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Evaluation Study
Final Evaluation Report

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April 29, 2013

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Table of Contents


[*] An asterisk appears where sensitive information has been removed in accordance with the Access to Information Act and the Privacy Act.

Executive Summary

Background

International trade is central to Canada’s economic prosperity, accounting for one out of every five jobs and over 45 percent of Canada’s Gross Domestic Product.[ 1 ] In 2011, Canada imported over $455 billion worth of goods.[ 2 ] The Canada Border Services Agency (CBSA) released over 15 million commercial shipments and collected over $25 billion in duty and tax revenues in 2011-2012.

The CBSA Revenue and Trade Management Program (Trade Compliance)[ 3 ] is responsible for administering trade legislation, trade agreements and regulations to ensure that duties and taxes owed to the Government of Canada are collected.[ 4 ] To facilitate the high volumes of trade, the CBSA relies primarily on voluntary compliance by importers. To assess compliance levels it regularly conducts random verifications on a sample of imported goods.

Evaluation Objective

The purpose of the evaluation was to assess the relevance and performance of the Trade Compliance Program’s tariff classification, origin and valuation activities, in accordance with the Treasury Board Evaluation Policy. The evaluation of the program was identified as a priority for 2012-2013 in the CBSA Five-Year Evaluation Plan, approved by the Executive Evaluation Committee in May 2011.

The CBSA Program Evaluation Division carried out the evaluation research between March and October 2012. The evaluation used the following quantitative and qualitative data collection methods: review and analysis of program documentation and data, interviews with key internal and external program stakeholders, and site visits. It was conducted in accordance with the Treasury Board Secretariat Standard on Evaluation for the Government of Canada. The evidence collected was triangulated to develop the findings and the recommendations are based on these findings.

Summary of Findings and Recommendations

The Trade Compliance Program is undergoing substantial changes. Specifically, developments such as CBSA Assessment and Revenue Management project (CARM) and the Single Window Initiative are expected to modernize the program and improve efficiency. By 2020, CARM will enable clients to make electronic payments, receive electronic statements and eliminate the need to file paper-based B2 adjustment forms. The Single Window Initiative will provide for the electronic exchange of information between the trade community, the CBSA and other government departments (OGDs). Many of the processes observed during the evaluation will be altered as a result of these initiatives.

Relevance

The evaluation found that there is an ongoing need for the Trade Compliance Program as it fulfills Government of Canada and CBSA responsibilities for administering and enforcing Canada’s trade legislation and trade agreements, and ensuring the collection of applicable duties and taxes on imported goods. The program negotiates the customs procedures chapter to administer the rules of origin in free trade agreements, which are a current federal priority as part of Canada’s Economic Action Plan. The program also fulfills commitments to the World Customs Organization (WCO) and OGDs by implementing WCO and OGD changes to the Customs Tariff; enforcing OGD trade requirements such as import permits; and collecting trade data for Statistics Canada.

Performance

Consistency of Program decisions with trade legislation and regulations

Reviews of Trade Compliance Program decisions conducted by both the Trade Programs Directorate and the Recourse Program indicate that program decisions are highly consistent with trade legislation and regulations. In order to ensure the accurate and consistent interpretation of trade legislation by both the CBSA and importers, the program develops and publishes interpretative policy in the form of Departmental Memoranda (D-Memos). Internally, the national headquarters provides guidance to regional staff on complex tariff classification, valuation and origin determinations. National headquarters also reviews and approves precedent-setting decisions and has implemented a quality assurance process to check the quality and consistency of compliance verifications (CVs). While this is the case, inconsistent trade decisions have resulted when there are delays in developing or updating program legislation, regulations, policies and procedures. Staff training is developed and delivered as required, and an internship pilot was developed to address diminishing levels of resources and expertise.

Importer compliance with trade legislation and regulations

The program conducts random compliance verifications to measure the overall level and impact of non-compliance. However, continuous changes in compliance measurement strategies have impeded the ability of the program to establish baseline measures and to identify trends in the overall compliance levels. The results of random CVs indicate that non-compliance levels are higher than the program goal of 15% or less. Non-compliance was identified in 28% of random CVs completed in 2011-2012. Priority (targeted) CVs are conducted to address identified risks.[ 5 ] The program is approaching its goal of the targeting process resulting in verifications identifying non-compliance in 60% of priority CVs. By the second quarter of 2012-2013, 56% of priority CVs were resultant. While the objective of compliance verifications is not solely to recuperate lost revenues from non-compliance but also to address non-revenue-related risks (e.g., compliance with other government department requirements, fairness to industry, health and safety), limited data was available for non-revenue-related program results. For random CVs related to tariff classification, tariff treatment and valuation[ 6 ], $752,179 in revenue was generated in 2010-2011 and $410,151 in revenue was generated in 2011-2012. For priority CVs, $2,829,664 in revenue was generated in 2010-2011 and $998,745 in revenue was generated in 2011-2012.[ 7 ] 

Importers file adjustments (B2 adjustments) to correct import declarations (B3 entry assessments), either as a result of errors that they detect themselves or in response to non-compliance detected during a CV. Although the program has a CV monitoring process to verify whether importers submit B2 adjustments as a result of a CV, it was not possible to determine if sufficient monitoring is being conducted.

Importers submit over 260,000 B2 adjustments each year, which result in millions of dollars in duties and taxes collected and refunded. Error rates associated with B2 adjustments are difficult to determine as there is no systematic national process in place for checking B2 adjustments. As a result, regions use different approaches and sampling methodologies and the detected error rates vary significantly. However, the current rates of B2 errors detected are not statistically reliable and as such they cannot be considered to represent the overall extent of B2 errors. [*].

Outreach

The program actively consults and communicates with trade community stakeholders who are mostly satisfied with the CBSA communications received except in instances where insufficient notice is provided regarding changes to the Customs Tariff and associated guidelines. The program used to deliver a variety of trade information sessions and workshops, but services such as advance rulings, Border Information Service (BIS) and the information made available on the CBSA’s online Small Medium Enterprise Centre, have become increasingly important. Independent studies have highlighted the importance of providing trade-related information, and to make it easier to understand.

Efficiency

CBSA expenditures for these trade compliance activities in 2011-2012 were just over $50 million.[ 8 ]  The cost to deliver the program was reduced by $6.6M from $57.1M in 2008-2009 to $50.5M in fiscal year 2011-2012. The lower cost stemmed from reduced staffing levels as a result of the 2009 Strategic Review and attrition, as well as cost savings and efficiencies that were realized through the centralization of B2 processing and the increased use of B2 blanket adjustments.

The total number of CVs completed, as well as CVs completed per Senior Officer Trade Compliance (SOTC), varies by year and by region. The variances are mainly due to the changing and evolving methodology for conducting random CVs. The regional variation in number of CVs completed per SOTC depends, to some extent, on the ratio between CVs focused on tariff treatment and tariff classification versus those focused on valuation and origin, as the latter require more time to conduct.

As the primary focus of random verifications is to measure overall compliance levels, they result in less revenue assessed than risk-based, priority CVs. Also, for each type of CV, fiscal year 2011-2012 identified (assessed) significantly less revenue than the previous fiscal year. This is an expected trend given the need for the program to focus on measuring the overall extent and impact of non-compliance, as well as the increased incidence of tariff items with reduced or eliminated rates of duty.

Developments such as the CBSA Assessment and Revenue Management Initiative (CARM) and the OGD Single Window Initiative are expected to improve program efficiency.

Recommendations, Management Response and Action Plan

Recommendation 1: Programs Branch in collaboration with the Operations Branch complete and implement the national B2 analysis and monitoring strategies that include B2 blanket adjustments.

