What's a Canadian Wood Flooring Seller to Do?

Canadian wood flooring dealers and importers are in a holding pattern right now. Sitting in their stock rooms are wood flooring SKUs from U.S. manufacturers Shaw Industries Inc. (Dalton, Ga.), along with its subsidiary Anderson Hardwood Floors (Clinton, S.C.), and Mannington Wood Floors (Salem, N.J.) that, per Canadian law, should not have been imported into their country in the first place. So what should they do next?

Authorities in Canada have not given a direct edict to the dealers and importers as to what they are allowed to do with the products, which are prohibited by the Canada Border Services Agency's (CBSA) Memorandum D9-1-6. Will dealers and importers be allowed to re-export the products to the manufacturers? Since the products have already passed Canadian customs, will the dealers and importers be allowed to sell them? Or will their goods be outright seized by the CBSA?

(Past coverage: Shaw, Mannington)

The best answer from the CBSA thus far is this: "We are consulting with our legal services as to the appropriate action to be taken for prison-made goods that have already been imported and will be advising the importers of those goods directly. I am unable to provide any additional information at this time," said Martin Burtt, manager of the Other Government Department Programs Unit within the CBSA's Commercial Border Programs Division.

In the meantime, one course of action could be qualifying for the CBSA's Voluntary Disclosure Program (VDP). "CBSA has a voluntary disclosure program that permits importers to avoid penalties under certain conditions by voluntarily disclosing those past infractions," said Peter Kirby, a partner at Fasken Martineau DuMoulin LLP, counsel to Shaw and its Canadian importer/distributor Melmart Distributors Inc. "Any importer of the affected products is well advised to seek advice on filing a voluntary amendment."

The VDP "does not affect the payment of duty and taxes. Its application is limited to penalty and interest charges resulting from infractions of the provisions governing accounting and payment," according to a program outline posted on the CBSA's website. "To qualify [for access to the VDP]," the outline reads, "clients must come forward in 'good faith' to voluntarily disclose past omissions and errors. In qualifying cases, clients will be required to pay the duties and taxes owing plus interest." Shaw filed its VDP just prior to Christmas, said Susan Rich, the company's director of corporate communications.

Canada's ban on imports made by prisoners isn't unusual, according to The Wall Street Journal. "Many countries try to avoid encouraging what some consider to be akin to slave labor. The U.S. also bars such imports," the Journal wrote Thursday.

Shaw has told its importers and dealers in Canada to stop selling products with U.S. prison labor inputs, and it has ceased taking orders on these products. Still, it has declined to make public a list of specific products that should not be sold in Canada. Instead, its Melmart has given its Canadian dealers a list of eight Anderson products that dealers can continue to sell. Melmart is hesitant to put out definitive lists of barred products since Shaw is in the middle of working to shift certain production away from its Prison Industry Enterprise (PIE) program, said Melmart CEO Grant Heggie.

"All of a sudden, that memo sits around on somebody's desk for two weeks, and in three days we might find out that [Shaw's subsidiary] Anderson has found a way to make one of those products without prison labor," Heggie said. "So right now, we've told them the products we can sell, and were hoping to add to that list."

The majority of Shaw's affected products are part of Anderson's hand-scraped offerings. However, Heggie has been told that other Shaw offerings are also affected since some plywood and grading work for non-hand-scraped products are done within the PIE program, as well.

Paul Zimmerman is CEO at Zimmerman Custom Flooring in Elmira, Ontario, and he currently cannot sell about 80 percent of his hardwood stock from Shaw.

"I've had to call two of my builders and tell them to take two of my lines out of their design centers," Zimmerman said. "It puts a hole in our decor markets. I won't say hand-scraped products are a huge part of my business, but it's probably 15 percent of my hardwood business and growing. But now I've had to pull all those samples off my shelves. I have hand-scraped flooring in model homes right now, and it kind of puts me in a predicament-what if someone comes along and says, 'You know, I like that hand scraped product in my home'? I'm kind of scrambling around here trying to find products without going to the China market."

Both Zimmerman and Heggie are confident Shaw is working on the product as fast as it can.

"We've dealt with them long enough to know that if they really had answers," Heggie said, "I think they'd be telling us."

"I know our reps are letting us know what is going on soon as they can," Zimmerman said.