Selling Chinese Goods to the U.S. Via Canada – Not for Amateurs

By Greg Kanargelidis (Blake, Cassels & Graydon LLP)
excerpt from article in 11/30/07 North American Free Trade & Investment Report
published by WorldTrade Executive, Inc.

Canadian businesses are well positioned to take advantage of their
close proximity to the U.S. market and can, where sales are properly
structured, sell competitively to U.S.-based customers. This is especially
the case where Chinese-origin goods are shut out of the U.S.
market due to antidumping duty or countervailing duty orders.

Canada and Canadian businesses have a comparative advantage
in selling to U.S.-based customers over other suppliers, even
over U.S.-based suppliers of Chinese goods. This results
from the provisions of the North American Free
Trade Agreement (NAFTA) under which trade between
Canada and the U.S. has been fully duty-free for
qualifying goods since January 1, 1998.

Pursuant to NAFTA, goods shipped from Canada
to the U.S. qualify for duty-free importation, but only
if the goods qualify as “originating goods”. This means
that the goods must satisfy certain “rules of origin”
that are set out in NAFTA. The “rules of origin” range
from the general to the very specific. Where the Canadian
exporter is shipping goods comprising any percentage
of foreign content (subject to a de minimis test),
specific rules of origin at the tariff subheading or tariff
item level must be consulted to determine what level
of processing is necessary in Canada before the goods
may be entered into the U.S. as “duty-free”.

Where the Canadian exporter to the U.S. supplies
Chinese-origin goods, it is important that the specific
rules of origin for the goods be consulted and that
proper care is taken to determine whether the goods
have been sufficiently further processed or transformed
in Canada in order to qualify for duty-free
treatment on entry into the U.S. This may entail sufficient
further processing of the Chinese-origin goods
so that the further processed product is classified in a
different chapter, subheading or, in some cases, tariff
item of the U.S. Harmonized Tariff Schedule on entry
into the U.S.

For more on this topic, visit North American Free Trade & Investment Report
or WorldTrade Executive, Inc.