Management Response and Action Plan:

Management agrees with the recommendation and has already commenced the process of developing and implementing procedures to ensure a systematic and risk-based approach to the analysis and monitoring of B2 adjustments. Additionally, B2 blanket tracking solutions are being explored through systems enhancements. National B2 analysis procedures will be in place by April 2013. Systems enhancements and B2 monitoring procedures, which will form part of the wider standard operating procedures for the regional Risk Management units, will be in place by September 2013. Further, it is expected that the CARM Project, within the next five years, will automate the B2 filing process, which will significantly improve the Agency’s access to B2 information and allow for more efficient and effective risking processes. This automation should also minimize the opportunity for clients to make errors in their submissions, by establishing specific thresholds and parameters (e.g., the system will automatically reject proposed amendments to the NAFTA tariff treatment that are filed beyond the one-year legislated time limit), which will allow the Agency to focus its risking work on other factors.

Recommendation 2:  Develop and implement an alternative strategy to outreach to provide the trade community with the information needed to facilitate compliance with trade legislation. The Programs Branch is responsible for developing strategy and informing priority areas, and the Operations Branch is responsible for the strategy’s functionality and implementation.

Management Response:  Management agrees with the recommendation. The Programs Branch, with support from the Operations Branch, will identify, develop and implement cost-effective alternatives to outreach to provide the importing community with the information needed to facilitate compliance with the trade legislation, as per the plan set out below.

With the closure of the Client Service units across Canada, the previous practice of providing face-to-face information sessions to clients will no longer be supported by the Agency. Instead, through the Trade Services Improvement Working Group, the Programs Branch will work with the Operations Branch to develop alternative self-service solutions.

Management Action Plan Completion Date

Review trade information on CBSA Web site

  • Develop a trade-specific area within the CBSA’s Internet Web site so that essential information is readily accessible and easy to navigate.
  • Review and revise the information that is displayed on that Trade Web site to ensure that it is current and meets the needs of the importing community.

July 2013

Support Border Information Service (BIS)

  • Review the scripts currently used by BIS to ensure that the trade-related information presented therein is accurate and up-to-date.
  • Supplement the existing scripts, as necessary, by developing additional material.
  • Work with BIS officers to determine the ten most common trade-related questions received through the BIS line so that responses can be developed and posted on the Trade site as “Frequently Asked Questions”.

July 2013

Develop new outreach products

  • Develop a minimum of three (3) video products to replace the most popular face-to-face outreach sessions related to the trade programs. These products will be made available to clients through the CBSA’s Web site.
  • Work with the Information, Science and Technology Branch (IS&T) to ensure that the CBSA platform can support the development and release of such video products.
  • Market the release of these new outreach products through key associations.

November 2013

1. Introduction and Context

International trade is central to Canada’s economic prosperity, accounting for one out of every five jobs and over 45 percent of Canada’s Gross Domestic Product.[ 9 ] The World Trade Organization ranks Canada as the 11th largest importer of merchandise amongst world trading countries.[ 10 ] In 2011, Canada imported over $455 billion worth of goods. The Canada Border Services Agency (CBSA) released over 15 million commercial shipments and collected over $25 billion in duty and tax revenues in fiscal year 2011-2012.[ 11 ]

The CBSA Revenue and Trade Management Program (Trade Compliance)[ 12 ] is responsible for negotiating customs procedures in free trade agreements and administering trade legislation, agreements and regulations to ensure that duties and taxes owed to the Government of Canada are collected.[ 13 ] CBSA expenditures for these trade compliance activities in 2011-2012 were just over $50 million.[ 14 ] A description of the program organizational structure is provided in Appendix B.

To facilitate the high volumes of trade, the CBSA relies primarily on voluntary compliance by importers. Random and targeted compliance verifications are conducted after shipments have been released at the border to ensure that importers report[ 15 ] goods using the correct value, tariff classification, tariff treatment and origin. Where non-compliance is identified, importers are required to file adjustments to correct any identified errors, or they may choose to appeal the decision through the CBSA Recourse Program. They may also self-initiate an adjustment, which usually results in a net overall refund to importers. Importers may request an advance ruling prior to importing goods as a means to reduce the risk of incorrect assessments.[ 16 ]  Trade program information is available via the Border Information Service (BIS) and on the Small Medium Enterprise Centre on the CBSA Web site.[ 17 ]

Exhibit 1: Overview of the Trade Reporting and Verification Activities

Exhibit 1: Overview of the Trade Reporting and Verification Activities

Evaluation Purpose and Scope

The evaluation of the Trade Compliance Program was identified as a priority for 2012-2013 in the CBSA Five-Year Evaluation Plan, approved by the Executive Evaluation Committee in May 2011. The purpose of the evaluation was to assess the relevance and performance of the program in accordance with the Treasury Board Directive on the Evaluation Function.

The scope of the evaluation included all tariff classification, origin, and valuation-related program and operational activities. Excluded from the scope were activities related to Trade Incentives, Licensing and Registration programs and the CBSA Assessment and Revenue Management project (CARM), both of which are subjects of separate evaluations. The Casual Refund program, which applies to non-commercial imports, will be assessed during planned evaluations of the CBSA’s Postal and Courier Low-Value Shipment Programs.

An evaluation plan and framework were developed based on the activities, outputs and expected outcomes identified in the program logic model that was developed in consultation with program management. The program logic model is provided in Appendix C. The immediate outcome of “CBSA officers have the knowledge, skills and tools to accurately (and efficiently) interpret and apply Canada’s trade legislation” was not assessed separately but was addressed to the extent that these factors influenced other program outcomes. Exhibit 2 below lists the evaluation questions that were used to assess program relevance and performance.

Exhibit 2: Evaluation Questions

Evaluation Issue

Evaluation Questions

Relevance

Are program activities aligned with federal government responsibilities and priorities?

Are program activities aligned with CBSA responsibilities and priorities?

Is there an ongoing need for the program?

Performance –Achievement of Expected Outcomes

Are program decisions consistent with trade legislation, regulations and policies and to what extent does program staff have the knowledge and skills required? 

To what extent is there compliance with Canada’s trade legislation and are trade compliance risks effectively identified and mitigated?

Are external stakeholders consulted with and informed of trade requirements in a timely and effective manner?

Efficiency and Economy

Are the program activities delivered efficiently?

Are there more efficient/economical methods to achieve the expected results?

The CBSA Program Evaluation Division (PED) carried out the evaluation research between March and October 2012. Details of the research methodologies are provided in Appendix D.

Evaluation Research Limitations

The CBSA’s methodology for measuring compliance levels and identifying compliance verification (CV) priorities has changed several times over the past ten years. As well, variability in regional reporting, procedures and terminology makes comparisons of compliance activities and results over time challenging.[ 18 ] Although the program has developed Resource Allocation Models which indicate the estimated amount of time required to conduct various program activities, the changes to CV methodologies limited the ability of the evaluation to assess program efficiency. In addition, cost-effectiveness was difficult to assess since the objective of the program is not solely to recuperate lost revenues from non-compliance, but also to address non-revenue-related risks (e.g., continued compliance, fairness to industry, health and safety) and to measure overall compliance levels. Limited data was available for non-revenue-related program results.  

2. Key Findings – Relevance

2.1 Are program activities aligned with federal government responsibilities and priorities?

Program activities support the establishment and administration of free trade agreements (FTAs) which are a federal priority and responsibility.

The federal government has made it a priority to establish new FTAs as part of Canada’s Economic Action plan to stimulate the economy.[ 19 ] Canada currently has nine FTAs in force and has recently concluded negotiations with Panama and Honduras. In addition, there are 13 ongoing FTA negotiations.[ 20 ]  The Negotiations Unit of the Trade Programs Directorate leads the negotiations of the customs chapter of FTAs and assists with the drafting of the required legislative and regulatory amendments. Once an FTA is in place, trade compliance activities play an important role in ensuring that the terms and conditions of FTAs are followed. For example, import verifications are conducted to verify the tariff classification and tariff treatment of imported goods, and exporter origin verifications ensure that imports are eligible for preferential tariff treatments as stipulated in FTAs.[ 21 ]    

2.2 Are program activities aligned with CBSA responsibilities and priorities?

Program activities fulfil the CBSA’s responsibilities for administering and enforcing trade legislation and collecting applicable duties and taxes on imported goods.

