Annual lists 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995

Ottawa, October 7, 1997
1997-088

Simplified Customs Tariff to Make Canadian Businesses More Competitive

Related documents:

• Backgrounder
• Customs Tariff Schedule.
• Notice of Ways and Means Motion respecting the imposition of duties of customs and other taxes (Adobe Acrobat format - 620,024 bytes).

Secretary of State (International Financial Institutions) Jim Peterson on behalf of the Minister of Finance, today tabled in the House of Commons a Notice of Ways and Means Motion to introduce proposed legislation to implement a new simplified Customs Tariff.

The Notice, originally tabled just prior to the last federal election, is substantially the same as that tabled previously but incorporates several amendments essentially updating the Notice. Among them are provisions to implement the Canada-Chile Free Trade Agreement and the Information Technology Agreement, both of which have taken effect since April. Several other changes reflect recently introduced tariff provisions and other technical amendments.

Mr. Peterson reiterated that the simplified Customs Tariff will result in duty savings of some $90 million in 1998 for Canadian businesses and consumers and other cost savings through the elimination of tariff regulations and administrative procedures which are costly for both industry and government. The proposed measures will lower production costs for Canadian firms and thus increase their competitiveness and aid job creation.

Canadian industry broadly supports the proposed legislation. The government has consulted extensively with businesses over the past three years on a series of proposals to simplify the tariff regime and make it more responsive to the competitive pressures they face. To that end, one set of proposals has already been implemented -- tariff reductions on a broad range of goods used as inputs in manufacturing came into effect on June 13, 1995.

The simplified Customs Tariff is scheduled to come into effect on January 1, 1998, the same date upon which tariffs will be eliminated on United States' goods pursuant to the North American Free Trade Agreement.

A backgrounder providing details on the new simplified Customs Tariff is attached.

___________________ 
For further information:

Backgrounder on Proposed New Simplified Customs Tariff

On April 22, 1997, the government tabled in the House of Commons a Notice of Ways and Means Motion introducing proposed legislation to implement a new simplified Customs Tariff, scheduled to come into effect January 1, 1998. The legislation introduced today is substantially the same as that contained in the April Notice but incorporates several amendments updating it, notably provisions to implement provisions in the Canada-Chile Free Trade Agreement and the Information Technology Agreement, both of which have taken effect since April. As well, several other changes reflect recently introduced tariff provisions and other technical amendments.

The legislation proposes a new Customs Tariff that:

• reduces tariffs on a wide range of manufacturing inputs;
• eliminates the "not made in Canada" conditions in a number of duty-free provisions;
• eliminates concessionary tariff codes or converts them, in whole or in part, to tariff items;
• replaces the Machinery Remission Program with appropriate dutiable and duty-free tariff items;
• converts certain specific rates of duty (expressed as dollars or cents per unit) to percentages;
• eliminates a wide range of tariff regulations or replaces them with tariff items;
• modernizes and streamlines the legislative provisions; and,
• consolidates the new tariff schedule through measures that:

- accelerate the implementation of certain Uruguay Round, manufacturing input and General Preferential Tariff (GPT) tariff reductions;
- eliminate most "nuisance" rates (those of less than 2%);
- round down most rates;
- harmonize certain rates;
- rectify inconsistencies in the tariff treatment of goods; and,
- amalgamate tariff items.

The legislation also proposes complementary amendments to the Customs Act aimed at simplifying the administration of the Customs Tariff. A brief explanation of these measures and the resulting benefits are outlined below.

Reductions in Rates of Duty on Manufacturing Inputs

Most of the tariff reductions on manufacturing inputs (covering goods classified under about 1,500 tariff lines) were implemented on June 13, 1995 in anticipation of the loss of duty drawback on exports to the U.S. on January 1, 1996 as a result of the North American Free Trade Agreement (NAFTA). Reducing customs duties on goods used in manufacturing operations reduces costs for Canadian industry, making it more competitive and better able to take advantage of the benefits resulting from freer trade, particularly in the North American market. With the implementation of the new Tariff, the duty paid on a wide range of additional manufacturing inputs will be reduced, effective January 1, 1998.

Elimination of "Not Made in Canada" Conditions in Tariff Provisions

A small number of tariff provisions remain that provide duty-free entry for over $1 billion in specified goods (mainly inputs) if they are determined by Revenue Canada not to be made in Canada. While these provisions were of particular relevance when tariff rates were relatively high and Canadian industry was generally protected from import competition, they are no longer justified given the openness of the Canadian economy. These provisions give rise to inconsistencies in the tariff treatment of goods, impose administrative costs on industry and government, and create uncertainty as to the dutiable status of certain goods over time.

