The Financial Risks of Cross-Border Trade for BC Businesses
Key Takeaways
- Cross-border trade has become more complex and financially risky due to CARM, shifting tariffs, and increased audit activity.
- Import compliance is now a strategic finance issue requiring CFO-level oversight.
- Classification errors and origin claims can trigger significant retroactive duties, penalties, and cash flow impacts.
- New CARM bond requirements directly affect working capital.
- Proactive tariff modelling, supplier risk assessment, and stronger internal controls are essential to protect margins.
In a recent webinar hosted by Smythe in collaboration with Davidson & Sons Customs Brokers Ltd., we discussed what this changing environment means for BC-based manufacturers, distributors, and businesses operating across borders. The conversation highlighted a clear theme: the financial exposure tied to supply chains has grown, and CFO-level oversight is now essential.
Why is importing no longer just an administrative process?
For many businesses, importing has traditionally been treated as a routine process. Goods are ordered, documentation is submitted, a broker facilitates clearance, and duties are paid. The process worked efficiently for years, and the risk felt manageable.
That environment has changed. With the rollout of CARM (Customs Accounts Receivable Management), the Canada Border Services Agency now has significantly more visibility into import transactions. Every declaration is effectively reviewed in real time, and audit activity in both Canada and the United States has increased substantially. At the same time, tariff announcements and surtaxes are being introduced with little notice.
What was once a largely administrative process now carries meaningful financial and compliance risk.
What is the financial impact of HS classification errors?
One of the most common areas of exposure involves HS (Harmonized System) codes. There are more than 10,000 classifications, and subtle product differences can materially change the applicable duty rate.
The challenge is that classification decisions often rely on supplier documentation that may not fully describe the product’s components or origin. If an HS code is later determined to be incorrect, reassessments can apply not only to the current period but retroactively for up to three years, plus penalties and interest.
By that time, the goods have already been sold. The additional duties come directly off the bottom line.
Importantly, the importer, not the broker, is ultimately responsible for those amounts. For businesses operating on tight margins, even a relatively small percentage difference in duty rates can have a significant cumulative impact.
How do CARM and RPP bond requirements affect cash flow?
CARM has also shifted responsibility for security from brokers to importers. Businesses must now post their own Release Prior to Payment (RPP) bonds, calculated at 50% of their highest monthly duties and taxes, including GST and surtaxes.
For companies experiencing tariff increases or higher import volumes, bond requirements can rise quickly. In some cases, underwriters may require audited financial statements once certain thresholds are met. Businesses that have not previously required audits may find themselves facing new compliance obligations or the alternative of posting substantial cash deposits.
These are not merely technical requirements, they can materially affect working capital and financing strategy.
What are the risks around country of origin and CUSMA compliance?
Another area receiving increased scrutiny is the country of origin. There is often confusion between the country a product is shipped from and where it was actually manufactured. Purchasing goods from a U.S. supplier does not automatically mean the goods qualify for CUSMA (formerly NAFTA) treatment.
Audits frequently involve requests for bills of materials and origin documentation. If those records do not support the claimed tariff treatment, duties may be reassessed retroactively.
Long-standing supplier relationships are valuable, but they do not replace verification. In today’s environment, documentation and independent review matter more than ever.
How should businesses model tariff risk and supplier concentration?
Trade policy uncertainty has introduced a new layer of strategic risk. Businesses should be asking themselves what would happen if tariffs increased by 25% or even 50% on key product lines. Could those costs be passed through to customers? Would margins absorb the increase? How concentrated is the supplier base in one geography?
We are seeing companies begin to model tariff exposure as part of their broader financial planning process. For some, the impact of recently announced surtaxes would have resulted in multi-million-dollar cost increases had they applied to prior periods.
Supplier diversification, geographic risk assessment, and scenario modelling are no longer optional exercises. They are part of responsible financial stewardship.
Why is cross-border compliance now a CFO-level issue?
Historically, supply chain management sat primarily within purchasing or operations. Today, it intersects directly with tax, financial reporting, internal controls, and enterprise risk management.
Finance teams are uniquely positioned to evaluate exposure, strengthen internal controls, assess segregation of duties during supplier selection, and ensure that documentation supports the tariff treatment. Cross-border compliance should be approached collaboratively, involving purchasing, finance, tax advisors, and customs brokers.
When responsibilities are overly concentrated with a single individual or department, risk increases. A cross-functional approach provides stronger oversight and better outcomes.
While much of the conversation focuses on risk, there may also be opportunities to recover value. Businesses sometimes discover that duties were overpaid due to incorrect classifications or that remission requests may apply where Canadian substitutes are not available. In other cases, duty drawback may be available when goods are re-exported.
A structured review can identify both exposure and recovery potential.
How can businesses prepare for ongoing cross-border trade changes?
Cross-border trade continues to evolve quickly. The financial implications of customs, tariffs, and supply chain decisions are increasingly significant and more interconnected than many businesses realize.
A proactive approach can help protect margins, strengthen internal controls, and improve visibility over cash flow and compliance exposure. Organizations may benefit from reviewing their current structure, tariff exposure, internal controls, and broader cross-border tax considerations to ensure they are well-positioned in this changing environment.
If you have questions about how these changes may affect your organization, we encourage you to reach out to the team at Smythe for further discussion. For those interested in a deeper exploration of these topics, you can watch the full webinar below.
