Expeditors International of Washington, Inc. (EXPD) Earnings Call Transcript & Summary

We're about 2 minutes past the hour now, so I think it's time we get started. My name is Justin, and I will be the host for today's CETA 101 webinar. Thank you all for joining us today, and now I will cover a few ground rules. Everyone is automatically all mute and your cameras are off. This means if you have any questions, you can type it into the Q&A box at the bottom of your screen. Please avoid typing questions in the chat box as we may miss those. We will address questions either during the webinar or at the end of the webinar during our question period depending on the question. Please stick around to the end, not only for any leftover questions, but we also have a couple of QR codes that you're able to scan to sign up for either expeditor's communications or to visit the Tradewin homepage. Soon after the webinar, everyone that registered for this webinar will receive a follow-up e-mail that includes a survey. Filling out the survey will give you access to a copy of the slides used today, but please note that there will be no recording available. And with that, I will hand it off to Steve to introduce everyone we have here today and begin our webinar.

All right. Thank you very much, Justin, and good morning and good afternoon, everyone, and thank you for taking time today and attending our ongoing webinar series. Today's topic is the Canada European Union comprehensive economic and trade agreement, also known as CETA. My name is Steve Bunda, and I'm responsible for the business development for the customs product here at Expeditors Canada. And with me today are our CETA experts from Canada and Europe; Christian Schenk, principal Tradewin Europe; and Rob Moore, Principal Tradewin Canada. And in today's discussion, we will look at the CETA trade agreement in detail and identify what the program is all about, including a brief history of the program, why do we have this program and most importantly, how one can benefit from the program itself. By managing your import and export programs and taking advantage of this trade agreement, importers and exporters can expand their business to foreign markets, bring down trade barriers, specifically tariffs, import quotas and encourage a freer trade of goods and services among its member countries. So we're going to start off with our first pole of the day. All right. So the question is simply yes or no, are you taking advantage of CETA today? Wow, Okay. Interesting, 50-50. Well, that's good, well balanced, but still some that hopefully, taking a closer look at the program here, we'll have a better idea and see where they can take advantage of the actual program itself. All right. I will now pass the buck over to Rob Moore.

Thank you, Steve. Kind of -- we'll kind of get right into it here. Really, here's sort of the why CETA is here. And this is kind of applicable to most trade agreements. We really introduce trade barriers. What they're trying to do is to reduce the trade barriers between Canada and the European Union in order for us to have better market access to the products in Europe and for the people in Europe and companies who have to have better access to the product in Canada. And it also helps to grow your economies. We can grow our economies by increasing trade and reducing barriers, reducing duty, reducing the cost to do this. All right. Next slide, please, Justin. All right. And then how to use it, and Steve will get into this a little bit deeper. As he mentioned, Christian and I are more regulatory based and compliance based, whereas Steve is more -- his side is more practical. So how to use it, trade with countries that we have trade agreements with and are speaking from a Canadian perspective, same would fol for countries in the European Union. One thing you need to do is look at the rules of origin just because it says Origin Canada or Origin France, or Germany doesn't necessarily mean that it qualifies under the terms of the agreement. The other thing is really key is to let your broker know. I mean if they don't know you intend to use this, they'll never -- they won't use it and then you got to pay duties that you don't want to, that you can get that back in a refund. However, the idea of the agreement is to reduce cost upfront, not from -- not to go back and get it after the fact. And then we'll get into a little bit of history here. I mean the agreement's been around for a little while. It's interesting. The reason, I would say, Canada, and I can speak from a Canadian perspective, started to look at in other countries and other unions and that for trade partners when the global economy started to struggle and in particular, the United States, which is our largest trading partner, given our proximity to the United States. We realized that we can't put all our eggs in one basket as it were. So we started to look around at other countries and unions. And the European Union was an obvious choice, given one, our history, a lot of the history in Canada, a lot of people originated, or their ancestors did in Europe. So it was an obvious choice. And also, it's a big market to tap into. So it went through these stages, listing here, and I won't go through them all, but it officially entered into force in 2017. And I mean it's -- it's a pretty good agreement. It's more modernized than what was NAFTA. And when we renegotiated NAFTA, we took some of the Qs from CETA because it's a much better agreement, much better put together, I'll say, than what was the first kick at the can. I'll pass it over to Christian.

