The Origin debate: Taste, Quality or Duty Free?

 


Every dish, in the above picture, represents a different region...
- Chinese Honey Chili Chicken
- Russian Potato Salad
- Tunisian Almond/Pistaccio Pastillas 

But who dictates what defines the origin of the finished dish? I am sure there will be many who read this BLOG and disagree that Potato Salad originated in Russia or that Honey Chili Chicken had its beginnings in China! (Some might argue that Honey Chili Chicken comes from CHILE!!!)

Further, if you look at the ingredients of each dish, the various components used to make this tasty feast could come from all corners of the world...
- Almonds: Grown and packaged in Spain
- Carrots: Product of Russia
- Chicken: Packaged in Canada
- Mayonnaise: Made in USA
- Pickles: Marinated and bottled in Israel
- Potatoes: Product of Canada
- Rice: Grown in Vietnam

What defines where a dish originates from?

Similarly, how do importers properly define the origin of a product when declaring the goods to Customs? As well, more importantly, can the importer take advantage of a Free Trade or Preferential Trade Agreement (FTA or PTA) to reduce and even eliminate any applicable duties owed?

Just like recipes are guides and instructions on how to cook, each Free Trade Agreement has what are called the "Rules of Origin". These rules outline how a product can qualify for a preferential duty treatment. These "recipes" (broken down into the chapters of the Harmonized System (HS) nomenclature) review the "ingredients" used to produce the product entering the relevant jurisdiction to determine the applicability of the FTA/PTA being used.

Some words of caution...
1) A novice chef may try to create a dish without the assistance of a recipe. I would venture to say that the outcome may not be as tasty as when directions from a recipe were used. In this light, signing a Statement or Certificate of Origin may have grave consequences as the product to which this attestation refers to may not qualify for the FTA/PTA. Review of the Rules of Origin (i.e.: Recipe) is crucial in determining the eligibility of a product under a specific FTA/PTA

2) Just because the raw materials have a minimal cost to the overall labor costs in the production of the item does not mean that the item originates in the jurisdiction where it has been produced. Regional Value Content (RVC) is a calculation that usually occurs after reviewing the "Tariff Shift". (Review of the HS codes for the raw materials and finished product to determine if they meet the Rules of Origin. In other words, a review of the nutritional content of the ingredients allowing for a determination if the ingredient is suitable for the recipe.) With respect to rules of origin, the chef plays a secondary role to the ingredients used to make the dish.

3) There are many exceptions to the standard method of qualifying goods for an FTA/PTA. The list is lengthy. Whether it be for a specific industry vertical (i.e.: automotive or agricultural and medicinal products), or if a unique rule (i.e.: DeMinimis) is used, many factors come into play when reviewing FTA/PTA qualifications. Similar to a recipe, it is important to understand the steps to take when reviewing a recipe. Adding an ingredient to the dish prior to another can change the outcome of the recipe.

Location, Location, Location...
Do you have a favorite corner store where you go to get some last minute cooking items? How about the specific produce vendor in the market that provides a great price for exceptional quality? What happens if these vendors are closed the day that you are preparing to cook for that big post COVID party everyone is so looking forward to. Do you have other vendors you can purchase the ingredients from?
Contingencies to supply chains are something to consider. Having vendors located in various jurisdictions can be beneficial should unforeseen issues arise (i.e.: natural disasters, added tariffs, national holidays, transportation delays, etc.) When reviewing options to on-board other vendors, location should be looked at to determine if the goods in question can be certified as eligible for preferential treatment under a specific FTA/PTA. As businesses look at quality of production and speed of delivery, duty savings can also be an item on the "grocery check list" in determining what vendor to use and where.

I remember asking for a recipe and was told, "Well, I put in a little bit of this and a little bit of that..."
Importers develop strong and tightknit relationships with their foreign vendors. Communicating with a vendor that the appropriate steps were taken to review the "recipe" and "ingredients" of a product in establishing FTA/PTA qualification is an encouraged best practice. Receiving the information in writing and not verbally is also strongly suggested to ensure that a valid and legitimate paper-trail exists when an origin verification is initiated by the applicable Customs authority.
Asking the vendor to substantiate their qualification process is similar to asking someone to write down their recipe. I venture to say that "a little bit of this and a little bit of that" will not withstand and hold up during a Customs verification.


Saving duty costs by declaring an FTA/PTA can be very enticing for a business (Canada currently has 14 FTAs in force forging a preferential trade relationship with about 50 countries). But be forewarned, receiving a duty assessment years after the importation occurred, can be quite detrimental.


Origin declaration is one of the key data elements for Customs declaration purposes.
The taste of upfront duty savings is amazing but the after-effects (without proper preparation and monitoring) could be disastrous.




Note: @Juan David Barbosa - Thank you for the suggested topic.
Location: Montreal, QC, Canada

Comments

Post a Comment

Popular posts from this blog

Know Your Audience

Image
Please allow me to take a moment to thank you for your patience. This posting is the first since January, and I reiterate my appreciation for all the shout outs and voices of support for all the posting made. My wife's birthday is in the summer and to celebrate, it is always amazing to see her enjoy some of her favorite culinary delights. - Braided spiced mozzarella cheese with a thin slice of tomato on melba toast - Creamed garlic salmon - Roasted veggies covered with sumac and shredded cheese - Glass of wine https://www.saltandlavender.com/salmon-pasta-creamy-garlic-sauce/ - 2 heads of broccoli - 1 large sweet potato - shredded cheese - half a teaspoon of sumac - melba toast crackers - braided spiced mozzarella cheese  - 1 medium tomato (thinly sliced) - half a pound of fresh skinned salmon - 1 tablespoon olive oil - 1/4 teaspoon onion powder - salt and pepper (to taste) - 1 tablespoon butter - 1 tablespoon flour - 4 cloves of garlic (finely diced) - half a cup of white wine - 3/...
Read more

Partner

Image
  Whether it is with Customs or with cooking, one always needs support. To think that someone can do it ALL on their own is unrealistic. Let's look at a compliance department. Not a single individual will be available to respond to issues and emergencies 24/7/365. A team is built (whether it is a team of many or of two) to support each other. Vacations are taken. Family responsibilities need to be attended to. Personal health appointments are scheduled. All these "life issues" come up and require one to be away from their desk. Therefore, there is someone to back them up. Even if it is to defer and deflect until such time that the individual is back, there is usually someone to ensure that, at the very least, there is oversight of what is going on and what the best next steps should be. We can also look at back-up from the perspective of tools. Data is backed-up to ensure that if the primary location cannot be accessed, (see Blog post: https://customsandcooking.blogspot.c...
Read more

SOP

Image
I am sure that anyone who asked their grandmother for a recipe was told that you need to put in "a little bit of this and a little bit of that". Then, in order to determine what "this" and "that" was you had to stand over grandma to see exactly what she was doing and take meticulous notes in order to try and replicate the recipe in the future. My favorite example of this was my wife's grandmother's chicken soup. There was no way to get an exact recipe except by watching her add the specific ingredients and spices trying to determine how much to add and when in the process to do so. (The end result was a fabulous chicken soup.)  So when we talk about an SOP, a Standard Operating Procedure , "a little bit of this and a little bit of that" just won't do. For cooking, the SOP is a cookbook. Whether you are a novice or a seasoned cook, the cookbook is your guide. Even the greatest chefs use cookbooks. They may be the authors of those cook...
Read more