Importers circumvent tariff rules

Importers have found ingenious ways to skirt triple-digit tariffs for chicken products coming into Canada’s protected supply managed system, government documents show.

Some of the imported product improperly finds its way into the domestic market and costs Canada’s poultry industry tens of millions of dollars in lost market share.

And according to an exchange of letters between senior Canadian Border Services Agency and Finance Canada officials in 2012, Canadian taxpayers could potentially be on the hook for tens of millions of dollars in tariff rebates to companies suspected of breaking the rules.

“To provide you with some context, one application that we recently received estimates that the company’s average monthly duties (on imported chicken) to be remitted will be $2.36 million, or $28.3 million annually,” CBSA tariff, origin and valuation division director Anne Kline complained to Finance Canada international trade policy official Patrick Halley.

“On average, the CBSA currently relieves just $155 million annually for all 260 participants in the Duties Relief Program.”

Chicken Farmers of Canada executive director Mike Dungate said the federal government may recognize the problem, but chicken imports are still getting into the Canadian market around protective tariffs.

“We have been told they are working on this and something will be done,” he said. “We’re still hopeful, but we haven’t seen it yet and it still is impacting industry revenues and the bottom line.”

Ottawa researcher Ken Rubin used access to information laws to obtain the emails and letters outlining details of the internal government debate over the issue.

It is a complicated story that in-volves two federal programs created to deal with product importers.

The Import for Re-Export Program allows importers to bring in goods tariff-free if they are to be used in a product that will be quickly exported. The program is administered by Foreign Affairs and International Trade Canada.

The Duties Relief Program, operated by the CBSA, pays back import duty costs to eligible companies importing parts to be included in export products.

In her letter to finance department officials, Kline said there is evidence that some companies using the import to re-export program have been adding water and weight as a chicken substitute in export products so they can divert imported chicken into the more lucrative domestic market.

“(Foreign affairs) has also suspended multiple companies from the IREP for fraudulent activities and then have recommended to the suspended clients that they apply for the Duties Relief Program without any notification to the CBSA,” she wrote.

“Therefore, we are extremely concerned that (foreign affairs) is shifting their IREP issues to the CBSA.”

She complained that the agency’s duty relief program was not created to deal with products covered by supply management import restrictions.

Increased duty rebates as well as the need to increase monitoring of companies using the program will increase costs and could lead to a budget increase request, she suggested.

Chicken Farmers of Canada has been complaining for years about imports improperly sold in Canada as chicken products.

CFC used last year’s federal-provincial agriculture ministers’ meeting in Halifax to highlight the growing issue of spent fowl from the United States being improperly sold as a fresh chicken product after it crosses the border tariff-free.

Dungate said misuse of the import-to-re-export program has been a problem for years.

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