As per the Canada Border Services Agency Act, the CBSA is responsible for administering and enforcing the Customs Act and Customs Tariff.[ 22 ] Section 42 of the Customs Act provides the CBSA with the authority to conduct compliance verifications. Compliance verifications are conducted in accordance with Verification of Origin, Tariff Classification and Value for Duty of Imported Goods Regulations which support the implementation of the Customs Tariff and Excise Act. Compliance verifications may result in the assessment of duties and taxes which the CBSA has the authority to collect under section 97.44 of the Customs Act. The provision of advance rulings by program staff fulfills FTA[ 23 ] obligations and the requirement for the CBSA to provide importers with advance rulings on tariff treatment and tariff classifications as set out in Section 43 of the Customs Act.

The program activities fulfil CBSA commitments to international organizations and other government departments.

As a member of the World Customs Organization (WCO), the CBSA has committed to ensuring that Canada’s customs administration remains consistent with international standards and procedures.[ 24 ]  Trade Program staff support this obligation by representing the Agency on WCO technical committees[ 25 ] and negotiating amendments to the nomenclature and interpretations of tariff classifications and international technical guidelines on rules of origin and customs valuation procedures.

The program activities also support the implementation and enforcement of regulations and policies of other federal government departments and agencies (OGDs). For example, on behalf of Foreign Affairs and International Trade Canada, the program ensures that Tariff Rate Quotas are not exceeded.[ 26 ] On behalf of numerous OGDs, Trade staff verify that importers have all the required import permits[ 27 ] and that taxes are properly determined and collected.[ 28 ]

The CBSA also collects import trade data for Statistics Canada in accordance with the requirements of section 25 of the Statistics Act and as per a Memorandum of Understanding (MOU) with Statistics Canada. Finally, the CBSA consolidates and publishes updates to the Customs Tariff to reflect periodic changes made by the WCO, Finance Canada and Statistics Canada.[ 29 ]  For example, the CBSA updated the Customs Tariff in September 2012 to reflect amendments by Finance Canada,[ 30 ] and a January 2012 update incorporated changes from each of the WCO, Finance Canada and Statistics Canada.

2.3 Is there an ongoing need for the program?

There is an ongoing need to ensure that the proper amount of duties and taxes are collected based on accurate importer declarations of tariff classification, origin and value for duty of imported goods.

Importers must report and account for all goods imported into Canada in accordance with sections 12 and 32 of the Customs Act and the Accounting for Imported Goods and Payment of Duties Regulations. Each year, importers submit over 260,000 B2 entry adjustments[ 31 ] to make corrections to the tariff classification, origin and value for duty of imported goods that were previously reported on a B3 entry.[ 32 ]  Adjustments may correct errors detected by the importer or by the CBSA as a result of a compliance verification (CV). For random CVs that were completed in fiscal year 2011-2012, 28% identified errors, indicating a continuing need for the CBSA to ensure that importers are filing accurate B3 entries.[ 33 ]

Adjustments can result in the collection of additional duties and taxes, or in refunds paid to importers. In 2011-2012, total revenues refunded and collected as a result of B2 adjustments amounted to about $379 million, or 1.5% of the $25 billion in duties and taxes collected by the CBSA in that fiscal year.

3. Key Findings – Performance

3.1 Are program decisions consistent with trade legislation, regulations and policies and to what extent does program staff have the knowledge and skills required?

Reviews of trade decisions conducted by the Trade Programs Directorate and the Recourse Program indicate that program decisions are highly consistent with trade legislation and regulations.

Senior Officers Trade Compliance (SOTCs) make trade decisions when providing Advance Rulings to importers, when conducting CVs, and when reviewing B2 entry adjustments. SOTCs can request guidance from National Headquarters (NHQ) on the determination of complex tariff classification, value for duty or origin of imported goods.[ 34 ]  “Precedent-setting” decisions such as rulings are entered into the Technical Reference System (TRS) for review and approval by the Trade Policy Division. Between July 2011 and May 2012, the Trade Policy Division reversed only three decisions in the TRS, which represent less than 0.1%.[ 35 ]  This indicates a high degree of decision accuracy and consistency, consistent with trade legislation. NHQ has also established a quality assurance process to check CV case files for accuracy, completeness and adherence to the procedures outlined in the Trade Verification Manual. According to management, initial quality assurance reviews led to updates to procedures, tools and training, however the results of the quality assurance reviews were not provided for the evaluation.

Clients appeal less than 2% of advance ruling decisions, 7% of B2 entry adjustment decisions, and 20% of unfavourable CV decisions.[ 36 ] Although the Recourse Program overturned 53% of the trade appeals in favour of the appellant between fiscal years 2008-2009 and 2011-2012, about half were attributed to additional information being provided by the appellant at the time of the appeal.[ 37 ] In fiscal year 2010-2011, inconsistent interpretation of policy was cited in 8% of the overturned tariff classification decisions and in 2% of the overturned valuation decisions.[ 38 ]

Documentation and interviews revealed that inconsistent trade decisions may result from delays in developing or updating program legislation, regulations, policies and procedures.

The Trade Programs Directorate develops and revises program legislation, regulations, policies and procedures as required to implement new trade agreements, to clarify ambiguities that may stem from new products, trade disputes, or in response to changes to business processes, international customs procedures or standards. Policy development often requires legal opinions and extensive stakeholder consultations which can take extended periods of time.[ 39 ] A common concern expressed by a majority of regional and external interviewees were that such delays inconvenience importers and result in inconsistent CBSA trade decisions and poor levels of service. The evaluation noted that the program was working to address inconsistencies across regions regarding the processing, monitoring and analysis of B2 adjustments,[ 40 ] and the application of trade-specific Administrative Monetary Penalties (AMPs).[ 41 ]

The evaluation found that training is developed and delivered as required, and that an internship pilot was developed to address diminishing levels of resources and expertise.

Program staffing levels have dropped by nearly 200 full-time equivalents (FTEs) since 2008 due to attrition and funding cuts.[ 42 ] Nearly 44% of the program workforce will be eligible to retire by 2018, which is a higher percentage than all other CBSA functional streams.[ 43 ] To address diminishing levels of resources and expertise, a pilot internship program was developed in conjunction with the Human Resources Branch and four interns from fiscal year 2010-2011 were successfully bridged into the trade program.[ 44 ]  The program has recognized the need for SOTCs to possess specialized knowledge and skills, including accounting and bookkeeping, for conducting origin and valuation verifications. As such, several national training courses have been developed and are delivered by NHQ certified regional trainers or professional auditors.[ 45 ] In May 2012, the CBSA signed an MOU with the Canadian Society of Customs Brokers to design a combined training program to increase the consistency of knowledge and skills between the CBSA and the private sector, which is expected to lower verification costs for the CBSA and compliance costs for businesses.

3.2 To what extent is there compliance with Canada’s trade legislation and are trade compliance risks effectively identified and mitigated?

The results of random CVs indicate that non-compliance[ 46 ] levels are higher than the program goal of less than 15%. Continuous changes in compliance measurement strategies have impeded the ability of the program to establish baseline measures and to identify trends in overall compliance levels.

To verify the extent to which imported goods comply with trade legislation, the program conducts random verifications of imported goods. There are two types of random CVs, one to check the accuracy of the tariff classification and tariff treatment declared on imported goods, and another to check the value for duty.[ 47 ] 

For the random tariff classification and tariff treatment CVs, the methodology currently consists of a random selection of 100 different tariff items each year from across the 99 chapters of the Customs Tariff.[ 48 ] Then for each tariff item, a number of B3 lines are verified. The program is continuing to refine the random verification strategy. However, frequent changes to the approach and methodologies have a negative impact on the program’s ability to establish baseline measures and identify trends in the overall compliance level.[ 49 ]  

The program expects non-compliance levels to not exceed 15%. In fiscal year 2011-2012, non-compliance was identified in 28% of the 1,385 random CVs that were closed.[ 50 ]  For the first two quarters of 2012-2013, non-compliance was found in over 40% of 808 random CVs completed, which reflects a change in CV procedures whereby SOTCs are now instructed to review all invoices associated with a B3 line as opposed to selecting the invoice(s) with the highest value.

