Processes and Procedures
International trade demands that importers and exporters be familiar with a large range of processes and procedures. All of them involve complying with many rules, regulations, laws and standards, from reporting exports to the transportation of dangerous goods.
If you export commercial goods or have the legal right to cause them to be exported, you are responsible for ensuring that all export documentation is properly completed and is submitted to customs authorities in a timely manner.
Canadian export reporting requirements
Canadian export reporting requirements vary with the type of goods and/or the destination market, but the basic rules are as follows:
- If you export non-restricted goods to the United States, you don’t have to report them.
- If you export restricted goods to the United States, you must obtain an export permit for them and submit it to the Canadian Border Services Agency (CBSA) before the goods can leave Canada.
- If you’re shipping your exports through the United States to a third country (that is, the goods are in transit), you must report them to the CBSA using a B13A (PDF) export declaration.
- If you’re exporting goods to destinations other than the United States, you must report them using a B13A (PDF) export declaration if they have a commercial value exceeding C$2500.
- If you’re exporting restricted goods of any value to destinations other than the United States, you must provide the CBSA with both the required permits and a B13A (PDF) export declaration.
For more information about reporting, refer to CBSA Memorandum D20-1-1. The CBSA provides several other publications with information on this subject, including A Step-by-Step Guide to Exporting; eManifest; and Export Reporting in Brief.
Foreign reporting requirements
You must also comply with any applicable reporting regulations in your destination market. To make sure you understand the local regulations, check with your customs broker, your local Canadian Trade Commissioner Service office, or the country’s embassy or consulate in Canada.
Basic Import Procedures
The basic procedures for importing goods into Canada are outlined under the following headings. Much more detail is available on the Canadian Border Services Agency (CBSA) web site.
The importer of record
A company that brings foreign goods into Canada is known as the importer of record (IOR) because it is responsible for ensuring that all import declarations are true and accurate, and that all applicable import duties and taxes are paid. The IOR’s obligations include:
- ensuring the accuracy of the tariff classification, the value for duty and the origin of the imported goods;
- maintaining all related records for six years; and
- reporting and correcting any import declaration errors within 90 days of detecting them.
If the IOR is not the actual owner of the goods at the time of import, the owner and the IOR are both legally liable for duty and taxes. The IOR is also responsible for any additional duties and taxes that may become payable after the goods are imported.
Note that under Canadian regulations, a business that is not resident in Canada may also act as the IOR; in this case, it is deemed a non-resident importer or NRI. NRIs must register with both the Canada Revenue Agency and the Canadian Border Services Agency and are responsible for all import declarations and for paying duty and taxes on the imported goods. They are also required to maintain appropriate import records. For the NRI, the benefit of assuming these responsibilities is that Canadian companies will find it easier to purchase its goods, thus increasing its sales.
Reporting a shipment
Your carrier is responsible for the transportation of imported goods into Canada and for complying with the applicable regulations in this area. Since there are penalties for non-compliance, you should work closely with your carrier to make sure that all the rules are followed.
When your imports arrive at the Canadian port of entry, the carrier must report the shipment to the Canadian Border Services Agency (CBSA). It does this by filling out a cargo control document or by using the CBSA’s Electronic Data Interchange System. CBSA Memorandum D3-1-1 provides more information on administrative procedures regarding the importation and transportation of goods.
Calculating landed costs
To actually enter Canada, the imports must be admissible products. If they fall into the category of restricted goods, they will be admissible only under certain conditions. Prohibited goods cannot be imported at all. For more information, refer to A Step-by-Step Guide to Importing, published by the Canadian Border Services Agency.
Once you’ve determined that your imports are admissible, you can calculate their landed cost. This includes the original cost of the item plus all additional costs such as brokerage and logistics fees, shipping costs, customs duties and handling fees. You have to know the landed cost in order to fully account for your goods, which is an essential part of the import process.
Accounting for your goods
Accounting requires you to provide documentation that verifies the value, classification, country of origin and tariff treatment of the imported goods, as well as the exchange rate in effect at the time they were shipped. This documentation includes:
- two copies of the cargo control document;
- two copies of the invoice;
- two copies of a completed Form B3 (PDF), the Canada Customs Coding Form;
- any import permits, health certificates, or other forms that may be required; and
- a certificate of origin, if necessary.
Once you’ve provided this information and calculated the goods’ landed cost, you can pay the applicable taxes and duties, whereupon the goods will be released to you.
Alternatively, you can ask that your goods be released prior to paying the taxes and duties. This is called Release on Minimum Documentation and requires you to post security with the Canadian Border Services Agency (CBSA) as collateral for the early release of your goods. You must, however, provide full accounting documentation within a specified time of the release. Not doing so will result in financial penalties.
Note that you must maintain import records for six years in either electronic or paper form. You can be fined or denied preferential tariff treatment if you fail to do so. CBSA Memorandum D17-1-21 provides more details. Additional information can be found on the CBSA’s Importer programs and Customs tariffs pages.
Examination of imports
Your imports may be examined at any point in the supply chain to determine whether they comply with customs and other government regulations. The frequency of examination will depend on your compliance record and on the type of goods you are importing. Customs authorities will usually charge you fees for the services required to examine the goods, such as unloading and reloading them.
Penalties for non-compliance
The most common trade compliance penalties in Canada are related to carrier infractions and import/export violations and are managed under the CBSA’s Administrative Monetary Penalties System (AMPS). The amount of a penalty is based on the type, frequency and severity of the infraction.
