ARCHIVED - CBSA-Licensed Warehouse Programs: Sufferance and Customs Bonded Warehouses – Evaluation Study

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Evaluation Study
February 2010

Table of Contents

• Executive Summary
• 1. Introduction and Context
  • Overview of CBSA-Regulated Warehouses
  • Evaluation Purpose and Scope
  • Evaluation Methodology
• 2. Key Findings – Relevance
• 3. Key Findings – Performance
• 4. Key Findings – Demonstration of Efficiency and Economy
• 5. Key Conclusions, Recommendations and Management Response

• Appendix A: Key Memoranda, Act and Other Documentation Governing Sufferance and/or Customs Bonded Warehouses
• Appendix B: Key Warehouse-Specific Administrative Monetary Penalties
• Appendix C: Acronyms

Executive Summary

Canada is an active player in the global economy, ranking 11th for imports and export trade in 2008.[ 1 ]  Imports to Canada have been steadily rising since 2003, reaching $433 billion in 2008.[ 2 ]  Over half of these goods come from the United States, with an increasing number arriving from China and Mexico.[ 3 ] In 2008-2009, the Canada Border Services Agency (CBSA) collected over $4 billion in import duties.

The CBSA's mandate is to facilitate the movement of legitimate travellers and goods and to intercept those travellers and goods that pose a threat to Canada. The CBSA fulfills this mandate by providing integrated border services that support national security, public safety and economic prosperity priorities. Imported goods may be screened and released[ 4 ] at ports of entry or temporarily stored in a licensed warehouse pending release.

There are four types of warehouses operating under specific CBSA programs, policies, and regulations: sufferance, customs bonded, highway frontier examining and Queen's warehouses.[ 5 ] Sufferance and customs bonded warehouses are operated by the private sector under a CBSA licence, while Queen's and highway frontier examining warehouses are operated by the CBSA. Warehouse licences are issued under the authority of the Customs Act and/or Customs Tariff, and the operation of the warehouse facilities must adhere to a number of CBSA memoranda and warehouse-specific regulations and policies.[ 6 ] Both the Customs Act and the CBSA Act grant border services officers (BSOs) open access to all warehouse facilities and authorize them to examine and seize goods.

Evaluation Purpose and Scope

This report presents the findings of an evaluation of the CBSA's Sufferance Warehouse and Customs Bonded Warehouse Programs. The purpose of the evaluation is to examine the relevance (i.e., ongoing need and alignment with the priorities of the Government of Canada and the CBSA) and program performance (i.e., effectiveness and efficiency) in achieving the expected outcomes. This evaluation excludes other warehouse types such as Queen's and highways frontier examination warehouses[ 7 ], and duty-free shops.

This evaluation was identified as a priority of the 2008-2011 CBSA Risk-Based Multi-Year Evaluation Plan, approved by the Executive Evaluation Committee in May 2008. The evaluation research was carried out between March and October 2009.

Evaluation Methodology

The CBSA Program Evaluation Division in the Strategy and Coordination Branch conducted this evaluation. Main lines of evidence included a review of documents; observations made during site visits and in-depth interviews with key CBSA staff in the regions and at National Headquarters, and with private sector stakeholders including warehouse operators, importers, freight forwarders, carriers and related associations. In total, 150 internal and external stakeholders were interviewed over the course of the evaluation. In addition, surveys were distributed to 646 sufferance warehouse licensees (valid response rate of 59%) and all 356 customs bonded warehouse licence holders (response rate of 32%).

Key Conclusions

This evaluation study found that both the Sufferance and Customs Bonded Warehouse Programs are relevant in that they make a contribution to the Government of Canada's Economic Action Plan and the CBSA's priority to facilitate the flow of legitimate goods, and that there is a continued need for both programs. Customs bonded warehouses provide incentives in the form of long-term storage, deferral or relief of duties, taxes and import levies on imported goods that are later to be re-exported or released. While there are other similar government trade incentive programs, the Customs Bonded Warehouse Program is the only one that allows for the long-term storage of goods. Sufferance warehouses, on the other hand, are beneficial to the CBSA as they help alleviate pressure at Ports of Entry (POE) by permitting goods to move inland for examination and release. Industry benefits from the program by expediting the movement of goods (especially less-than-truckload shipments) while at the same time providing short-term relief of duties and taxes owing. Both programs are delivered on minimal resources (approximately $3.2M per year).

Recommendations

There are currently five sufferance warehouse types and 14 sub-types. The evaluation found that the existence of numerous sufferance warehouse types creates administrative problems and confusion for both CBSA staff and industry. As a result, many operators hold multiple sufferance licences to cover the many and complex transportation and warehouse regulations. About half of all sufferance warehouses are multi-modal, meaning that goods arrive by ship, truck, rail and/or plane. This report also found that there was confusion by CBSA officers in the field and by private stakeholders regarding the different warehouse types, and what types of goods and activities may be done in each. This issue is not new and a number of other venues have raised it, including a CBSA Regional Working Group on Commercial Policy Review in November 2006, which concluded the CBSA should eliminate distinctions based on commodity type, activities undertaken at the warehouse, and delivery mode to better reflect the way goods move today.

In light of these findings, the evaluation recommends that:

Recommendation 1: Admissibility Branch simplify the Sufferance Warehouse Program by consolidating sufferance warehouse types. [ 8 ]

Currently, sufferance warehouses may be situated a considerable distance from a CBSA office, making it challenging to conduct examinations of goods, or inspect and monitor warehouses. As well, some regions are issuing few warehouse licences, in part because a large number of warehouses have little or no in-bond goods, and in part because an increased number of licensed warehouses would necessitate increased resources to provide service. Regional staff and management indicated that establishing reasonable geographic service zones and minimum in-bond volume requirements would help reduce the administration of program-related licensing and monitoring activities. Regional staff and management were also unclear as to the criteria for closing warehouses and believe that more direction and support from HQ is required on how to interpret the regulations.

This evaluation found that most customs bonded warehouse operators valued the program, however many of the warehouses were empty at the time of the evaluation. Although this is partly due to seasonality, some operators noted that as there are more free trade agreements, and tariffs have been reduced or eliminated on an increasing number of goods, they use their bonded space less. Many operators maintain their licences “just in case', or as a client service feature. Although the Customs Bonded Warehouse Program also provides significant benefit in terms of GST relief, in the past two years the number of customs bonded warehouse licences in the national Accelerated Commercial Release Operations Support System / Customs Commercial System (ACROSS/CCS) database dropped by 27.[ 9 ] Some regions are reluctant to issue new licences due to operational constraints to service additional warehouses. This may potentially disadvantage new entrants to the import/re-export markets.

In light of these findings, the evaluation makes the following recommendation:

Recommendation 2: Admissibility Branch, in consultation with the Operations Branch, should clarify and communicate the D-Memoranda criteria with regional staff regarding minimum volume thresholds and geographical boundaries for the opening and closing of sufferance and customs bonded warehouses.

It is not clear what level of risk warehouses represent. The Greater Toronto Area's (GTA) customs bonded warehouse audits found two of four warehouses owed $248,853 in additional duties and taxes. While yearly inspections are conducted on a planned schedule in some regions, others never or rarely do warehouse inspections. Yet others may do inspections when they visit the warehouse for other purposes, such as to examine goods. In-depth inspections whereby officers match warehouse operators’ records to goods in stock and CBSA release records are rare. Warehouse licences are renewed upon payment of fees. Typically, there is no compliance verification, risk assessment, or warehouse audit in support of renewal.

Calculations based on existing resource allocations indicate that it would take over two and one-half years to inspect all 1200 sufferance warehouses, and over four and one-half years to conduct physical audits of the 356 customs bonded warehouses. Clearly, existing resources dedicated to the programs cannot meet the requirements of current regulations.

ACROSS and CCS are the main databases used by the CBSA. The evaluation found a number of shortcomings with the information in ACROSS and its capacity to support the warehouse programs. For example, basic information concerning the operator and type of warehouse are often incorrect, and the system lacks key fields to capture information required to better monitor the warehouses and the performance of the warehouse programs as a whole. In addition, information on duties and taxes payable and paid is found in a different system (Facility for Information Retrieval Management (FIRM)), and requires extensive manual reconciliation which has an impact on monitoring customs bonded warehouse activities as it takes considerable time to generate warehouse reports.

The evaluation found that all regions rely on paper files which are sometimes separated between “application files' and “operational files' and kept in separate locations. During the course of the evaluation, it was noted that files did not always reflect that warehouses had been closed, had made changes to their bonded areas, had removed their secure (caged) areas or were storing domestic goods in bonded areas. Original copies of sureties and bonds for the warehouses were not always found to be on file.

In light of these findings, the evaluation makes the following recommendation:

Recommendation 3: Admissibility Branch, in consultation with the Operations Branch, should conduct a risk assessment of the Sufferance and Customs Bonded Warehouse Programs and develop a monitoring strategy, including performance indicators and resource requirements for its implementation, that aligns to the risks identified.

CBSA staff identified that they have occasional disagreements with other government departments (OGDs), unions, and other individuals regarding access to bonded areas of CBSA-licensed sufferance facilities. The D-Memoranda state that persons (other than employees of the licensee or carriers engaged in the delivery of goods) that need access to the bonded areas of a CBSA-licensed facility must be accompanied by an officer or obtain written authorization from the regional CBSA office, and that the CBSA reserves the right to refuse access to the bonded areas of the warehouse. With new initiatives, such as Air Cargo and Marine Security initiatives, warehouse operators are not clear as to what federal organization has the ultimate authority over the customs controlled areas.

In light of these findings, the evaluation makes the following recommendation:

Recommendation 4: Admissibility Branch, in consultation with the Enforcement Branch, should ensure the appropriateness and clarity of procedures in the D- Memorandum concerning OGD access to warehouse facilities and communicate these to warehouse operators.

1. Introduction and Context

The Canada Border Services Agency's (CBSA) mandate is twofold: facilitate the movement of legitimate travellers and goods and intercept those travellers and goods that pose a threat to Canada. The CBSA fulfills this mandate by providing integrated border services that support national security, public safety and economic prosperity priorities.

