 2013
- 1. Welcome to our Webinar Housekeeping Notes •All attendees are in “listen only” mode. •We are recording this event and will share the link for the recording with you in our follow up email. •We will pause for questions at the halfway point and at the end of the presentation. – If you have a questions please use the “Ask a Question” function throughout the presentation. •If you are experiencing technical difficulties please notify Nigel immediately using the chat function. Tweet, Post, Share this content, please tag #GHYU
- 2. Introduction to Class • Most of us are familiar with NAFTA with it’s North American focus, in this session we explore the global trade agreements available to importers and exporters. • Understand the risks and opportunities associated with many Free Trade Agreements. • Understand why you must KNOW; Your Product, Your Markets, Your Inputs, and Your Suppliers • This session should be a starting point for a detailed discussion about your specific situation. Tweet, Post, Share this content, please tag #GHYU
- 3. Introduction of Presenters Alan Dewar – Vice President Canadian Operations Over 31 Years Industry Experience Leads Geo. H. Young & Co. Ltd. – Canadian Division Member of the National Board of CSCB Bob Cowie – Vice President Consulting Over 42 Years of Industry Experience Consultative Leader Canada & USA Consulted on Global as well as North American Trade Issues Tweet, Post, Share this content, please tag #GHYU
- 4. GHY U Webinar – September 2013 4 Free Trade Agreements Understanding the Risks & Opportunities Bob Cowie VP – International Consulting GHY International Alan Dewar VP - Canadian Operations GHY International
- 5. Agenda & Presentation Examples Awareness of opportunities and risks via… – Know Your Product (& Tariff Classification) – Know Your Market (& Supply Chain Opportunities) – Know Your Inputs (of particular importance to manufacturers) – Know Your Supplier (Buyer Beware) 5
- 6. Canada’s FTA in Constant Change 6
- 7. FTA Indemnification Example Purchase Order is conditional upon receipt of valid FTA Certificate of Origin prior to Delivery. Vendor to indemnify against all costs and duty arising from misrepresentation or false declaration in the Certificate of Origin. 7
- 8. FTA Requirements LINKED to HS Tariff
- 9. JIT - Regulatory Declaration Challenges • Commercial descriptions often INSUFFICIENT for determining Customs Tariff Classification • 50 – 80% of documents used to process Customs release and accounting are incomplete • Most ‘new’ products arrive unannounced as a result of documents sent to broker by carrier
- 10. 10 Tariff Classification Foundation for Compliance Mgmt 100% perfection necessary if: 1. goods specifically mentioned in tariff 2. Previous opinion or ‘RTB’ 3. Goods subject to OGD requirement (CFIA, SIMA, etc.) Know Your PRODUCT…..
- 11. Tariff Classification… • products can have different tariff classification based on…….. – Function – ie wrist watches – Fashion – ie eyeglass frames – End use – ie tires – Country Interpretation – ie Ratchet straps Understanding associated competitive opportunities and risks 11 Know Your PRODUCT…..
- 12. 12 Tariff Class – Function …. Watch Importer – tariff choice(s) –Mechanical display, –opto-electronic display, –other Know Your PRODUCT…..
- 13. 13 Tariff Class – Fashion…. Eyeglass frame importer – tariff choice(s) – Plastic – Not Plastic Know Your PRODUCT…..
- 14. 14 Tariff Class – End Use…. Tires – Pneumatic Rubber NEW Where Used Tariff Classification Cars 4011.10 Trucks / Buses 4011.20 Aircraft 4011.30 Motorcycles 4011.40 Bicycles 4011.50 The tariff is ENTIRELY DIFFERENT if the Tires are Used, Retreaded, etc. Know Your PRODUCT…..
- 15. 15 Tariff Class – Country Interpretation…. Ratchet Straps (non-NAFTA) United States Canada Tariff 8479 - Machine Tariff 8205 – Hand Tool Know Your PRODUCT…..
- 16. 16 FTA’s vary by Origin/Destination Soda importation (non-FTA) • 11% into Canada • 2 ¢ / liter into United States Know Your MARKET…..