The CETA structure and general taxes kind of set up the same -- the way that most trade agreements are set up that we see within the European Union. The [indiscernible] were to kind of explain [indiscernible] the intention of the agreement, the definitions, which are really important to review. It will define what's Canada, what's Europe? Might sound simple, but there's always like little areas and places within the jurisdictions that might be different? What's included, what's not included? The different chapters that are going to be covered within the trade agreement and then the annexes to trade agreement and the specific rules of origin, and the specific rules of origin is the main section that we would review as consultants to validate, hey, does this [product] qualify? Are there any specific rules for particular headings. We can go into some more examples down the line. And there's a dispute resolution. So if there is particular companies that have issues with the way that either EU or Canada does not apply or does apply the rules of origin, there's a process defined on how that dispute would get resolved down the line. Then if you're looking at the rules and the requirements under CETA, you have the general requirements which can specify for the whole of the trade agreement, and any product-specific rules that apply. The general requirements are -- have [origin determination] kind of fall into 3 different categories, goods either are wholly obtained, and wholly obtained means that the goods are either grown or mined within Canada or EU. So Canada maple syrup comes out of a tree. So it's wholly owned or wholly obtained product out of the maple trees, produced exclusively from originating materials. So you have, say, grain, flour, butter, milk, and you make better cake, so you produce your end product from wholly obtained materials. And then you have products that undergo sufficient production. And these are the more complicated items where you take multiple inputs and you fabricate a finished product at the end of it. And then the product-specific rules, they really go into more detail about what kind of working is required for non-originating material to gain originating status. There's a lot of complexities within the market. There's a lot of different HS classifications that might be so technical that even doing a little bit on the product would still qualify for Canadian European Origin? Like one of the examples is chips, for instance, whereas most other product-specific rules say, hey, you need to have butter, flour, milk to create bread, everything is classified different HS classifications and there's a substantial transformation and a tariff shift creating a new product and therefore, it qualifies for origin. And it must be substantial. That's the last thing that was on that slide. And what means substantial is that you cannot just take simple things and screw them together. You cannot -- if the assembly can be done with your household tools that you find in your garage, it's probably not substantial enough. And so your specific machine, machinery or specific tools need to be utilized in the production process for goods to really qualify. So if you're looking at CETA overall, the Annex 5 of the protocol really defines the rule of origin and origin procedures that qualify for making the goods preferential. It's based on the HS classification of the finished product being imported in the jurisdictions, so either Canada or EU -- and you kind of executions based on HS classification or certain components and ingredients. And there's regional value content that needs to be met as a threshold for goods to qualify. Now I think -- one thing I think we've kind of glanced over is like you have preferential origin and nonpreferential origin. So the -- what we're talking about here is really to qualify goods for preferential origin. And to qualify goods for preferential origin allows you to actually utilize the CETA agreement. Confusingly, goods can still be of Canadian origin but not qualify for the trade agreement because you don't meet the thresholds that are set within the trade agreement itself. And then it kind of takes me into the -- take me into the -- next slide, I think some of the -- you have a simple tariff shift rule wherein any input into the finished product was in a different heading. So to give you the apple pie example or the bread example, like you have flour, if you have milk butter creating bread. So everything is in a different heading than bread, which is, I believe, in Chapter 21. And there's -- so there's a tariff shift. There's nothing in Chapter 21 that goes into the bread. And therefore, you have a simple tariff shift rule that applies. The regional value content rule is more complicated. You really need to have a good understanding of the production process and your bill of material. And you need to have a good understanding of what the value of the product is at the end of the process and what the Ex Works price of your product is. And so the Ex Works price of the product is everything the way it is written within the definitions of the trade agreement that says, what do you charge an individual to buy this product at the end of the production cycle. And therefore, are you meeting the requirements. So like one regional value content example on the screen is first, kind of the simple tariff shift rule applicable on [indiscernible] or a change from within the heading, so anything that's within Chapter 85, whether or not it also changes from any other heading provided that the value of the non-originating material of the setting does not exceed 50% of the transaction value or Ex Works price of the product. So that means that the value of non-originating material, so that can be goods from -- say, you're taking inputs out of the U.S., you're reworking them in Canada, shipping them off to Europe. So the value of the material that goes into the finished product is only 50%. So the other 50% is the charge for the manufacturing of your product and any uplift or any profit you want to make on those goods at the time that they leave your factory in Canada. In fact, [If it were for] Europe, it works the same way. Just checking if there's any questions on this, can be complicated. Remember, you can just put any questions in the Q&A box and we'll kind of go through them as we kind of talk through the slides.