In the 2008-2009 fiscal year, the CBSA processed more than 12 million commercial releases. This amounts to approximately 35,890 commercial releases per day. Facilitating the movement of these commercial goods into Canada is essential to the country's economy. Imports for 2008 exceeded $433 billion, 52.4% of which arrived from the United States.[ 10 ] In 2008-2009, the CBSA collected over $4 billion in import duties, and more than $17 billion in GST and $115 million in provincial sales taxes.[ 11 ] 

In 2008, goods arriving to Canada from the United States primarily came by truck (72%), while goods from other parts of the world arrived by marine (42%), highway (30%) and air (19%). (Exhibits 1 and 2).[ 12 ]  

Exhibit 1: Imports from the U.S., by Mode of Transportation (2003-2008)[ 13 ]

Year		2003	2004	2005	2006	2007	2008
Road (truck)		79.5	77.9	76.7	76.8	75.1	72.2
Rail		9.8	10.1	10.5	11.3	11.8	12.7
Marine		1.5	1.3	1.1	1	1.8	3.5
Air		7.6	7.8	7.3	7.3	8	7.9
Other (pipeline)		1.6	2.9	4.2	3.7	3.4	3.6

Exhibit 2: Imports to Canada (all other countries except the U.S.), by Mode of Transportation (2003-2008)

	2003	2004	2005	2006	2007	2008
Road (truck)	31.7	32.3	31.4	31.2	31.7	30.4
Rail	3.4	3	3	2.5	2.9	2.7
Marine	42.8	41.5	40.8	41.2	39.9	41.8
Air	18.8	19.6	19.3	19.7	20.4	19.1
Other (pipeline)	3.4	3.5	5.6	5.4	5.1	5.8

Source: Transport Canada, Transportation in Canada 2008 Report

Imports destined for Canada are screened prior to arrival in the air, marine and rail modes for contraband or terrorist threats such as weapons, drugs and risks such as health or biohazards and invasive animal, plant or insect species. Should any threats be identified, imports in all modes may be examined, detained or seized at the port of entry prior to being moved to a CBSA-regulated warehouse. The release of goods is contingent upon reconciling key data, such as importer details and necessary permits, and the payment of all duties and taxes owing. Goods may be released at Ports of Entry (POEs) or permitted to be moved “in-bond' to a CBSA-licensed warehouse facility for further documentation, examination or for other reasons. The majority of sufferance and customs bonded warehouses serve to process goods arriving by truck, followed by rail and air cargo.

This report presents the evaluation findings of the Sufferance and Customs Bonded Warehouse Programs. This evaluation was identified as a priority for 2009-2010 in the 2008-2011 CBSA Risk-Based Multi-Year Evaluation Plan, approved by the Executive Evaluation Committee in May 2008.

Overview of CBSA-Regulated Warehouses

There are four types of warehouses operating under specific CBSA programs, policies, and regulations: sufferance, customs bonded, highway frontier examining and Queen's warehouses (Exhibit 3).[ 14 ] The evaluation study evaluated the sufferance and customs bonded warehouses only; therefore, only these warehouses are discussed in detail in this report.

Exhibit 3: CBSA-Regulated Warehouses, by Category, Operation and Use.

Warehouse Category	Operation	Use
Sufferance warehouses	Privately owned and operated, licensed by the CBSA. 14 sub-types.	Temporary (40-day) storage of imported goods pending CBSA release.
Customs bonded warehouses	Privately owned and operated, licensed by the CBSA. Part of Duty Deferral Program. Two types: private (for a company's own use) or public (offer services to clients).	Imported goods can be stored duty and tax free (generally for up to four years) until they are exported or consumed domestically.
Queen's warehouses	CBSA operated	Storage and disposal of unclaimed, abandoned, detained and seized goods.
Highway frontier examining warehouses	CBSA operated	For examination of unreleased imports at highway POEs.

Sufferance and customs bonded warehouses are operated by the private sector under CBSA licence, while Queen's and highway frontier examining warehouses are operated by the CBSA. Warehouse licences are issued under the authority of the Customs Act and/or the Customs Tariff, and the operation of the warehouse facilities must adhere to a number of CBSA memoranda and warehouse-specific regulations and policies.[ 15 ] Both the Customs Act and the CBSA Act grant border services officers (BSOs) open access to all warehouse facilities and authorize them to examine and seize goods.

Sufferance Warehouses

There are five sufferance warehouse category types with 14 sub-types (Exhibit 4). Sufferance warehouse operators pay an annual licensing fee of $500 and must provide a financial security (bond) of at least $20,000. The CBSA uses sufferance warehouses to examine goods and review documentation associated with individual shipments. Clients may also pay sufferance warehouse operators for short-term (up to 40 days) storage and handling of goods.

Exhibit 4: Sufferance Warehouses, by Type and Use.

Sufferance Warehouse Type	# Licences	Use
Type A- General merchandise	334	For air (AA), marine (AM), rail cargo (AR), cargo handlers (AH), harbour commissions and stevedoring companies (AW).
Type B – General merchandise	131	For imported goods brought by a highway carrier (BW) or operated by a highway carrier (BL and BL-offsite)
Type C- General merchandise	391	For consolidators, deconsolidators, freight forwarders or customs brokers (CW).
Type S – Specific commodities	298	For five sub-classes of specific goods including household/personal effects (SH), fruits and vegetables (SF), other (SO), Customs Self Assessment (SO-CSA), Liquor (SL)
Type PS – Private railway siding	41	For importer storage of rail carloads pending CBSA release.

Customs Bonded Warehouses

Customs bonded warehouses are part of the larger CBSA Duty Deferral Program. The various programs under the Duty Deferral Program umbrella are intended to improve the competitiveness of Canadian businesses by offering relief from payment of most duties and some taxes on imported goods ultimately destined for export.[ 16 ] Customs bonded warehouses provide for longer-term (generally up to four years)[ 17 ] tax- and duty-free storage of goods. Operators are permitted to conduct limited processing of goods (allowable process) under the terms of the Customs Bonded Warehouse Regulations.[ 18 ]

Customs bonded warehouse operators must provide a security (bond) in the amount of “60 percent of duties and taxes that would otherwise be payable at any time in the year following the issuance of the licence'.[ 19 ]  This security bond ranges from $10,000 to $500,000 and is to be reviewed at least once per year by the CBSA, and may be increased or decreased to reflect the changing value of in-bond goods stored. In addition, operators pay an annual licensing fee based on the value of their financial security, ranging from $100 to $5,000. All customs bonded warehouses are privately owned and operated, and used either exclusively by a single company or by multiple companies where users are charged storage and handling fees.

Governance, Roles and Responsibilities

The CBSA Admissibility and Operations Branches are responsible for the administration of the warehouse programs. The Admissibility Branch's Customs Self Assessment and Warehouse Programs Unit within the Border and Compliance Programs Directorate implements, maintains, and monitors policies, processes, procedures, legislation and regulations related to sufferance warehouses and import processes. The unit is the delegated licensing authority for the BW, SO, SO-CSA and SL sufferance warehouse types. In the case of large clients such as Canadian National Rail, Canadian Pacific Rail, and United Parcel Service, the Unit also manages the licensing and/or the bonds.

The Duty Deferral Unit within the Trade Programs Directorate (also within the Admissibility Branch), is responsible for developing and administering national policies and procedures for the Customs Bonded Warehouse Program as well as other duty relief, drawback and remission programs.

The Operations Branch is the CBSA Headquarters’ (HQ) link to the regions. The Goods Processing Division provides operational advice and guidance, develops procedures and identifies training requirements for the delivery of the CBSA commercial and trade compliance programs. Regional staff in Planning and Program Integration or Programs and Communications Divisions review and approve applications for sufferance warehouse licence types not approved by HQ (i.e., AA, AH, AM, AR, AW, BL, CW, SH and SF), and provide recommendation to either approve or deny the licence types that are issued by HQ (i.e., BW, SO, SO-CSA, SL). In most regions, customs bonded warehouse applications are dealt with by regional Trade Compliance Divisions or Commercial Operations sections, although they may be processed by the same units as that of the sufferance licences. CBSA regional offices also maintain their entire region's warehouse profiles, collect annual licence fees, authorize the removal or destruction of unreleased, overdue imports, and may conduct warehouse compliance audits, risk assessments, and inspections of warehouse inventories. Regional staff monitors cargo tracing activity at sufferance warehouses through the Monitor Overdue Work Item Report, an Accelerated Commercial Release Operations Support System (ACROSS) monitoring report that identifies imports which have not been released within 40 days of arrival (i.e., “overdue').[ 20 ]

Other CBSA branches also play a role in supporting the warehouse programs:

• The Comptrollership Branch develops physical security guidelines for warehouse audits, and establishes policies and guidelines regarding the acceptance, processing, releasing and making claims against security deposits (surety bonds). This branch also accounts for and collects duties and taxes owing on behalf of the Receiver General of Canada.
• The Innovation, Science and Technology Branch (ISTB) manages and maintains corporate systems such as ACROSS and Facility for Information Retrieval Management (FIRM)[ 21 ] which contain key information on the warehouses and their activities.
• The Training and Learning Directorate of the Human Resources Branch develops, coordinates and/or delivers commercial training for CBSA staff.
• The Enforcement Branch provides intelligence and enforcement support to the warehouse programs, as needed (e.g., conducts risk assessments of warehouse licence applicants).

The CBSA works with a number of other government departments (OGDs) and agencies such as the Canadian Food Inspection Agency, Health Canada, Transport Canada, Environment Canada and Agriculture and Agri-Food Canada and the Department of Foreign Affairs and International Trade to regulate or monitor the import and/or export of specific goods held in warehouses. All OGD requirements must be satisfied before imported goods are secured in a customs bonded warehouse, including goods subject to Tariff Rate Quota (TRQ) controls.

Private sector warehouse owners and/or operators play a central role in the warehouse programs, as do stakeholder associations such as the Canadian International Freight Forwarders Association and Canadian Sufferance Warehouse Association. These organizations provide input to the CBSA on relevant policy issues and disseminate information to their members.

Evaluation Purpose and Scope

The purpose of this evaluation was to examine the relevance, performance and efficiency of the Sufferance and Customs Bonded Warehouse Programs. The evaluation research was carried out between March and October 2009. The Sufferance and Customs Bonded Warehouse Programs are governed by different regulations, and are managed by different areas of the CBSA. As the programs share similar inputs and activities (such as licensing, administration, and monitoring) and many customs bonded warehouses and sufferance warehouses are co-located, it was decided to evaluate both programs to maximize evaluation coverage in a cost-effective and efficient way.

This evaluation excludes the Queen's and frontier examination warehouses.[ 22 ] In addition, the export-related activities associated with the customs bonded warehouses,[ 23 ] the Duty Deferral and Drawback Programs are discussed only where directly applicable to the evaluation of the Customs Bonded Warehouse Program. The scope of the evaluation is summarized in Exhibit 5.

Exhibit 5: Summary “In and Out' of the Sufferance and Customs Bonded Warehouse Evaluation

Included in the Evaluation	Excluded from the Evaluation
Sufferance Warehouses Customs Bonded Warehouses	Other CBSA Duty Deferral Program activities and initiatives Duty-Free Shops Queen's Warehouses Highway Frontier Examining Warehouses

In consultation with key CBSA stakeholders, the evaluation team developed a logic model for the Sufferance and Customs Bonded Warehouse Programs. The following immediate and intermediate outcomes were identified:

• Increased awareness of the CBSA warehouse programs, regulations, policies and procedures by CBSA staff and the private sector;
• Compliant, secure and accessible warehouses;
• Increased promotion and facilitation of trade; and
• Secure collection of duties and taxes owed to the Crown.

The evaluation questions are provided in Exhibit 6.

