April 2002
- Consulting with Canadians -

CUSTOMS TARIFF
Proposals for CIFTA Rules of Origin Changes – Initiation of Domestic Consultations (Canada Gazette Notice, April 6, 2002)

Related documents:

• Schedule I - Affected Rules (Pre-2002 Tex to be Maintained by Proposal).
• Schedule II - Affected 2002 Tariff Items and MFN Duty Rates.

The purpose of this notice is to seek views regarding a proposal related to the rules of origin requirements under the Canada-Israel Free Trade Agreement (CIFTA). This proposal arises from changes to the HS2002 Customs Tariff that have resulted from the implementation of certain modifications to the Harmonized Commodity Description and Coding System (HS), that came into effect January 1, 2002.

In some cases the CIFTA rules of origin will need to be modified to maintain the intent of the original rule implemented under CIFTA. However, in other instances, such modification would result in extremely complex and administratively burdensome rules. It is proposed, in these latter instances, not to change the text of the affected rules of origin. This proposal would have the effect of modifying the requirements of the affected rules of origin.

Background

Under the CIFTA, Canada and Israel have agreed to provide preferential rates of duty for CIFTA originating goods. Chapter Three of the CIFTA (Rules of Origin) sets out the rules to be used in determining when goods are CIFTA originating for the purposes of this preferential tariff treatment. These rules of origin are generally based on shifts between provisions (i.e. chapters, headings or subheadings) of HS System, which both Canada and Israel use as the basis for their tariff schedules. This structure provides importers with transparent and predictable rules.

Effective January 1, 2002 certain numbering and descriptions of tariff subheadings and headings have been deleted or otherwise changed in the HS System to account for changes in technology and trade patterns. As signatories to the HS System both Canada and Israel have reflected these amendments in their domestic tariff schedules. The CIFTA rules of origin need to be amended to reflect the 2002 changes to the HS System. The amendments are being developed in a manner that strives to be neutral, in other words, without changing the original intent of the rules. In some cases, however, it was found that aligning the rules with the new HS 2002 while maintaining their original intent would result in rules of origin of extreme complexity and would be exceedingly burdensome for exporters. This is particularly the case for Chapters 28 to 38, 41 and 48. Consequently, it is proposed that, when the CIFTA rules of origin are amended to incorporate the 2002 HS changes, the text of the rules set out in Schedule I to this Notice remain unchanged, even though retaining the current text of these rules would result in changes to the origin conferring requirements of the CIFTA. This proposal will ensure that the CIFTA rules remain transparent and predictable, and would, in part, maintain the transparent and predictable tariff shift structure which is used throughout the CIFTA rules of origin.

The goods that will be affected by this proposal are either duty-free under the Most-Favoured-Nation (MFN) Tariff treatment, subject to low volumes of trade between Canada and Israel or both. In the case of many of the goods that would be affected by this proposal, maintaining the text of the current rule of origin will result in less rigorous requirements to fulfill CIFTA rules of origin. Israeli officials are in agreement with this approach.

This notice is to advise industry and other interested parties of the proposal under consideration and provide an opportunity for comment on it. Upon completion of these domestic consultations, the government of Canada will review any comments received to determine whether it will maintain the current text of the CIFTA rules of origin under consideration, when HS2002 amendments are made to other CIFTA rules of origin. It is anticipated that these amendments will be made in mid-2002.

The CIFTA rules of origin at issue and tariff items, which provide for the goods affected by this proposal are set out in the following Schedules to this Notice:

• Schedule I – Affected Rules: This schedule lists the CIFTA Rules of Origin whose text would be maintained by this proposal; and
• Schedule II – Affected 2002 Tariff Items and MFN duty rates: This schedule lists all the tariff items affected by this proposal, with their respective MFN rates of duty, and indicates the instances in which MFN imports occurred in the pre-2002 tariff items providing for the same goods as the 2002 tariff items affected.

In addition, rules will be required for tariff heading 38.25, which has been established in the HS2002 Customs Tariff to provide for residual products of the chemical or allied industry, sewage sludge and other wastes. Although certain goods of 38.25 were classified with similar prime goods in Chapters 28 through 38, 40 or 90 prior to 2002, it is proposed that the rules for heading 38.25 would contain no general exceptions for materials of these chapters and would read as follows:

The CIFTA rules of origin are used to determine when a good is eligible for CIFTA tariff preferences. These rules specify that goods originate in the CIFTA territory if they are wholly produced in Canada or Israel, using inputs wholly produced in either of these countries. However, goods containing non-CIFTA materials can be considered to be of CIFTA origin if the non-regional materials are sufficiently transformed in the CIFTA region so as to undergo a specified change in tariff classification.

Officials of the Canadian and Israeli governments have developed this proposal to avoid the introduction of excessively complex rules of origin. In many instances the proposed amendments would have the effect of liberalizing the current rules of origin.

The CIFTA is posted in its entirety, at http://www.dfait-maeci.gc.ca/tna-nac/cifta-e.asp.

The 2001 and 2002 Canadian Customs Tariffs are posted,
respectively, at http://www.ccra-adrc.gc.ca/customs/general/publications/
customs_tariff_toc2001-e.html and http://www.ccra-adrc.gc.ca/
customs/general/publications/tariff2002/table-e.html.

Concordances that cross reference 2001 tariff items and 2002 tariff items, are posted at http://www.ccra-adrc.gc.ca/customs/general/publications/
tariff2002/concordance0102.pdf and http://www.ccra-adrc.gc.ca/customs/
general/publications/tariff2002/concordance0201.pdf.

Submissions from Interested Parties

All submissions must be received no later than May 15, 2002.

In developing comments, interested parties should focus on whether this proposal will have an impact on products of interest to them.

Address for Submissions

Submissions must be received at the following address:

Denise J. Climenhage
International Trade Policy Division
L’Esplanade Laurier, 14^th Floor, East Tower
140 O’Connor Street
Ottawa, Ontario
K1A 0G5
613-992-2518