Canada Gazette, Part I, Volume 151, Number 28: Order Amending the Import Control List

July 15, 2017

Statutory authority

Export and Import Permits Act

Sponsoring department

Department of Foreign Affairs, Trade and Development

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Issues

In accordance with paragraph 5(1)(e) of the Export and Import Permits Act (EIPA), the Governor in Council may establish an Import Control List (ICL) and include therein any article, the import of which is deemed necessary to control for the purposes of implementing an intergovernmental arrangement or commitment. In addition, subsections 5.2(1) and (2) provide authority for the Governor in Council to add goods to the ICL for the purposes of collecting information in the context of an international arrangement or commitment. Section 6 provides the Governor in Council with the authority to amend the ICL. Subsection 8(1) of the EIPA provides that import permits may only be issued for goods included on the ICL.

In order for Canada to implement and administer its international obligations under the Comprehensive Economic and Trade Agreement (CETA) with the European Union (EU), the ICL requires certain amendments, which must come into effect on the date of CETA's provisional application to ensure that Canada is compliant with its CETA obligations.

It is proposed that the ICL be amended to include import Origin Quota goods found in Annex 5-A (Origin Quotas and Alternatives to the Product-Specific Rules of Origin in Annex 5) of Annex 5 (Product-Specific Rules of Origin) to the Protocol on Rules of Origin and Origin Procedures of CETA. The goods that are required to be added to the ICL are listed in Tables C.3 (Annual Quota Allocation for Textiles Exported from the European Union to Canada) and C.4 (Annual Quota Allocation for Apparel Exported from the European Union to Canada) of Annex 5-A. The Tables identify the specific textile and apparel products covered under the Origin Quotas. Amendments are also proposed to the control text under items 114, 115, 116 (beef and veal products) and 125.2 (milk protein substances) of the ICL to remove from control imports the items that originate from European Union countries or other CETA beneficiaries.

In addition, the ICL would be amended to reflect recent changes to certain item codes and descriptions in Canada's schedule to the Customs Tariff, including item 130 (certain milk containing beverages) and items 94 to 99, 104 and 104 (chicken and chicken products) of the French version of the ICL.

Background

The benefits of CETA will be broad, including tariff reduction and elimination commitments, and comprehensive provisions with respect to investment and cross-border trade in services, government procurement, and financial services.

A key objective of CETA is to eliminate trade barriers between Canada and the EU on most goods. Upon CETA's provisional application, Canadian producers, manufacturers, exporters, importers, and consumers will benefit from the phased reduction or immediate elimination of tariffs on “originating” goods as per the tariff elimination schedule found in Annex 2-A (Tariff Elimination) of CETA. Certain “originating” goods such as beef and veal are currently subject to import controls under the EIPA. For these products, tariffs will be eliminated upon the coming into force of CETA and therefore will not be subject to import permit requirements. In addition, specified quantities of textile and apparel goods, specifically those goods included in Table C.3 and C.4 of Annex 5-A will qualify for preferential tariff treatment through the “Origin Quotas” established in Annex 5-A of Annex 5 to the Protocol on Rules of Origin and Origin Procedures in CETA.

“Originating” goods are goods which meet the applicable “rules of origin” found in Annex 5 of CETA and are thereby eligible for the preferential tariff rate indicated in Annex 2-A of CETA upon import into a Party of CETA. Rules of origin determine the origin of a good and establish whether it is eligible to receive preferential tariff treatment under a free trade agreement. The purpose of rules of origin in a free trade agreement, such as CETA, is to ensure that producers in third-party countries do not benefit from the trade agreement negotiated by the Parties.

Goods that do not meet the rules of origin found in Annex 5 of CETA may still be eligible to enter Canada at preferential tariff rates if they qualify under the more flexible “alternative” rules of origin contained in Annex 5-A to Annex 5 of CETA. Prescribed annual quantities of goods, called “Origin Quotas,” which meet the alternative rules of origin, may be imported into Canada at the same preferential tariff rate as available for the equivalent “originating” goods.

Annex 5 to the Protocol on Rules of Origin and Origin Procedures in CETA provides businesses with the rules of origin which establish whether a good can receive the CETA Preferential Tariff. Annex 5-A provides businesses with the alternate rules of origin which establish whether a good can receive the CETA Preferential Tariff under the Origin Quotas. Import Origin Quota goods are EU-made goods that do not meet the requirements of the rules of origin in Annex 5 but which can still receive the same preferential tariff treatment as originating goods, up to a negotiated quantity, as long as they meet the criteria found in Tables C.3 and C.4 of Annex 5-A to Annex 5. These tables outline the goods covered, the sufficient production criteria which the goods must meet, the annual quantity that is permitted, and the units of measure, in order for the goods to receive the preferential tariff.