Exhibit 6: Evaluation Questions

Evaluation Issue	Evaluation Questions
Relevance
Alignment with Government Priorities	Are the Sufferance and Customs Bonded Warehouse Programs aligned with the CBSA and government-wide priorities?
Continued Need	Is the rationale for the Sufferance and Customs Bonded Warehouse Programs valid and are they addressing an ongoing need?
Performance
Performance -Achievement of Expected Outcomes	Have CBSA activities contributed to increased industry awareness of the Sufferance and Customs Bonded Warehouse Programs?
	Have the Sufferance and Customs Bonded Warehouse Programs contributed to accessible, compliant and secure warehouses?
	Do the Sufferance and Customs Bonded Warehouse Programs help promote trade and facilitate the movement of goods?
	Do the Sufferance and Customs Bonded Warehouse Programs contribute to the secure collection and protection of taxes and duties owed on behalf of the Crown?
	Have the sufferance warehouse or customs bonded warehouse programs resulted in any unintended impacts?
Demonstration of Efficiency and Economy	Is delivery of the Sufferance and Customs Bonded Warehouse Programs cost-effective?
	Are there more efficient and effective models to achieve the expected results?

Evaluation Methodology

The following research methodologies were used:

Document and Data Review and Analysis

Key CBSA documentation reviewed included the warehouse-related D-Memoranda, Customs Notices, as well as relevant Standard Operational Procedures and manuals. In addition, internal and published reports on the programs, training bulletins, outreach and communications materials as well as correspondence were reviewed and analyzed.

Data from internal CBSA systems[ 24 ] were reviewed and analyzed. In addition, the Process Monitoring Framework, Compliance Management Framework, as well as regional files, reports and listings were used to analyze warehouse licensing and renewal information, and to estimate trade volumes and value. Statistics Canada, Transport Canada, Industry Canada and other sources were also used.

Literature Review

The evaluation included a review of relevant domestic and international literature. Domestic sources included national associations’ bulletins and Web sites from organizations such as Canadian International Freight Forwarders Association, Canadian Society of Customs Brokers, Canadian Courier and Logistics Association, Import Export Canada, The Railway Association of Canada, and The Shipping Federation of Canada. International sources included customs and warehousing information from the United Kingdom (U.K.), the United States (U.S.), Australia, New Zealand, the World Customs Organization, and the Organisation for Economic Co-Operation and Development – Centre for Tax Policy and Administration as well as international associations’ bulletins and Web sites (e.g., trucking associations, customs associations).

Exhibit 7: Interviews Conducted for the Evaluation.

Interview Category	Number of Interviewees
CBSA HQ management and staff	15
CBSA Regional management and staff	80
Private Sector Stakeholders	55
Total	150

Site Visits

Site visits were conducted in six regions.[ 25 ] These six regions account for nearly 90% of the total number of sufferance and customs bonded warehouse licences[ 26 ] and were also chosen to maximize the number and diversity of warehouses visited. Evaluators visited 86 warehouse locations (Exhibit 8). Because some warehouse locations hold both sufferance and customs bonded warehouse licences, these locations represent 6% of all sufferance warehouse licences and 8% of all customs bonded warehouse licences.[ 27 ] Evaluators conducted phone interviews of staff and management in regions not visited to capture their perspectives on the delivery of the warehouse programs.

Exhibit 8: Warehouse Site Visits, by Type and Region

Region	Locations Visited	Location Licence Types
	#	Sufferance warehouse	Customs bonded warehouse	Total
Quebec	14	10	11	21
Greater Toronto Area  (GTA)	13	9	6	15
Niagara-Fort Erie (NFE)	5	5	0	5
Northern Ontario (NORO)	12	10	3	13
Prairie	20	18	5	23
Pacific	22	24	5	29
Total	86	76	30	106

Surveys of Warehouse Operators

Evaluators conducted two surveys – one for sufferance warehouse operators and one for customs bonded warehouse operators. The purpose of the surveys was to determine the operators’ level of understanding of warehouse policies and procedures, the perceived impact of the sufferance and/or customs bonded warehouse program on their trade activities, the importance of warehouse licences to their business, their relationship with the CBSA, and suggestions for program improvement.

The sufferance warehouse survey was mailed to a random sample of sufferance warehouses. A total of 612 surveys were distributed (59% of the total population of sufferance licences). Customs bonded warehouse surveys were sent to all 356 warehouses (see Exhibit 9). It is important to note, however, that a single warehouse or operator may hold more than one type of warehouse licence. Of the 968 surveys mailed, 79 surveys were returned to sender for reasons detailed in the evaluation research limitations section.

Exhibit 9: Survey Responses

	Surveys Distributed	Surveys Completed
Sufferance Warehouses	612	237
Customs Bonded Warehouses	356	101
Total	968	338

A total of 237 sufferance warehouse surveys were completed, with 52 of the respondents indicating that they held multiple warehouse licences[ 28 ] yielding a response rate of 59%. There were 101 customs bonded warehouse surveys completed, representing 107 licences, and a response rate of 32%.

Evaluation Research Limitations

A comparison of the warehouse listings in the national system (ACROSS) with regional/local warehouse listings revealed discrepancies in addresses, warehouse types, registered owner, duplications in names – usually minor variations in spelling or one a French name, the other in English. In an effort to validate the information in preparation for the surveys, Internet searches were done on a number of the warehouses and some warehouses were called directly to validate the information. In several instances, warehouses listed as active had closed, moved, changed names or had been bought out. As a result, it is possible that a selection of warehouse operators did not receive a survey.

While the evaluation benefited from some performance information, there were also data limitations that restricted the evaluators' ability to assess the impact or results of the programs. For example, the volume of in-bond shipments sent to sufferance warehouses was not available, either by number of shipments or value for duty. As a result, the evaluation could not establish the extent to which these warehouses are used or usage trends over the past years. There was no central database or information source on seizures or other security breaches associated with the warehouse programs. Data on the frequency, type and results of warehouse audits are kept in paper-based files, and only in some regions; as such, it was not possible to determine the overall level of risk associated with the warehouses. Furthermore, there is no consistent tracking of demands for licences, thus the evaluation cannot determine the reasons for denying applications, whether the supply versus demand is reasonable, and whether there is continued demand for these warehouses.

Warehouse-related information is found in a number of separate systems. ACROSS is a mainframe system used by both warehouse programs. It allows importers, brokers, carriers, freight forwarders, exporters and warehouse operators to exchange conveyance, cargo and release information electronically with the CBSA. CCS is a national mainframe system used primarily to record the presentation, accounting and adjustment of the B3 Canada Customs Coding forms (or their electronic equivalent) and is used in the Customs Bonded Warehouse Program. FIRM allows users to retrieve information stored in the other systems (such as information on duties and taxes owing or paid). Finally, compliance information on the warehouses is stored in the Administrative Monetary Penalty System (AMPS). In addition, often the data must be manually reconciled between the different systems which makes cross-referencing challenging, time-consuming and vulnerable to errors. As such, the evaluation had difficulty validating information on the volume of goods held in customs bonded warehouses or the movement of goods into and out of these warehouses.[ 29 ] 

2. Key Findings – Relevance

Are the Sufferance and Customs Bonded Warehouse Programs aligned with the CBSA and government-wide priorities?

The Sufferance and Customs Bonded Warehouse Programs support and are aligned with key CBSA and Government of Canada priorities.

The CBSA's trade incentive programs, of which customs bonded warehouses are a part, are intended to promote a fair and secure marketplace by ensuring the accuracy of trade data and the assessment and collection of duties and taxes. These programs also foster the participation of Canadian businesses in the global marketplace through the deferral and relief of duties and taxes on export-bound imported goods. This was one part of the Canada's Gateway initiatives, which was announced in the 2006 federal budget. The program also supports the 2009 Government of Canada's Economic Action Plan, specifically the goal of “stimulating the economy'.[ 30 ]

The Sufferance and Customs Bonded Warehouse Programs also contribute to the goals of the Security and Prosperity Partnership of North America, by supporting the outcome of smart and secure borders through the controlled movement of in-bond goods to these facilities.[ 31 ]

The Sufferance and Customs Bonded Warehouse Programs are delivered under the authority of and governed by the Customs Act and/or the Customs Tariff, which confirm the role of the CBSA in delivering these programs.

The programs contribute to and support the CBSA's strategic outcome of “effective and efficient border management that contributes to the security and prosperity of Canada'[ 32 ] by monitoring and examining goods at land, air and marine ports of entry and by allowing in-bond movement of goods to inland facilities. The programs also support CBSA priorities to promote “Canadian business and economic benefits by administering trade legislation and trade agreements to meet Canada's international obligations' as well as the Agency's role to collect the “applicable duties and taxes on imported goods'. [ 33 ]

Is the rationale for the Sufferance Warehouse Program valid and does it address an ongoing need?

Sufferance warehouses help alleviate congestion at the border, and provide needed facilities for the CBSA to conduct examinations of imports.

Private sector and CBSA interviewees indicated that congestion at the border was due, at least in part, to the CBSA's decision to clear and release goods at the first point of arrival (FPOA) and to minimize the inland movement of in-bond goods. While the majority of goods entering the country are released upon arrival,[ 34 ] a certain number of shipments will be targeted for examination. Not only did the policy contribute to increased border wait times, this resulted in congestion at the border, as many POEs do not have adequate on-site examination facilities to meet the workload, and this presents a particular hurdle for consolidated shipment or “less than truckload' loads. One truck may include over 50 shipments to as many importers, only some of which may be referred for examination. However, all shipments are moved to an examination facility and will only be released pending the examination results.

The option to send goods inland to bonded warehouses for examination and release has always been available to BSOs at the POE. During interviews, private stakeholders indicated that the perception amongst carriers has been that until recently the CBSA was conducting more examinations and releases at the border, rather than allowing carriers to move their goods in-land to a sufferance facility for examination and release. In the spring of 2009, after discussion with the CBSA, information was disseminated through trade publications indicating that low-risk carriers, including less-than-truckload carriers, would be allowed to bring goods inland to bonded warehouses for commercial examination and release – a move that would help alleviate congestion at the border. [ 35 ]

The number of sufferance warehouse types creates administrative problems and confusion for CBSA staff and industry. Certain types were established to serve specific needs that may no longer be relevant.

The primary purpose of the Sufferance Warehouse Program is to provide importers, freight forwarders, carriers and brokers with a secure area to store in-bond goods destined for Canadian markets and to provide the CBSA with an inland facility to conduct examinations.

Survey respondents indicated the top three reasons they have a sufferance warehouse licence is: to provide a service for their customers (38%), to temporarily store unreleased cargo (19%), and to ease the wait time associated with crossing at the border (7%). However, site visits revealed that up to half of the sufferance warehouses were storing few or no in-bond goods. There are a number of reasons for this. The first is the use of the electronic Pre-Arrival Review System (PARS), which releases goods upon arrival at the border based on advance data provided to the CBSA. A more recent influence is the downturn in the economy, with fewer companies requiring storage space for imports. Third, in major hubs, the sufferance warehouse market is saturated, meaning that there are many warehouses with low volumes rather than fewer warehouses with high volumes.

Operators of warehouses with low volumes stated that they continue to pay for a sufferance licence to have it “just in case' and as a selling feature for their clients. Moreover, according to them, the nominal licensing fees are offset by revenues generated by the other services operators provide to their clients, such as domestic storage, domestic manufacturing, and rental of equipment. In addition, operators are concerned that if they give up their licence, there is no guarantee they would be able to get another in the future when needed.

