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September 24, 2019

The little sample that could cost a fortune

Things that appear to have no importance can often turn out to be crucial, and costly errors can only be avoided by a constant attention to detail. The following story will sound familiar to many people involved in the international logistics industry. Names and product descriptions have been changed or omitted to protect the innocent.

Several years ago, somebody within a medium-sized wholesaler had ordered, from a regular foreign supplier, a sample of a new product that appeared interesting. "Who knows, he thought, some of our clients may be interested."

The sample, marked as "ZX-38" was included in a shipment of other goods from the supplier and had to be customs cleared. The appointed customs broker knew this supplier and its products, but not the new ZX-38. He contacted the person in charge of import compliance at the wholesaler to obtain additional information.

Of course, this always happens on one of those dreadful Monday mornings, when a boss or an assistant calls-in sick, while the whole company is undergoing its yearly financial audit. So the information request from the Customs Broker, eh...

The person in charge was not very sure what this ZX-38 sample could be, and it only had a declared value of $7,50. It is a "whatchamacallit" he said, a medium sized whatchamacallit. The customs broker's employee asked that he confirm that it is indeed a whatchamacallit, and duly took note.

And voilà, customs cleared with the Tariff classification of a whatchamacallit, with the customs duties and clearance conditions that go with it, the sample was delivered to the wholesaler's offices.

Happily, several of their clients were very interested and made sizeable orders. The company followed with the purchase of a full truckload of ZX-38 which had to be customs cleared.

Thanks to the wonders of modern technology the customs broker's employee could now see that the ZX-38 was a whatchamacallit and did not have to contact the corporation again, all the information was "in the system". So here was seventy thousand dollars of ZX-38, customs cleared as whatchamacallits. And several dozen more full loads followed in subsequent months and years.

The new product was a success, and became an important element of the corporation's bottom line.

Inevitably, one day, the Canada Border Services Agency (CBSA) asked for complete information about ZX-38. After analysis a CBSA officer determined that ZX-38 was not at all a whatchamacallit, but rather an actual gizmo.

And, of course, the customs duties should have been double what was paid, "gizmos" required import permits that were not obtained, as well as a special permission from another government agency.

The wonderful story of the new star product suddenly took a catastrophic turn, with a potential liability for tens of thousands of dollars in duties and taxes, and the impending monetary penalties assessed by the CBSA.

It would have been essential, even on that dreadful Monday morning, to find all the required information about ZX-38, even though it was just a small sample, worth only $7.50. Alternatively, the wholesaler could have asked his customs broker to apply for a classification ruling after the first big orders.

Fortunately in this particular instance, the customs broker was able to ultimately demonstrate to customs the very "whatchamacallit" essence of ZX-38 and the importer got away with relatively small fines, because the goods were somewhat misdescribed.

(This article was published two years ago)


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