Separate U.S. companies aren’t an easy answer to cabotage

by Daniel Joyce

The subject of cabotage – the point-to-point movement of goods by a Canadian carrier – is usually discussed in terms of Customs and Immigration rules.

There really are no exceptions to the basic Immigration rule that prohibits Canadian drivers from picking up and delivering the same goods in the U.S. In contrast, U.S. Customs laws have been somewhat liberalized, and permit limited cabotage activity by Canadian equipment that is primarily used for international transportation.

However, since most Canadian carriers use a combination of Canadian equipment and a Canadian driver, the limited Customs exceptions are not generally available. Simply put, the overall U.S. enforcement scheme virtually eliminates lawful point-to-point activity by Canadian carriers.

But the barrier posed by U.S. Customs and Immigration laws masks another set of hurdles that would have to be crossed if cabotage laws were ever relaxed. I have had numerous conversations with Canadian carriers, along the following lines, after explaining basic Customs and Immigration rules:

Q: How do I get Green Cards or U.S. work permits for my drivers?

A: The basic answer is that you can’t. U.S. Immigration Laws are designed to allow temporary work authorizations for occupations that do not interfere with the normal U.S. workforce. Long-distance truck drivers are not considered to be in one of those categories.

The closest thing I have seen is the seasonal (summer) hiring of Canadian moving van drivers to accommodate a temporary need. Green Cards, which grant a permanent resident’s status, are based on a shortage of workers in a particular occupation, within a certain job market. Truck drivers are currently on the list of occupations that are automatically excluded from consideration.

The only opportunity for Green Cards would be based on a family relationship to a U.S. citizen, such as a spouse, parent or adult child.

Q: So, can I hire a U.S. driver to make point-to-point deliveries?

A: First, are you hiring the U.S. worker in your capacity as a Canadian employer, and are there Canadian employment laws that you have to consider? If not, you may have created a U.S. branch office where your employee resides, requiring you to register as a corporation under the state’s corporation laws, and subjecting you to corporate income tax at the federal and state levels. Also, if the branch office makes you a U.S. employer, you must comply with U.S. laws relating to employment and the withholding of taxes.

Regardless of the corporate law and tax issues, your point-to-point activities will no longer fall under the customs exceptions, so you will have to make a formal customs entry that addresses Canadian equipment for domestic use in the U.S.

Q: What if I just set up a U.S. corporation and use U.S. equipment and drivers?

A: That’s true, but now you have increased your investment and administrative requirements. You will need U.S. equipment and drivers, separate U.S. operating authority, and a method for managing the U.S. office, which may involve the transfer of key Canadian personnel. By establishing U.S. operations you can, of course, operate full-fledged trucking operations in the U.S., but that is a far cry from wondering how your Canadian drivers can drive point-to-point in the U.S.

The initial question was based on the objective of increasing a Canadian company’s profitability by trying to find a legal way to make lawful point-to-point movements in the U.S., as part of international transportation. The final scenario of establishing a fully operational U.S. domestic trucking operation goes well beyond that point, and really has nothing to do with cabotage.

So the solution to the cabotage problem is not the same as allowing unrestricted point-to-point movements in the U.S. The more point-to-point movements you do, the more you gain the identity of a domestic (U.S.) carrier and the less you can be identified as a Canadian international carrier. And when you lose your character as a Canadian international carrier, you become subject to all of the legal issues relating to U.S. business.

Because of the complexity of the issues that arise from purely domestic activities, a reasonable solution to the cabotage problem will be one that can confine itself to the Customs and Immigration laws as they relate to international carriers. Any changes would probably be confined to domestic cabotage activity that is secondary – and in limited proportions – to overall international transportation. Canadian carriers will have to retain their primary identity as international carriers.

In the end, any changes in the cabotage laws would have to be subtle enough to prevent a Canadian carrier from being snared by a larger net of U.S. tax, corporation and employment legislation that would pertain to a separate U.S. entity. n

– Daniel Joyce can be reached at Hirsch and Joyce, Attorneys at Law, at 716-564-2727.

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