Part of the reason for the saturation of certain markets is that the numerous distinctions among sufferance warehouse types creates niche warehouses based on commodity type, mode of transportation, and what can be done to the goods while in storage (e.g., the consolidation of packages). Ultimately this splits the in-bond import market among many stakeholders, resulting in low volumes for most.

Multimodal	Land/highway only	Rail only	Air only	Marine only
50%	22%	14%	8%	6%

At one time, the distinctions among warehouse types reflected the way industry or the CBSA organized their work. However, these distinctions no longer fit today's models. For instance, although half of the sufferance warehouse locations are multimodal (Exhibit 10), sufferance warehouse regulations state that warehouse operators must have a licence for each of the modes (i.e., goods arriving by air and land, rail and marine). In addition, the similarity of the sufferance warehouse types is confusing for industry. For example, 13 survey respondents did not know what type of licence they held. The respondents indicated that they owned an SF warehouse licence for perishable goods such as fruits and vegetables, meat and flowers, while nationally there were only four valid SF licences recorded. Private sector stakeholders also indicated that differing documentation and goods handling requirements associated with the different licences are burdensome.

While many of the warehouse types seem outdated according to how goods move in today's market, there are other warehouse types that address ongoing or emerging needs. For instance, the CBSA established the type SO (CSA) sufferance warehouse to encourage subscription to the Customs Self Assessment (CSA) program. The SO (CSA) warehouse benefits CSA members in that they can move their shipments[ 36 ] directly inland if they are unable to process them electronically[ 37 ] at the border, and therefore not delay other shipments on their conveyance. Similarly, the SH warehouse is the only non-commercial sufferance warehouse type developed solely for the storage of personal household effects, and is used for persons moving to or returning to Canada (primarily members of the military and the foreign service), where goods need to be stored temporarily prior to the travellers’ arrival, until cleared by Customs. There are no other existing Government of Canada programs that meet this need.   
 
A common refrain from all stakeholders was that the CBSA needed to re-think its Sufferance Warehouse Program and policies to better reflect the needs of importers today. Similar observations have been made in the past. In 1998, the then-Canada Customs and Revenue Agency (CCRA) conducted a “comprehensive consultative process to obtain client input to a design of a modernized sufferance warehouse program'.[ 38 ] The end result of the process was a recommendation to reduce the number of licence types in order to ease the administrative burden and improve the flow of goods by reducing the need to re-manifest the goods when moving from one mode to another. Eight years later, the CBSA Regional Working Group on Commercial Policy Review reached the same conclusions. The review concluded the CBSA should eliminate restrictions on sufferance warehouses based on mode, commodity type, activities undertaken at the warehouse, and delivery mode.

The backhauling of in-bond goods to a more convenient sufferance warehouse location for the CBSA for examination is resisted by importers, carriers and freight forwarders.

According to the D3-1-1 Memorandum, all in-bond goods must report first to another CBSA office or specified sufferance warehouse facility (which is typically a primary facility, i.e. AA or AH for air, AM or AW for marine, or BW highway sufferance warehouse for land) for examination prior to continuing on to their sufferance warehouse or customs bonded warehouse facility. Some regions have allowed carriers to proceed directly to their own warehouse.[ 39 ] The BSOs will either examine the goods on-site or have them “backhauled' to another licensed warehouse location. There are a variety of reasons for these local variations, such as the BW facility cannot accommodate the size of the shipment or the type of container, specialized equipment is needed to examine the goods, or there is no BW facility within a reasonable distance to service the carrier.[ 40 ]

Backhauling allows warehouse operators to build their facilities where it is convenient for them and their clients, with the understanding that they will make their goods available for examination at a location suitable to the CBSA. Having carriers bring the goods to a central location means CBSA officers can examine all the required shipments by different companies, rather than using limited time and resources to travel from warehouse to warehouse. However, the evaluation found that the practice of backhauling is not consistent across regions (Exhibit 11).

Exhibit 11: Local Practices for Backhauling Goods for Examination and Release[ 41 ]

Region	Backhaul	Local Practice
Atlantic	No	N/A
Quebec	Yes – marine	To BW or other acceptable warehouse.
Northern Ontario	No – Ottawa Yes – Prescott	To frontier examining facility, BW or customs bonded warehouse
Greater Toronto Area	Yes	To BW
Niagara-Fort Erie	No	N/A
Windsor-St. Clair	Yes	To CBSA Commercial Examination Facility
Prairies	Yes – Edmonton Yes – Winnipeg	To BW To sufferance warehouse of broker's choice
Pacific	Yes - marine/rail	Goods destined for SO warehouses are done on-site. Other marine/rail cargo backhauled to CW of choice.

Private sector stakeholders interviewed for the evaluation reported several issues related to backhauling. A common complaint of carriers and importers was that the BW facilities to which their goods are being backhauled are inadequate. As well, carriers with their own bonded facility objected to the additional storage and handling fees associated with backhauling for CBSA examination, which could be conducted in a warehouse operated by a competitor.

CBSA regulations do not include specific time frames within which a freight forwarder or carrier must bring goods back for examination. Trucks will unload their cargo at their sufferance warehouse, at which point they may immediately bring the targeted shipment to the CBSA for examination, while others will wait until they have a full truckload of shipments, to merit returning to the BW (or other facility) for CBSA examination. BSOs and their supervisors expressed frustration with this situation as the targeted goods may take days or even weeks to be backhauled, and the CBSA has no specific Administrative Monetary Penalty (AMP) to address this tardiness. [ 42 ]

Is the rationale for the Customs Bonded Warehouse Program valid and does it address an ongoing need?

Although free trade agreements have reduced or eliminated tariffs on a wide range of goods, customs bonded warehouses still serve a purpose as they provide substantial relief on taxes and duties.

The number of customs bonded warehouse licences identified in ACROSS dropped from 340 to 313 between 2007 and 2009.[ 43 ] In part, the decline in demand for long-term bonded storage may reflect changes in the economy. Industry representatives also indicated that fewer companies are storing goods for long periods of time. A view expressed by some operators interviewed was that the volumes of bonded goods within their facilities had decreased, in part, as fewer of their goods are subject to duties as a result of free-trade agreements. Only about 20 percent of respondents to the customs bonded warehouse survey indicated that cash flow benefits resulting from the deferral of duties and taxes was one of the primary reasons for owning and/or using a customs bonded warehouse. On the other hand, importers of high-rate or high-value goods find the relief or deferral of duties and taxes to be an important reason for having a customs bonded warehouse. The Customs Bonded Warehouse Program is the only duty deferral program which offers complete relief from all federal import levies, and includes relief from GST, Harmonized Sales Tax (HST), Excise Tax, Excise Duty, Provisional Duties and Anti-dumping Duties levied under the Special Import Measures Act (SIMA).[ 44 ] In 2009, the amount of GST remitted by customs bonded warehouse operators ($427M) was more than one and one-half as much as the amount of duty remitted ($273M).

While other government programs allow importers and manufacturers to defer duties and/or taxes on goods destined for export, the Customs Bonded Warehouse Program is the only one that allows for substantial deferral of taxes and the long-term storage of goods.

Customs bonded warehouses primarily benefit importers of expensive, seasonal, and/or high-duty rate goods (e.g., airplane parts, alcohol and dairy products). As illustrated in Exhibit 12, there are a number of existing federal government programs that would also allow importers and manufacturers to defer paying duties, and/or taxes such as the GST/HST. However, unlike the Customs Bonded Warehouse Program, they do not provide for the long-term storage of goods.

Exhibit 12: Examples of Existing Government of Canada Trade Incentive Programs Offering Duty and/or Tax Deferral or Relief

Trade Incentive Options	Description
Duties Relief Option (manufacturing) (CBSA Program)	Permits a wide range of processing functions, everything from minor adjustments, to repair, to full-fledged manufacturing and does not require the separation of domestic and export production. Allowed up to four years to re-export.
Drawbacks (CBSA Program)	Refunds duties paid on imported goods that were processed in Canada and later exported.
Remissions and Temporary Importations[ 45 ] (CBSA Program)	Provides for duty relief in specific situations (e.g. for vessel repairs, samples, charitable goods, carnets – goods temporarily imported for exhibits/demonstration purposes).
The Canadian Goods Abroad Program (CBSA Program)	On Canadian goods exported for repair, the duty is only paid on the value added to the Canadian goods (in the form of labour or additional material) when they return to Canada. Similarly, under the Value of Imported Goods (GST/HST) Regulations, the GST/HST is payable only on the value of the processing performed outside of Canada.
Exporters of Processing Services Program (Canada Revenue Agency (CRA) Program)	Manufacturing companies import certain goods that will eventually be re-exported without paying GST/HST.[ 46 ]Managed by the CRA, monitored by the CBSA.
The Export Distribution Centre Program (Canada Revenue Agency Program)	Tax-free import of goods for minimal[ 47 ] processing, including inventory for resale and parts to be used during processing, for businesses with an export revenue percentage of 90% or more. Managed by the CRA, monitored by the CBSA.
Import for Re-Export Program (Department of Foreign Affairs and International Trade (DFAIT) Program)	This program is offered and administered by DFAIT to assist importers of controlled goods subject to Tariff Rate Quota.

 

3. Key Findings – Performance

Have CBSA activities contributed to increased industry awareness of the Sufferance and Customs Bonded Warehouse Programs?

Industry's understanding of the purpose of the Sufferance Warehouse Program is high. The Customs Bonded Warehouse Program seems to be less well-known.

Information about the warehouse programs is generally disseminated through two venues. The first is CBSA stakeholder consultations with organizations such as the Border Commercial Consultative Committee, eManifest Stakeholder Partnership Network, and the Canadian Sufferance Warehouse Association. At these meetings, the CBSA provides information on and updates to the warehouse programs. The second outreach venue is seminars given by CBSA regional staff on trade-related topics, including on duty deferral and warehousing.[ 48 ] The Trade Programs Directorate at HQ has recently developed and published promotional materials and provided seminars to increase awareness of the Customs Bonded Warehouse Program, to increase subscription to the program.

Generally, warehouse operators found out about the warehouse programs through word-of-mouth within their industry networks. The CBSA Web site also supplies general information on warehousing options, and links to the specific warehouse regulations. CBSA staff, warehouse operators and industry representatives used the D-Memoranda as reference tools as they provide detailed information for each of the warehouse programs, including the purpose of the program, national licensing criteria, surety requirements, and the licence application.

Have the Sufferance and Customs Bonded Warehouse Programs contributed to accessible, compliant and secure warehouses?

Access to warehouse licences varies among districts, due to regional eligibility criteria that are more restrictive than those stipulated in CBSA memoranda D4-1-4 and D7-4-4.

Warehouse operators and private sector stakeholders indicated that there were variations in how CBSA regions interpreted and applied the D-Memoranda licensing, monitoring, and processing procedures. Primary licensing responsibilities for most warehouse sub-types rests with the regions. However, CBSA regulations do not fit every eventuality and the regions have developed local practices to meet local needs. For instance, the CBSA does not have a national policy that stipulates where a sufferance warehouse may be located and, as a result, warehouses may be several hours away from a CBSA office. In the absence of national direction on the issue, some districts and regions have imposed maximum distance criteria. Similarly, there are no guidelines vis-à-vis annual minimum volumes or a minimum number of in-bond shipments that must go through a customs bonded or sufferance warehouse to be eligible for a licence, but there are regions that have instituted such restrictions. Industry representatives interviewed stated that there seemed to be a moratorium on the issuing of new sufferance and customs bonded warehouse licences in the major hubs.