Based on the results of targeted (priority) verifications, the program is approaching its goal of identifying non-compliance in 60% of priority CVs.

The program assesses potential non-compliance risk areas related to tariff classification and treatment, value for duty and origin of imported goods. Targeted or priority CVs are conducted when a specific trade compliance risk has been identified, primarily from trade referrals made by regional SOTCs, ports of entry, OGDs or the trade community. NHQ and the regions jointly assess risks to determine whether they should become national priority CVs.[ 51 ] The program has received more trade referrals since the national implementation of the Integrated Commercial Enforcement Compliance Assurance Process (ICECAP), whereby SOTCs in each trade region work with port of entry staff to identify trade compliance issues at the border.[ 52 ] ICECAP was implemented in all four trade regions in September 2012. Although not yet implemented, a planned national process to analyse B2 adjustments is also expected to identify potential priority CVs.[ 53 ]

As priority CVs are based on identified risk areas, the program has a goal of identifying non-compliance in 60% of priority CVs. Although the program has not yet met its 60% target, risk identification is improving considerably.

For significant non-compliance that is identified as a result of a CV, it is important to follow up to ensure that importers file the required adjustments. CV monitoring activity declined significantly in 2011-2012. Although the program reports on the number of CVs monitored, it does not report on the number of CVs that should be monitored. As such, it was not possible to determine if sufficient monitoring is being conducted.

When a CV identifies non-compliance, the CBSA typically makes adjustments on behalf of the importer for the B3 lines that were reviewed.[ 54 ]  The importer is responsible for submitting additional B2 adjustments for all same and similar goods that were imported over the verification period. As such, the CBSA relies heavily on the importer to voluntary submit required adjustments. Penalties can be applied if the importer fails to do so. From fiscal years 2009-2010 to 2011-2012, over 70% of the trade-related AMPs levied were for failing to make corrections or pay duties as a result of required tariff classification corrections.[ 55 ] CV monitoring provides the CBSA with the assurance that importers submit required B2 adjustments as a result of a CV.

The program has a two-phased CV monitoring process. The first phase consists of a follow-up to ensure that the importer submits the required adjustments. The second phase of CV monitoring involves conducting a subsequent CV after two years to verify the continued compliance of the importer. Regions have established their own criteria for determining which cases to monitor.

The number of CV cases monitored decreased from 649 in fiscal year 2010-2011 to 391 in fiscal year 2011-2012 as regions placed an emphasis on the need to complete assigned random CV cases.[ 56 ] A decrease in CV monitoring occurred in all regions with the exception of the Quebec region, where the number of cases monitored more than doubled. In 2011-2012, that region monitored 145 cases, representing 37% of CV cases monitored. This reflects the relative importance placed on monitoring by the Quebec region, in addition to a higher number of FTEs per CV. This is notable considering that in 2011-2012, the Quebec region completed 14% of all CVs. By comparison, GTA completed 65% of all CVs.[ 57 ] In 2011-2012, the CBSA issued 594 program-specific AMPs which totalled $1.3M in penalties, down from 947 AMPs and over $2M in penalties issued the previous fiscal year, which reflects the decline in the number of CV monitoring activities.

As the program reports on the number of cases that were monitored but not on the number of cases that require monitoring, it was not possible to determine if sufficient monitoring is being conducted. In addition, as the results of Phase Two monitoring CVs are not reported separately from other CV results, it is difficult to assess the extent to which CVs and CV monitoring activities are effective in ensuring continued compliance.[ 58 ] The evaluation found that very few AMPs are levied at the higher levels, which could either indicate that continued compliance is high for the same issue, or that the second phase of compliance monitoring is not often conducted.[ 59 ]

Error rates associated with the B2 adjustments are difficult to assess as there is no systematic process in place for checking B2 adjustments. As a result, regions use different approaches and sampling methodologies and the detected error rates vary significantly.

Each year, importers submit over 260,000 B2 adjustments to make corrections to their original accounting documents for goods that have already been imported, which represents adjustments to approximately 2% of all B3 entries. Almost all adjustments (96%) are self-assessments submitted by the importers, and approximately 40% are requests for refunds of duties and taxes.[ 60 ] Each year the CBSA refunds over $228M resulting from B2 adjustments. B2 adjustment processing previously included detailed front-end reviews[ 61 ] which were conducted to verify their validity and accuracy. In 2003, this process was discontinued as the CBSA began fast-tracking the processing of B2 adjustments.[ 62 ] 

Currently, B2 processing supervisors and SOTCs review a selection of B2 adjustments to check for errors, however each region uses a different approach for selecting forms to review, and one region is not currently reviewing any B2 adjustments.[ 63 ]  In 2011-2012, the Prairie region detected errors in 28% of B2 adjustments checked. Between April and September 2012, one of four offices in the GTA that processes B2s reviewed 987 B2s and identified errors in 15%. In 2011-2012 the Quebec region conducted ad hoc and targeted reviews of 3,287 fast-tracked B2 adjustments and found errors in 2,154 (65.5%).[ 64 ]   However, the current rates of B2 errors detected are not statistically reliable and as such they cannot be considered to represent the overall extent of B2 errors.

The following factors may contribute to the risk of B2 adjustment errors as submitted by the importer or as processed by the CBSA:

  1. Implementation of “fast-tracked” B2 adjustment processing in 2003 without a corresponding establishment of a systematic risk mitigation process;
  2. [*]; and
  3. B2 adjustments are currently paper-based forms that are received by mail and are manually keyed into the Customs Commercial System by the CBSA.

[*].

Over the past year, NHQ has been developing two sets of B2-related procedures, one to ensure a systematic and risk-based approach to checking for B2 adjustment errors, and another for analyzing B2 adjustments to identify potential risk areas for priority CVs. In addition, the NHQ Assessment Unit is currently developing a B2 blanket adjustment policy.[ 65 ]

Recommendation 1: Programs Branch in collaboration with the Operations Branch complete and implement the national B2 analysis and monitoring strategies that include B2 blanket adjustments.

3.3 Are external stakeholders consulted with and informed of trade requirements in a timely and effective manner

The program actively consults and communicates with trade community stakeholders who are mostly satisfied with the CBSA communications received, except in instances where insufficient notice is provided regarding changes to the Customs Tariff and associated guidelines. The importance of providing advance rulings, the Border Information Service (BIS) and information on trade requirements on the CBSA’s online Small Medium Enterprise Centre is likely to increase given recent reductions to CBSA outreach activities.

The Trade Compliance Program actively engages members of the trade community including the Canadian Society of Customs Brokers (CSCB), the Canadian Bar Association, and others through formal biannual consultations, meetings of the Border Commercial Consultative Committee (BCCC) and sub-committees. Information on proposed changes or draft policies is regularly circulated to these external stakeholders to ask for comments or to provide the opportunity for them to inform their clients or members. In 2011, the program also delivered tariff classification learning sessions to 300 members of the CSCB across Canada and similar sessions were held at events of the Canadian Importers and Exporters Association (I.E. Canada). External stakeholders interviewed for the evaluation indicated that they are kept very well informed through communications via e-mail, d-memoranda and customs notices, the Canadian Gazette, the BCCC, the CBSA Web site, and seminars. However, they noted that insufficient notice is provided when changes are made to the Customs Tariff, which are sometimes made retroactively.[ 66 ]

Over the period 2008-2009 to 2011-2012, the CBSA delivered over 5,000 outreach activities including trade information sessions and workshops annually. [ 67 ]  As it was difficult for the CBSA to measure the impact of these services, it was determined that replacing face-to-face activities with self-serve Web media products would provide the user more flexibility for obtaining the required information. [ 68 ] As such, in March 2012, cutbacks were made to outreach activities including CBSA attendance at trade shows and face-to-face delivery of seminars and information sessions.