Chris, can I just have a quick question on -- I don't want to put you on the spot, but we deal with, as an example, European manufactured vehicles and many, many of them do qualify for CETA. I could only just imagine how difficult it would be to qualify a vehicle to qualify for NAFTA. I've seen it happen with [indiscernible], USMCA, the old NAFTA, but for CETA, it would be quite the challenge. And I guess it really all starts with the bill of material, right?

Yes, the bill of material is really the most important thing. And then having -- your bill a material within [not being a material] have your HS classification, your values at the parts that go in there. And the original origin of the products that they had as they were like introduced into your production process. And then you need to go through the whole qualification to see does it meet or does it not meet. And automotive trying to utilize like regional value content because that's where most of the time it falls, it comes down to percentages, hey, can we make the supplier invoices like $10 more a piece because that will allow us to use preference or does not allow us to use preference. And it's a complicated, complex process. And the main challenge that I see with the customers I deal with is that the trade and [indiscernible] professionals that are doing the qualifications for preferential origin, they need to stay in close contact with the purchasers to also understand is there any change happening within the production process of our suppliers? Are they suddenly shifting origin from one to the other? Do we create different parts to kind of keep track of these shifts because there were companies doing periodic reviews on the bill of material to see the -- if they still qualify or they should at least. And that's when all these questions come in, and it's always better to have that relationship internally -- have people proactively say, hey, we're changing supplier here. You might want to input that variable into your calculations to validate, does the process -- products still qualify it down the line because hey, if you suddenly don't qualify for this trade agreement, your customer is going to pay more duties potentially or you yourself into companies going to pay more duties for these goods to be brought into free circulation either in Canada or in the EU.

All right. Very detailed. And I guess it's kind of a good segue into the next slide. I think it's yours Rob here with your example here, regardless if it's a garment or if it's an automobile, the process is essentially the same, right?

That's correct. And Christian, that's a complex answer and a good one, Steve, I'm glad you asked Christian and not me. This, I'll take responsibility for this slide. Essentially, it's a simple tariff shift kind of diagram where on the far left is that's a cowhide or leather from Italy. And then we have a zipper from South Korea. And then the black thing there is supposed to be some interlining from Vietnam. So all of that -- the cowhide is already in Italy, the zipper and the interlining gets shipped to Italy where an Italian manufacturer makes it into a leather jacket, which is if you follow the arrow along at the bottom, and then it gets packaged and shipped to Canada. So that's a simple tariff shift drawing. And next slide, please, Justin. So this kind of would put that rule of origin. So here, again, is a simple tariff shift, rule of origin. So the classification of leather jackets falls under 420310. And again, keep in mind, we're using for this exercise, the only 6 digits, 6 digits of the classification there of the HS tariff or HTS, whatever you call it, in your country or zone. The first 6 are international. So most rules of origin are 6 digits only. So here we have our rule of origin, which says a change from 4201 to 4206 from any other heading. So our leather jacket is 420310, so it falls within that grouping. So our leather hide is 4101. It's from Italy. It's already originating, but nonetheless, it still falls outside of that tariff group. And then we have our polyester lining from Vietnam, which is 5512, again outside that tariff group. And we have our zipper from South Korea, which is 9607. All of those get assembled and made into the leather jacket. So the woven polyester and the zipper are 2 different classifications from the jacket, what's coming to Canada from Italy is a finished leather jacket under 420310. So there is a very simple example of a tariff shift. So they both shift from one classification to the finished classification that gets imported into Canada. So does this qualify for CETA? Yes, it does, by simple tariff shift. So really, really simple explanation of tariff shift, and we'll get into a little bit more complex rule of origin that uses original value content. And again, it's pretty simple. So when I look at the rules of origin for Chapter 94, it's 9401 to 9406. So it's the whole chapter. So it's a change from any other heading or a change from within those headings, whether or not there is also a change from any other heading provided that the value of the non-originating materials classified in that same heading as the final product does not exceed 50% of the transaction value or the Ex Works of the product. So this starts to now put into, I'll say, practical application, what Christian was explaining. And again, I use a very simple example of what we have here. And I'll look at next slide, please, Justin, shows you how an RBC calculation is done. It's a very, very simple percentage calculation. It's not difficult. So you take the original value content, the transaction value, you subtract one from the other, divide it by the transaction value and look at the transaction value for our purposes, you multiply it by 100 to get a percentage. If it's more than 50%, you're good to go. Same for the Ex Works calculation. It's very, very simple. And for anyone who knows me, I'm not a numbers -- mathematics person. I'm a words guy. So [indiscernible] talk too much. But I'm not -- but I can figure these calculations out. If I can do them, anyone can pretty much do them, they're really quite simple. So if we look at the calculation on our next slide, it's really, really, really very simple. So here, we have our rule of origin at top for the whole chapter and then we have our specific rule of origin, 940110 to 940180 is a tariff shift or we go down to the 9401 to 9406 rule. And if we look at -- so the chair made in Canada, 940161, which falls in our threshold or our chapters, it's $100. Easy number, again, me not being a numbers person, I used an easy number. So the wood was cut down and milled into the lumber to make the chair in Canada. So that's originating. We have chair legs coming from Taiwan, again, not sure why, but nonetheless, they do. We have the paint from Canada. We have screws from the United States. And then we have hinges. So it's an opening bench chair like you put at a piano or something. The hinges will come from Germany. So when we look at the items in black, they are originating, Canada, Germany, part of the European Union. So our legs from Taiwan and our screws from the United States are not originating. So if we take that simple calculation, we take our $100, we add the legs and the screws, which is $27.20. We're talking in Canadian, so we're in dollars. We divide it by 100, then multiply it 100, and we get 72% originating, really, really very simple. I mean, conceptually, if this was in euros, EUR 100, EUR 27.20, we would still come up with the same number. So it's more of the concept than the calculation itself. Again, a very simple calculation. I think, Steve, from your practical side of things from the customs brokerage side of things, this is not necessarily what we need, correct?

