TRADE WITH CANADA PUTS PRESSURE ON BROKERS

TRADE WITH CANADA PUTS PRESSURE ON BROKERS

The phasing out of tariff barriers between the United States and Canada has not made life easier for customs brokers along the 49th parallel.

In fact, when questioning U.S. and Canadian customs brokers, there is unanimous agreement that their tasks have been increased since the free-trade agreement between the two countries went into effect on Jan. 1, 1989."The requirement for all shippers to complete a certificate of origin for goods crossing the border has added immensely to the responsibilities of the broker," said Ernest Leo, supervisor of customs services for C.J. Tower in Buffalo, N.Y.

Though the brokers regularly evoked "additional burdens" and "extra costs" in their operations, they also acknowledged that a whole new field has been opening up for them in trade consulting.

At the same time, they agree that one of the most difficult challenges facing negotiators for a North American free-trade zone encompassing the United States, Canada and Mexico, is to come up with one set of rules of origin for all three countries.

The great bulk of annual U.S.-Canada trade, totaling some $200 billion, is shipped across the border by truck or rail. Detroit and Buffalo, on the U.S. side, are the largest gateways for trans-border trade.

Brokers have to closely monitor the new tariff schedules in force since 1989.

While remaining tariffs on such goods as computers, skates and motorcycles were eliminated immediately, tariffs on goods like subway cars, most machinery and paper products are being phased out over five years. For another group, including most agricultural products and textiles, tariffs are being phased out over 10 years.

In addition, the two countries have agreed twice, so far, to accelerate tariff reductions on certain products covering more than $7 billion in bilateral trade.

With the United States and Canada continuing to apply their existing external tariffs to imports from other countries, rules of origin are needed to define those goods that qualify for duty-free or free-trade area treatment when exported from one country to the other.

Since the FTA is intended to benefit the producers of both countries and generate employment and income for Americans and Canadians, origin rules require that goods traded under the agreement be produced in either country or both.

In some cases, goods need to incur a certain percentage of manufacturing cost in either or both countries, in most cases 50 percent.

The above is particularly important for auto assembly operations, where the local content rule is intended to prevent third countries from using either the United States or Canada as a staging ground for exporting their own cars to either country duty free.

In this regard, a major conflict recently erupted over Honda cars assembled in Canada and shipped to the United States. The Canadian government has protested a decision by the U.S. Customs Service to charge duties on Canadian- made Hondas.

"The Honda affair shows that there still seem to be some gray areas in the FTA's rules of origin," said Andrew Vanderwal, manager of international trade and customs services for Toronto-based Livingston International Inc.

Referring to the current negotiations for a North American free-trade agreement, he said "things will get incredibly complex if there is not one set of rules of origin for all three countries."

Mr. Vanderwal and Mr. Leo noted that some shippers, especially in the United States, do not fully understand that a free-trade zone is not equivalent to a customs union, as exists in the European Community.