At the time of the evaluation, the Quebec region was developing an online video on how to fill out a B3 entry. Visits to the CBSA’s online Small Medium Enterprise Centre[ 69 ] have steadily increased from 236,274 in 2009-2010 to 338,726 in 2011-2012.[ 70 ]  Hits to the English “Importing Step by Step” page rose 43% to over 102,000 in 2011-2012 and hits to the French version of the same page rose 69% to over 16,000. In fiscal year 2011-2012, 99,700 (approximately 24% of all BIS calls received) were complex trade-related enquiries that are handled by SOTCs. Notwithstanding these services, based on the results of interviews with external stakeholders there is a need for more information when there are changes to the Customs Tariff and associated guidelines. [ 71 ] In addition, based on studies conducted by the Canadian Federation of Independent Business over the last several years[ 72 ], there is a general overall need for the CBSA to make trade-related information easier to understand through the use of plain language.

The CBSA provides an average of nearly 2,700 rulings each year, most of which are advance rulings.[ 73 ] External stakeholders valued the option of requesting advance rulings but noted that importers often refer to the United States Customs and Border Protection C.R.O.S.S. database which is regularly updated and contains a searchable database of nearly 200,000 detailed rulings.[ 74 ]  Only 390 advance rulings are publically available on the CBSA Web site. Program management indicated that the Technical Reference System currently used for logging decisions makes the release of all advance rulings impractical, since each file must be individually reviewed for privacy issues prior to release.[ 75 ]          

Recommendation 2:  Develop and implement an alternative strategy to outreach to provide the trade community with the information needed to facilitate compliance with trade legislation. The Programs Branch is responsible for developing strategy and informing priority areas, and the Operations Branch is responsible for the strategy’s functionality and implementation.

4. Demonstration of Efficiency and Economy

4.1 Are the program activities delivered efficiently?

The cost to deliver the program was reduced by $6.6M from $57.1M in 2008-2009 to $50.5M in fiscal year 2011-2012. Reductions stemmed from reduced staffing levels as a result of the 2009 Strategic Review and attrition, as well as cost savings and efficiencies that were realized through the centralization of B2 processing and the increased use of B2 blanket adjustments.

As a result of the 2009 Strategic Review, CV activities were centralized into four trade regions and CVs that were formerly conducted in the Northern Ontario and Atlantic regions were transferred to the Quebec and Greater Toronto Area region. As previously mentioned, reduced staffing levels have also resulted from attrition. Program staffing levels shrank from 867 FTEs in 2008-2009 to 738 FTEs in 2011-2012 and as a result, salary expenditures dropped by $5.3M.

Centralizing the bulk of B2 processing activities in the Greater Toronto Area and Quebec regions led to savings of near $1.7M from 2009-2010 to 2011-2012.[ 76 ]  Savings were the result of lower salary costs as fewer clerks were required for B2 processing. In addition, by processing more B2 adjustments within 90 days, the Government of Canada owed less interest to importers on B2 adjustment refunds. An increased use of B2 blanket adjustments has also increased B2 processing efficiency as individual transactions are processed as a single bulk adjustment rather than separately. In fiscal year 2010-2011, the CBSA processed 5,692 B2 blanket adjustments, which represents a 280% increase in the number of B2 blanket adjustments since fiscal year 2005-2006. A B2 blanket adjustment includes a minimum of 25 adjustments with no maximum number. At the same time, B2 adjustments usually result in a net overall refund to importers.

The program expects that further efficiencies will be gained by: providing more information online and through the BIS rather than face-to-face information sessions; reducing the number of B3 lines that are reviewed with each CV and streamlining valuation CV procedures; and by implementing the upgraded Compliance Management System[ 77 ] in June 2013 which will reduce the need for regions to maintain separate systems and logs[ 78 ] and will pre-populate basic data into CV file workbooks and templates.[ 79 ] 

The total number of CVs completed, and CVs completed per SOTC, varies by year and by region. The variances are mainly due to the changing and evolving methodology for conducting random CVs. The number of CVs completed per SOTC varies by region depending, to some extent, on the ratio between CVs focused on tariff classification and tariff treatment versus those focused on valuation and origin, as the latter require more time to conduct.

From 2008-2009 to 2011-2012 the total number of CVs completed increased before subsequently decreasing. Over this period, the number of CVs completed per SOTC also increased before decreasing. The program has been refining its approach to compliance measurement. Therefore these variations are due mainly to evolving methodologies for conducting random CVs. SOTCs have been required to adapt to continually changing procedures, templates and tools used to conduct random CVs.

The percentage of total valuation and origin verifications conducted against total verifications ranged from 13% to 20% over the four-year period. Valuation and origin verifications generally take twice as long to complete than a verification of tariff classification or tariff treatment. [ 80 ] This is because valuation CVs require more in-depth reviews of a company’s books and records, and an origin CV requires a review of a company’s inputs and manufacturing practices involved in producing the goods. They are more likely to require site visits whereas most tariff classification and tariff treatment CVs can be conducted as “desk verifications”.

While not always the case, a high ratio of valuation and origin verifications may result in less CVs completed per SOTC. The program estimates the cost to conduct a valuation or origin verification at approximately $16K and approximately $5.5K to conduct a verification of tariff classification and tariff treatment.[ 81 ] 

While the focus of random verifications is not solely to assess additional revenues, they result in less revenue assessed than the results of priority CVs. Also, for each type of CV, fiscal year 2011-2012 identified (assessed) significantly less revenue than the previous fiscal year. This is an expected trend given the need for the program to focus on measuring the overall extent and impact of non-compliance, as well as the increased incidence of tariff items with reduced or eliminated rates of duty.

Program performance data indicate that CV activities identified $5.5M less in revenues owed in 2011-2012 than in 2010-2011, of which 1.8% and 2.6% respectively were from random verifications.[ 82 ] 

As Canada concludes more and more free trade agreements and gradually reduces or eliminates tariffs on imports, the amount of revenue assessed through CV activities may continue to diminish. It is important to note that CVs are not conducted only to identify revenues owed, but may also address issues of fairness to industry, or to health and safety (e.g., misclassifications of invasive species as identified by the Integrated Commercial Enforcement Compliance Assurance Process (ICECAP)). However, unlike the CBSA’s anti-dumping program which reports on the extent to which Canadian industry and jobs were protected, in its program performance data the Trade Compliance Program does not regularly report on other CV results besides the amounts of “revenue assessed”.

4.2 Are there more efficient/economical methods to achieve the expected results?

Developments such as the CBSA Assessment and Revenue Management Initiative (CARM) and the Other Government Departments (OGD) Single Window Initiative are expected to improve program efficiency.

By 2020, CARM will modernize and automate processes that are currently paper-based and labour intensive.[ 83 ]  CARM will enable clients to make electronic payments, receive electronic statements and eliminate the need to file paper-based B2 adjustment forms. The current paper-based B2 adjustment process is inefficient as only one change can be submitted per form and each form requires manual data entry by CBSA clerks. There are also costs associated with the storage and shipping of B2 records from region to region.[ 84 ] Another example cited by both regional CBSA and external interviewees is the requirement for clients to come to a CBSA office in order to input entries into the stand-alone Commercial Cash Entry Processing System, which in turn must be manually re-keyed by CBSA staff into the Customs Commercial System.

The trade community has expressed concern over the amount of paperwork and fees associated with trade regulations.[ 85 ]  The cost of regulatory compliance can be disproportionately higher for small and medium-sized businesses.[ 86 ]  In a survey conducted by the Canadian Federation of Independent Business, 42% of their membership comprising mainly small and medium-sized businesses rated the CBSA poorly on the amount of required paperwork and one-third of respondents identified government paperwork as a factor in the decline of imports and exports over the last five years.[ 87 ]  The OGD Single Window Initiative is expected to modernize and integrate OGD reporting requirements by providing a single portal to enable the efficient, electronic exchange of information between the trade community, the CBSA and OGDs, which responds in part to recommendations of the Red Tape Reduction Commission.[ 88 ]

5. Conclusion

The Trade Compliance Program supports current government priorities including the establishment and administration of Canada’s free trade agreements and (domestic/OGD) trade legislation. There is a continued need for the program to ensure that importers correctly report and account for imported goods. Errors can have implications that impact government revenues, industry fairness and competitiveness, and the potential health and safety of Canadians (e.g., misclassification of invasive species or other prohibited goods). The program has demonstrated improvements to risk identification. However the evaluation found areas where additional risk mitigation measures may be required.