One of these provisions is being eliminated since all imports under it are coming from the US and will be entering Canada duty-free from January 1, 1998, and the remaining provisions will be converted to duty-free items in the tariff schedule without the "not made in Canada" condition. This will allow for a wider range of duty-free goods used mainly in manufacturing products such as motor vehicles, ships and certain machinery. The new items will help Canadian manufacturers improve their competitiveness by giving them access to a broader range of duty-free inputs. Furthermore, the procedures and costs associated with obtaining "not made" rulings from Revenue Canada will be eliminated, reducing red tape and eliminating administrative costs for both government and industry.

Elimination of Concessionary Tariff Codes or their Conversion to Tariff Items

Concessionary tariff codes generally provide for reduced rates or free entry for a wide range of goods for specified uses. With freer trade and changes in trade patterns and technology, many of these provisions are no longer needed or justified, and those that are still relevant can be replaced with provisions in the tariff schedule to increase their transparency and reduce compliance costs.

More than 1,000 codes are being eliminated mainly because there are no imports under these codes, imports under the codes are insignificant, or most imports are from the U.S. and will be duty-free by 1998 under NAFTA. About 1,000 other codes are being converted, in whole or in part, to regular items in the tariff schedule at the same concessionary rates mainly because imports from non-U.S. sources are significant.

Replacement of Machinery Remission Program with Tariff Items

Under the Machinery Program, duties on a broad range of machinery are remitted if reasonably equivalent machinery is not available from Canadian production. The program was particularly relevant when tariff rates were relatively high and covered a broad range of machinery from all sources. Tariff reductions pursuant to the Canada-U.S. Free Trade Agreement, the Uruguay Round and other initiatives such as the input tariff reductions in Bill C-102, now make the program less relevant. As with the "not made" provisions, the Machinery Program imposes administrative costs on industry and creates uncertainty as to the dutiable status of certain machinery over time.

The Machinery Program is being terminated under the proposed legislation and the remission system is being replaced with tariff items -- dutiable items for equipment available in Canada, and duty-free items for equipment that is unavailable domestically. Virtually all machinery production parts and most spare parts under the current program will be accorded free entry. For a transitional period of three years, "non-availability" from Canadian production will be retained as the sole criterion for tariff relief on the remaining dutiable production equipment covered under the current program. The retroactive relief features under the current program will also be retained.

With the retention of "non-availability" as the sole criterion for tariff relief and to maintain procedural continuity and current administrative expertise, Revenue Canada will continue to play a major role during the transitional period in reviewing tariff relief requests on machinery. Revenue Canada will report its findings to the Department of Finance for action through amendments to the tariff schedule. A notice will soon be issued by Revenue Canada regarding the process for seeking relief and the administrative policy that will be applied.

During the three-year transitional period, the Finance Department will review the rates on the remaining dutiable machinery to determine which might be reduced or removed. These changes, together with other tariff reductions on machinery, might result in the tariff relief regime for machinery being placed on the same basis as that for other product areas. Industry will be consulted as part of this process.

The replacement of the Machinery Program will lower costs to machinery users and provide greater transparency and predictability in the tariff system for business decisions.

Conversion of Specific Rates of Duty to Percentages

Specific rates of duty (expressed as dollars or cents per unit) are regarded by some as lacking transparency in that the actual levels of protection and the real impact of these rates are obscured by shipment-to-shipment variations in the values of the imported goods. The vast majority of rates in the Customs Tariff are expressed as percentages. The conversion to percentages of a certain number of specific rates is aimed at achieving a greater harmonization in the rate structure. Alcoholic beverages, certain agricultural products and wool fabrics are not affected by the conversion.

Elimination of Tariff Regulations or their Conversion to Tariff Items

Recent trade developments mean that many tariff regulations are no longer needed or justified. Therefore, some 300 duty remission orders and other regulations will be revoked. Roughly 70 other regulations are being replaced with simpler items in the tariff schedule which provide the same duty treatment. For customs duty purposes, twelve of these regulations (and 13 tariff items and codes) that provide full or partial tariff relief on certain temporarily-imported goods will be replaced with one item that allows conditional duty-free entry for virtually all such goods. Another new item replaces a regulation (and code) which allows free entry for a list of sports equipment complying with international standards and used for training or competing in amateur international competitions; the new item provides free entry for all goods of this kind. About 150 regulations are retained principally because they cannot readily be converted to tariff items due to their complexity. These actions will significantly reduce the regulatory burden and provide increased transparency in the tariff regime.

