3 August 1999

Customs Planning: A Vital Component to the Total Global Logistics Strategy
by
Bob Armstrong, Canadian Importers Association

The following article is excerpted from "Logistics Quarterly", volume 5, issue 2, June/July 1999, with permission.

Globalization and liberalized trade agreements have led to massive increases in trade volumes. In 1998, two-way trade in goods and services between Canada and the United States reached $504.7 billion dollars — that's over $1.4 billion a day!

As Canadian businesses continue to enter and do business in the global market, either as an importer, an exporter, or both, risk management will take on greater importance as a strategic business planning tool. Professional logisticians and service providers need to understand these new risks and plan for them.

With the advent of the North American Free Trade Agreement (NAFTA), many Canadian importers and exporters have had the false impression that free trade equals reduced compliance with customs and trade regulations. Although Revenue Canada and US Customs authorities are realizing that they must help, and no impede the flow of commercial goods across borders, they are also operating under budget restraints and reduced resources, and thus have a difficult task to carry out effective border compliance.

As customs administrations in the United States and Canada move quickly towards new processes and procedures for compliance and revenue protection, the onus is on business to be prepared. Compliance programs in both countries are shifting in a similar direction, placing the burden of responsibility from the government to the private sector, and the focus of compliance from the border to the importer's premises.

In keeping with the shift in terms of the burden of compliance, US and Canada Customs have realigned their penalty systems. Currently, Revenue Canada is developing a compliance system that will allow for the imposition of monetary penalties through an administrative process. Revenue Canada will establish penalties for non-compliance whereby penalties will vary according to the compliance history of the violator and the gravity of the violation. Companies dealing with trade contracts must understand that Revenue Canada will suspend privileges for repeated non-compliance or contravention of customs legislation. Under the new program, Revenue Canada will retain the power to seize goods as an enforcement tool. It is critical that importers manage the risks and the penalties associated with non-compliant behaviour.

The United States penalty system is also designed to achieve improved compliance levels. The penalties for negligence are the lesser of domestic value or two times the loss of duty revenue. If there is no revenue loss, the penalty will be 20 per cent of the merchandise value. Gross negligence penalties involve the lesser of domestic value or four times the loss of duty revenue. If there is no revenue loss, then it will be 40 per cent of merchandise value. Criminal prosecution is possible.

Revenue Canada and US Customs also exhibit a "big player" focus in terms of their compliance programs. The "big player" focus recognizes that certain companies, because of their size and value of importations, are in a position to have a significant impact on overall compliance levels and respective industry compliance levels. In concentrating on these very large importers and exporters, US and Canada Customs can contribute most effectively to their goal of maximizing compliance.

The Shared Border Accord between Canada and the US provides the framework to modernize border operations and lower operating costs.

In the fall of 1999, the new Revenue Canada Customs and Revenue Agency will be implemented. And, by the year 2001, many changes will take place that decrease government's costs to administer its customs programs. Currently, there are two initiatives that are going forth and will speed up customs clearance at our border for commercial goods as well as travellers.

The first is th