A detailed summary of the key findings, recommendations, management response and action plan resulting from this evaluation can be found in the Executive Summary.

Appendix A - Acronyms and Abbreviations

Abbreviation/Acronym

Definition and Description

AMPs

Administrative Monetary Penalties

BIS

Border Information Service

BSO

Border Services Officer

CARM

CBSA Assessment and Revenue Management system

CBSA

Canada Border Services Agency

CSCB

Canadian Society of Customs Brokers

CV

Compliance Verification

FTA

Free Trade Agreement

FTE

Full-Time Employee

GTA

Greater Toronto Area Region

ICECAP

Integrated Commercial Enforcement Compliance Assurance Process

MOU

Memorandum of Understanding

NHQ

National Headquarters

OGD

Other Government Department

PED

Program Evaluation Division

SOTC

Senior Officer Trade Compliance

TREX

Trade Reporting and Extraction System

TRS

Technical Reference System

WCO

World Customs Organization

 

Appendix B - Organizational Structure

The Trade Programs Directorate within the Programs Branch at CBSA National Headquarters (NHQ) has overall responsibility for trade compliance activities. Within the Directorate, the Tariff, Origin and Valuation Division is involved in free trade negotiations and works with other government departments and the World Customs Organization (WCO) on updates to the harmonized system of tariff classification;[ 89 ] develops and maintains Agency tariff, origin and valuation-related policies;  provides guidance to regional trade staff with respect to tariff classification decisions; and reviews the quality of regional trade processes and decisions. Also within the Directorate, the Assessment and Licensing Division provides functional and policy guidance on the processing of B3 entry assessments and B2 adjustments.

The Commercial and Trade Operations Division within the Border Operations Directorate of the Operations Branch is responsible for the allocation of compliance verification workloads to the regions based on random samples of B3 entry assessments. The Division also reports on the results of compliance verifications and oversees specific operational initiatives.[ 90 ] The Client Services Unit within the Service Planning and Coordination Division of the Border Operations Directorate oversees the provision of client services including the Small Medium Enterprise Centre on the CBSA Web site and outreach activities aimed at improving client knowledge and compliance with trade (and other) program requirements.

Compliance verifications (CVs) are conducted by Senior Officers Trade Compliance (SOTCs) in the Greater Toronto Area, Pacific, Quebec, and Prairie regions. SOTCs also provide trade services such as Advance Rulings, advice and guidance through the Border Information Service. Regional Risk Management Units receive and manage regional compliance verification workloads and investigate referrals[ 91 ] regarding specific trade compliance risks. As part of the Integrated Commercial Enforcement Compliance Assurance Process (ICECAP), 14 SOTCs in the four trade regions work with port of entry staff to identify trade compliance issues at the border.

Appendix C - Program Logic Model

Appendix C - Program Logic Model


Document and Literature Review

To understand the design of the Agency’s Trade Compliance Program, the evaluation reviewed documents including working group and committee reports, planning documents, organizational charts, legislation, policies, procedures, training materials, manuals, previous evaluation studies and audits, media reports, correspondence and minutes from meetings and consultations. The evaluation also reviewed literature including annual reports and online content of other government departments, other customs organizations and the World Trade Organization. The evaluation also examined the extent to which program delivery was aligned with widely accepted theoretical compliance models including the Ayres and Braithwaite Regulatory Model, Pawson’s Realist Model and the Theory of Change.[ 92 ]

Analysis of Operational and Financial Data

The evaluation assessed program performance data and statistics, as well as budget and expenditure data from fiscal year 2005-2006 to 2011-2012 to assess the performance and efficiency of the program. At the time of the evaluation, the program had recently developed Resource Allocation Models to estimate the average processing time and cost of each program activity. Files and data related to public complaints filed on trade-related matters were also reviewed and included Ministerial Correspondence and Recourse Program data related to trade disputes.

Interviews with Key Stakeholders

The evaluation conducted a total of 44 one-on-one and group interviews to gather information on the design and performance of the program from the perspectives of different stakeholders. These included 10 interviews with CBSA management and staff at NHQ, 30 interviews with CBSA regional management and staff, and 4 interviews with trade community stakeholder associations. Most interviews included scaled questions to compare how various internal stakeholders across the regions and NHQ rated the effectiveness and efficiency of program activities.[ 93 ] Two of the external stakeholders also provided the evaluation with feedback gathered from their membership.

Site Visits

Site visits were used to gather regional data, to observe regional processes and to conduct interviews with regional management and delivery staff. [ 94 ]  The evaluation team visited offices in the Greater Toronto Area, Prairie and Quebec regions, as well as trade services in the Northern Ontario region  between March and October 2012. The evaluation team also attended national Tariff Classification, Origin, Valuation, and Trade Management Conferences in February and March 2012. These conferences provided information on particular program issues, challenges, and best practices across the country.