The import Origin Quotas may increase in size in accordance with their respective Growth Provisions. For most quotas, this necessitates Government of Canada monitoring of related imports to ensure quota implementation is consistent with the principles set out in Annex 5-A to Annex 5 of the Protocol on Rules of Origin and Origin Procedures of CETA.

Imports of Origin Quota goods under CETA must be accompanied by an import permit in order to ensure that the quantity of imported goods does not exceed the maximum quantity eligible for preferential treatment. In order for the Minister of Foreign Affairs to issue an import permit for the subject goods, they must first be added to the ICL. A discrepancy between Canadian and EU utilization statistics could give rise to a dispute regarding whether the CETA Growth Provisions have been met and whether Canada is obligated to increase the annual Origin Quota access level for imports from the EU. The issuance of permits would allow Canada to undertake the required monitoring and tracking of Origin Quota utilization.

The North American Free Trade Agreement (NAFTA), the Canada-Chile Free Trade Agreement (CCFTA), the Canada-Costa Rica Free Trade Agreement (CCRFTA), and the Canada-Honduras Free Trade Agreement (CHFTA) contain Tariff Preference Level (TPL) quotas for textile and apparel goods, which were added to the ICL prior to the provisional application of these agreements. The Origin Quotas are similar to the TPL and will be subject to similar import permit requirements already in place for TPL imports under NAFTA, CCFTA, CCRFTA, and CHFTA. As set out in paragraph 3 of Annex 5-A of Annex 5 of the Protocol on Rules of Origin and Origin Procedures in CETA, Canada is obligated to administer imports under the Origin Quotas on a first-come, first-served basis.

Customs Tariff-related amendments

Canada, along with over 160 countries, is a contracting party to the International Convention on the Harmonized Commodity Description and Coding System, which governs the Harmonized Commodity Description and Coding System (generally referred to as “Harmonized System” or simply “HS”). The HS is an international product nomenclature developed by the World Customs Organization (WCO) that contributes to the harmonization of customs and trade procedures. It is used extensively by governments, international organizations and the private sector for a range of purposes, including internal taxes, trade policies, monitoring of controlled products, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, compilation of national accounts, and economic analysis. The HS guides the numbering and description of approximately 8 500 tariff items in the schedule to Canada's Customs Tariff.

The WCO (through the HS Review Committee that represents contracting parties) updates the HS codes every five or six years to reflect developments in technology and trade patterns. The current round of amendments took effect on January 1, 2017. As a contracting party, Canada is required to adopt these amendments. Accordingly, Canada incorporated these amendments through the Order Amending the Schedule to the Customs Tariff (Harmonized System, 2017) [SOR/2016-253], which was adopted on September 23, 2016, and is set to enter into force on January 1, 2017.

Objectives

Governor in Council authority will be required to amend the ICL in order to add CETA import Origin Quota-eligible goods to the ICL; remove import controls for certain beef and veal and milk protein substances; and update the HS codes or descriptions for certain ICL items. The first two items must take effect by the date of CETA's provisional application.

CETA-related amendments

As Origin Quota-eligible imports under CETA must be accompanied by an import permit to receive tariff preferences, and such permits may be issued only for goods included on the ICL, Canada's CETA obligations for import Origin Quota goods cannot be administered or monitored unless the ICL is amended to include these goods.

CETA related amendments to ICL items 114, 115, 116 and 125.2 are required in order to remove controls over the import of these items that originate from a European Union country or other CETA beneficiary. Without these changes, imports of these items originating from a European Union country or other CETA beneficiary would continue to be subject to import controls under the EIPA.

Customs Tariff-related amendment

The portions of the regulation relating to the amendment to the Customs Tariff are consequential to Order 2016-253 and cite multiple amended Customs Tariff references that came into effect on January 1, 2017, and which were not previously incorporated into the ICL. The amendments are required in order to align the codes on the ICL with those on the Schedule to the Customs Tariff.

Description

The proposed Order has three main components: amendments relating to the administration of CETA-related Origin Quotas; the removal of import controls for certain products that will cease to be controlled pursuant to CETA; and updates to certain ICL items resulting from recent amendments to the Customs Tariff.

CETA-related amendments

This proposed Order would add the goods eligible for CETA preferential tariff upon import into Canada under the Origin Quotas to the ICL. These goods would be added to the ICL effective as of the date of CETA's provisional application of the Act to enable the Minister to issue permits to administer these quotas. In the absence of this amendment, it would not be possible to monitor the utilization rates of the quotas so as to ensure Canada does not exceed the import access quantities required by CETA, nor would it be possible to confirm whether the Origin Quota Growth Provisions have been met. The Growth Provisions allow the volume of an Origin Quota to grow if certain conditions are met, for example, under the textile and apparel import origin quotas, if more than 80% of an origin quota assigned to a product is used during a calendar year, the origin quota allocation will be increased for the following calendar year by a predetermined amount.

