Current US vs. Canada trade tensions may be extending into US Customs & Border Protection ("CBP") audit, review and investigative activities – at least as they relate to exports to the US from Canada.
Viewed from the US perspective, these are "imported goods", and are required to be imported to the US correctly.
We have seen an uptick in US CBP inquiries, audits, reviews and investigations of Canadian businesses selling into the US, and that should be raising an alarm for all Canadian exporters.
The US CBP Audit, Review & Investigative Process
Just like the Canada Revenue Agency ("CRA") and Canada Border Services Agency ("CBSA") audit and investigate Canadian activities, including imports into Canada, the US CPB is responsible for the same sort of activities on the US side of the border.
Where the US CBP believes it has found inaccurate or insufficient entry information, it may issueCF 28 Requests for Information (a "CF 28"). Information requested in a CF 28 could relate to a number of issues, like tariff classification, country of origin or valuation – the "big three" when it comes to customs compliance. If the importer fails to respond to a CF 28, what can happen? A "CF 29" is the correct answer, and this is the more problematic Notice of Action. At this stage, the US CBP may take action such as increasing duties owed or propose a course of action and provide the importer additional time to respond.
An even more problematic potential course of events, and one usually reserved to situations where US CBP believes there may be fraud or negligence, is the commencement of an Investigation under 19 USC § 1592. Investigations are extremely significant and are NOT standard audits (such as a Focused Assessment or routine compliance review). Instead, it is a formal US CBP investigation of potential violations related to misdeclarations (e.g., tariff classification, origin, USMCA claims, and antidumping/countervailing duties).
Investigations usually involve potential penalty proceedings, duty recovery actions and even referral for criminal investigation if fraud is suspected.
US CBP Current Priorities
US CBP publishes a periodic list of priorities and the current list focusses on targeting non-compliance with rules of origin requirements under free trade agreements (like the USMCA), along with US antidumping and countervailing duties.
This suggests to us that Canadian exporters will be increasingly under the CBP microscope, especially if involved with re-routing Chinese origin goods from China to Canada to the US. The reason for that is that China – along with South Korea, Vietnam, Germany and Canada (!) – makes up the "Top 5" List of Countries targeted by the US with anti-dumping duties – not to mention the Trump 232 / 301 duties imposed on all Chinese goods, and ranging up to 35%.
Canadian exporters are in US CBP's priority list for audits, reviews and assessments.
Canadians receiving inquiries from US CBP require experienced Counsel. Reliance on your customs broker may not be enough!
Takeaways
Canadian exporters are on US CBP's priority list for audits, reviews and assessments. Canadians receiving inquiries from US CBP – like CF 28s, CF 29s or a Notice of Investigation – require experienced legal counsel, and reliance on one's customs broker (who cannot provide Solicitor-Client Privilege) may not be enough.
For help with a US CBP inquiry, please click here.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
