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Ottawa, June 13, 1995
1995-047

Tariff Changes to Boost the Economy

Related document:

• Backgrounder.

Finance Minister Paul Martin today tabled in the House of Commons a Notice of Ways and Means Motion to amend the Customs Tariff and the Customs Act.

A number of the proposed measures build on the review of Canada's tariff regime, announced in the 1994 budget, and are designed to ensure that Canadian businesses profit under Canada's free-trade agreements. They will also help to ensure that tariffs do not unduly add to the cost of doing business in Canada.

The proposals will improve the competitive position of Canadian industry by enhancing Canada's duty deferral programs, including making them more accessible to small- and medium-sized businesses, and by reducing tariffs on a wide range of manufacturing inputs. The measures will also facilitate the processing of travellers by increasing travellers' exemptions.

"Canada's merchandise trade surplus with the U.S. in 1994 was $28.4 billion, our largest ever, and this trend has continued through the first-quarter of 1995," said Mr. Martin. "These amendments will provide substantial economic benefits for Canadians. Lowering businesses' input costs will help to increase their economic efficiency and international competitiveness while creating more jobs and lower prices for Canadian-made products."

The proposed changes to the duty- and tax-free exemptions for returning Canadian residents, last increased in 1983, are: the $20 exemption available after a 24-hour absence increased to $50; the $100 exemption for absences exceeding 48 hours doubled to $200; and the seven-day exemption increased from $300 to $500. The once-a-year restriction on the seven-day exemption would be eliminated. These changes would allow Customs to focus on the more pressing issues of smuggling and the processing of commercial importations -- commercial imports from the U.S. have increased by 43 per cent since 1992.

Other tariff and tariff-related amendments, including the removal of the duty-free British Preferential Tariff on certain rubber footwear and technical changes to protect the confidentiality of commercially-sensitive business information, are also proposed.

Most of the tariff changes, including the increases in travellers exemptions, take effect immediately. The changes to the duty relief programs will be effective after Royal Assent, which is expected this fall.

A backgrounder on the tariff changes is attached. As well, the text of the Notice of Ways and Means Motion is available on most on-line services, including Revenue Canada.

___________________
For further information:

Nathalie Gauthier
Press Attaché
613) 996-7861

Osborne Todd
Tariffs Division
(613) 996-6479

Backgrounder

Improvements to Duty Deferral Programs

Canada has three programs, which defer or relieve duties on goods for export and/or pending formal entry into Canada. These are the duty drawback, inward processing and bonded warehouse programs. Over the years, Canadian business has sought improvements to these programs in order to make them more competitive with similar programs of our major trading partners. In 1993, the Government began consulting with Canadian business on changes to the duty deferral programs.

The changes announced today by the Minister of Finance would improve Canada's export-based duty deferral programs by:

• streamlining and consolidating the duty deferral programs in the Customs Tariff;
• making the programs more easily accessible for small, medium and large companies by removing certain administrative restrictions that currently exist;
• providing as much up-front relief of duties as possible to ease cash flow pressures; and,
• allowing regions, municipalities and business to market the programs more effectively in competition with similar programs around the world.

These changes, which are consistent with Canada's obligations under the North American Free Trade Agreement (NAFTA), are designed to improve the competitiveness of Canadian producers and will come into effect by Order in Council sometime after Parliament approves this initiative.

A related amendment, to the Access to Information Act, would protect the confidentiality of taxpayer information provided by the importing community under the Customs Act, Customs Tariff and the Special Import Measures Act. This amendment takes affect immediately.

Tariff Reductions on Manufacturing Inputs and Certain Other Goods

In the 1994 Budget, the Government announced that, in the context of a comprehensive review of the entire tariff system, it would undertake a study of the tariffs on manufacturing inputs. This initiative was, in part, in response to a 1992 report by the private sector Prosperity Steering Group (Action Plan for Canada's Prosperity), which recommended that Canada's Most-Favoured-Nation (MFN) Tariff rates on manufacturing inputs be reduced to levels comparable to those in the United States. U.S. producers enjoy a competitive advantage in that U.S. MFN tariff rates are presently, on average, 3.2 percentage points below Canadian levels.

Higher input tariffs in Canada, vis-à-vis our major trading partners, affect the competitiveness of Canadian industry, particularly in the domestic market and, in the longer run, may affect our exports and the attractiveness of Canada as a place to invest. Canada currently imports about one-third of its manufacturing inputs. The impact of higher tariffs is currently mitigated by duty drawback, which provides tariff relief on imported inputs to make products for export. Under the NAFTA, duty drawback on inputs sourced abroad to make products exported to the U.S. and Mexico are to be reduced (on January 1, 1996 for exports to the U.S. and January 1, 2001 for Mexico).