Several of Canada's free trade agreements (NAFTA, CCFTA, CCRFTA, and CHFTA) contain TPL provisions for textile and apparel goods. A TPL-eligible good must be accompanied by an import permit in order to benefit from preferential tariff treatment upon import into Canada. Goods covered by TPL provisions contained in these agreements were added to the ICL by the date of entry into force of these agreements in order to benefit from the preferential tariff treatment.

As set out in paragraph 3 of Annex 5-A of Annex 5 of the Protocol on Rules of Origin and Origin Procedures in CETA, Canada is obligated to administer imports under the Origin Quotas on a first-come, first-served basis.

The proposed Order would also amend the control text of items 114, 115, 116 and 125.2 of the ICL to remove from control imports of certain beef and veal products and milk protein substances originating from a European Union country or other CETA beneficiaries as identified in the ICL.

Customs Tariff-related amendments

This proposed Order would implement changes to codes and descriptions to ICL items 94 to 98, 104, 104 and 130 of the ICL consequential to the Order Amending the Schedule to the Customs Tariff (Harmonized System Conversion, 2017) [SOR/2016-253]. As with Order 2016-253, the present amendment involves no changes in tariff or import policies.

Only a small number of items on the ICL are affected, including codes for commodities subject to import controls. Under these tariff rate quotas (TRQs) — which implement commitments made under NAFTA and the World Trade Organization (WTO) agreements — imports of up to a predetermined quantity (i.e. until the import access quantity has been reached) are subject to low “within access commitment” rates of duty, while imports over this limit are subject to higher “over access commitment” rates of duty.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this proposal, as there is no significant change in administrative costs to business.

Small business lens

The small business lens does not apply to this proposal, as there are no significant costs on small business.

Consultation

CETA-related amendments

CETA was signed on October 30, 2016. During negotiations, officials undertook consultations with producers, industry associations, the provinces and territories and other interested parties.

With respect to CETA import Origin Quotas, Canada's negotiators consulted with the Canadian Textile Industry Association (CTIA), the Canadian Apparel Federation (CAF), and a variety of Canadian textile and apparel companies. These stakeholders supported and helped develop Canada's position prior to undertaking commitments on CETA import Origin Quotas, recognizing that CETA will provide Canadian companies with important market access at preferential tariff rates.

During summer 2016, officials undertook consultations with producers, industry associations, the provinces and territories and other interested parties. With respect to the CETA textile and apparel Origin Quotas, Canada's negotiators consulted with the CTIA and the CAF. While the consultations were focused mainly on the export Origin Quotas, officials explained that Canada's CETA commitment was to administer the import Origin Quotas on a first-come, first-served basis, and that Canada would be establishing import permit requirements to monitor import levels. This is similar to the way in which TPL quotas established under previous trade agreements are administered. Consulted stakeholders agreed that this approach was sensible and would be familiar to Canadian industry.

Customs Tariff-related amendments

The Canada Border Services Agency represents Canada on the WCO Harmonized System Review Committee and has consulted on an ongoing basis with relevant Canadian stakeholders during the WCO process leading to the adoption of the Order Amending the Schedule to the Customs Tariff (Harmonized System Conversion, 2017) [SOR/2016-253]. Given that the present Order is consequential to Order 2016-253, which implements the 2017 Harmonized System updates and modifies Canada's tariff codes accordingly, no additional consultations were required.

The proposed Order is being published for a 15-day comment period.

Rationale

In order to implement Canada's CETA-related commitments and to ensure that Canada's import control regime remains up to date, the ICL must be amended.

CETA-related amendments

As provided in subsection 8(1) of the EIPA, import permits may only be issued for goods included on the ICL. Therefore, the ICL must be amended to add the goods covered by CETA import Origin Quota provisions effective as of the date of CETA's provisional application to enable the Minister to issue import permits for CETA import Origin Quota goods. If these goods are not added to the ICL, Canada will be unable to administer these CETA provisions.

The ICL must also be amended to remove controls on the import of certain beef and veal products (items 114, 115 and 116) and milk protein substances (item 125.2) originating from a European Union country or other CETA beneficiaries. Should these amendments not be implemented, importers of these items would be required to obtain a permit issued under the authority of the EIPA in order to import the products.

These components of the amendment must be completed by the date of CETA's provisional application to ensure that Canada is compliant with its obligations under CETA.

Customs Tariff-related amendments

Certain ICL control texts require amendment in order to ensure concordance between the HS codes and item descriptions of the ICL and the Customs Tariff. The amendment would ensure the proper administration of import controls on the implicated commodities according to the terms of Canada's TRQ commitments, and avoid creating potential administrative burden for importers.

