New rules, new strategies

Imminent and far-reaching regulatory changes will greatly affect Canada-U.S. trade

Major regulatory initiatives that are unprecedented in number and magnitude will be implemented on both sides of the Canada-U.S. border this year. Although the changes will impact some industries more than others, every exporting or importing company involved in cross-border trade will be affected in some manner.

In general, the majority of the new regulations revolve around licensing, while others more directly affect operational procedures. Although it will be costly to comply with these changes, failing to do so could lead to hefty fines and penalties, shipment delays and potential contractual disputes and liability claims between the involved trading partners. In the most extreme cases, company officials could even face jail time for failing to comply.

Clearly, any trade lawyer representing an affected company needs to have a thorough understanding of the new rules in order to meet the requisite compliance parameters, and also to establish strategies to mitigate risk and reduce potential liability.

Following is a summary of some of the key trade regulations scheduled to undergo significant change in 2014.

U.S. Food Safety Modernization Act (FSMA)

Signed into law by U.S. President Barack Obama in 2011 to literally clean up America’s food supply and make it safer, the wide-ranging reach of this policy initiative is still evolving. However, for Canadian companies exporting any kind of food product or raw ingredient to the U.S., the implications of the FSMA are significant. This year, U.S. food importers must formally verify the safety of food from their suppliers, with the FDA given the authority to block imports from any company or facility that has refused an inspection. Given that the new requirements are much stricter than they have been in the past, the potential for inadvertent non-compliance is heightened. One of the key aspects of the new rules is that any company exporting food to the U.S. must have documented preventive control programs in place in order to provide U.S. authorities with clear visibility into the supply chain. As painstaking as it may be to institute such systems, the alternative is to leave oneself open to major liability and potential non-compliance penalties.

Canadian Food Inspection Agency modernization

Intended to harmonize Canada’s food supply rules with those of the FSMA, the Canadian Food Inspection Agency (CFIA) is developing a more comprehensive food inspection approach across all imported, exported and domestic food commodities — for both interprovincial and international trade — under the Safe Food for Canadians Act. Under the new rules to be phased in this year and finalized in 2015, all companies will need to obtain a federal license administered by CFIA. The CFIA will also conduct more inspections and enforce cases of non-compliance. In addition, the types of regulated commodities are expanding to include a much broader range of food categories, including coffee, baked goods, baby formula and spices. While the enforcement actions taken by the CFIA are meant to be fair, predictable and appropriate, wisdom dictates that disputes are bound to arise that will have to be adjudicated before the courts, both directly between the agency and the affected food suppliers as well as between affected trading partners over issues of liability.

Trusted Trader Program — CSA

Complementary to the above programs is an initiative by the Canadian Border Services Agency (CBSA) to extend the benefits of Customs Self-Assessment (CSA) by expanding the program to include food products regulated by the CFIA. Under the proposed changes, the CBSA will implement a streamlined clearance model for all of a trusted importer’s shipments, providing obvious cost savings, operational flexibility and risk mitigation. However, the extremely stringent guidelines must be adhered to and importers must meet additional CFIA requirements.

Although the impact of these changes will be felt across companies of all sizes, small and medium-sized businesses should pay extra attention to them since they often lack the in-house trade-compliance expertise of larger enterprises. While specialized trade legal counsel should be well abreast of all or most of the cross-border regulatory changes that will soon be coming into effect, consultation with an experienced customs broker who has access to all the appropriate compliance programs and tools should be made a high priority for 2014 for any company exporting goods to the U.S. or importing into Canada.

This article has been written by Ms. Candace Sider, CSCB's Past Chair, for The Lawyers Weekly, and is available at http://www.lawyersweekly.ca/index.php?section=article&articleid=2140.