- 17. 17 Manufacturing? FTA input considerations Duty Drawback Opportunities • import duty/ anti-dump duty Know Your INPUTS….. Canadian Mattress Manufacturer importing ‘inner springs from China’ subject to approx. 150% anti-dump duty
- 18. 18 Importer Responsibility Buyer Beware….. • Importer is ultimately responsible for post audit assessments (regardless of audit trail/ supplier documentation/ etc.) Know Your SUPPLIERS….. GHY Recommend Supplier Safeguards & Purchasing Indemnifications Clauses
- 19. 19 NAFTA – Internal Compliance Procedure(s) How many importers have: – Internal documented processes regarding FTA’s? – Share/validate these processes w/service provider? Indemnification statements with suppliers for inaccurate NAFTA certificates/statements
- 20. 20 Strategic FTA Recommendations… 1. Review Import Volumetric Review • Historical opinions by Customs (specific/ generic) • Core items to your business • Items named in ‘tariff’ • OGD item focus (CFIA, SIMA, etc.) 1. Understand FTA rates (where Global Sourcing potential exists) **Review Regularly – Annually at Minimum**
- 21. GHY U Webinar – September 2013 21 Free Trade Agreements Understanding the Risks & Opportunities Bob Cowie VP – International Consulting bob@ghy.com (204-947-6700 x237) Alan Dewar VP - Canadian Operations dewar@ghy.com (204-947-6700 x215) Thank you for your time listening to Today’s Webinar on...
Editor's Notes
- Both are also past account managers so they may be familiar to many clients of GHY
- Today’s Webinar is Geared at STEPPING BACK & Understanding the Opportunities and Risks of Claiming FREE TRADE AGREEMENTS It will run approximately 30 Minutes where we will provide Case Study Type Examples that touch upon certain situations, products, or industries TODAY WE WILL NOT BE GOING INTO DETAILS AND‘SPECIFIC RULES OF ORIGIN’ as each tariff classification attracts it’s own Rule of Origin influenced by both Tariff Classification and Country of Origin NAFTA = >1,500 Rules of Origin and ‘ Deminimus Rules ’ ) Individuals needing/wanting further assistance or support in interpretation and strategies of specific rules of origin may contact GHY for ‘one-on-one consultation following this webinar’ Although the webinar will share examples connecting ---- TARIFF CLASSIFICATION ---- COUNTRY OF ORIGIN ------ FREE TRADE AGREEMENT CONSIDERATIONS
- Our examples will show the IMPORTANCE of KNOWING **YOUR** ….. PRODUCT ----- MARKET ----- INPUTS ----- and SUPPLIERS And why reviewing these understandings should occur on a regular …. And at minimum…… ANNUAL BASIS
- Free Trade Agreements are IN CONSTANT CHANGE (being negotiated & renegotiated) Global Sourcing and Supply factor into EVERY ASPECT of Trade whether you are BUYING or SELLING… ‘component materials’ or ‘finished products’ As the Landscape for Trade Agreement (AND COLORS OF MAP ON SCREEN) are ever changing it is recommended to review & collaborate at minimum annually with supply chain service providers (trade consultants/customs brokers) to be aware of potential & future risks and benefits. Examples of potentially unfavorable FTA changes includes the elimination of GPT (General Preferential Tariff) benefits currently scheduled for January 2015 where duty rates may increase for products sourced from countries such as China, Indonesia, Malaysia, etc. An example of a favorable FTA change involved one importing client who had products manufacturing in two facilities (one facility in Austria and the other facility in neighboring Switzerland). The bill of material and component sourcing was ‘identical’. The import duties paid into Canada were in the millions of dollars. However this importer was aware of the Canada European FTA negotiations … signed in January of 2008 taking effect in January 2009 and changed their supply on Canadian destined product from Austria to neighboring Switzerland and benefitting from millions of dollars of import duty saving (resulting in increased product sales and shareholder profits ) Given the awareness of CHANGING FREE TRADE AGREEMENTS now is perhaps a good time for our first audience poll….. How Many Importers have FTA Indemnification Clauses built into their Purchasing Processes? Providing a few moments to lock in answers……
- Here is an example of FTA Indemnification Wording …….