Yes. That's absolutely correct, Rob. I'm just listening to the explanations here and it can be rather complicated to say the least. But as an importer, taking advantage of this trade agreement, it's critical that they're aware of the rules of origin requirements in that their imported products do qualify for the preferential tariff status. And here, we really need to have a proper communication channel with your customs broker, assuring this preferential information that's provided is accounted for on the import entries. So I just want to reiterate that communication is key between you as an importer and your customs broker.

What I would like to add to that is it's critical to make sure that you understand the HS classification of your inputs. We have that well defined because maybe those legs out of Taiwan can actually be classified in different heading, maybe made at a base metal, not necessarily [formed those legs yet] and therefore, you might actually be able to apply a tariff shift rule instead of needing to go into the secondary like [original] value content. And also the value is really important to understand, like what is the value of my product, what is my landed cost for the goods coming in? And do I have everything? Because what happens if [indiscernible] and go like, are you sure these legs are $25 a piece or [indiscernible]? Because when we do an audit on your books, we actually see that the pre-piece -- price is higher. And as a consequence of that, you might need to reevaluate your regional value content to see if your products still qualifies. And if you're on that like border of things qualifying and not qualifying, it can certainly mean that you need to work with your team to amend customs entries, to incorporate the change in [indiscernible], if you could qualify or you don't. So it's really important to kind of upfront to track of all that. So there's a tolerance in there within the trade agreement that says that goods will be considered originating if the value of all non-originating material that do not undergo a specific care shift is not more than 10% of the products Ex Works price. So there's steps away from the transaction value, you really need to focus on the Ex Works price of the goods. So goods -- and then goods, not otherwise subject to the regional value content shall be required to satisfy the regional value content if the value of non-originating material is not more than 10%. And then Chapter 63, goods are specific to the product being validated. And so this rule is kind of introduced to kind of make it simple, you can qualify quicker under this tolerance rule, not necessarily to do a deep dive in all the details.

[indiscernible] to your point there, Christian, for sure, would be to look up the tolerances. As you said, we could get into the details. But between you and I, we could put everyone to sleep and also be here for a number of hours.