Notes

  1. Sources: Adding value to Trade Measures: Understanding Canada’s Role in Global Value Chains, The Conference Board of Canada, April 2012. http://www.tradingeconomics.com/canada/gdp-growth; speech made by the Honourable Ed Fast, Minister of International Trade at the annual International Trade Day of the Canadian Chamber of Commerce, Ottawa, May 29, 2012.  [Return to text]
  2. Statistics Canada (CANSIM, table 228-0043) and CMRS Sources: Trade Operations Report, Q4 2011-2012; Industry Canada Trade Data Online, and Statistics Canada “A Profile of Canadian Importers, 2002-2007”. [Return to text]
  3. The Trade Compliance Program falls under section 1.7 of the Agency Program Activity Architecture, sub-activity 1.7.2.  [Return to text]
  4. Source: Agency Business Model. [Return to text]
  5. Risks of non-compliance are either revenue-based or non-revenue-related risks such as industry fairness, health, safety or national security. Source: Priority Submission Template, Risk Matrixes for Revenue Impact and Non-Revenue Impact.  [Return to text]
  6. This does not include priority verifications conducted on valuation, as this is conducted only for priority origin verifications, which were $3,666,253 in 2010-11. [Return to text]
  7. The program does not track/report on other risk areas or non-revenue CV results. [Return to text]
  8. Sources: Comptrollership, Regions and Trade Operations Division. This includes salary, and operations and maintenance (O&M) and excludes the cost of internal services of $20M to deliver the program. [Return to text]
  9. Sources: Adding Value to Trade Measures: Understanding Canada’s Role in Global Value Chains, The Conference Board of Canada, April 2012. http://www.tradingeconomics.com/canada/gdp-growth; speech made by the Honourable Ed Fast, Minister of International Trade at the annual International Trade Day of the Canadian Chamber of Commerce, Ottawa, May 29, 2012.  [Return to text]
  10. Source: World Trade Organization, Trade Profiles 2011. [Return to text]
  11. Statistics Canada (CANSIM, table 228-0043) and CMRS Sources: Trade Operations Report, Q4 2011-2012; Industry Canada Trade Data Online, and Statistics Canada “A Profile of Canadian Importers, 2002-2007”. [Return to text]
  12. The Trade Compliance Program falls under section 1.7 of the Agency Program Activity Architecture, sub-activity 1.7.2. [Return to text]
  13. Source: Agency Business Model. [Return to text]
  14. Sources: Comptrollership, Regions and Trade Operations Division. This includes salary, and operations and maintenance (O&M) and excludes the cost of internal services of $20M to deliver the program. [Return to text]
  15. On the Canada Customs Coding Form (B3 entry). [Return to text]
  16. Importers may request a National Customs Ruling or an Advance Ruling to determine the applicable tariff classification or tariff treatment. See D-Memoranda 11-11-1, 11-11-3 and 11-4-16 (http://www.cbsa-asfc.gc.ca/publications/dm-md/d11-eng.html). Advance Rulings can also be appealed. [Return to text]
  17. BIS is a three-tier bilingual telephone and teletypewriter service for information on CBSA programs and services. Senior Officers Trade Compliance in Winnipeg and Montreal handle the more complex and detailed trade enquiries (tier 2 calls), while tier zero is automated and tier one calls are handled by BIS operators.  [Return to text]
  18. Due to a lack of functionality in the national Compliance Management System (CMS), separate regional systems were used to track program activities, such as Origin verifications and monitoring. CMS deficiencies were being addressed at the time of the evaluation.  [Return to text]
  19. Sources: Finance Canada: In 2010, the Office of the Chief Economist pointed to the need for Canada to strike new FTAs to help offset the declining trend in trade with the United States. Foreign Affairs: Harper Government Launches Next Phase of Canada’s Pro-Trade Plan for Jobs, Growth and Long Term Prosperity, 2012.  [Return to text]
  20. Source: http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/index.aspx?lang=en&view=d. [Return to text]
  21. Exporter origin CVs verify that “regional value content” rules are met and that claims are valid for “least developed country” tariff treatment. Under the European Free Trade Agreement, Canada is required to conduct exporter origin verifications on Canadian exporters at the request of the trading partner. The CBSA currently conducts five or six of these each year, although this may increase if future FTAs adopt the same model. [Return to text]
  22. Source: Section 2(a) of the Canada Border Services Agency Act. [Return to text]
  23. Examples include Chapter 5, Article 509 of the North American Free Trade Agreement and Chapter 4, Article 419 of the Canada-Colombia Free Trade Agreement.  [Return to text]
  24. Source: Organization for Security and Co-operation in Europe Handbook of Best Practices at Border Crossings, A Trade and Transport Facilitation Perspective, 2012. [Return to text]
  25. These include the WCO Harmonized System committee and sub-committee, the technical committee on Customs Valuation, the technical committee on the rules of origin, and the North American Free Trade Agreement (NAFTA)-Customs sub-group. [Return to text]
  26. Foreign Affairs and International Trade Canada may establish import controls such as Tariff Rate Quotas on goods as per Section 5 of the Export and Import Permits Act, for example in support of the Farm Products Marketing Agencies Act, the Agricultural Marketing Programs Act or the Canadian Dairy Commission Act. Reference: CBSA D-Memorandum D10-18-1.  [Return to text]
  27. Import permits are required to import certain goods (e.g., agricultural products, fabrics, weapons, chemicals) see http://www.international.gc.ca/controls-controles/about-a_propos/impor/permits-licences.aspx?view=d. [Return to text]
  28. MOU between the CBSA and the Canada Revenue Agency for the provision of protected information, section C-24 Cooperative Administration of the Excise Program and sections C-12 and C-16 for the determination of applicable Goods and Services Taxes and Harmonized Sales Taxes on a specific importation and whether the importer is entitled to a refund or rebate of the tax. [Return to text]
  29. Complete tariff classification coding is made up of ten digits, the first six digits coming from the WCO harmonized commodity description and coding system, two digits from Finance Canada, and two digits from Statistics Canada. [Return to text]
  30. Source: http://cbsa-asfc.gc.ca/publications/cn-ad/cn12-028-eng.html. [Return to text]
  31. Excludes adjustments submitted as “B2 blankets”. Each B2 blanket adjustment may include hundreds of transactions. The CBSA received and processed over 3,800 B2 blankets in 2009-2010 and over 5,600 blankets in 2010-2011.  [Return to text]
  32. Adjustments are often filed as required information was not available at the time of importation. For example, some commodity prices are only set at certain times of year and importers use an average price until the actual price is known. Another example is provisional entries for major capital projects or installations where the final value for duty cannot be established at the time of importation (see D17-1-3).  [Return to text]
  33. Source: CBSA Trade Operations Report, Q4 FY 2011-2012, May 17, 2012. Random verifications are conducted to check that the correct tariff classification, tariff treatment or valuation of imported goods are used. [Return to text]
  34. For example, to determine the tariff classification of new or ambiguous products, SOTCs may request functional guidance and/or an analysis of a product sample from the CBSA Laboratory. The Trade Policy Division processes approximately 21 requests for tariff classification assistance each month.  [Return to text]
  35. Over 2,700 Advance Rulings and National Customs Rulings were issued in fiscal year 2011-2012. Source: Trade Operations Report Q4, FY 2011-2012.  [Return to text]
  36. Each year over 2,500 advance rulings are issued; around 5,000 B2 adjustments are not approved (Source: CMRS Closed Adjustment report), and 570 CVs in fiscal year 2011-2012 identified non-compliance.  [Return to text]
  37. Sources: Agency Performance Report Q4 FY 2010-2011 and Recourse Performance Report Q4 FY 2011-2012. For the 40% of overturned trade decisions in fiscal year 2010-2011 for which reasons were recorded, additional information was provided in 20% of the tariff classification, 27% of the origin, and 25% of the valuation decisions. [Return to text]
  38. dOther reasons why the Recourse Program overturns trade decisions are listed as “CV officer error” (recorded for 1 origin appeal), and “correction of importer error” (recorded in 12 tariff class, 6 origin, and 14 valuation appeals).  [Return to text]
  39. Examples include the development of a policy for continuous transmission commodities (i.e., oil, gas, electricity, water) in consultation with Finance Canada and industry, a review of the Reassessment Policy (D11-6-10), the GST-Wash Transaction policy concerning the application of penalties and interest on GST amounts that are refunded through input tax credits, and the customs valuation guidelines concerning goods sold for export to a purchaser in Canada (D13-1-3, D13-4-2).  [Return to text]
  40. The March 2012 report of the Trade Services Improvement Working Group noted a lack of B2 processing procedures is resulting in regional inconsistencies in the B2 blanket data requirements, forms and authorizations and levels of B2 review.  [Return to text]
  41. Before being instructed at the national trade conference in March 2012, some regions were monitoring whether importers adhered to advance ruling and National Customs Ruling decisions, while others were not. In addition, the Trade Services Improvement Working Group reported that the varying levels of CV monitoring activities across regions results in varying degrees of enforcement, including the application of penalties and ensuring that adjustments are filed. [Return to text]
  42. Source: Trade Operations Reports. The 2009 Strategic Review cut CV activities formerly conducted in the Northern Ontario and Atlantic regions, centralizing them across other regions. [Return to text]
  43. Source: Agency Performance Report Q4 2010-2011. [Return to text]