- Importers should ask themselves **SHOULD I USE A FREE TRADE AGREEMENT (OR NOT) WHEN IMPORTING GOODS INTO CANADA??** THE NEED (OR STRATEGY) FOR FTA IS DIRECTLY LINKED TO THE HS TARIFF CLASSIFICATION In Canada - there are approximately 5,000 unique Tariff Classifications Of which approximate 70% = DUTY FREE when goods being imported into Canada WHAT ARE THE BENEFITS / RISKS TO USING FREE TRADE AGREEMENTS IF IMPORTED PRODUCTS ARE **DUTY FREE**? FOR ITEMS not ‘Duty Free without a FTA’ it’s important to recognize that Different Tariff Classifications have Different Rules & Requirements from Different Countries (the Rule of Origin for a product from USA ‘trade agreement’ may be entirely different than the Rule of Origin for a product from the Israel ‘ trade agreement’)
- Commercial product descriptions often do not have the level of trade and regulatory detail to render a proper tariff classification For instance, a ‘tow rope’ may be classified in one area of the tariff with an associated import duty rate of 10, or even, 15 per cent. However, a ‘water-ski tow rope’ may be classified in another area of the tariff ‘duty free’ With that introduction I will turn over to my co-presenter Bob to share further insights and EXAMPLES…..
- In addition to understanding FTA ’ s one must also be aware of potential current and future impacts of where those goods may be destined or resold For instance a Can of Soda imported into Canada (without FTA) would be assessed an import duty rate of 11% whereas that same can of soda …. By comparison….would be subject to a US import duty rate that would be fractions of a penny / cent
- Manufacturers require a deep awareness of the impacts of FTA ’ s and should ask themselves ‘ if I am subject to an import duty can I recover the duty assessed when I export my finished product ’ ?? The answer may be Yes and No – as referenced on this slide – depending on where you are selling your finished product (in this case a Mattress) In this example the manufacturer imports ‘ springs from China ’ that are subject to an ‘ Anti-dump duty of 150% ’ . If the spring is incorporated into a Made in Canada Mattress that is later sold to USA (or Mexico) the 150% import dumping duty would be unrecoverable The same mattress sold to country other than MX or USA (whether Russia, England for example) would be eligible to recover IN FULL the 150% import duty. Manufacturers with global sourcing must be acutely aware that EACH COMPONENT INPUT has a direct, and potentially variable , impact on the COGS (Cost of Goods Sold)
- Importers must have close supplier relationships as a ‘ change in the supplier ’ s sourcing could have downstream implications to the Canadian Importer ’ What is important to recognize is that **THE IMPORTER IS ULTIMATELY RESPONSIBLE** for the declaration and any retroactive duty, tax, or regulatory implications regardless of what is stated on the customs or commercial documentation.
- DO YOU HAVE A CUSTOMS COMPLIANCE MANUAL(AND SUPPORTING BUSINESS PROCESS CHECKS/BALANCES)? DO YOU HAVE CLEAR & COLLABORATIVE UNDERSTANDING OF ROLE OF IMPORTER VS. BROKER (RESPONSIBILITY MATRIX) At this time we’ll have another ‘poll the audience’ Questions ….. Do you have a Internal Compliance FTA Process that is subject to regular review????
- In Closing we recommend at minimum annual reviews of your Import Volumetric in collaboration with your Customs Broker / Service Provider and where imported goods are ‘dutiable’ a further collaboration for ‘potential duty reductions’ and Global FTA opportunities We would recommend that both poll question should have a YES response and that WE…….. Have FTA Supplier Indemnification Clauses Built into PO ’ s Have an Internal Compliance FTA Process subject to Regular Reviews
- That concludes this Webinar (which is a first for Bob and I). We thank you for your time and attention and will turn over the controls to the facilitator Nigel for questions……..