Canada Customs Announces Compliance Verification Targets for 2019 – Post-clearance Audits Reveal HS Classification Error Rate of 67%

January is a great time for Canadian Importers. Not because the ice fishing season is in full-swing, but because that’s when the Canada Border Services Agency (CBSA) announces its trade verification priorities for the year.

Many commodities from 2018, such as apparel, footwear, pickled vegetables, and (curiously) seaweed, remain on the agency’s priorities list. A number of new items of concern have been added for 2019. These include “Mountings and Fittings, Suitable for Furniture”, “Air Heaters and Hot Air Distributors”, and “Flashlights and Miners’ Safety Lamps”.

Tariff classification remains far-and-away the agency’s primary focus. To date, 2,041 companies are, or have recently been audited for HS accuracy. By contrast, only 244 and 99 companies are being investigated for Valuation and Origin non-compliance, respectively.

In addition to telegraphing its list of targets, CBSA also publishes the results of its completed audits.

Shockingly, 67% of commodity classification cases were misclassified.

Cases involving articles of plastics, batteries, and disposable and protective gloves continue to be among the least compliant with classification error rates of 90% or higher. Cases involving imports of cellphone cases and stone table and counter tops were misclassified 100% of time.

Of the 34 commodities examined, only 4 had classification error rates lower than 50%. These included Pickled Vegetables (45%), Nails and Similar Articles of Iron or Steel (41%), Hair Dryers and Electric Smoothing Irons (39%) and Spent Fowl (25%).

Importers of apparel and footwear continue to concern CBSA auditors, as the agency targeted 206 and 175 companies respectively for potential classification non-compliance. Conversely, only 10 companies were investigated for potential misclassification of Mineral Waters and Aerated Waters.

Once again, CBSA’s return on investment was astonishingly positive. The agency’s classification audits resulted in the recovery of more than $142 million in duties and penalties – an average of more than $82,500 for each of the 1,724 cases that investigators closed.

It is worth noting that most of the verification audits have been going on for years – some since 2012. Several commodities are undergoing their 4^th round of investigations.

It is staggering to think that most customs authorities still perform post entry verification manually. Imagine the sums owing to government treasuries that might be recovered if this process were to be automated.