WORLD TRADE WT/L/255
18December 1997
ORGANIZATION(97-5545)
Original: English/French Committee onMarket Access
CANADA -NEW SIMPLIFIED NATIONAL CUSTOMS TARIFF
Thefollowing communication, dated 11December 1997, hasbeenreceived fromthePermanent
Mission ofCanada.
_______________
Myauthorities wishtoinform Members thatthelegislation providing fortheimplementation
ofanewsimplified national customs tariffwaspassed bytheCanadian Parliament on8December 1997.
Thelawwillenter intoforce on1January 1998.
Thenewsimplified tariff willresult indutysavings ofabout Can$90 million in1998.
Information relating tothemeasures implemented bythelegislation isprovided intheattached
background note.
Canadian authorities arepreparing anArticle XXVIII notification tosubmit toMembers. This
willbedoneshortly.WT/L/255
Page2
OnApril 22,1997, thegovernment tabled intheHouse ofCommons aNotice ofWays and
MeansMotionintroducingproposedlegislationtoimplementanewsimplifiedCustomsTariff,scheduled
tocome intoeffect January 1,1998. Thelegislation introduced today issubstantially thesame asthat
contained intheApril Notice butincorporates several amendments updating it,notably provisions to
implement provisions intheCanada-Chile FreeTrade Agreement andtheInformation Technology
Agreement, bothofwhich havetaken effect sinceApril. Aswell,several other changes reflect recently
introduced tariff provisions andother technical amendments.
Thelegislation proposes anewCustoms Tariff that:
- reduces tariffs onawiderange ofmanufacturing inputs;
- eliminates the"notmade inCanada" conditions inanumber ofduty-free provisions;
- eliminates concessionary tariff codes orconverts them, inwhole orinpart,totariff items;
- replaces theMachinery Remission Program withappropriate dutiable andduty-free tariffitems;
- converts certain specific ratesofduty(expressed asdollars orcents perunit)topercentages;
- eliminates awiderange oftariff regulations orreplaces them withtariff items;
- modernizes andstreamlines thelegislative provisions; and
- consolidates thenewtariff schedule through measures that:
- accelerate theimplementation ofcertain Uruguay Round, manufacturing input and
General Preferential Tariff (GPT) tariff reductions;
- eliminate most "nuisance" rates(those oflessthan2percent);
- round down most rates;
- harmonize certain rates;
- rectify inconsistencies inthetariff treatment ofgoods; and
- amalgamate tariff items.
Thelegislation alsoproposes complementary amendments totheCustoms Actaimed at
simplifying theadministration oftheCustoms Tariff. Abriefexplanation ofthese measures andthe
resulting benefits areoutlined below.
Reductions inratesofdutyonmanufacturing inputs
Most ofthetariff reductions onmanufacturing inputs (covering goods classified under about
1,500 tariff lines) wereimplemented on13June1995 inanticipation ofthelossofdutydrawback on
exports totheU.S. on1January 1996 asaresult oftheNorth American FreeTrade Agreement
(NAFTA). Reducing customs duties ongoods usedinmanufacturing operations reduces costs for
Canadian industry, making itmorecompetitive andbetter abletotakeadvantage ofthebenefits resulting
fromfreertrade, particularly intheNorth American market. Withtheimplementation ofthenewTariff,
theduty paid onawide range ofadditional manufacturing inputs willbereduced, effective
1January 1998.
Elimination of"Not Made inCanada" conditions intariff provisions
Asmall number oftariff provisions remain thatprovide duty-free entry forover$1billion
inspecified goods (mainly inputs) iftheyaredetermined byRevenue Canada nottobemade inCanada.
While theseprovisions wereofparticular relevance when tariffrateswererelatively highandCanadian
industrywasgenerallyprotectedfromimportcompetition,theyarenolongerjustifiedgiventheopenness
oftheCanadian economy. These provisions giverisetoinconsistencies inthetarifftreatment ofgoods,
impose administrative costsonindustry andgovernment, andcreate uncertainty astothedutiable status
ofcertain goods overtime.WT/L/255
Page3
Oneofthese provisions isbeing eliminated since allimports under itarecoming fromtheUS
andwillbeentering Canada duty-free from January 1,1998, andtheremaining provisions willbe
converted toduty-free items inthetariff schedule without the"notmade inCanada" condition. This
willallow forawider range ofduty-free goods usedmainly inmanufacturing products suchasmotor
vehicles, ships andcertain machinery. Thenewitems willhelpCanadian manufacturers improve their
competitiveness bygiving them access toabroader range ofduty-free inputs. Furthermore, the
procedures andcosts associated withobtaining "notmade" rulings from Revenue Canada willbe
eliminated, reducing redtapeandeliminating administrative costsforbothgovernment andindustry.
Elimination ofconcessionary tariff codes ortheirconversion totariff items
Concessionary tariff codes generally provide forreduced ratesorfreeentry forawiderange
ofgoods forspecified uses. With freertrade andchanges intrade patterns andtechnology, many of
theseprovisions arenolonger needed orjustified, andthose thatarestillrelevant canbereplaced with
provisions inthetariff schedule toincrease theirtransparency andreduce compliance costs.
