The CBSA and LDCT
Canada Border Services Agency and the Least Developed Country Tariff (LDCT)
Addressing poverty in the world's poorest countries has been a longstanding concern of Canadians. In February of 2002, the Government of Canada began exploring the idea of expanding market access to the Canadian economy for Least Developed Countries.
In principle, the idea is to encourage foreign development and promote economic growth in the least developed countries. This is to be done by means of duty-free and quota-free access to the Canadian market for exports from these countries.
The main objectives of the initiative are:
1. To reduce poverty in the world's poorest countries
2. To promote investment and development in the world's poorest countries
3. To enhance economic development through the reduction of trade barriers by providing enhanced opportunities for access to the Canadian market
Eligibility for the LDCT include:
1. Proof Of Origin
2. Shipping Requirement (Direct Shipment / Transhipment)
3. Rules of Origin
#1. Proof of Origin
Goods classified as textile or apparel goods must be certified as originating in an LDC on an "LDC Certificate of Origin" (Document Number: B255 E). This document is more detailed and specific than a Form "A", as this document indicates the Origin Criteria.
#2 Shipping Requirement
Goods must be shipped directly on a Through Bill of Lading to a consignee in Canada from a Least Developed Country.
Through Bills of Lading must be issued prior to the goods being shipped to Canada and must be presented upon request by officials of the CBSA.
The Through Bill of Lading must contain the following elements:
1. Identity of the exporter in the country of origin
2. Identity of the consignee in Canada
3. Identity of the carrier or agent
4. Contracted routing of the goods identifying all points of transhipments
5. Full description of the goods, marks and number of packages
6. Place and date of issue
Transhipment Rules:
1. Goods must remain under customs control
2. Goods do not undergo any operation (other than unloading, reloading, or splitting)
3. Goods do not enter into trade or consumption in another country
4. Goods do not remain in temporary storage more than six months
#3 Rules of Origin
New LDC Rules of Origin have been introduced by the CBSA within a document entitled; Introductory Guide to the Market Access Initiative for the Least Developed Country and the Least Developed Country Tariff.
For additional reference please click on the link to the CBSA's Departmental Memorandum D11-4-4 which contains the General Preferential Tariff and Least Developed Country Tariff Rules of Origin Regulations and outlines the guidelines for the determination of the origin of goods for purposes of the General Preferential Tariff (GPT) and Least Developed Country Tariff (LDCT) treatment, enacted pursuant to the Customs Tariff.
These new rules of origin apply to all Textile and Apparel goods of Chapters 50 through 63 of the Harmonized System (HS) including:
1. Yarns and Sewing
2. Fabrics
3. Articles of Apparel
4. Other Made-up Textile Goods of Chapter 63
Textile and Apparel Rules of Origin
A. Accumulation Rule
B. Yarns and Sewing Threads Rule
C. Fabric Rule
D. Apparel Rule 1
E. Apparel Rule 2
F. Other Made-up Textile Articles
G. Wholly Produced Rule
CBSA Audit Process
Given the significant growth in imports over the years, in an effort to maintain compliance the CBSA has increased their resources to support the Least Developed Country audit process.
The audit process can be outlined as follows:
1. The CBSA conducts a Preliminary Risk Analysis*
2. Certificates of Origin are requested from importer or importers
3. The file is forwarded to the CBSA audit section
4. An Audit Scope is selected (Period and Goods). Goods are selected for verification based on many observations such as but not limited to; level of imports to Canada, types of goods and/or types of fabrics used in the garments.
5. CBSA will forward a questionnaire letter to the selected exporter / producer to obtain information on the goods selected for review.
6. If the questionnaire is incomplete, additional information is requested by the CBSA
7. If required, a notification of an on-site visit is provided by the CBSA
8. The CBSA conducts an on-site visit (average 2 to 4 days)
9. CBSA sends supplier confirmations for Fabric and Yarn to the producers of these materials.
10. CBSA conducts a review of all information in the office
11. CBSA review and analyze supplier confirmation responses
12. CBSA drafts an audit report
13. CBSA notifies Exporter/Producer and Importer(s) if the goods qualify for the LDCT Tariff Treatment
* Preliminary Risk Annalysis
Elements considered by the CBSA when identifying potential files for audit include but are not limited to:
1. Yarn (Thread of Natural or Synthetic material)
2. Type of fabric used
3. Agency risk analysis
4. Certificates of Origin on hand
5. Complaints
6. Findings
CBSA Audit Observations
Below are some oberservations made by the CBSA during their audit process.
1. Types of operations visited include; producers of cotton yarn and fiber, cut/sew/pack operations, dyeing operations and washing operations
2. The majority of fabrics and yarns are sourced from China
3. Some fabrics are imported from Taiwan, India, Japan, Korea, Hong Kong, USA and UK
4. Origin of fabric is very difficult to obtain
5. Fabric purchases made from GPT countries, suppliers of fabric are trading companies and not producers
6. Fabric suppliers buy from producers located in GPT countries
7. Origin of yarn is difficult to trace
8. Supplier's Certification is very difficult to obtain
9. Producer/Exporter is not involved in the purchasing of the fabric
As an Importer, How do I protect myself?
A healthy LDC program can build long term business relationships and promote growth and prosperity.
On average a CBSA review can take up to 18 months to resolve an issue. As a result, today's importer needs to get involved, educated and understand the processes involved to protect themselves.
Be proactive:
1. Ensure a paper trail exists back to and including the manufacturer of the yarn before utilizing the Least Developed Country Tariff
2. Engage your Buying/Global Sourcing team to conduct their due diligence as a supplier is set up in your system
3. During the negotiating process a supplier may claim to have the necessary systems and processes in place to support the importer's use of the LDCT. It would be prudent for the importer to have language written into the Supplier Agreement to protect themselves against a Supplier's failure to comply to the CBSA's review requests and/or the LDCT program.
Importers need to be aware that the CBSA can review up to four years of previous transactions during their audit. Some factories may have closed over this time and those that have not, may not have a documentation retention process sufficient to support the requirements of the CBSA review.
As a result, obtaining the necessary documentation to support the use of the Least Developed Country Tariff could be extremely difficult and lead to potential exposures of non-compliance and financial assessments.
Links to LDC resource materials are listed below for additional reference:
CBSA's Departmental Memorandum D11-4-4
Introductory Guide to the Market Access Initiative for the Least Developed Country and the Least Developed Country Tariff
Globalization and the Least Developed Countries
This is a very active issue for the CBSA and if you have any questions and/or concerns with your LDC process and/or the CBSA's LDC review program, please feel free to contact your personal International Trade Consultant.
For general enquiries, please feel free to click here to reach us.