Vol. 151, No. 14 — July 12, 2017

Registration
SOR/2017-127 June 20, 2017

CUSTOMS TARIFF

Regulations Amending the General Preferential Tariff and Least Developed Country Tariff Rules of Origin Regulations

P.C. 2017-779 June 20, 2017

His Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 16(2) (see footnote a) of the Customs Tariff (see footnote 1), makes the annexed Regulations Amending the General Preferential Tariff and Least Developed Country Tariff Rules of Origin Regulations.

Regulations Amending the General Preferential Tariff and Least Developed Country Tariff Rules of Origin Regulations

Amendments

1 Section 1 of the General Preferential Tariff and Least Developed Country Tariff Rules of Origin Regulations (see footnote 2) is amended by adding the following in alphabetical order:

FTA partner country means a country that is a party to a free trade agreement with Canada that is in effect. (pays partenaire d’un ALÉ)

2 Subsection 2(3) of the Regulations is replaced by the following:

(3) Goods other than those set out in Part A1, A3 or B of Schedule 1 originate in a least developed country if the value of the materials, parts or products originating outside that country, or in an undetermined location, and used in the manufacture or production of the goods is no more than 60% of the ex-factory price of the goods as packed for shipment to Canada.

3 (1) Section 2 of the Regulations is amended by adding the following after subsection (4):

(4.1) Goods set out in Part A3 of Schedule 1 originate in a least developed country if they are assembled in a least developed country from fabric cut in a least developed country, a country set out in Schedule 2, an FTA partner country or in Canada, or from parts knit to shape, if the fabric or parts knit to shape are produced in

(2) Section 2 of the Regulations is amended by adding the following after subsection (5):

(5.1) For the purpose of subparagraph (4.1)(b)(ii), any materials used in the manufacture or production of goods referred to in that subparagraph that originate in an FTA partner country or Canada are deemed to have originated in the least developed country.

(3) Subsection 2(7) of the Regulations is replaced by the following:

(7) For the purpose of determining whether a good set out in Part A1, A2, A3 or B of Schedule 1 originates in a least developed country, paragraph 4(a), subparagraph (4)(b)(i), paragraph (4.1)(a), subparagraph (4.1)(b)(i) and subsection (6) apply only to the fabric or parts knit to shape that determine the tariff classification of the good, identified in accordance with the General Rules for the Interpretation of the Harmonized System set out in the Customs Tariff.

4 (1) Part A1 of Schedule 1 to the Regulations is replaced by the following:

PART A1

Apparel

Goods referred to in headings 61.01 and 61.02, subheadings 6103.10, 6103.22, 6103.23, 6103.29, 6103.31, 6103.32, 6103.33, 6103.39, 6103.41, 6103.49, 6104.13, 6104.19, 6104.22, 6104.23, 6104.29, 6104.31, 6104.32, 6104.33, 6104.39, 6104.41, 6104.42, 6104.43, 6104.44, 6104.49, 6104.51, 6104.52, 6104.53, 6104.59, 6104.61 and 6104.69, headings 61.05, 61.06, 61.07 and 61.08, tariff item Nos. 6110.11.90, 6110.12.90 and 6110.19.90, subheadings 6110.20, 6110.30 and 6110.90, heading 61.12, tariff item No. 6113.00.90, heading 61.14, tariff item Nos. 6115.10.10 and 6115.10.99, subheadings 6115.21, 6115.22, 6115.30, 6115.95, 6115.96 and 6115.99, tariff item Nos. 6117.10.90 and 6117.80.90, heading 62.01, subheadings 6202.11, 6202.12, 6202.13, 6202.91, 6202.92, 6202.93, 6202.99, 6203.11, 6203.12, 6203.19, 6203.22, 6203.23, 6203.29, 6203.31, 6203.32, 6203.33, 6203.39, 6203.41, 6203.49, 6204.11, 6204.12, 6204.13, 6204.19, 6204.21, 6204.22, 6204.23, 6204.29, 6204.31, 6204.32, 6204.33, 6204.39, 6204.41, 6204.42, 6204.43, 6204.44, 6204.51, 6204.52, 6204.53, 6204.59, 6204.61, 6204.69, 6205.20, 6205.30, 6206.20, 6206.30, 6206.40, 6206.90, 6207.11, 6207.19, 6207.21, 6207.22, 6207.91, 6207.99, 6208.11, 6208.19, 6208.21, 6208.22, 6208.91 and 6208.92, tariff item No. 6210.10.90, subheadings 6210.20 and 6210.30, tariff item Nos. 6210.40.90 and 6210.50.90, subheading 6211.11, tariff item No. 6211.12.90, subheadings 6211.20 and 6211.32, tariff item Nos. 6211.33.90 and 6211.39.10, subheading 6211.42, tariff item Nos. 6211.43.90 and 6211.49.90, heading 62.12, tariff item Nos. 6213.90.90, 6214.20.90 and 6214.30.90, subheadings 6214.40, 6214.90, 6215.20 and 6215.90, tariff item No. 6217.10.90, subheading 6217.90 and tariff item Nos. 9619.00.23, 9619.00.24, 9619.00.25 and 9619.00.29.

(2) Schedule 1 to the Regulations is amended by adding the following after Part A2:

PART A3

Apparel

Goods referred to in subheadings 6103.42, 6103.43, 6104.62, 6104.63, 6109.10, 6109.90, 6203.42, 6203.43, 6204.62 and 6204.63.