Extensive consultations with the private sector demonstrated broad industry support for the reduction of MFN tariffs on a wide range of inputs, classified under some 1,500 tariff lines. The tariff reductions announced by the Minister of Finance would immediately reduce the tariffs on these inputs to at least current U.S. MFN levels, with subsequent reductions in certain cases to be phased-in over four or nine years in line with the reductions agreed to by the U.S. in the World Trade Organization Agreement. Where inputs are not made in Canada, and additional economic benefits have been identified, tariffs will be eliminated.

The Finance Minister noted that these tariff reductions would help Canadian industry remain competitive and take advantage of the new opportunities brought about by freer trade and expanded markets, particularly in North America.

Tariff are also being reduced on certain other goods, as requested by Canadian business. These tariff reductions are designed to lower costs and thus improve the competitiveness of Canadian companies.

These tariff changes begin immediately.

Increases in Travellers' Exemptions

The changes to travellers' exemptions announced by the Minister of Finance today will provide Canadian residents, who have purchased goods outside Canada while travelling abroad, with increased duty- and tax-free exemptions. The following table summarizes the changes:

The exemption levels have not been increased since 1983 and current limits are presently out of line with our major trading partners. For example, U.S. limits are $400 after a 48-hour absence once a month and they have a general administrative limit that allows duty-free entry of up to $200 worth of dutiable goods with each crossing. As well, residents of the European Union can claim the equivalent of about $300 CDN in goods on their return after any absence.

These changes are consistent with other initiatives taken to ease border congestion and will allow Customs to focus its efforts on other important border issues such as smuggling and growing commercial imports. It is also a positive step towards the Canada-U.S. Accord on Our Shared Border, the main objective of which is to permit travellers, and goods, to move easily across the Canada-U.S. border.

The new exemptions come into effect immediately.

Withdrawal of the BPT on Rubber Footwear

In 1994, the Government permanently withdrew the General Preferential Tariff (GPT) rate on rubber footwear. (Canada unilaterally extends GPT tariff preferences to developing countries on a wide range of imports to promote their economic development.) As far back as 1975, the GPT rate on rubber footwear had been withdrawn in response to complaints from Canadian footwear manufacturers about the threat of injury from GPT imports. The GPT withdrawal on rubber footwear had been extended on eight separate occasions since 1975.

Certain GPT countries, however, also benefit from the lower British Preferential Tariff (BPT) rates for a number of products, including rubber footwear. As a result, low-cost rubber footwear can circumvent the intention of the earlier action by the Government to maintain tariff protection for Canadian producers. Former BPT exports will still have access to the Canadian market, but will compete on the same basis as other foreign suppliers.

This amendment takes effect immediately.

Amendments to Clarify Tariff-Related Legislation

The Notice of Ways and Means Motion tabled by the Finance Minister also announces several legislative amendments to clarify current tariff related provisions in the Customs Tariff and Customs Act, including:

• changes to the provisions for returning residents, and for new residents of Canada, to clarify that goods they import have been owned, possessed and used by them outside Canada and accompany them on arrival or, follow them at a later date. (Effective immediately.)
• amendments to remove the requirement in section 68 of the Customs Act that parties must obtain leave to appeal decisions rendered, pursuant to section 67 of the Act, by the Canadian International Trade Tribunal. This change will help clarify the ninety day time limit for filing appeals to the Federal Court of Appeal. (Effective immediately.)
• amendments to the Customs Act to clarify that the value for duty (the basis for duty and tax assessment on imported goods) is the transaction price paid by a purchaser in Canada to a foreign supplier. (To be implemented by Order in Council after Parliamentary approval.)

Other Technical Amendments to Tariff-Related Legislation

Finally, the Notice of Ways and Means Motion tabled by the Minister of Finance announces:

• the introduction of "basket" tariff provisions to streamline the processing of travellers at the border, which is consistent with other initiatives taken to allow Customs to focus on smuggling and processing of commercial importations. (To be implemented by Order in Council after Parliamentary approval.)
• the conversion of the Canadian Retailers' Duty Remission Order, 1993 (SOR/93-430, as amended by SOR/94-233) to duty-free statutory provisions to improve transparency of these provisions. (Effective immediately.)
• the introduction of a legislative authority to allow regulatory tariff codes to be introduced directly into the Customs Tariff to improve transparency of the tariff system. (To be implemented by Order in Council after Parliamentary approval.)
• the introduction of seasonal and non-seasonal tariff provisions for dry shallots to ensure that they are duty-free when unavailable from Canadian growers. (Effective immediately.)
• the introduction of a legislative authority to allow for future improvements to preferential tariff treatment for the world's poorest developing countries to improve their export opportunities.
• the elimination of the requirement in the Machinery Program to pay duty on the first $500 of machinery and equipment eligible for duty remission under that program, effective immediately, and a shortening of the period for claiming remission under the Program from five to two years. (The latter amendment is to be implemented by Order in Council after Parliamentary approval.)
• the introduction of several other technical and housekeeping changes to the Customs Tariff. (Effective immediately.)
• the correction of typographical, clerical and similar errors in tariff legislation. (Effective immediately.)