Regional CBSA personnel interviewed consistently stated that there is a need to set geographic service zones and minimum in-bond volume requirements for both sufferance warehouse and customs bonded warehouse operators to reduce the resource and administrative requirements associated with delivery of these programs. Geographic service zones were seen as one way to allow the CBSA to maintain reasonable service to all warehouse operators. Current provisions in the sufferance warehouse and customs bonded warehouse regulations provide general direction and give the regions the power to set specific volume and distance criteria in concert with importer need. Although a “one-size fits all' approach cannot work as there are many situation-specific variables, industry would welcome more transparency about these different requirements and why they are in place.

Determining the extent to which warehouse operators comply with the regulations is difficult, as the frequency and level of monitoring of the warehouses vary from region to region. At least one-third of the CBSA districts contacted did not meet the current guidelines.

According to the Customs Sufferance Warehouses Regulations, the CBSA must “[conduct] periodic warehouse checks to make sure the facility continues to meet the requirements of the Regulations'.[ 49 ] Likewise, the Guidelines and General Information section of the Customs Bonded Warehouses D-Memorandum 7-4-4 state that “periodic verifications will be conducted to monitor compliance… [and that this] verification will be based on risk analysis and will be conducted a minimum of once per year'.[ 50 ] However, according to site visits and interviews with staff in 14 districts across the country, only six districts performed yearly inspections of sufferance warehouses on a planned schedule, three conducted inspections or audits every year or so, and five never or rarely inspected the warehouses although they may have conducted informal inspections when they were at the warehouse for other purposes (e.g., to examine goods) (Exhibit 13). Based on the interviews and documentation, the evaluation estimates that over three-quarters of customs bonded warehouses were not audited within the past 12 months. Calculations based on existing resource allocations indicate that it would take over two and one-half years to inspect (e.g., the security of premises) of all 1200 sufferance warehouses, and nearly four and a half years to conduct physical audits (i.e., account of in-bond goods) of the 356 customs bonded warehouses. Clearly, existing resources dedicated to the programs cannot meet the requirements of current regulations.

Exhibit 13: Frequency of Inspection of Sufferance Warehouse Facilities, by Region/District

Region/District	Inspection Frequency for Sufferance Warehouses
Atlantic	Annual
Quebec – Montréal	Recently began annual inspections
Quebec – Dorval Airport	Annual
Northern Ontario	Every 1-2 years
Greater Toronto Area – Pearson Airport	Not done. Look around when called to conduct examinations.
Greater Toronto Area	Not done. Look around when called to conduct examinations.
Niagara-Fort Erie	Every 1-2 years (higher volumes more frequently)
Windsor-St. Clair	Every 1-2 years
Prairie – Winnipeg Airport	Annual
Prairie – Winnipeg	Annual
Prairie – Edmonton Airport	Not done
Prairie – Edmonton	Annual
Pacific – Vancouver Airport	Not done
Pacific – Vancouver	Annual

Source: Site visits and file reviews.

The evaluation study also found that there is no standard practice for conducting an inspection or audit. Sufferance warehouse inspections by CBSA officers ranged from random “spot checks' of current inventory, to completing the audit checklists included in the regulations, to conducting in-depth assessments of the warehouse inventory, its records and CBSA documentation. For the most part, officers used the tools supplied in D-4-1-4 to conduct their warehouse risk assessments, audits, examinations and as a guide for issuing AMPs. However, the usefulness of those audit tools is limited as items are vague, incomplete or do not reflect technological advances since the checklists were last revised in 1990. For example, the sufferance warehouse audit checklist states only that officers should “look at open files'. There is no reference to the need to also examine the electronic files and the warehouse shelves for discrepancies. About half of the districts visited developed additional tools to help manage their warehouses, including checklists and procedures, an auditing system, a warehouse database and client information packages.

For customs bonded warehouses, monitoring ranges from “desk audits' where CBSA staff reconciles the movement of in-bond goods and the payment of duties and taxes owing using electronic data in CCS and FIRM, to “physical audits' where CBSA staff closely compares the records of the warehouse with the Agency's records and warehouse inventories. CBSA employees in two regions indicated that they use a desk-audit to determine whether a physical audit is required for their customs bonded warehouses. As with sufferance warehouses, there are standard tools to guide the audits of customs bonded warehouses: the Annual Regional Customs Bonded Warehouse Reports (E346), the Bonded Warehouse Verification/Inspection Report (E347), On-The-Job Training Manual (for Trade Programs), Duties Relief Administration Manual, and the Trade Verification Manual. However, these materials are not generally used by the regions.

Regions that did not monitor their bonded warehouses, or that infrequently conducted inspections or audits gave several reasons: warehouses are perceived as low-risk as the goods have already been assessed for threats pre-arrival and/or at the border; some warehouses have little to no volumes of goods; and the sheer number of warehouses and the large geographical range make regular monitoring impossible with current resources. From site visits, evaluators observed that most regions had very few officers to cover all the sufferance and customs bonded warehouses. For example, one-third of all customs bonded warehouses in Canada are based in southern Ontario,[ 51 ] however, the GTA's Compliance Verification and Services section has only a small team available to license and monitor the entire area, in addition to their other activities. Similarly, licensing and monitoring of customs bonded and sufferance warehouses for the Lower Mainland of the Pacific Region are performed by two BSOs.

The electronic systems, databases and paper-based files used to license and monitor the warehouses are inadequate and outdated.

The main warehouse databases are ACROSS and CCS. The evaluation found significant discrepancies in ACROSS and CCS versus CBSA Internet listings and regional warehouse files, for even basic information such as location, owner/operator name and warehouse type. [ 52 ] In theory, the regional files should match the ACROSS/CCS listings as the warehouse information is provided by the regions to the Innovation, Science and Technology Branch (ISTB), which then inputs the information into ACROSS. Subsequently, ISTB sends reports to the regions for verification (twice per year for large POEs and once per year for smaller ones). Although some variation is expected if the changes are very recent, this evaluation found errors dating back from months to years.

ACROSS and CCS do not meet the requirements of the warehouse programs. ACROSS does not capture information such as correspondence and incident reports, operator phone numbers and whether a warehouse has the required permits for handling special goods (e.g., firearms) – all information that officers expressed a need to access electronically as paper files are not stored in one location. The CCS does capture permit numbers in field 26; however, most BSOs do not use this system. In addition, as noted in the 2007 Internal Audit, ACROSS does not store information on warehouse bonds (financial security), such as the security type, the bond number, the expiry date, the surety company and where the original is held (and neither does the CCS). Timely access to this information is important when there is a sudden warehouse closure and bonded goods are in storage, the company goes bankrupt, or bonded goods are damaged, lost or stolen from the warehouse premises. In these cases, the CBSA may need to cash the bond to recuperate the duties and taxes owing on the bonded goods that have been lost, stolen or forfeited.

CBSA staff involved in customs bonded warehouse “desk audits' and/or the analysis of trade data associated with the warehouses, indicated that the utility of ACROSS and CCS for its purposes, is limited. First, CBSA “desk-top audits' of customs bonded warehouses are potentially missing a number of importers who use customs bonded warehouses due to client information errors within ACROSS.[ 53 ] Second, unlike with sufferance warehouses, the CBSA does not always assign customs bonded warehouses a unique identifier (i.e., two warehouses from different regions could have the same ID). Officers in the field suggest that a port sub-locator be added as part of the warehouse number. Alternatively, trade program staff at HQ indicated that goods in the customs bonded warehouse are controlled by B3 entries into the CCS, and it suggested that the CCS be modified to accept more characters from the existing Line 44 of the B3 in order to properly identify a customs bonded warehouse. Instead, FIRM reports for warehouse audits are based on the business number of the warehouse operator. Where there are no customs business numbers, as may be the case with public bonded warehouses that provide storage for multiple business clients, CBSA regional staff would not know what goods are currently stored in a given location without onsite verification.

The other main source of warehouse information is CBSA regional files. All regions keep paper-only files of the warehouses. Often the information was split between “application files' and “operational files' and kept in separate locations. In several cases, there were discrepancies in key information such as the size of the bonded space or operator details. This arrangement makes it difficult for CBSA staff managing the files to know if they have the most recent information. In addition, although memo D7-4-4 states that the “original bonds will be retained on file at the local customs office', less than half the files reviewed contained this document (and many that did were only photocopies).

Less than 2% of the nearly 18,000 AMPs levied by the CBSA in 2008-2009 were for warehouse-specific infractions.

Overall, few warehouse operators received penalties in 2008-2009. Of all 17,967 AMPs issued that year, the CBSA levied 315 on sufferance warehouse operators and 23 on customs bonded warehouse operators.[ 54 ] This trend has remained constant over the past five years, with two percent of all contraventions directly attributable to sufferance and customs bonded warehouses.[ 55 ]

Top SW AMPS	C358	C048	C063	C049	C058
Number of Files Opened	1,549	222	207	67	24

The top five infractions by sufferance warehouse operators are shown in Exhibit 14.[ 56 ] Three areas make up 92% of the AMPs levied from 2004-2005 to 2008-2009: over 70% of the AMPs were C358, a “person removed goods from a customs office or sufferance warehouse prior to release or authorization by an officer'; 10% were for C048, where a “licensee of a sufferance warehouse failed to ensure that goods received in the sufferance warehouse were stored safely and securely in the area designated for that purpose'; and C063 made up another 10%, for failure “to provide a list of all goods not removed from the sufferance warehouse within the time limit prescribed'. The total value of these penalties averaged $607K per year.[ 57 ]

Top CBWS AMPS	C066	C196	C163	C199	scope="col"C198
Number of Files Opened	180	14	7	5	4

As illustrated in Exhibit 15, the most common infraction (90%) for customs bonded warehouse operators was C066, where a “person removed goods from a bonded warehouse or duty free shop prior to release by an officer'.[ 58 ]

A number of private stakeholders using warehouses stated that they viewed AMPs as an unavoidable part of their business, and that the AMPs are often less than the cost of not meeting their clients’ needs – such as a fine or even the loss of business. A common concern of regional staff was that the AMPs do not act as a deterrent for chronic offenders.

An issue that causes confusion for warehouse operators is the policy on co-mingling domestic and in-bond goods, as it is applied differently across regions.

