Businesses have been through the wringer this year, with the pandemic causing devastating financial losses for many and international trade disruptions adding extra challenges to business operations. While free trade agreements like NAFTA have negated the duties charged for cross-border shipping between the United States, Canada, and Mexico, many businesses are still facing unnecessary fees and paying costly penalties at a time when their cash flow is increasingly restricted.
With the approaching year end marking the expiration of trade agreements, it’s imperative now, more than ever, that business owners take the time to assess where their money is going — and whether it needs to go there. Regular financial audits of fixed costs may seem like a corner that can be cut with little consequence – as they say, if it ain’t broke, don’t fix – but this sort of due diligence as a business owner, during a pandemic, is paramount to your bottom line.
Holistically assess all trade agreements and fees
When the new Canada-United States-Mexico Agreement (CUSMA) took effect on July 1st, 2020, it ensured the vast majority of North American trade would continue to be duty-free. However, when working with international companies, it’s important to note which countries manufacturers are from, and whether you are using and benefiting from their trade agreements. While many accept fees without proper assessment, a customs broker can help identify the fees a business is required to pay and present solutions to reduce costs.
Sometimes products can be reclassified to remove duties. For instance, while a baby jumper may be classified as a seat and charged duties, it could be reclassified as other toys and ship duty-free.
Coming up to December and the expiration of trade agreements, now is the time to request a report of all the duties you’ve paid out while identifying suppliers and their location. This report would allow you to assess where you are paying the most duties, where your manufacturers are from, whether you are using and benefiting from their trade agreement, and – importantly – whether you have the ability to change the duties. For instance, an assessment could bring to light the benefits of relocating manufacturing from one country to another to save on duties.
Apply for trade incentives programs
More and more frequently, customers pay duties on products imported into Canada, only to pay duties again when they then export these same products into the USA. What many people are unaware of is their ability to apply for duty drawbacks. There is untapped potential for many businesses to get money back through trade incentives programs like drawbacks, but oftentimes they are not taken advantage of.
While it might not be applicable for smaller businesses, those that are paying more than $50,000 in duties should connect with a customs broker to identify whether they are eligible for a trade incentives program, assist with the application process, and ensure they claim applicable drawbacks.
Practice due diligence and be your own advocate
The responsibilities of meticulous audits and correct record-keeping ultimately fall on the shoulders of business owners. It is imperative that businesses practice due diligence and advocate for themselves to ensure that the correct duties and fees are paid in order to avoid overpaying or being hit with hidden taxes and penalties.
Similar to how the healthcare system demands a level of self-advocacy to ensure patients receive necessary attention and treatment, it’s imperative that as the importer, you ensure that your books are pristine and your records are correct. Those who fail to take responsibility for the duties and taxes they are required to pay will be putting themselves at risk of costly penalties and potential legal action.
At minimum, businesses should be completing these assessments at least once every year, but checking the books at least every six months will prevent the accumulation of errors throughout the year and help to keep the records balanced.
As what has been an unusually devastating year for many businesses comes to a close, now is the time to holistically assess trade agreements, collect and review reports, claim drawbacks, and get into the habit of practicing self-advocacy. A business’s ability to get their finances in order now will be crucial in setting themselves up for a thorough review in January.
Graham Robins is president and CEO of A & A Customs Brokers