Post-clearance verification of preferential origin of goods

Customs may carry out post-clearance verification of the preferential origin of goods. As a result, a letter from customs might appear on the importer's desk stating that the preferential tariff treatment has been denied.

In this article, we look at what is the process of post-clearance verification of preferential origin set out in some of the free trade agreements of Canada, the UK and the EU. Also, we provide practical examples and suggestions on how the preferential origin-related risk could be managed by importers.

CANADIAN PERSPECTIVE

Preferential origin as the source of risk

Importers who claim preferential tariff treatment under a free trade agreement (‘FTA’) are generally familiar with the certificate of origin provided by the exporter or producer of the goods. In most FTAs, importers are required to have this certificate in their possession at the time the preferential treatment is claimed.

Many importers assume that the certificate of origin is the end of the story or that it shields them from liability should the goods subsequently be found not to originate. Unfortunately, this is not the case.

It is the importer who must pay the duties owing plus interest, and perhaps also penalties, should the certificate be invalid. This can come as an expensive surprise. For example, assume a Canadian importer purchases $10 million of goods from a German supplier over four years. They have certificates from the producer which state the goods originate under CETA and are thus duty free. A verification audit determines that the goods did not qualify under the CETA Rules of Origin, and are subject to the MFN rate of 6.5%. The assessment of duties would be $650,000. With penalties and interest, the total bill could be over a million dollars.

Risk management: provisions in the sales contract, ‘red flags’

Where preferential tariff treatment under an FTA is critical to an importer, they might consider negotiating a provision in the sales contract whereby the exporter guarantees that the goods originate and agrees to pay the duties, interest and penalties assessed if they do not.

Continue reading the article ‘Post-clearance verification of preferential origin of goods’ by Peter Mitchel, Customs and Trade Consultant, Mitchell Trade Consulting Ltd., Canada and Enrika Naujokė, co-owner of UAB 'Muita'. The article was published in the Customs Compliance & Risk Management Journal. Would you like to get access to all the articles published since 2020? Check the pricing here and choose most suitable subscription plan.