In parts of the country, there is confusion regarding the regulations concerning the co-mingling of goods. Some districts allowed bonded cargo and domestic cargo to be stored in the same area of a bonded sufferance warehouse, so long as they were clearly marked. According to D4-1-4 Section 58, “a separate area exclusively for the storage of in-bond shipments is required in the warehouse building or in the detention compound. In-bond goods must not be co-mingled with domestic goods'. In contrast, D7-4-4 Section 14 states, “[f]lexibility has been provided in the identification of the bonded area to provide for the storage of domestic and in-bond goods. The goods must be readily identifiable through [the] record-keeping system and be situated in the area designated on [the] site plan'. [ 59 ] However, operators of certain types of customs bonded warehouses, in particular “ship chandlers' (for vessels) and “ship stores' (for airlines) that frequently co-mingle domestic and bonded goods, indicated that they received conflicting messages from CBSA officers about the legitimacy of this practice. Warehouse operators who have facilities in multiple regions/districts indicated that the inconsistent application of the rules had resulted in them receiving AMPs in one region, while in other parts of the country they received CBSA approval for the same practice. A number of ship chandlers and ship stores indicated that they often pay the duties and taxes upfront so that they may co-mingle the goods and not risk receiving an AMP for having in-bond goods in the wrong location.

Sufferance warehouse policies and physical restrictions pertaining to rail shipments have led to compliance issues.

Although major rail companies work closely with the CBSA to monitor the security of goods in transit, BSOs interviewed reported that these companies restrict CBSA access to their bonded warehouses, citing safety concerns and potential disruption to the movement of freight. In addition, multi-modal warehouse operators indicated that rail companies would not delay their train, pending customs examination and release, if there was only a single car identified. One warehouse operator interviewed received an AMP for the “unauthorized removal of goods', when the rail company refused to decouple the shipment and leave it at the warehouse as this would have delayed their train.

For their part, the rail companies stated that they strive to meet the CBSA's requests while managing the physical restrictions of the rail mode. For instance, although a request to examine a certain container may come at one city, the rail company may not stop and decouple the car from the train until the “First Point of Intervention' (FPOI)[ 60 ], for technical and safety reasons.

There have been few reported security incidents and seizures in the warehouses over the past five years.

Warehouse operators are provided with a list of security guidelines when they apply for a licence (i.e., Minimum Security Requirements and Guidelines for Bonded and Sufferance Warehouses and Perimeter Security – Your First Line of Defence). Most of the warehouses visited appeared to have the required basic security features such as locks, protocols to challenge visitors, fencing and lighting, through to rigorous 24-hour surveillance/security personnel and coded key-card access. Of the warehouses visited, only three had visible security infractions (broken gates) and two warehouses were found to not meet the requirements to handle certain goods such as firearms. Marine and air warehouse operators indicated that they have increased their security measures due to new requirements by Transport Canada (i.e., Air Cargo Security and the Marine Security initiatives). Other warehouse operators pointed out that they were also members of Partners in Protection and the US Customs-Trade Partnership Against Terrorism programs and as such, had to adhere to strict security requirements to participate.

Over the past five years, there have been only a few reported cases of thefts from warehouses. The number of seizures of smuggled goods and contraband has also been small. To further ensure the security of the bonded goods, BSOs interviewed strongly suggested that workers in CBSA licensed-warehouses have background security checks as a condition of employment. A number of larger warehouse operations already do this, as their customers require it. However, this is not a requirement of the program.

The renewal of warehouse licences only involves the payment of fees. Typically, there is no compliance verification, risk assessment, or warehouse audit conducted or required at the time of renewal. As such, the CBSA cannot be certain that the warehouses continue to meet CBSA eligibility requirements.

Established protocols to gain access to the CBSA-controlled areas of the sufferance warehouses are not always followed.

CBSA staff identified that they have occasional disagreements with OGDs, unions, and other individuals regarding access to bonded areas of CBSA-licensed facilities. The D-Memoranda state that persons who need regular or emergency access to the bonded areas of a CBSA-licensed facility can complete Form C6 (i.e., Permission for Special Purposes), however, the CBSA reserves the right to refuse access to the bonded areas of the warehouse. Permission is typically granted to emergency repair personnel, security personnel, maintenance technicians and janitorial staff. However, several warehouse operators indicated that Transport Canada representatives had arrived on their premises without notice as part of their Air Cargo Security initiative, and insisted on entering the warehouse without CBSA approval or accompaniment. The warehouse operators had concerns about Transport Canada representatives accessing CBSA-controlled areas, but were unsure who had ultimate authority over the warehouse.

Do the Sufferance and Customs Bonded Warehouse Programs help promote trade and facilitate the movement of goods?

The Sufferance and Customs Bonded Warehouse Programs are valued by industry and facilitate trade. However, certain customs bonded warehouse operators want the ability to do “value-added' activities to their goods.

Sufferance warehouses play a role in moving goods more expediently, and provide short-term relief of duties and taxes owing. For the most part, customs bonded warehouses primarily serve as a medium- to long-term storage facility, where the duties and taxes on the goods stored do not have to be paid unless the goods enter the Canadian market.

Customs bonded warehouses also allow operators to do some additional processing of their in-bond goods (e.g., repackaging, labelling). However, the CBSA does not track information on the number of customs bonded warehouses conducting any of the “allowable activities'.  Although the CBSA does not track the number of operators who do “allowable activities' or the types of activities carried out in customs bonded warehouses, fully 53% of customs bonded warehouse survey respondents indicated that they sort, label, deconsolidate, or otherwise repackage their in-bond goods.

Furthermore, a number of these operators would like to expand this aspect of their warehouse operation, to perform duty-free manufacturing which is currently not permitted under the Customs Bonded Warehouses Regulations. In addition, under the current regulations, customs bonded warehouse operators cannot move goods between bonded facilities to undertake the allowable processes. Having the ability to process goods among a network of licensed bonded facilities would allow manufacturers to conduct these different processing activities on the in-bond goods in a more cost-effective and efficient way (i.e., one facility would specialize in labelling, another in dyeing and so forth). CBSA Trade Programs staff at HQ indicated that as a customs bonded warehouse operator's export activities expand, it will discuss other options with him/her including the “Duties Relief Option' for manufacturing under the CBSA Duty Deferral Program, which supports export-oriented manufacturing.

Do the Sufferance and Customs Bonded Warehouse Programs contribute to the secure collection and protection of taxes and duties owed on behalf of the Crown?

The Sufferance and Customs Bonded Warehouse Programs are valued by industry and facilitate trade. However, certain customs bonded warehouse operators want the ability to do “value-added' activities to their goods.

Sufferance warehouses play a role in moving goods more expediently, and provide short-term relief of duties and taxes owing. For the most part, customs bonded warehouses primarily serve as a medium- to long-term storage facility, where the duties and taxes on the goods stored do not have to be paid unless the goods enter the Canadian market.

Customs bonded warehouses also allow operators to do some additional processing of their in-bond goods (e.g., repackaging, labelling). However, the CBSA does not track information on the number of customs bonded warehouses conducting any of the “allowable activities'.  Although the CBSA does not track the number of operators who do “allowable activities' or the types of activities carried out in customs bonded warehouses, fully 53% of customs bonded warehouse survey respondents indicated that they sort, label, deconsolidate, or otherwise repackage their in-bond goods.

Furthermore, a number of these operators would like to expand this aspect of their warehouse operation, to perform duty-free manufacturing which is currently not permitted under the Customs Bonded Warehouses Regulations. In addition, under the current regulations, customs bonded warehouse operators cannot move goods between bonded facilities to undertake the allowable processes. Having the ability to process goods among a network of licensed bonded facilities would allow manufacturers to conduct these different processing activities on the in-bond goods in a more cost-effective and efficient way (i.e., one facility would specialize in labelling, another in dyeing and so forth). CBSA Trade Programs staff at HQ indicated that as a customs bonded warehouse operator's export activities expand, it will discuss other options with him/her including the “Duties Relief Option' for manufacturing under the CBSA Duty Deferral Program, which supports export-oriented manufacturing.

Do the Sufferance and Customs Bonded Warehouse Programs contribute to the secure collection and protection of taxes and duties owed on behalf of the Crown?

The value for duty[ 61 ] deferred last year by the Customs Bonded Warehouse Program was $4.6 billion, however, the evaluation found that the systems and tools in place require improvement to ensure that all duties and taxes owing are paid in a timely manner.

In 2008-2009, the GTA conducted seven customs bonded warehouse audits, which included three desk audits and four field audits. During the field audits they found two of the four warehouses owed $248,853 in additional duties and taxes.[ 62 ] Also, inaccurate assessments of the value of inventory in customs bonded warehouses result in warehouse operators not paying the appropriate fee or security deposit, as these are based on the value of the duty owing on the in-bond goods stored.

Have the Sufferance or Customs Bonded Warehouse Programs resulted in any unintended impacts?

There are very few new customs-bonded warehouse licences being issued at this time due to operational constraints in the regions. Consequently, the program may disadvantage new entrants to the import/re-export markets.

The Customs Bonded Warehouse Program provides duty and tax deferral and other benefits to Canadian businesses such as special handling and processing of in-bond goods destined for the export market. Although it falls under the Duty Deferral Program which generally focuses on helping Canadian companies be internationally competitive, this evaluation found that up to 100 percent of the duty-deferred, in-bond goods in customs bonded warehouses are consumed domestically rather than exported, as shown in Exhibit 16.

Duty and tax deferral is an attractive benefit to importers; however, the very stringent licensing requirements imposed by the regions means that the CBSA is creating a situation where importers with a pre-existing customs bonded warehouse have an unfair advantage over their domestic competitors who cannot obtain a licence.

Exhibit 16: Customs Bonded Warehouse Goods in Storage, Exported, and Consumed Domestically, by Region (FY2008-2009)

	Quebec	GTA	WSC	NFE	NORO	Prairie	Pacific	Atlantic
Storage (in-WH)	396.4	360.7	25	37.3	1.7	123.6	83.1	3608.4
Domestic Consumption	47.5	46.7	3.1	8	0.6	108.4	80.2	3776.6
Export/Ship Stores	38.1	69.2	19.3	8.6	1.2	1.8	4.4	1.6

4. Key Findings – Demonstration of Efficiency and Economy

Is the delivery of Sufferance and Customs Bonded Warehouse Programs cost-effective?

The current manner in which the financial information is tracked makes it difficult to clearly identify funding to specific activities and link that funding to specific results.

The 2006-2007 CBSA Departmental Performance Report (DPR) forecasted the annual costs of the Sufferance Warehouse Program to be $1.6M and the Customs Bonded Program to be $1.55M. This means the CBSA spends that just over $1,300 on each sufferance warehouse per year, and nearly $5,000 per customs bonded warehouse.[ 63 ] As seen in Exhibit 17, the cost-recovery aspect of the program offset meets one-quarter to one-third of the program costs.

Exhibit 17: Estimated Program Costs versus Warehouse Licence Fees Paid, 2008-2009

Program	Customs Bonded Warehouse Program	Sufferance Warehouse Program
Fees Paid (,000s)	$441	$590
Estimated full cost (,000s)	$1,600	$1,550

Source: Fees paid from ACROSS data May-Dec 2008, rounded up; estimated cost of the program from CBSA DPR 2006-2007 (Section III: Supplementary Information, Table 6: User Fees Act p. 43)

The programs are delivered with minimal resources at this time. Also — without sufferance warehouse facilities, the CBSA would be required to invest significantly in examination facilities at the POEs.

The sufferance warehouse facilities are privately owned and operated. As a consequence, the CBSA avoids major infrastructure and ongoing maintenance costs associated with building and running warehouse examination facilities.

Are there more efficient and effective models to achieve the expected results?