  44. Participating colleges include Fleming, Loyalist and St. Clair. The Trade Programs Directorate provided input into the internship course curriculum, selection and assessment processes.  [Return to text]
  45. National courses include introductory courses on trade legislation, valuation, tariff classification, and the North American FTA. NHQ also delivers a more advanced valuation case study and is developing a tariff classification case study and an introduction to accounting for valuation and origin. [Return to text]
  46. Non-compliance can result in government revenue loss, unfair advantages against domestic manufacturers or compliant importers, or potential health and safety risks. Source: Priority Submission Template, Risk Matrixes for Revenue Impact and Non-Revenue Impact.  [Return to text]
  47. In fiscal year 2012-2013, 180 randomly selected importers of footwear and apparel were selected for random valuation CVs.  [Return to text]
  48. Source: Science and Engineering Directorate Sampling Methodology, Compliance Verification of Tariff Items. The number of tariff items selected was reduced from 1,298 in 2011-2012 to 100 tariff items for 2012-2013 and the number of B3 lines sampled was reduced from 28,430 to 5,428 B3 lines.  [Return to text]
  49. The random CV approach has changed from “transactional verifications” to “periodic verifications” to multi-program “Compliance Assessment Reviews” to the current “Measurement” approaches for tariff classification and valuation.  [Return to text]
  50. Source: Fiscal year 2011-2012, Q4 Trade Operations Report, May 17, 2012.  [Return to text]
  51. The Priority Assessment Committee convenes bi-weekly and is chaired by the manager of the Compliance Unit within the Trade Programs Directorate. Regional managers participate via conference call.  [Return to text]
  52. For example, trade referrals from ports of entry in the Pacific region rose from hardly any to an average of 5-10 per month.  [Return to text]
  53. B2 analysis conducted in the Prairie region since 2009-2010 has resulted in 50 priority CVs, with error rates as high as 75% being detected for completed cases.  [Return to text]
  54. The importer may receive a letter or “detailed adjustment statement” (DAS) indicating the adjustments made.  [Return to text]
  55. Source: Consolidated Management Reporting System (CMRS) report provided by Trade Operations Division in the Operations Branch June 2012. [Return to text]
  56. Source: Trade Operations Report, Q4 Fiscal Year 2011-2012. In fiscal year 2011-2012, 65% of all completed CVs were random CVs, up from 38% in 2010-2011. [Return to text]
  57. Source: Trade Operations Report, Q4 Fiscal Year 2011-2012. [Return to text]
  58. At a National Trade Management Conference in Feb. 2012, NHQ Trade management informed the regions that improvements are expected in this regard. Monitoring is already occurring. However, regions establish their own criteria for determining which cases to monitor and that is not shared. To this end, a temporary national database was developed based on a database already in use by the Quebec region (called the Trade Reporting and Extraction System, or TREX), which lists all compliance verifications conducted, which verifications were subsequently monitored, and the results of that monitoring. This is expected to be incorporated into the national Trade Compliance Management System database in April 2013. [Return to text]
  59. Higher level AMPs may be applicable if continued non-compliance for the same issue is identified in subsequent CVs conducted as part of phase two compliance monitoring.  [Return to text]
  60. Source: CMRS Closed Adjustment report  [Return to text]
  61. Front-end reviews checked that claims were not duplicates, that they were submitted for valid reasons (correct legislative authority), and within the allowable time frames.  [Return to text]
  62. When AMPs were introduced, companies began filing numerous B2s to avoid penalties which created a 6 to 8-month backlog that was addressed by “fast-tracking” the processing of B2 adjustments. [Return to text]
  63. The Quebec region conducts both ad hoc and targeted B2 reviews, the GTA reviews certain B2s before and after B2 processing, the Prairie region conducts ad hoc reviews, and the Pacific region is waiting for the national procedures.  [Return to text]
  64. The total revenue owed based on these errors was $1.4M.  [Return to text]
  65. [*].  [Return to text]
  66. Tariff notice 58 dated December 1, 2011 indicates changes were effective November 17, 2011 based on an Order-In-Council issued by the Department of Finance  http://cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2011/tn58-eng.html.  [Return to text]
  67. Sources: Trade Operations Report, FY 2010-2011 Year End and for Q4, FY 2011-2012. [Return to text]
  68. Web content provides an accessible and cost-effective approach as it can be provided in multiple languages and viewed at any time from any location.  [Return to text]
  69. http://www.cbsa-asfc.gc.ca/sme-pme/menu-eng.html. [Return to text]
  70. Source: Operations Branch, Small Medium Enterprise Centre Internet Statistics.  [Return to text]
  71. Source: Trade association polling of 400 members conducted between September and October 2012. The poll received a 16% response rate. [Return to text]
  72. Sources: The Canadian Federation of Independent Business reports “Trade Without Borders” (April 2010) and “Border Barriers” (July 2011) recommend providing information in plain language so that importers can understand trade requirements.  [Return to text]
  73. Sources: http://www.cbsa-asfc.gc.ca/import/ar-da/recent-eng.html; Trade Operations Reports for number of rulings issued. About 95% of rulings issued are advance rulings. [Return to text]
  74. Source: http://rulings.cbp.gov/index.asp?ac=about. [Return to text]
  75. The fields available in the TRS do not enable the program to easily separate out details such as the product brand name or company name which cannot be published. [Return to text]
  76. In April 2010, after the results of a pilot project in fiscal year 2009-2010, the GTA region became responsible for processing B2s submitted in the GTA, Prairie and Pacific regions and the Quebec region became responsible for processing B2s submitted in the Quebec, Atlantic, and Northern Ontario regions.  [Return to text]
  77. The program invested $375K in system solutions including the interim deployment and development of the Trade Extraction and Reporting System developed in the Quebec region to improve upon the limited functionality that was available in the national Compliance Management System. [Return to text]
  78. Examples of regional systems and logs: Sweeti (Standard Worktime Indicators), monitoring databases, outreach databases, NAFTA logs, blanket authorization logs, blanket B2 logs, dummy entry logs, advance ruling logs, transfer logs, cheque logbooks and GC44 transmittal receipts. [Return to text]
  79. Based on the “Echo” tool developed by the Greater Toronto Area region and the “Quickfile” tool developed by the Pacific region. [Return to text]
  80. The draft Resource Allocation Model developed by Trade Programs (April 2012) estimates that 82.5 hours are required for a random tariff classification/tariff treatment CV, 93 hours for a priority tariff classification/tariff treatment CV, 216.5 hours for a valuation CV, 217 hours for an origin CV, and 120 hours for a “Least Developed Country” exporter origin CV.  [Return to text]
  81. Source: Draft Resource Allocation Model (April 2012).  [Return to text]
  82. Source: Trade Operations Reports. Data prior to 2010-2011 is not shown as it is not considered reliable due to regional inconsistencies in data collection and reporting.  [Return to text]
  83. Source: http://cbsa-asfc.gc.ca/prog/carm-gcra/menu-eng.html#a1.  [Return to text]
  84. Source: B2 Pilot Review document, October 2008. It costs about $3,500 per year to ship B2 forms for centralized processing between the Prairie and GTA Region (return shipping costs of $37 per bin, 300 B2s per bin, 28,000 B2s). B2 forms are also shipped between the Pacific, Atlantic, Northern Ontario and Quebec regions for centralized processing. [Return to text]
  85. Sources: Canadian Federation of Independent Business reports “Trade Without Borders” (April 2010) and “Border Barriers” (July 2011) and minutes of the CBSA Border Commercial Consultative Committee (BCCC) February 2011. [Return to text]
  86. Sources: Analysis of Regulatory Compliance Costs: Part II, Government of Canada, December 2010, and interview data. Costs that may be disproportionately high for smaller businesses include the flat rate of penalties that may be applied for non-compliance, and costs associated with retaining staff and maintaining systems to manage paperwork and records. [Return to text]
  87. Source: Trade Without Borders, Survey by the Canadian Federation of Independent Business, April 2010. [Return to text]
  88. http://www.reduceredtape.gc.ca/heard-entendu/rr/rr10-eng.asp#tocAppB. [Return to text]
  89. Nearly 200 countries, representing about 98 percent of world trade use the HS as a basis for trade policies and negotiations. Source: http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/hcdcs-hsdcm/menu-eng.html.  [Return to text]
  90. Examples include an independent compliance program for Denatured Alcohol, ICECAP, and the Trade Services Improvement Working Group. [Return to text]
  91. A referral may come from within the CBSA (e.g., such as an “A32” from a border services officer, or a referral from an SOTC or from client services), or from other government departments or the external trade community.  [Return to text]
  92. The Theory of Change advocates building a program theory based on stakeholder consensus.  [Return to text]
  93. Questions rated the effectiveness and efficiency of various program activities and there were between 19 and 50 respondents for each question. Due to the low sample size, results do not represent the views of all trade program staff; however they provide an indication of the level of consensus. [Return to text]
  94. The evaluation team was walked through a total of 15 program activities, including the referral process, the Priority Assessment Committee, ICECAP, tariff classification random measurement CV, valuation CV, onsite origin and valuation CVs, outreach and consultation processes, advance rulings, CV monitoring, Administrative Monetary Penalty System, B2 processing and B2 blanket processes. [Return to text]