By Julia Webster, Jacqueline Rotondi, Jing Xu and Madison Bruno

2023 has proven to be another dynamic year under the Government of Canada’s trade agenda, which showed no signs of slowing over the summer. From May to August 2023, the Government passed into law novel supply chain transparency legislation and introduced amendments and legislative proposals that are impacting, or will impact, compliance with Canadian customs, export controls, and economic sanctions legislation.

Baker McKenzie’s Canadian trade and customs team continues to monitor the following key developments throughout the remainder of 2023:

  • Customs: CBSA Assessment and Revenue Management (CARM) Release 2; Proposed amendments to the Valuation For Duty Regulations; and Canada Border Services Agency’s (CBSA) updated verification priorities.
  • Sanctions: Amendments to the Special Economic Measures Act (SEMA) and the Justice for Victims of Corrupt Foreign Officials Act (JVCFOA), and various amendments to country-specific sanctions regulations.   
  • Export controls: Commitments to enhanced enforcement and amendments to General Export Permit 41.
  • Forced labour: Implementation of the Fighting Against Forced Labour and Child Labour in Supply Chains Act; and investigations initiated by the Canadian Ombudsperson for Responsible Enterprise (CORE).

Watch the companion videos highlighting compliance tips in relation to developments in Canadian customs, sanctions, export controls, and forced labour laws. 

1. Customs

Watch the video below for our customs compliance tips. 

CARM Release 2

Officially launched in May 2021, CARM is a multi-year initiative that is intended to simplify how importers account for goods, request advance rulings, adjust/correct declarations, and pay duties and taxes through the eponymous “CARM Client Portal”. Currently, the functionality of the CARM Client Portal is limited to permitting importers, brokers and trade consultants to create business accounts, view transactions and statements of account, and pay invoices with new electronic payment options.

The official launch of CARM Release 2, originally scheduled for October 2023, was delayed until May 2024 for the majority of persons importing goods into Canada. The CBSA has instead planned a soft launch of CARM Release 2 in October 2023 whereby selected industry partners can test their EDI systems and software service providers can continue to certify their software with the CARM platform. Once CARM Release 2 launches in May 2024, a number of other features of the CARM Client Portal will be activated and it will be the official system of record for the collection of duties and taxes for commercial goods imported into Canada.

CARM Release 2 will bring two key changes to the Canadian customs clearance process:

  1. The current paper-based customs coding form (B3) and request for adjustment form (B2) will be replaced by an electronic commercial accounting declaration (CAD) that can be submitted, corrected and adjusted online.
  2. Importers will no longer be able to rely on their customs broker’s bond to participate in the Release Prior to Payment (RPP) program. Importers must post their own financial security for goods to be released into Canada prior to the payment of duties and taxes to the CBSA. The CBSA has yet to release official guidance regarding how importers can post their financial security. However, a 180-day transition period will be available for those who register on the CARM Client Portal before the Release 2 launch in May 2024. During this transition period, commercial importers will be assigned RPP qualifying status, allowing them to obtain RPP duties and taxes despite not posting their own financial security. 

More information on the CBSA’s CARM Release 2 is outlined in our prior blog, available here.

Proposed Amendments to Valuation for Duty Regulations

On May 27, 2023, the Government published proposed amendments to the Valuation for Duty Regulations (the VFD Regulations), which would fundamentally alter the method of valuing goods imported into Canada. Generally, the amendments propose that the declared value for duty would be the price of the last “transaction” that causes the goods to be imported into Canada, where “transaction” is defined as “agreements, understandings or arrangements.” A detailed overview of the proposed amendments is outlined in our prior blog, available here.

A 60-day public consultation period on the proposed amendments closed on July 26, 2023. Public comments from the consultation should eventually be published here. At this time, the Government’s next steps remain unclear. The proposed amendments to the VFD Regulations could: pass into law as-drafted (with or without a transition period); be further amended to respond to comments received during the consultation process and re-published for further public consultation; be entirely re-drafted and published for public consultation; or abandoned for the foreseeable future.

Verification Priorities

Through its risk-based, evergreen process, the CBSA has also updated its trade compliance targeted verification priorities in July 2023. The CBSA’s current trade-verification priorities are:

  • Tariff classification
    • Freezers and Other Freezing Equipment (new)
    • Washers and Dryers (new)
    • Spent fowl (Round 3) (upcoming)
    • LED lamps (Round 2)
    • Furniture for non-domestic purposes (Round 4)
    • Parts of lamps (Round 4)
    • Cell phone cases (Round 3)
    • Pickled vegetables (Round 5)
    • Parts of machines and mechanical appliances
    • Bicycle Parts (Round 3)
    • Parts for Use with Machinery of Chapter 84 (Round 3)
    • Indicator Panels and Light-Emitting Diodes (LED)
    • Safety Headgear (Round 5)
    • Disposable and Protective Gloves (Round 5)
  • Valuation
    • Apparel (Round 4)

The CBSA uses several tools to monitor and identify customs compliance issues, including initiating targeted verifications or issuing compliance notices such as trade advisory notices, compliance validation letters, and directed compliance letters. The CBSA has authority to audit importers’ activities for up to four years. Non-compliance uncovered during an audit may result in additional duties owing, the application of administrative monetary penalties and a punitive interest rate. More information regarding the CBSA’s trade compliance process is outlined in our prior blog, available here.