All right. Well, just to give you an idea of CETA from the inception. This slide really represents EU exports to Canada and Canadian exports to the EU and it's based on the value of goods in billions of euros. And really, since the implementation of CETA, which was September 2017, we've seen an increase of approximately 30% on imports from the EU to Canada and exports from Canada to the EU, providing a very balanced trade. So we did see a bit of a dip in EU exports 2019 and 2020. But of course, this was due to COVID. Okay. Thanks, Justin. So Canada and its key trade agreements. Rob, I know you mentioned earlier, we're very dependent on the U.S. And this slide here actually identifies depicts that Canada's participation or dependency on key trade agreements. And as you can see, Canada is heavily dependent on the U.S. and Mexico with CUSMA/USMCA also referred to the new NAFTA at 27% of trade, CETA at 18% of trade. And also another very popular trade agreement that Canada is aligned with and that's the CPTPP, comprehensive progressive trans-pacific partnership. And yes, we will not be having a quiz on Canadian acronyms. Once again, we seem to love our acronyms while CPTPP, also Trans-Pacific Partnership, 9% of trade. But we should see a bit of an increase here because there's been a recent ratification with Malaysia in September of last year. And during Brexit, Canada and U.K. also entered into their own agreement. And that's the Canada-United Kingdom Trade Continuity Agreement. And here, the requirements are similar to CETA qualifications. Okay. Many of the trade agreements today now only require a statement of origin instead of a physical certificate of origin that we have seen in the past. Customs administrations are streamlining and really modernizing the preferential tariff process. And really, from a compliance perspective, we, as a customs broker, would prefer to have this information this -- to have this preferential tariff information well in advance of arrival of the goods and preferably with the client's HS [parts] database reflecting the appropriate preferential trade agreement. So as we mentioned earlier, communication is key between you as an importer and your customs broker. And next slide, I think we're off Christian, Christian yes.

Yes. [we do] another poll to see who speaks these languages from the attendees. But -- so the -- as Steve mentioned, there's a simplification happening where we're kind of moving away from the EUR.1 or EUR-MED, GSP documentation and then again on the commercial invoices. So for the Canadian-European Trade Agreement, the European Union first started using the registered export system. And there's -- I'm getting ahead of myself. There's 2 ways to claim preference. There's -- whenever you have something that is preferential and you want to ship it from, say, the European Union to Canada, anything under EUR 6,000, you can put an invoice statement on your commercial invoice, which is the one that's on the screen right now in Bulgaria and Spanish. And there's a version for every -- for every language out there. every language should be accepted by the authorities at destination. What you'll find is the majority of the companies use the English one because everybody can understand that. So under EUR 6,000, you can apply this invoice statement on your commercial documentation. And so commercial documentation is anything that pertains to the shipment of goods, which can be packing list, commercial invoice or even anything additional to solidify the transaction. So I just got a question in the Q&A. It's like, hey, if I have -- if I'm drop shipping from Canada to EU, but I'm the selling entities in the U.K., how do I make sure that my receivers in destination can actually claim preference. My suggestion would be stick this origin [declaration] on your -- on the packing list, for the goods. We don't need to put it on the commercial invoice. You can put it on a commercial invoice, but then you need to share probably an invoice from Canada and the U.K. So stick this on the packing list. And with that, they should be able to claim preference at destination. And so the next slide will kind of go into the registered export system, the system that's been introduced specifically for CETA. So this is for any goods that are beyond EUR 6,000 for any transaction that's going down EUR 6,000, you would need to be registered within the registered export system within the European Union to be able to receive goods under the CETA agreement. So you, as a trader within the EU, you register here, then in the background, kind of the transaction is managed within REX system wherein the shipper notifies the authorities okay, the shipment is coming, and everything is integrated within the custom systems. It's a system that has been expanded. There's a lot of GSP countries that are in REX at the moment, slowly, gradually transitioning countries in there, plus any new trade agreement that the EU has also gets into the REX system. Most notably being South Korea, Japan and I think Vietnam are the last 3 trade agreements that the European Union closed, and you'll find that any currently ongoing negotiated trade agreements are going to be leveraging the REX system to manage the preferential claims for goods that come into the European Union. And it's really to drive the efficiency throughout the custom systems out there and get away from all the documentation that's involved in the past and create a paperless process. But it does require you set up, you apply -- it's a customs license you apply for. You'll need to tell these customs authorities, hey, I have -- I'm dealing with -- these origins. And you disclose kind of what your origin determination procedures is. So you need to understand the legislative framework to be able to determine preference or nonpreferential origin as part of the application process. But you'll find that per country or per jurisdiction or member state within the European Union, this will be approached differently. But these are my general observations for the market that we operate in.

