"I see here that your fabric comes from another country," the Buffalo border agent told Virginia Johnson over the phone.
So? As owner of Toronto-based Virginia Johnson Lifestyle Ltd., she had been shipping her clothing and home decor products across the U.S. border since soon after launch in 2002. She had always disclosed the source of her (mainly imported) fabrics, but under the North American free-trade agreement, most of her products were exempt from tariffs because they were manufactured in Canada.
It turns out, the fine print of NAFTA states that such rules generally don't apply to fabrics. "I had been shipping the wrong way for five years." Ms. Johnson should have been applying annually to the Canadian federal government for a "tariff preference level" (TPL), which would still have made most her goods tariff-free.
For the next few months, she and her team descended into a "total nightmare," sifting through all U.S.-bound shipping paperwork dating back to 2003. She argued passionately that she would easily have received TPL, but the exemption proved not to be retroactive and she had to back-pay all the tariffs, plus a fine.
It was a huge hit for the company, which now does 70 per cent of its business south of the border, shipping to 100 stores worldwide.
Ms. Johnson's story is dramatic, but not unusual. In 2011, the Canadian Federation of Independent Business did a case-study survey of 12 cross-border trading companies.
"Every single one of them had learned how to do exporting the hard way," says Corinne Pohlmann, senior vice-president of national affairs for the Ottawa-based organization. "When you're doing trade with the U.S., there are a lot of things you have to know about. If you don't, it can be a very expensive enterprise."
Yet trading with the United States is a must-do for Canadian manufacturers wanting to grow. Those with consumer-facing e-commerce websites, meanwhile, often end up with stateside orders whether they've planned for them or not.
But free trade is not easy trade. Sending products or people over the border is marred by heaps of paperwork, hidden costs and rules that change constantly and are interpreted differently by different border personnel.
"The inconsistency and uncertainty when sending goods and people is the biggest problem companies tell us about," says Matthew Wilson, vice-president of national policy for the Canadian Manufacturers & Exporters.
Going south means paperwork.
"The paperwork is so challenging for some small-business clients, they say, 'Forget it,' and just pay the tariff," says Laura Dawson, a cross-border trade specialist who runs Dawson Strategic in Ottawa.
Particularly tricky is the paperwork related to NAFTA. Companies must itemize where all components in their products came from. Some products are completely duty-free while others require advanced math to calculate the duty on a percentage of the value.
More math is required to fill out the U.S. sales tax paperwork. Skip this step and the importer is required by law to tack a 30-per-cent tax on your shipment, pass on that cost to you, and remit it to the government.
Stateside, importers must do paperwork, too. But they don't want to. So, many Canadian companies register themselves as an importer (more paperwork) and deal with that end as well.
Make a mistake at your peril. "If you miss something or if you don't do the tax calculations correctly, you are obliged to not only pay the difference, but there are also punitive fines," Ms. Dawson says.
Ms. Pohlmann of CFIB recalls the story of a truck arriving at the border. Its manifest paperwork had arrived half an hour before the accepted time frame, and the shipper was levied a $1,000 fine.
Along with a fine, if there are border problems and your shipment gets held, you'll be given a bill for storage costs for the 48 hours or two weeks your product was held at a border warehouse.
Cost of errors aside, companies usually spend about 5 per cent of a product value dealing with border fees. For starters, products not governed by NAFTA get hit with a minimum $25 (U.S.) merchandising process fee. Ms. Johnson says it's not a problem for large shipments, but can become very expensive when she ships samples to U.S. retailers.
Then, the U.S. Animal and Plant Health Inspection Service (APHIS) checks out everything for a fee.
Then, depending on the product, there is a corresponding government agency that watches over that sector. The extra catch here: Companies with large product lines may see different products go under different agencies. Border agents often don't know what to do with niche products, and slap fines and delays when they fear things have been done wrong.
Yet another fee: Most border transactions require the use of a border agent, who charges for services.
Stringent immigration rules also limit the flow of people across the border. Manufacturers often need to send staff members south to train clients on products or service broken parts, and they can be turned back at the border or asked to produce extensive paperwork.
Like all border rules, these are rarely enforced uniformly. "It's at the whim of the customs agent," Ms. Pohlmann says. "A lot of people just go to another border crossing and try to cross there."
Exporting to the United States has become easier in many ways. Automation has sped things up. The Beyond the Border project between Canada and the United States looked into the flow of goods and people across the border and made recommendations in 2011, some of which have been put in place.
However, dealing with the border is a moving target. Though there are some improvements, new rules and regulations can crop up at any time.
What endures is that most companies figure it out. They lose money here and there, but mostly gain a market about 10 times larger than Canada's.