3. Sanctions

Watch the video below for our sanctions compliance tips.


New Deeming Provision under the SEMA and JVCFOA

Canadian persons (e.g. Canadian citizens, Canadian incorporated entities, and persons physically present in Canada) are prohibited from dealing in property owned, held or “controlled” by or on behalf of a designated person under the SEMA and the JVCFOA. These are broad prohibitions, akin to asset freezes.

In June 2023, the Government enacted a “deeming provision” in the SEMA and the JVCFOA, which establishes how to determine whether a designated person “controls” an entity using three criteria:  

  1. The designated person holds, directly or indirectly, 50% or more of the shares or ownership interests in the entity or 50% or more of the voting rights in the entity;
  2. The designated person is able, directly or indirectly, to change the composition or powers of the entity’s board of directors; or
  3. It is reasonable to conclude, considering all the circumstances, that the sanctioned person is able, directly or indirectly and through any means, to direct the entity’s activities.

Should a designated person “control” an entity under any of these criteria, property of that entity is deemed to be owned by the controlling designated person. Accordingly, the broad dealings prohibition would apply to that property, greatly expanding the scope of application of the dealings prohibition. These amendments complicate sanctions due diligence by necessitating a review of information, which is not typically publicly available, to determine the issue of “control”. A detailed summary of the deeming provision and related amendments is outlined in our prior blog, available here.

Amendments to Existing Sanctions Regulations

Since June 2023, the Government has continued to amend Canada’s unilateral sanctions. A list of the amendments to the country-specific SEMA regulations, including links to Baker McKenzie’s prior blogs, are as follows:

Additionally, for the first time since 2019, the Government amended the JVCFOA to designate Lebanese nationals in August 2023.

4. Export Controls

Watch the video below for our export controls compliance tips.

While undertaking routine amendments to Canada’s export controls regime to reflect changes in multilateral arms control and anti-proliferation agreements, the Government has also promised enhanced enforcement, and has amended elements of Canada’s export controls regime to respond to geopolitical developments.

Since May 2023, the Government has announced the following developments:      

  • Canada agreed to formally cooperate on enforcing its export controls measures with the Five Eyes;
  • Canada updated its Guide to Canada’s Export Control List;
  • Canada amended its Export Permits Regulations to align them with existing permit application processes and to increase regulatory clarity and certainty; and
  • Canada amended General Export Permit No. 41 (GEP-41) to prohibit use of the permit for the export or transfer of goods or technology intended for the development, production or use of rocket systems or unmanned aerial vehicles with a range of 300 km or greater. Generally, GEP-41 permits the export or transfer of certain Group 1 items and ECL no. 5504 items to consignees located in eligible destinations.

These developments are outlined in our prior blog, available here.

5. Forced Labour

Watch the video below for our forced labour compliance tips.

Implementation of the Fighting Against Forced Labour and Child Labour in Supply Chains Act / Bill S-211

Bill S-211, the Fighting Against Forced Labour and Child Labour in Supply Chains Act, was passed by the House of Commons in May 2023 and enters into force on January 1, 2024. The Act obligates “reporting entities” (businesses publicly traded on a Canadian stock exchange, or that meet financial and/or employee thresholds, or are designated by regulation) that are engaged in producing, selling, distributing, importing goods in/into Canada, or control an entity engaged in those activities, to file an annual report with the Minister of Public Safety and Emergency Preparedness.

The report must outline the reporting entity’s policies and procedures implemented in the prior fiscal year to prevent and/or reduce the risk that forced or child labour are used to manufacture goods at any step in a reporting entity’s supply chain.

These reports require an attestation by the entity’s governing body, must be posted on an entity’s website and will also be made publicly available in an online registry. The first annual reports are due to be filed by May 31, 2024. The Government has promised guidance on report format, templates, and methods of submission to be provided here in the coming weeks. Our prior blog, available here, provides an in-depth review of Canada’s efforts to link human and labour rights to trade measures. 

Initial Assessments Published by the CORE

The CORE was established in May 2019 to investigate complaints of alleged human rights abuses by Canadian companies working in the extractive and apparel industries. In July 2023, the CORE began to publish its first initial assessments of complaints alleging use of forced labour in Canadian supply chains. These initial assessments provide an overview of the originating complaint, a summary of the CORE’s intake assessment, the response of the investigated entity, and the CORE’s analysis. In all but one instance, the CORE has opted to initiate an investigation.