More than1,000 codes arebeing eliminated mainly because there arenoimports under these
codes, imports under thecodes areinsignificant, ormostimports arefromtheU.S.andwillbeduty-free
by1998under NAFTA. About 1,000 other codes arebeing converted, inwhole orinpart,toregular
items inthetariff schedule atthesame concessionary ratesmainly because imports from non-U.S.
sources aresignificant.
Replacement ofmachinery remission programme withtariff items
Under theMachinery Program, duties onabroad range ofmachinery areremitted ifreasonably
equivalent machinery isnotavailable fromCanadian production. Theprogram wasparticularly relevant
when tariff rateswererelatively highandcovered abroad range ofmachinery fromallsources. Tariff
reductions pursuant totheCanada-U.S. FreeTrade Agreement, theUruguay Round andotherinitiatives
suchastheinput tariff reductions inBillC-102, nowmake theprogram lessrelevant. Aswiththe
"notmade" provisions, theMachinery Program imposes administrative costsonindustry andcreates
uncertainty astothedutiable status ofcertain machinery overtime.
TheMachinery Program isbeing terminated under theproposed legislation andtheremission
system isbeing replaced withtariff items --dutiable items forequipment available inCanada, and
duty-free items forequipment thatisunavailable domestically. Virtually allmachinery production parts
andmostspare partsunder thecurrent program willbeaccorded freeentry. Foratransitional period
ofthree years, "non-availability" fromCanadian production willberetained asthesolecriterion for
tariff relief ontheremaining dutiable production equipment covered under thecurrent program. The
retroactive relief features under thecurrent program willalsoberetained.
With theretention of"non-availability" asthesolecriterion fortariff relief andtomaintain
procedural continuity andcurrent administrative expertise, Revenue Canada willcontinue toplaya
major roleduring thetransitional period inreviewing tariff relief requests onmachinery. Revenue
Canada willreport itsfindings totheDepartment ofFinance foraction through amendments tothe
tariff schedule. Anotice willsoonbeissued byRevenue Canada regarding theprocess forseeking
relief andtheadministrative policy thatwillbeapplied.
During thethree-year transitional period, theFinance Department willreview theratesonthe
remainingdutiablemachinerytodeterminewhichmightbereducedorremoved.Thesechanges,together
withother tariff reductions onmachinery, might result inthetariff relief regime formachinery being
placed onthesamebasisasthatforotherproduct areas. Industry willbeconsulted aspartofthisprocess.WT/L/255
Page4
Thereplacement oftheMachinery Program willlower costs tomachinery users andprovide greater
transparency andpredictability inthetariff system forbusiness decisions.
Conversion ofspecific ratesofdutytopercentages
Specific ratesofduty(expressed asdollars orcents perunit)areregarded bysome aslacking
transparency inthattheactual levels ofprotection andtherealimpact ofthese ratesareobscured by
shipment-to-shipment variations inthevalues oftheimported goods. Thevastmajority ofratesinthe
Customs Tariff areexpressed aspercentages. Theconversion topercentages ofacertain number of
specific ratesisaimed atachieving agreater harmonization intheratestructure. Alcoholic beverages,
certain agricultural products andwool fabrics arenotaffected bytheconversion.
Elimination oftariff regulations ortheirconversion totariff items
Recent tradedevelopments mean thatmany tariffregulations arenolonger needed orjustified.
Therefore, some 300dutyremission orders andother regulations willberevoked. Roughly 70other
regulations arebeing replaced withsimpler items inthetariff schedule which provide thesame duty
treatment. Forcustoms dutypurposes, twelve ofthese regulations (and13tariffitems andcodes) that
provide fullorpartial tariff relief oncertain temporarily-imported goods willbereplaced withone
itemthatallows conditional duty-free entry forvirtually allsuchgoods. Another newitemreplaces
aregulation(andcode)whichallowsfreeentryforalistofsportsequipmentcomplyingwithinternational
standardsandusedfortrainingorcompetinginamateurinternationalcompetitions;thenewitemprovides
freeentry forallgoods ofthiskind. About 150regulations areretained principally because theycannot
readily beconverted totariff items duetotheircomplexity. These actions willsignificantly reduce
theregulatory burden andprovide increased transparency inthetariff regime.
Revision oflegislative provisions ofthecustoms tariff andrelated amendments
Many ofthelegislative provisions under theCustoms Tariff willbeupdated andstreamlined
tobetter reflect thecurrent conditions facing Canadian industry andtheimpact oftrade liberalization
overthepastseveral years. Themajority ofthese changes areofatechnical orhousekeeping nature
while others result from amendments tothetariff schedule (e.g.theelimination ofthe"notmade in
Canada" condition insome tariff provisions andthereplacement oftheMachinery Program). Other
importantchangesincludeabroadenedOrderinCouncilauthoritytoreducedutiesonallinputs,including
machinery, usedbymanufacturers andservice providers; anewthree-year authority fortheMinister
ofFinance torectify errors andomissions thatmayhavebeenmade inthenewtariff schedule; and
thetermination oftheBritish Preferential Tariff (BPT). Toalleviate orminimize theeffects ofthe
BPTtermination, anOrder inCouncil willbeintroduced tomaintain ratesequivalent toBPTrates
onalimited number ofsignificant trade items untilthose rateshavebeenmatched byratereductions
under theMost-Favoured-Nation Tariff asaresult oftheUruguay Round.