Revision of Legislative Provisions of the Customs Tariff and related Amendments

Many of the legislative provisions under the Customs Tariff will be updated and streamlined to better reflect the current conditions facing Canadian industry and the impact of trade liberalization over the past several years. The majority of these changes are of a technical or housekeeping nature while others result from amendments to the tariff schedule (e.g. the elimination of the "not made in Canada" condition in some tariff provisions and the replacement of the Machinery Program). Other important changes include a broadened Order in Council authority to reduce duties on all inputs, including machinery, used by manufacturers and service providers; a new three-year authority for the Minister of Finance to rectify errors and omissions that may have been made in the new tariff schedule; and the termination of the British Preferential Tariff (BPT). To alleviate or minimize the effects of the BPT termination, an Order in Council will be introduced to maintain rates equivalent to BPT rates on a limited number of significant trade items until those rates have been matched by rate reductions under the Most-Favoured-Nation Tariff as a result of the Uruguay Round.

In view of the number of changes, the current Customs Tariff is being repealed and replaced with an entirely new Act. To complement these changes, substantive amendments are also being made to the Customs Act to harmonize at four years the time limits for claiming duty refunds and for providing for adjustments to tariff classification, origin or value for duty determinations without the requirement for a formal appeal, and to provide for a single level of appeal within Revenue Canada of its decisions. These changes will simplify the administration of the Customs Tariff and provide greater flexibility for business and government in complying with and administering customs laws. It will also reduce related costs.

Consolidation of the Tariff Schedule

The consolidation of the current tariff provisions into a single tariff schedule is being achieved by:

• implementing, on January 1, 1998, most of the final Uruguay Round reductions currently scheduled for January 1, 1999, as well as any final input and General Preferential Tariff reductions applicable to those items;
• eliminating most "nuisance" rates (those under 2 per cent);
• rounding down most decimal rates to the nearest half percentage point;
• harmonizing rates of certain competing products;
• rectifying certain tariff anomalies; and,
• amalgamating a large number of tariff items.

These measures will enhance industry competitiveness, help ease the administrative burden, and generally achieve a simpler rate structure and an overall simpler and more transparent tariff system.

Overall Results

In undertaking tariff simplification, the government identified two major objectives: to improve the competitive position of Canadian industry within a freer trading environment, and to make the tariff system more transparent, predictable and simple so as to lessen the regulatory burden and associated costs for both business and government.

The aim of improving competitiveness will be achieved by implementing several of the measures outlined earlier including tariff reductions on a wide range of manufacturing inputs, removal of the "not made in Canada" conditions from nine broad duty-free provisions, and consolidation measures to the tariff schedule. The broadened Order in Council authority to allow tariff reductions on all inputs used by manufacturers and service providers will also ensure that the government has sufficient flexibility to respond efficiently to the competitive pressures facing Canadian industry.

The tariff system will be made more simple, predictable and transparent by replacing the existing seven tariff schedules with a single tariff schedule containing a simpler rate structure and significantly fewer provisions (about 8,000 compared to 11,000). The system will be further simplified by eliminating or streamlining a significant number of legislative provisions and introducing a new, more flexible tariff schedule format (two tariff columns rather than the current five).

Increased transparency, simplicity and predictability will help reduce the regulatory burden for both business and government. So will eliminating the costs associated both with obtaining Revenue Canada rulings for duty-free entry of goods subject to the "not made in Canada" condition and with complying with administrative procedures under the Machinery Program. There will also be cost savings and efficiency gains with the elimination of more than 300 tariff regulations and the conversion of many regulations to simpler tariff provisions.

Impact of Tariff Simplification on Sales Tax and Excise Taxes and Duties

The federal Goods and Services Tax (GST), the Harmonized Sales Tax (HST) and the federal excise taxes on specified goods such as tobacco and fuel are imposed under the Excise Tax Act. Federal excise duties are imposed on domestic tobacco and alcohol products under the Excise Act; additional customs duties equivalent to the excise duty on domestic products are imposed on imports under new section 21 (current section 20) of the Customs Tariff. Relieving provisions in the Excise Tax Act or other Acts of Parliament, or regulations and orders made thereunder, make reference in certain circumstances to tariff headings and tariff items. For example, section 1 of Part VII of Schedule III to the Excise Tax Act refers to a number of tariff headings that are relieved of excise tax at the time of importation. Also, section 1 of Schedule VII to the Act lists a number of tariff headings that are relieved of the GST or HST when imported into Canada.

As a result of tariff simplification, many of these tariff headings and tariff items have been amended. Consequential amendments to the Excise Tax Act will be introduced to ensure that the tax status of imported goods does not change as a result of tariff simplification. If required, amendments will also be introduced to other Acts of Parliament and regulations or orders that provide relief from the GST, HST or excise taxes under the Excise Tax Act, excise duties under the Excise Act, or the additional customs duty under section 21 of the Customs Tariff, to ensure that the status quo is maintained. These amendments would be effective January 1, 1998.