The Netherlands, the United Kingdom, Australia and U.S. are examples of countries that have customs bonded warehouse programs similar to Canada.

Many countries with land border crossings tend to have short-term storage, clearance and examination areas available to process imports. Longer-term in-bond storage requirements are dealt with through free trade zones and customs bonded warehouses.

While deferring duties and taxes is one advantage cited by operators of customs bonded warehouses, another advantage is the opportunity to modify the goods while in storage.[ 64 ] As an alternative to the Customs Bonded Warehouse Program, some operators support the Government of Canada's move to implement “foreign trade zones' or “free trade zones' (FTZs) – areas within a country where goods may be landed, handled, manufactured or reconfigured, and re-exported without paying duties and taxes on the exports. Customs duties and taxes would be payable only if, and when, the goods entered circulation within their home country. Places such as Hong Kong, Singapore, Colón (Panama), Copenhagen, Stockholm, Gdańsk (Poland), Freeport (Bahamas), Los Angeles, and New York City use FTZs.[ 65 ]

The Government of Canada announced in October 2009, that it will provide $3.5M of investment towards the opening of CentrePort Canada, which will act as an international hub for businesses seeking foreign trade zone-type opportunities.[ 66 ] CentrePort Canada (located in Winnipeg) would coordinate the use of a number of existing programs offered by the CRA and the CBSA that provide many of the benefits of the FTZs.[ 67 ] This appears to be a reasonable approach, as creating an entirely new trade initiative such as a true FTZ would require a high investment in resources, and possibly changes to existing trade-related legislation and regulations.

5. Key Conclusions, Recommendations and Management Response

This evaluation study found that both the Sufferance and Customs Bonded Warehouse Programs are relevant in that they make a contribution to the Government of Canada's Economic Action Plan and the CBSA's priority to facilitate the flow of legitimate goods, and that there is a continued need for both programs. Customs bonded warehouses provide incentives in the form of long-term storage, deferral or relief of duties, taxes and import levies on imported goods that are later to be re-exported or released. While there are other similar government trade incentive programs, the Customs Bonded Warehouse Program is the only one that allows for the long-term storage of goods. Sufferance warehouses, on the other hand, are beneficial to the CBSA as they help alleviate pressure at Ports of Entry (POE) by permitting goods to move inland for examination and release. Industry benefits from the program by expediting the movement of goods (especially less-than-truckload shipments) while at the same time providing short-term relief of duties and taxes owing. Both programs are delivered on minimal resources (approximately $3.2M per year).

There are currently five sufferance warehouse types and 14 sub-types. The evaluation found that the existence of numerous sufferance warehouse types creates administrative problems and confusion for both CBSA staff and industry. As a result, many operators hold multiple sufferance licences to cover the many and complex transportation and warehouse regulations. About half of all sufferance warehouses are multi-modal, meaning that goods arrive by ship, truck, rail and/or plane. This report also found that there was confusion among CBSA officers in the field and private stakeholders regarding the different warehouse types, and what types of goods and activities may be done in each. This issue is not new and a number of other venues have raised it, including a CBSA Regional Working Group on Commercial Policy Review in November 2006, which concluded the CBSA should eliminate distinctions based on commodity type, activities undertaken at the warehouse, and delivery mode to better reflect the way goods move today.

In light of these findings, the evaluation recommends that:

Currently, sufferance warehouses may be situated a considerable distance from a CBSA office, making it challenging to conduct examinations of goods or inspect and monitor warehouses. As well, some regions are issuing few warehouse licences, in part, because a large number of warehouses have little or no in-bond goods, and in part, because an increased number of licensed warehouses would necessitate increased resources to provide service. Regional staff and management indicated that establishing reasonable geographic service zones and minimum in-bond volume requirements would help reduce the administration of program-related licensing and monitoring activities. Regional staff and management were also unclear as to the criteria for closing warehouses and believe that more direction and support from HQ is required on how to interpret the regulations.

This evaluation found that most customs bonded warehouse operators valued the program, however many of the warehouses were empty at the time of the evaluation. Although this is partly due to seasonality, some operators noted that as there are more free trade agreements, and tariffs have been reduced or eliminated on an increasing number of goods, they use their bonded space less. Many operators maintain their licences “just in case', or as a client service feature. Although the Customs Bonded Warehouse Program also provides significant benefit in terms of GST relief, in the past two years the number of customs bonded warehouse licences in the national ACROSS/CCS database dropped by 27.[ 69 ] Some regions are reluctant to issue new licences due to operational constraints involved in servicing additional warehouses. This may potentially disadvantage new entrants to the import/re-export markets.

In light of these findings, the evaluation makes the following recommendation:

The level of risk warehouses represent is not clear. The GTA's customs bonded warehouse audits found two of four warehouses owed $248,853 in additional duties and taxes. While yearly inspections are conducted on a planned schedule in some regions, others never or rarely do warehouse inspections. Yet others may do inspections when they visit the warehouse for other purposes, such as to examine goods. In-depth inspections whereby officers match warehouse operators’ records to goods in stock and CBSA release records are rare. Warehouse licences are renewed upon payment of fees. Typically, there is no compliance verification, risk assessment or warehouse audit in support of renewal.

Calculations based on existing resource allocations indicate that it would take over two and one-half years to inspect all 1200 sufferance warehouses, and over four and one-half years to conduct physical audits of the 356 customs bonded warehouses. Clearly, existing resources dedicated to the programs cannot meet the requirements of current regulations.

The CBSA's main databases are ACROSS and CCS.  The evaluation found a number of shortcomings with the information in ACROSS and its capacity to support the warehouse programs. For example, basic information concerning the operator and type of warehouse are often incorrect, and the system lacks key fields to capture information required to better monitor the warehouses and the performance of the warehouse programs as a whole. In addition, information on duties and taxes payable and paid is found in a different system (FIRM) and requires extensive manual reconciliation which has an impact on monitoring customs bonded warehouse activities as it takes considerable time to generate warehouse reports.

The evaluation found that all regions rely on paper files which are sometimes separated between “application files' and “operational files' and kept in separate locations. During the course of the evaluation, it was noted that files did not always reflect that warehouses had been closed, had made changes to their bonded areas, had removed their secure (caged) areas, or were storing domestic goods in bonded areas. The evaluation found that original copies of sureties and bonds for the warehouses were not always on file.

In light of these findings, the evaluation makes the following recommendation:

CBSA staff identified that it has occasional disagreements with OGDs, unions and other individuals regarding access to bonded areas of CBSA-licensed sufferance facilities. The D-Memoranda state that persons (other than employees of the licensee or carriers engaged in the delivery of goods) that need access to the bonded areas of a CBSA-licensed facility must be accompanied by an officer or obtain written authorization from the regional CBSA office, and that the CBSA reserves the right to refuse access to the bonded areas of the warehouse. With new initiatives, such as Air Cargo and Marine Security initiatives, warehouse operators are not clear as to what federal organization has the ultimate authority over the customs controlled areas.

In light of these findings, the evaluation makes the following recommendation:

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Appendix A: Key Memoranda, Act and Other Documentation Governing Sufferance and/or Customs Bonded Warehouses

Memorandum D1-2-1 Special Services
Memorandum D1-7-1 Posting Security for Transacting Bonded Operations
Memorandum D3-1-1 Policy Respecting the Importation and Transportation of Goods
Memorandum D3-3-1 Forwarded and Consolidated Cargo – Import Movements
Memorandum D3-5-2 Marine Cargo – Import Movements
Memorandum D3-6-6 Rail Cargo – Import Movements
Memorandum D4-1-4 Customs Sufferance Warehouses
Memorandum D4-1-5 Storage of Goods
Memorandum D7-4-1 Duty Deferral Program
Memorandum D7-4-4 Customs Bonded Warehouses
Memorandum D14-1-5 Procedures for Release from Customs of Goods Subject to Provisional Duty under the Special Import Measures Act for Control of Bonds Used to Secure Payment of Provisional Duty
Memorandum D17-1-10 Appendix C, Form B3 (Bonded Warehouse) Coding Instructions
Memorandum D22-1-1 Administrative Monetary Penalty System
AMPS Master Penalty Document
Customs Notice CN 620 Customs Bonded Warehouse Data Transmission
Customs Tariff – Duty Deferral Programs

Appendix B: Key Warehouse-Specific Administrative Monetary Penalties

Sufferance Warehouse-Specific Penalties (AMP)	Customs Bonded Warehouse-Specific Penalties (AMP)
C045	C046
C048	C047
C049	C066
C050	C069
C058	C161
C059	C162
C060	C163
C063	C164
C159	C196
C163	C197
C356	C198
C357	C199
C358	C200
C359	C201
	C203
	C204
	C210
	C217

Appendix C: Acronyms

Acronym	Definition and Description
AMPS	Administrative Monetary Penalty System - a non-compliance penalty system.
ACROSS	Accelerated Commercial Release Operations Support System - a commercial cargo, release and targeting computer system that monitors, tracks and releases cargo
CCS	Customs Commercial System
BARKS	Batch Accounting Reporting K32 System
FIRM	Facility for Information Retrieval Management
RNS	Release Notification System - a subsystem of ACROSS that electronically sends release notification to brokers, importers and warehouses
CRA	Canada Revenue Agency
DFAIT	Department of Foreign Affairs and International Trade
SIMA	Special Import Measures Act
TRQ	Tariff Rate Quota – used by DFAIT
OGD	Other Government Departments
BSO	Border Services Officer
ISTB	Innovation, Science and Technology Branch
FTZ	Foreign Trade Zone or Free Trade Zone
POE	Ports of Entry
CSA	Customs Self Assessment program