Common examples of non-compliance include failure to pay duties, failure to provide required information to the Canadian Border Services Agency (CBSA), unauthorized removal of goods from a warehouse, direct delivery of goods prior to release from CBSA control, and failure to report goods to the CBSA.
Duty and tax reductions
If you obtain some of your inputs from abroad, there may be ways to reduce or eliminate the Canadian customs duties applied to them, and possibly the GST/HST as well. For example:
- The Duty Deferral Program is administered by the Canadian Border Services Agency (CBSA). If you qualify for the program, the CBSA can waive, postpone or refund duties and taxes you would otherwise have to pay on goods you import.
- The Export Distribution Centre Program is administered by the Canada Revenue Agency (CRA) and is intended to benefit businesses that import goods and/or acquire goods in Canada, process them to add limited value and then export them.
- The Exporters of Processing Services Program is also administered by the CRA. It relieves participants of the obligation to pay GST/HST on imports of goods belonging to non-resident customers, provided that these goods are imported for processing, distribution or storage, and are later exported.
International logistics are more complicated and time-consuming than domestic logistics, for several reasons—greater distances, increased risk during shipment, and much more complex paperwork, to name just three. Compliance issues, as a result, are also more complicated.
If you’re exporting to a country with which Canada has a free trade agreement or a preferential trade agreement, your goods must retain their Canadian-origin status to receive the tariff benefits the agreement provides. To achieve this, you must ship the goods to the destination country as a direct consignment. What constitutes direct consignment varies with the trade agreement, so you should review the rules before shipping so that you preserve your goods’ Canadian origin.
In the case of NAFTA, for example, goods that are entitled to NAFTA preferential duty rates will lose that status if:
- they leave customs control outside North America, or
- they undergo any operation outside North America other than one required to preserve them in good condition, or to transport them to Canada, Mexico or the United States (such as unloading and reloading the shipment).
Note that you may have to present documentary proof to the importing country to confirm that your goods comply with the direct-consignment rules.
Transportation insurance is sometimes a condition to a sales agreement, but even if it isn’t, you’ll need to insure your shipments while they are in transit. This form of logistics insurance is commonly called marine insurance, although it covers the risks of all forms of transit, including sea, air, road and rail. There are companies that specialize in this kind of risk coverage; you can likely get a list of suitable ones from your freight forwarder.
Marine insurance covers four major types of risk:
- Catastrophic risks - These affect the ship, aircraft or other type of transport carrying the shipment, or the location where the shipment is stored. This would include shipwreck, fire, flood, collision and other unforeseeable events.
- Accidental or fortuitous risks - These affect the goods themselves, rather than their transport, and include mishaps such as dropping, crushing, breaking, corrosion or contamination.
- Other risks - These are not accidental or fortuitous risks but are nevertheless outside your control. They include theft and pilferage, non-delivery, piracy and malicious damage.
- War and other political risks - These include events such as wars, strikes, civil unrest and terrorism.
The insurance policy normally covers your goods from the time they leave your warehouse until:
- they reach the destination that is specified in the insurance policy; or
- 60 days after they are unloaded from a vessel; or
- 30 days after they are unloaded from an aircraft.
The 30/60 day window is intended to cover a situation such as the goods remaining in temporary storage because they have not yet passed customs inspection and have consequently not reached their specified destination.
Transporting dangerous goods
Special regulations apply to the shipment of dangerous goods such as explosives, gases and corrosive substances. These regulations specify how to select and use a means of containment and transportation, how to load and secure the shipment, and how to certify your dangerous goods shipment.
In Canada, this process is regulated by the Transportation of Dangerous Goods (TDG) regulations administered by Transport Canada. The regulations apply to all parties involved in the shipment of dangerous goods, including manufacturers, producers and logistics companies. If you’re not sure if what you’re shipping is a dangerous good, or if you have questions about the process and obtaining approvals, contact your TDG Regional Office.
Many of the clauses in international contracts use Incoterms. These are formal terms that specify certain exporter and importer responsibilities in international trade transactions, especially for logistics. Incoterms are widely used because they are globally accepted and can remove many of the uncertainties associated with international business. They define the meaning of logistics terms in the following areas:
- Costs: Who is responsible for the expenses associated with a shipment at any specific time during transit. Examples could be export packing costs, international transport costs or customs duties.
- Control: Who owns the shipment at any specific time during transit.
- Liability: Who is responsible for the shipment during transit.
A new set of Incoterms, Incoterms 2010, went into effect on January 1, 2011. More information about them is available on the Incoterms web site. The UN Development Programme document Shipping and Incoterms (PDF) provides further information.
Packing for international shipment
No matter where it’s going, your shipment will have to withstand three basic hazards while in transit: breakage, moisture and pilferage. It should also be proof against repeated loading and unloading, being left in the rain, sliding down a chute or being dropped by a careless handler. To be sure your packing is adequate and complies with any applicable regulations, get advice from your freight forwarder.
It is in your interest to pack your shipments securely. If a shipment arrives in a damaged state because of improper packing, your buyer will not accept it and may decide not to order goods from you again. Note that insurance policies will often refuse coverage for goods that are damaged because of inadequate packaging.
Appropriate shipping labels will contribute to smooth inspection and customs clearance at the port of entry. Labels should be large, clear, and waterproof. The shipping information should include:
- port of destination and name, address and phone number of consignee on at least three faces of the package (top, one side, one end);
- any necessary cautionary labels;
- transit instructions;
- package dimensions and weight;
- package number; and
- invoice and/or order number.