So the export requirements out of Canada are really fairly simple. You need a Canadian business number. And actually, it should be an RE extension not RM. RM is import. But nonetheless, if you import, you're probably set up to export. It's easy to get and easy to change if you need it. You need to file formal export declarations for goods valued over CAD 2,000. The export declaration is filed through CERS, which came online a couple of years ago. It's a pretty simple user-friendly system. And again, you can, as an exporter, register on CERS and put together the export yourself and then transmit it to the government yourself or have your CERS provider do it, which an awful lot of companies do. Again, it's not rocket science, if I can use that acronym or that analogy. They're not really difficult to do and it's a much more user-friendly system than the previous one, which was [CADE]. So the export requirements are really pretty simple. And I'm generalizing, of course, if you have products that require permits et cetera, weapons, dual-use items, things like that, I won't go down that path too far, then we're looking at a little bit different requirement in the sense if you need a permit. I think that's Okay. Next slide, please, Justin. Again, extra requirement is simple. All right. We're into audits. And I think we have another poll ready with us.

Next poll question. Have you ever been subject to a verification audit? Okay 67% no and 33% yes. I don't know, Rob or Christian, do you think that's pretty kind of like the average that you see in general? I know they've been -- they've been increasing the audit CBSA here in Canada, not sure on the EU side.

Here we go. You're right. We have seen an uptick in audit. I know during COVID, the CBSA suspended them. So they had some they started that they're bringing back. But anytime you're claiming duty-free [shot] at some things, the government wants to make sure that it's legit or you're eligible and they're not missing out on money. So we have seen a bit of an uptick in audits in Canada. Christian, I can't speak for the European Union, but I know you can.

I think in general, there's more customers that -- I think it takes a while in somebody's career to really be exposed to the customs audits. No, they can be relatively simple. They can be just inspections at time of importation, or they can be post declaration audits, which I would say, happen less frequently. There's a 4% of the products being imported into the EU get flagged for inspection, either is a document inspection or it's a physical inspection and the -- you'll find that those won't take up that much time, like actual audits post entry take up a lot of time. And they are happening more and more, and it's because the authorities are leveraging their data more and more. Like we are in our daily jobs trying to utilize the information within our systems to strategically make decisions on business, customs are starting to do the same thing. And they're working together with universities and big data aggregators like Dun and Bradstreet to really kind of target specific industries where there might be noncompliance and they're leveraging that data and say, hey, we found a company XYZ have noncompliance in this area. Let's just go to the data and see what other companies within the same industry exists and just start asking them some targeted questions on, hey, what's happening here. And that's -- there's more collaboration between the different member states within the European Union and the European Commission is also really pushing the different member states to have a cohesive approach towards the market. So we're going to see more inspections. We're going to see more audits and we're going to see that things that, for instance, and all of that took place in Hungary is going to affect the company in the Netherlands because the commission is kind of managing this overall and putting -- forcing member states to do inspections on companies within the same industry because of noncompliance found in another location. So hopefully, that will kind of give you some information or detail about what the European Union is going towards.

You provide a very interesting perspective on it, though. From our standpoint, we deal with one country, I'll say, for some degree, one jurisdiction, you're dealing with multiple. So it must make for an interesting day, I'll say.

Oh, definitely.

Next slide, please, Justin. So we're kind of get into sort of the structure of our trade agreement audit in -- from our side of things, we're used to customs asking a client or an importer to validate their claim of preferential tariff treatment. Sometimes, if it's very simple, there's not a lot of detail involved. If it's not, they will generally ask for an origin and FTA qualification, which would be that simple bill of material example we used, if you're importing leather jackets from Italy. It can be as complex as doing the RBC thing. And so what they may ask for then they ask you to produce either your calculations. So this is where it's good to do your homework on the back end before you decide to use any of these agreements, and make sure that you qualify, and you keep that as audit trail. And of course, I'd be remiss in not saying that you could outsource it to someone like us, and we can do it for you. And qualify your products and provide you with that qualification statement and all the things that go along with it. And then, of course, if customs ask for it, it can be submitted to them in support of your audit. But like everything, there are certain benefits to using these trade agreements. There's also a little bit of risk assume with using end use or anything else. There's a little bit of risk if you're going to claim a duty free or reduced duty rate customs wants to make sure that you qualify. Okay, there we go. So what can happen to consequences, payment of duty and tax interest in Canada, it's up to 4 years of historical imports. They could suspend your use of the preferential trade agreement. There could also be penalties if they find that there was prior knowledge that you don't qualify to using it anyway. And I think the key thing is it affects your landed costs. of your imported product. If you've costed your product out, let's say, you're in the retail side of things and you import products from the EU into Canada at a 0 duty rate because you have CETA in place. And then it turns out that the products don't qualify, your landed cost is going to be skewed by now you have to include the cost for that duty. Christian, I guess I'll ask you to comment on the time frame. In Canada, it's 4 years from the date of import. Is it the same in the EU? Or is it different per jurisdiction?

