NAFTAIn 2013, a case between Frito-Lay and Canada Border Services Agency (CBSA) provided insight to importers regarding the application of the Most Favoured Nation (MFN) tariff treatment versus applying NAFTA to duty free goods, particularly refund processes and limitation periods applicable to claims under NAFTA tariff preference.

In Frito-Lay v. President of the CBSA, the Canadian International Trade Tribunal (CITT) ruled that importers are allowed to make revenue-neutral changes to NAFTA status under Section 32.2 of the Customs Act. CBSA disregarded the CITT decision, resulting in a series of similar court proceedings with Bri-Chem Supply Ltd., Ever Green Ecological Services Inc., and Southern Pacific Resource Corp..

In each case the Most Favoured Nation (MFN) tariff treatment was applied at the time of importation as the tariff classification was duty free. Although the goods qualified for NAFTA tariff treatment, NAFTA status would not provide any benefit to the rate of duty, and therefore the importers were confident in declaring MFN. The companies were later audited and, as a result, CBSA applied an alternate and dutiable tariff classification to the goods. The importers held NAFTA Certificates of Origin and, therefore, made the assumption that the tariff treatment on the goods could be changed and remain duty free.

Unfortunately, CBSA regulation stipulates that NAFTA status may only be changed within 1 year from the date of accounting against the original release (per transaction). As the audit required adjustments to importations during a 4 year period, the importers were forced to pay duties and taxes for the subsequent 3 year period.

Although the first appeal by Frito-Lay was allowed by the CITT, CBSA maintained their position. Bri-Chem Supply Ltd., Ever Green Ecological Services Inc., and Southern Pacific Resource Corp. all pursued and won appeals at their own expense. CBSA appealed the Bri-Chem decision to the Federal Court.

On October 21, 2016, the Federal Court of Appeal ruled in favour of the Importer and dismissed CBSA’s appeal. The Canadian International Trade Tribunal found that the CBSA’s relitigation of of “Frito-Lay” in this case was an abuse of process. Furthermore, the Federal Court granted the respondents their cost of appeals. Since the appeals were consolidated, one set of costs was awarded. CBSA is expected to provide direction regarding the next steps for the numerous claims currently being held in abeyance. Details of the Federal Court of Appeal’s Decision may be found here.

When importing goods that originate and are shipped from a NAFTA country, we highly recommend contacting and providing clear written instructions to your Customs Broker. We are here to help!

Contact us for more information, a NAFTA Evaluation of your account, or to obtain a NAFTA SOP Agreement Option Form.