Implementation, enforcement and service standards

As with Canada's existing free trade agreements containing TPL provisions, information will be made publicly available to importers via publication on the website of Global Affairs Canada prior to CETA's provisional entry into force. A Notice to Importers, providing the administrative processes for the Origin Quotas will be posted on the Global Affairs Canada Export and Import Controls website. This information will also be included in a Canada Border Services Agency (CBSA) D-memorandum, which will be made available on the CBSA website with a link to the Global Affairs Canada website. The issuance of import permits will be subject to Global Affairs Canada's service standards for the delivery of permits. The Department's current service standards require that

Updates will also be made to the Notice to Importers relating the beef and veal and milk protein substances tariff rate quotas to reflect the change to the control status of these products originating from a European Union country or other CETA beneficiaries.

Contacts

Reuben East
Deputy Director
Trade Controls Policy Division (TIC)
Global Affairs Canada
111 Sussex Drive
Ottawa, Ontario
Telephone: 343-203-4365
Email: Reuben.East@international.gc.ca

Blair Hynes
Deputy Director
Trade Controls Policy Division (TIC)
Global Affairs Canada
111 Sussex Drive
Ottawa, Ontario
Telephone: 343-203-4353
Email: Blair.Hynes@international.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to paragraph 5(1)(e), subsections 5.2(1) (see footnote a) and (2) (see footnote b) and section 6 (see footnote c) of the Export and Import Permits Act (see footnote d), proposes to make the annexed Order Amending the Import Control List.

Interested persons may make representations concerning the proposed Order within 15 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Reuben East, Deputy Director, Trade Controls, Global Affairs Canada, 111 Sussex Drive, Ottawa, Ontario K1N 1J1 (tel.: 343-203-4365; fax: 613-996-0612; email: Reuben.East@international.gc.ca).

Ottawa, July 13, 2017

Jurica Čapkun
Assistant Clerk of the Privy Council

Order Amending the Import Control List

Amendments

1 The Import Control List (see footnote 1) is amended by adding the following after section 86.97:

86.98 Textile goods classified under headings and subheadings 5007.20, 5111.30, 51.12, 5208.39, 5401.10, 5402.11, 54.04, 54.07, 56.03, 5607.41, 5607.49, 5702.42, 5703.20, 5704.90, 59.03, 5904.10, 5910.00, 59.11, 6302.21, 6302.31 and 6302.91 in the List of Tariff Provisions set out in the schedule to the Customs Tariff that

86.99 Apparel goods classified under headings and subheadings 6105.10, 61.06, 61.09, 61.10, 61.14, 61.15, 6202.11, 6202.93, 6203.11, 6203.12 to 6203.49, 62.04, 6205.20, 62.10, 62.11 and 62.12 in the List of Tariff Provisions set out in the schedule to the Customs Tariff that

2 Sections 114 to 116 of the List are replaced by the following:

114 Carcasses and half-carcasses of bovine animals, fresh, chilled or frozen, that do not originate in Chile, a NAFTA country or an EU country or other CETA beneficiary and are classified under tariff item No. 0201.10.10, 0201.10.20, 0202.10.10 or 0202.10.20 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.

115 Cuts of meat of bovine animals, fresh, chilled or frozen, with bone in, that do not originate in Chile, a NAFTA country or an EU country or other CETA beneficiary and are classified under tariff item No. 0201.20.10, 0201.20.20, 0202.20.10 or 0202.20.20 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.

116 Boneless meat of bovine animals, fresh, chilled or frozen, that does not originate in Chile, a NAFTA country or an EU country or other CETA beneficiary and is classified under tariff item No. 0201.30.10, 0201.30.20, 0202.30.10 or 0202.30.20 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.

3 Section 125.2 of the List is replaced by the following:

125.2 Milk protein substances with a milk protein content of 85% or more by weight, calculated on a dry matter basis, that do not originate in a NAFTA country, an EU country or other CETA beneficiary or Chile, Costa Rica or Israel and that are the subject of two commitments signed by the Government of Canada on June 12, 2008, one with the European Communities and the other with the Government of Switzerland, relating to the modification, in Canada's schedule of concessions pursuant to the Agreement Establishing the World Trade Organization, to Canada's concession on tariff item No. 3504.00.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff with regard to those substances.

4 Section 130 of the List is replaced by the following:

130 Non-alcoholic beverages containing milk (other than chocolate milk) and containing 50% or more by weight of dairy content and not put up for retail sale, that are classified under tariff item No. 2202.99.32 or 2202.99.33 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.

5 The French version of the List is amended by replacing “domestique” with “Gallus domesticus” in the following provisions:

Coming into Force

6 This Order comes into force on the day on which section 15 of the Canada–European Union Comprehensive Economic and Trade Agreement Implementation Act, chapter 6 of the Statutes of Canada, 2017, comes into force, but if it is registered after that day, it comes into force on the day on which it is registered.

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