No, this is governed by the Union Customs Co, which sets a time line of 3 years after entry of the goods.

Okay. So similar?

It's relatively similar, more or less.

All right.

And the penalties and consequences are the same.

It looks like the audit process is somewhat standard.

Yes.

Okay. Thank you, Christian, and Rob. Just watching on the time here. We're coming up to the hour so I quickly want to go over Canada's Nonresident Importer Program, where foreign companies can take advantage of the Canadian marketplace and Canada's trade agreements. From a Canadian import perspective, we have seen an uptick of U.S. and European-based companies looking to access the Canadian market. This is a perfect opportunity for these companies to participate in Canada's Nonresident Import Program. And as a nonresident importer, you can take advantage of CETA and other trade agreements that Canada is aligned with. The Nonresident Importer Program, known as the NRI program. For those of you who are not familiar with it, allows for foreign companies to take advantage of the Canadian marketplace without the need for physical presence here in Canada. And therefore, no bricks and mortar, staffing, warehouse, et cetera. We've seen its growth in the e-com marketplace, and it's very popular with the big box stores here in Canada, like the Canadian Tire, Walmart, Home Depot. Most Canadian companies actually prefer their goods to be delivered to their door or distribution facility for a single price. And really myself as an e-com purchaser, the last thing that I want to deal with is duties and taxes. And of course, another customs broker when I order a product online. So in most cases, the goods are actually shipped to the customer term DDP, delivered duty paid, where the importer, or I should say, the nonresident importer is responsible to get the goods to their customers' door. And the setup itself is rather simple. The requirement is a business number through Canada Revenue Agency and also GST registration number. Goods and services tax, similar to the VAT in Europe in Mexico, and that's also applied for through Canada Revenue Agency, Canadian Power of Attorney and the necessary bonds with Canada customs. But lastly, registering -- lastly, registering for Canada Custom's latest initiative, which is known as CARM, and CARM is Canada Border Services Agency Assessment and Revenue Management program. Canada Customs is essentially streamlining the way they will be collecting the duties and taxes. And for those of you south of the border in the U.S., it has some similarities to the U.S. CBP ACE Program. But key component here, it is a mandatory requirement for all importers into Canada, be it resident or nonresident importers must be registered by October of this year. As a best practice, we've been working with nonresident importers, where products that are destined to Canada move into a U.S. FTZ, free trade zone and subsequently shipped in bond to Canada in bond under customs control in the U.S. and taking advantage of the specific trade agreements with Canada. And a great example of this is clothing and footwear, which attract really the highest rate of duty into Canada today at 18%. And by shipping these goods from countries that are entitled to a specific trade agreement be it CETA or CPTPP, the Trans-Pacific Partnership, we can save essentially 18% duties on the import product into Canada. The NRI problem, I tell you -- the NRI program can also facilitate drop shipments into Canada also. But the reverse of the program, and I'm going to ask Christian -- ask you on this one, for Canadian exporters acting as a nonresident importer into the EU and taking advantage of the duty-free status into the EU, I know it's not is quite as simple as it would be set up for an EU company as a nonresident importer into Canada.

There's 2 -- from a customs perspective, it's relatively -- it's allowed under the customs legislation. You will need to find a broker that's able to indirectly represent you for importation. And the second consideration is VAT. Every member state is going to [manage it] differently and you need to see within the member state, you're intended to import into what does their VAT regulation look like and what they're allowed to do? Do you need a fiscal rep? Is there VAT postponement month? Or is there other ways of managing VAT at time of importation? But otherwise, it can be done.

It can be done. But a little more complex than setting it up here in Canada. But again, a bilateral agreement, taking advantage of the programs by all means. Okay. Thank you. And next slide, Justin. Okay.