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Notes

1. Source: World Trade Organization, Trade Profiles (Canada) http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=CA [Return to text]
2. Source: World Trade Organization, Trade Profiles (Canada) http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=CA [Return to text]
3. Source: Industry Canada Trade Data Online (data from Statistics Canada) http://www.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag [Return to text]
4. Imports go through two stages before being allowed to circulate freely within the country. First they must be “admissible' or permitted by law and convention to enter the country; and second, goods may be released pending reconciliation of key data such as importer details, ensuring all permits and licences are in place, and upon payment of all applicable duties and taxes owing. Release can occur immediately prior to or upon arrival at a port of entry, goods may be detained and/or seized at the port of entry, or goods may be permitted to travel “in-bond' to a CBSA-licensed warehouse facility, using Form A8A, Cargo Control Document, or an approved equivalent. Each cargo control document is assigned a unique number that is used to track, monitor and release the imports. Most releases are transmitted electronically to warehouses via the Release Notification System (RNS), a subsystem of the Accelerated Commercial Release Operations Support System (ACROSS). The remainders are released using manual CBSA release stamps. [Return to text]
5. Note that Duty-Free Shops are also considered to be a warehouse program. [Return to text]
6. These include Memoranda D7-4-4 Customs Bonded Warehouses, D4-1-4 Customs Sufferance Warehouses. A list of other key memoranda can be found in Appendix A. [Return to text]
7. The CBSA recently conducted an evaluation of the CBSA Commercial Examination Processes and Detection Technology; as such, this evaluation will only discuss the examinations of commercial goods insofar as it pertains to these warehouse programs. [Return to text]
8. This would also require similar streamlining/changes to the D-3 series memoranda regarding the mode of transportation of goods. [Return to text]
9. Compiled regional listings indicate that there are approximately 356 customs bonded warehouses. Some of these customs bonded warehouse licensees may have changed to another duties relief program to allow them to manufacture goods. [Return to text]
10. Source : Provincial Pocket Facts, November 2009 [Return to text]
11. Source: CBSA National Statistics[Return to text]
12. http://www.ic.gc.ca/sc_mrkti/tdst/tdo/tdo.php#tag Industry Canada Trade Data Online (data from Statistics Canada). Figure AA and international cargo stats by mode, Source:Transport Canada, Transportation in Canada 2008 Report. The data for 2008 are preliminary. [Return to text]
13. These data represents the last mode by which the cargo was transported and is derived from the cargo control documents. For example, goods may have arrived first by air or marine mode before being transported inland by truck. In this situation, this data would capture the land mode only which results in some underestimation of Canadian imports by marine and air transport modes. [Return to text]
14. Note that Duty-Free Shops are also considered to be a warehouse program. [Return to text]
15. These include Memoranda D7-4-4 Customs Bonded Warehouses, D4-1-4 Customs Sufferance Warehouses. A list of other key memoranda can be found in Appendix A. [Return to text]
16. Taxes and duties are only paid if, and when, goods enter the Canadian economy, but not if the goods are exported. [Return to text]
17. There are some exceptions: 15 years storage for spare parts for aircraft or vessels or oil-drilling equipment, five years for intoxicating liquors, and 90 days for marking of goods. Source: Memorandum D-7-4-4, Appendix B Section 19. [Return to text]
18. The Customs Bonded Warehouse Regulations allow certain activities to be carried out in a customs bonded warehouse as long as they do not change the condition of the goods. Examples include labelling and marking, packaging and repackaging, testing and separating defective from prime quality goods, diluting, cutting, slitting, trimming, and filing, disassembling or reassembling goods which have been disassembled for packing, handling or transportation. The goods in a bonded warehouse shall not be further manufactured. Source: Memorandum D7-4-4. [Return to text]
19. Customs Notice N-461, August 7, 2002 revises information cited in D7-4-4 s17. [Return to text]
20. Only a sample of paper-based invoices is keyed into the system.[Return to text]
21. FIRM is a CBSA system used for obtaining accounting entries from the Customs Commercial System (CCS). [Return to text]
22. The CBSA recently conducted an evaluation of the CBSA Commercial Examination Processes and Detection Technology. As such, this evaluation only discusses the examinations of commercial goods insofar as they directly pertain to these warehouse programs. [Return to text]
23. The CBSA recently conducted an evaluation of the CBSA Export Programs. As such, this evaluation covers exports only when directly related to these warehouse programs. [Return to text]
24. ACROSS allows importers, brokers, carriers, freight forwarders, exporters and warehouse operators to exchange information electronically with the CBSA. CCS records the presentation, accounting and adjustment of the B3 Canada Customs Coding forms or their electronic equivalent. The Batch Accounting Reporting K32 System (BARKS) contains the import entries, sales and transfers and is one of the systems used for the auditing of importers and customs bonded warehouses. The Consolidated Management Reporting System (CMRS) extracts operational statistical data from multiple CBSA systems. The Corporate Administrative System (CAS) tracks CBSA's financial, materiel and human resource information. The evaluation also accessed ACROSS and FIRM data. [Return to text]
25. Evaluators visited the following six regions during the research phase of this study: Quebec (Montréal and surrounding area), Greater Toronto Area (GTA), Northern Ontario (NORO) (Ottawa and Prescott), Niagara-Fort Erie (NFE) (Hamilton), Prairie (Winnipeg and Edmonton), and Pacific (Lower Mainland). [Return to text]
26. Source:  CBSA ACROSS data. Regions visited account for 1053 of the 1195 sufferance warehouses, or 88%. For customs bonded warehouses these regions encompass 313 of the 356 licences, also 88%. [Return to text]
27. Source: CBSA ACROSS data. [Return to text]
28. That is, one survey response could represent up to seven licences. [Return to text]
29. Cannot be accurately tracked as sub-locator code not used for all warehouses or all goods destined for a warehouse. [Return to text]
30. Source : Prime Minister of Canada's website – Priorities [Return to text]
31. Source: Security and Prosperity Partnership of North America, Priority Initiatives - Smart, Secure Borders [Return to text]
32. Canada Border Services Agency. Departmental Performance Report, 2008-2009. [Return to text]
33. Source: Report on Plans and Priorities 2008-2009, http://www.tbs-sct.gc.ca/rpp/2008-2009/inst/bsf/bsf01-eng.asp. [Return to text]
34. Releases by EDI/PARS (Electronic Data Interchange / Pre-Arrival Review System) have increased from 33% in fiscal 2003-2004 to almost 50% in 2008-2009. When Release on Minimal Documentation (RMD) data are included, today over 70% of all releases are done pre-arrival. Source: CMRS data (October 2009). [Return to text]
35. Source: The Journal of Commerce (April 17, 2009), http://www.joc.com/node/410839. Another article by Today's Trucking.com (04/15/2009) indicates this is a serious concern for carriers: www.todaystrucking.com/news.cfm?intDocID=21569. [Return to text]
36. However, there are restrictions such as the carrier that operates the SO (CSA) warehouse may not use their warehouse to hold goods for other carriers. [Return to text]
37. Examples of instances where this would be applicable are:  Failed PARS; systems outages; OGD shipments requiring paper permits/certificates; shipments with invoicing exceeding 999 lines, etc. Source: Customs Notice CN09-005 [Return to text]
38. Source: CBSA internal documentation. [Return to text]
39. D3-1-1 lists 12 exemptions and refers to 18 separate memoranda in the D-3 series of cargo procedures for the specific modes of transport. [Return to text]
40. Another option employed to reduce the cost of conducting examinations at warehouses in some regions is to provide BSOs, on a cost-recovery basis, to service companies at their sufferance warehouse locations. For instance, three large courier companies pay to have BSOs on-site to conduct examinations on their warehouse premises. [Return to text]
41. These are the local policies as identified in regional site visits and interviews. Not all POEs or districts for each region are represented. [Return to text]
42. AMP C190 and C026 can be levied if operators or carriers never present the foods for examination. An AMP also may be levied if the goods become “overdue' after 40 days of storage. [Return to text]
43. Source: ACROSS listings May 2007, May-Dec 2008, and Dec-May 2009.[Return to text]
44. SIMA provides protection to Canadian producers who are being harmed or injured by the dumping or subsidizing of goods imported into Canada. [Return to text]
45. Source: CBSA Internet Customs D Memoranda [Return to text]
46. These are businesses that perform assembly and alteration services, for which they charge a fee, on goods that they do not own. www.cbsa-asfc.gc.ca/import/ddr-red/tab7-eng.html. [Return to text]
47. Ten percent for value added attributable to non-basic services and 20% for total value added. [Return to text]
48. For example: (CBSA Free Import/Export Information Fair or CBSA border and trade information resources. [Return to text]
49. Source: Memorandum D4-1-4 s.83. [Return to text]
50. Source: Memorandum D7-4-4. [Return to text]
51. Comprising three CBSA regions: Greater Toronto Area, Niagara-Fort Erie and Windsor-St Clair.[Return to text]
52. There are discrepancies between the ACROSS listing of sufferance warehouses and the public listing on the CBSA Web site: there are 35 more listed on the Web than in ACROSS; there are 79  listed as active in ACROSS that are not on the Web which could either be invalid entries in ACROSS, or legitimate warehouses not listed on the CBSA Web site; there are 78 on the Web that are listed as expired in ACROSS; and when Yellow Transportation merged with YRC Reimer in 2008, some warehouses closed or changed to Reimer but Yellow warehouses are still listed for six provinces (AB, MB, SK, QC, NB, ON). [Return to text]
53. Only 44 of 113 customs bonded warehouses listed by the regional officer for the Southern Ontario area are in ACROSS (plus a duplicate entry); however, there are an additional 25 warehouses in ACROSS that the regional list does not include (Oct 26, 2009). [Return to text]
54. See Appendix B for the list of warehouse-specific AMPs used for calculations. Source: AMPS and CMRS. [Return to text]
55. Source: Data based on the “number of files opened' as tracked in the AMPS database from January 2004 to September 2009. [Return to text]
56. Cited as “files opened', as a single case may not be resolved within the same calendar year as when the charge was first laid. The numbers are likely underestimated as these AMPs include only those directly attributable to the warehouse operators themselves (see listing in Appendix B) – other warehouse penalties can be levied but this system does not identify who received the penalty (i.e., operator, owner, carrier, freight forwarder). [Return to text]
57. Source: CBSA AMPS Contravention reports 2004-2005 FY; through to April 1, 2009 – Sept 30, 2009 and CMRS data. [Return to text]
58. It was not possible to differentiate how many of these AMPs may have been levied against Duty-Free Shops as opposed to customs bonded warehouse operators. The distinction is not made in the system. [Return to text]
59. There are different rules for sufferance warehouse and customs bonded warehouses. Section 58 (page 9) of the Memorandum D4-1-4 Customs Sufferance Warehouses, states: “and access to in-bond goods must be restricted to authorized persons only'. Whereas, Section 14 (page 5) of the Memorandum D7-4-4 Customs Bonded Warehouses, states: “Flexibility has been provided in the identification of the bonded area to provide for the storage of domestic and in-bond goods. The goods must be readily identifiable through your record-keeping system and be situated in the area designated on your site plan' – it is generally the customs bonded warehouses that are forbidden by local officers from exercising this option. [Return to text]
60. FPOI as the first bonded destination, jointly defined by the CBSA and the railway company, where an examination may be conducted. [Return to text]
61. The value for duty is the value used to calculate the duties and/or taxes payable by importers on their imported merchandise. The World Trade Organisation (WTO) has adopted the Customs Valuation Code to ensure uniform application amongst member countries. The primary method to determine the value for duty of imported goods is the “transaction value method' wherein the value for duty is based upon the price paid or payable for the imported goods, subject to certain additions and/or deductions (transportation, commissions, export packing, royalties and licence fees…). Source: http://www.actsconsultants.ca/value.html. [Return to text]
62. Source: CBSA documentation. [Return to text]
63. Calculations are based on a team of two officers monitoring two sufferance warehouses a day, five days a week, for 47 weeks of the year, and two officers spending three days to monitor one customs bonded warehouse for 47 weeks of the year. [Return to text]
64. That is, the “allowable activities' as per D7-4-4, such as inspecting, sorting, re-packaging, labelling and so forth. [Return to text]
65. Source: Encyclopaedia Britannica . [Return to text]
66. Source: Canada’s Gateways. [Return to text]
67. Source: Foreign Trade Zones. [Return to text]
68. This would also require similar streamlining/changes to the D-3 series memoranda regarding the mode of transportation of goods. [Return to text]
69. Compiled regional listings indicate that there are approximately 356 customs bonded warehouses. Some of these customs bonded warehouse licensees may have changed to another duties relief program to allow them to manufacture goods. [Return to text]