Inviewofthenumber ofchanges, thecurrent Customs Tariff isbeing repealed andreplaced
withanentirely newAct.Tocomplement these changes, substantive amendments arealsobeing made
totheCustoms Acttoharmonize atfouryears thetimelimits forclaiming dutyrefunds andforproviding
foradjustments totariffclassification, origin orvalue fordutydeterminations without therequirement
foraformal appeal, andtoprovide forasingle levelofappeal within Revenue Canada ofitsdecisions.
These changes willsimplify theadministration oftheCustoms Tariff andprovide greater flexibility
forbusiness andgovernment incomplying withandadministering customs laws. Itwillalsoreduce
related costs.WT/L/255
Page5
Consolidation ofthetariff schedule
Theconsolidation ofthecurrent tariff provisions intoasingle tariff schedule isbeing achieved by:
- implementing, onJanuary 1,1998, most ofthefinalUruguay Round reductions currently
scheduled forJanuary 1,1999, aswellasanyfinalinput andGeneral Preferential Tariff
reductions applicable tothose items;
- eliminating most "nuisance" rates(those under 2percent);
- rounding down most decimal ratestothenearest halfpercentage point;
- harmonizing ratesofcertain competing products;
- rectifying certain tariff anomalies; and
- amalgamating alarge number oftariff items.
These measures willenhance industry competitiveness, helpeasetheadministrative burden,
andgenerally achieve asimpler ratestructure andanoverall simpler andmoretransparent tariffsystem.
Overall results
Inundertaking tariffsimplification, thegovernment identified twomajor objectives: toimprove
thecompetitive position ofCanadian industry within afreertrading environment, andtomake thetariff
system more transparent, predictable andsimple soastolessen theregulatory burden andassociated
costs forbothbusiness andgovernment.
Theaimofimproving competitiveness willbeachieved byimplementing several ofthemeasures
outlined earlier including tariff reductions onawiderange ofmanufacturing inputs, removal ofthe
"notmade inCanada" conditions from ninebroad duty-free provisions, andconsolidation measures
tothetariffschedule. Thebroadened Order inCouncil authority toallow tariffreductions onallinputs
usedbymanufacturersandserviceproviderswillalsoensurethatthegovernmenthassufficientflexibility
torespond efficiently tothecompetitive pressures facing Canadian industry.
Thetariffsystemwillbemademoresimple,predictableandtransparentbyreplacingtheexisting
seven tariffschedules withasingle tariffschedule containing asimpler ratestructure andsignificantly
fewer provisions (about 8,000 compared to11,000). Thesystem willbefurther simplified byeliminating
orstreamlining asignificant number oflegislative provisions andintroducing anew, more flexible
tariff schedule format (twotariff columns rather thanthecurrent five).
Increased transparency, simplicity andpredictability willhelpreduce theregulatory burden
forbothbusiness andgovernment. Sowilleliminating thecostsassociated bothwithobtaining Revenue
Canada rulings forduty-free entry ofgoods subject tothe"notmade inCanada" condition andwith
complying withadministrative procedures under theMachinery Program. There willalsobecostsavings
andefficiency gains withtheelimination ofmore than300tariff regulations andtheconversion of
many regulations tosimpler tariff provisions.
Impact oftariff simplification onsalestaxandexcise taxes andduties
Thefederal Goods andServices Tax(GST), theHarmonized Sales Tax(HST) andthefederal
excise taxes onspecified goods suchastobacco andfuelareimposed under theExcise TaxAct.Federal
excise duties areimposed ondomestic tobacco andalcohol products under theExcise Act;additional
customs duties equivalent totheexcise dutyondomestic products areimposed onimports under new
section 21(current section 20)oftheCustoms Tariff .Relieving provisions intheExcise TaxActor
other Acts ofParliament, orregulations andorders made thereunder, make reference incertain
circumstances totariff headings andtariff items. Forexample, section 1ofPartVIIofSchedule IIIWT/L/255
Page6
totheExcise TaxActrefers toanumber oftariff headings thatarerelieved ofexcise taxatthetime
ofimportation. Also, section 1ofSchedule VIItotheActlistsanumber oftariff headings thatare
relieved oftheGSTorHSTwhen imported intoCanada.
Asaresult oftariff simplification, many ofthese tariff headings andtariff items havebeen
amended. Consequential amendments totheExcise TaxActwillbeintroduced toensure thatthetax
status ofimported goods doesnotchange asaresult oftariff simplification. Ifrequired, amendments
willalsobeintroduced toother ActsofParliament andregulations ororders thatprovide relief from
theGST, HSTorexcise taxes under theExcise TaxAct,excise duties under theExcise Act,orthe
additional customs dutyunder section 21oftheCustoms Tariff ,toensure thatthestatus quois
maintained. These amendments would beeffective 1January 1998.