All right. So we're getting into the point where we're wrapping things up. And Christian, that was very interesting about again, the multiple jurisdiction thing and how -- if you're -- I would say if you're a Canadian company who's looking to act as a nonresident importer into a specific country, I think you need to look at the rules for that specific country, not only those in the European Union, but those with that specific country as well. So it's very interesting. But we'll get into some of our best practices here. I would say, understand your product and look at them as it goes towards the agreement. If you can't validate your product or you don't know how or you haven't got around to it, I would not recommend you use the agreement. But once you do, and it's validated, you can claim the money back. So you can file for a refund. But I would say don't risk, if you don't know. It's safer to do, get your [indiscernible] trail to either do them yourself or have them done up by customs professional and maintain them. We, as -- in Canada, we have to keep them for 6 years anyway for custom purposes and then some for tax. So anything we do for any of our clients, we have to keep for that long. So we always have them on hand as well. If you get selected for an audit, this is an interesting point. This isn't just for FTA, it's for all of the [audits that have been dealt] with, contact the auditor. They're just people. Phone them up andsay, hey, I got your letter. I got your notes, I got your e-mail, whatever it might be, and start a dialogue with them, it goes miles if you need an extension of time. It really, really does. You've made that human contact with them. I guess some of the takeaways here, Steve had mentioned CPTPP and other agreements. And there's a lot of them in place from a Canadian perspective to be taken advantage of. And I think it really helps and I think the same goes for the EU. The thing with the FTAs, anything that's a free trade agreement are conceptually the same. The way that they're set up is the same with the definition, you get the definitions in each country and then some of the rules and regs and things that go along with that, the rules of origin are generally the same in most of them. So the FTAs are, as I say, conceptually the same. There's rewards. The risk is relatively minimal if you do your homework. So you start looking at a different market that you've never considered and moving your goods there and not being charged any duty on them. It helps to keep your import and your export options open. I know that the world is becoming smaller. Also money is tight for everyone. So being able to tap into markets where you weren't before and not have to pay duty on them and not have your customers pay duty on them in those markets can really open up your options to new markets, new customers, a whole bunch of other things. Next slide, please. Unless you want to comment on that, Christian, I don't know that there's anything really to add up?

No. All inclusive there, Rob.

[The] idea. Thank you.

So to summarize, it's a trade agreement that can be used since 2017. So if you are not leveraging it at the moment, you should, if you want to qualify goods and reach out, we can support. It is a free trade agreement. The free trade agreement works by either tariff shifts or regional value content, the 10% tolerance in there, which can be leveraged. And there are specific rules defined in Annex 5 for particular rules of origin. One other question was around clothing and garments. Those you would need to have a look at Annex 5 to really see what the rules of origin are for those products. And register for REX or register with your local agencies as this program is really driven without certificate of origin without any paper. And so it's [indiscernible] statements, validation and everything is done paperless essentially.

Okay. I think we're -- we're in good shape to wrap it up with about 2 minutes to go. We have some helpful resources here from the EU and also from Canada. So as we can all see the importance of taking advantage of the CETA Trade Agreement. It's important where we can legitimately look at reducing the import duties and streamlining the import and export process. We'd like to thank everyone for their time today and appreciate your support. And as mentioned, a copy of the presentation will be forwarded, Justin, passing it over to you for any final comments.

Thanks, Steve. So before we get to our very final slide, I want everybody to know that tomorrow at 1:30 p.m. EST, we will be holding another very popular customs webinar. As Steve mentioned before, this webinar will be on CARM, and there's lots [indiscernible] about that. So please make you register for that webinar. I've included the agenda for the webinar as well as a registration link on this slide. You can all [indiscernible] this webinar by going to the Expeditors Events page or by simply reaching out to myself or one of our speakers. And to go on to our very last slide, we want you to stay connected, so please scan the QR codes shown here. I'm also going to put a message in the chat after I'm done speaking, that includes a few links that you prefer that, might be used in scanning it. One of links will include the upcoming Canada events page. So again, if you want to go to our upcoming CARM webinar, you can go to that page and register there. And as Steve mentioned, everyone will receive a follow-up e-mail, you'll receive a survey. So once you fill that survey, you can then fill that out, get your slides and have a copy of that for yourself. So that's all I have. Thank you to our speakers, Steve, Rob and Christian, and thank you all very much for joining. I hope you enjoyed and learn something new, and please have a great rest of your day.

Thank you, everyone, and thank you, Justin, for keeping us on time.

No problem.

Bye for now.