Coming into Force

5 These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Budget 2017 announced that the rules of origin requirements for Canada’s Least Developed Country Tariff (LDCT) regime would be amended to allow more apparel products from least developed countries (LDCs), particularly Haiti, to benefit from duty-free treatment when imported into Canada.

Description: These amendments to the General Preferential Tariff and Least Developed Country Tariff Rules of Origin Regulations (the Regulations) allow LDCs to use manufacturing inputs sourced from, and processed in, an expanded list of countries, in the production of T-shirts and pants that qualify for duty-free importation into Canada.

Cost-benefit statement: Based on recent trade patterns, this will result in annual tariff revenues foregone estimated at $3.4 million. These duties represent a benefit, in the form of lower customs duties to be paid, for Canadian importers of the select goods.

“One-for-One” Rule and small business lens: The “One-for-One” Rule and the small business lens do not apply to these amendments, as there is no change in administrative or compliance costs to business.

Background

The LDCT regime was established in 1983 under the Customs Tariff to allow duty-free treatment into Canada for imports from United Nations-defined LDCs. The goal of the LDCT is to encourage economic growth in beneficiary countries through the provision of preferential access into the Canadian market for their exports.

In 2003, Canada expanded the LDCT to offer duty-free treatment to almost all goods from LDCs (except over-access, supply-managed dairy, poultry and egg products). Notably, the LDCT was extended to include textile and apparel products.

The LDCT also contains requirements, known as rules of origin, specifying a minimum level of work that must be performed in an LDC in order for products to qualify for duty-free treatment when imported into Canada. These rules of origin are designed to ensure that benefits from duty-free access actually accrue to the LDCs.

Most apparel imports from LDCs qualify for duty-free treatment under the LDCT, as the current rules of origin reflect the production processes and supply chains of most apparel-producing LDCs. In contrast, Haiti is the only LDC in the Americas, and its supply chains are heavily integrated with regional partners, from which inputs and processing operations do not qualify under the current rules of origin. As a result, apparel imports from Haiti often did not meet the rules of origin requirements, and, therefore, did not benefit from duty-free treatment into Canada.

Issues

Budget 2017 announced that the rules of origin for the LDCT regime would be amended for certain apparel goods (i.e. T-shirts and pants) in order to allow more apparel products from LDCs, particularly Haiti, to qualify for duty-free treatment when imported into Canada.

Objectives

The objective of this amendment is to implement the Budget 2017 initiative to improve market access for least developed countries.

Description

The Regulations Amending the General Preferential Tariff and Least Developed Country Tariff Rules of Origin Regulations amend the LDCT rules of origin to allow LDCs to use manufacturing inputs sourced from, and processed in, an expanded list of countries in the production of T-shirts and pants that qualify for duty-free importation into Canada.

Specifically, these changes will apply to all T-shirts as well as cotton and synthetic fibre pants, and will allow those goods to be produced from yarns or fabric made in a country with which Canada has a free trade agreement (“FTA partner country”). In addition, they will allow LDCs to use fabric cut in Canada, an FTA partner country, or a country set out in Schedule 2 of the Regulations. Finally, any value that is added in a free trade partner country will be considered as if it were from the LDC. The changes are summarized in the following table:

Current requirements

New requirements
(changes bolded)

Apparel must be cut and sewn in the LDC


Apparel must be sewn in the LDC, but can be cut in Canada, a country set out in Schedule 2, or an FTA partner country.


Apparel can be made from textile inputs (yarns, fabrics) made in Canada or a country set out in Schedule 2.

Apparel can be made from textile inputs made in Canada, a country set out in Schedule 2, or an FTA partner country.

At least 25% value must be added in the LDC where the goods are assembled. Any Canadian content is included towards the 25%.

Level is unchanged, but any value added in an FTA partner country will also count towards the 25%.

Regulatory and non-regulatory options considered

Making amendments to the Regulations is the most efficient and appropriate means to implement the Budget 2017 initiative to improve market access for LDCs.

Benefits and costs

This initiative is expected to support economic development, jobs and investment in LDCs, mainly Haiti, by increasing their duty-free exports to Canada.

Based on recent trade patterns, this will result in an estimated $3.4 million of annual foregone tariff revenues. This translates to a total present value cost of $23.9 million over 10 years (measured using 2015 prices at a 7% discount rate).

These foregone tariff revenues represent a benefit, in the form of lower customs duties to be paid by Canadian importers of the select goods.

“One-for-One” Rule

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

Small business lens

The small business lens does not apply to these amendments, as there is no change in administrative or compliance costs to small business.

Consultation

In 2016, Finance Canada consulted Canadian apparel industry stakeholders through the Canadian Apparel Federation, which has expressed support for the implementation of these amendments. The Haitian Government has also expressed support for the changes.

Rationale

These Regulations are necessary to implement the Budget 2017 commitment to improve market access for LDCs. These changes will ensure that the rules of origin more accurately reflect the sourcing patterns and manufacturing capabilities of certain LDCs for these products. In particular, the changes aim to support economic development, jobs and investment in Haiti, given its focus on products of export interest to that country (i.e. T-shirts and pants).

Implementation, enforcement and service standards

The Canada Border Services Agency (CBSA) is responsible for the administration of and compliance with customs and tariff legislation and regulations. In the course of its administration of these rules of origin changes, the CBSA will inform the importing community.

Contact

Karen LaHay
International Trade Policy Division
Department of Finance Canada
Ottawa, Ontario
K1A 0G5
Telephone: 613-369-4043
Email: fin.tariff-tarif.fin@canada.ca