Canada Gazette Notice
Customs Tariff

Proposal to Amend de minimis Provisions and to Implement Transhipment and Minor Processing Provisions under the Canada-Israel Free Trade Agreement

The purpose of this notice is to inform interested parties that the Government is seeking views on proposals relating to the Canada-Israel Free Trade Agreement.

Submissions must be received at the following address by January 24, 2002: Robert Hunter, International Trade Policy Division, Department of Finance, 14th Floor, East Tower, 140 O'Connor Street, Ottawa, Ontario K1A 0G5.

Initiation of Domestic Consultations

The purpose of this notice is to inform interested parties that the Government is seeking views on proposals relating to the Canada-Israel Free Trade Agreement. One proposal would amend the calculation and application of de minimis provisions in Article 3.12(6)(c) of the Canada-Israel Free Trade Agreement (CIFTA). The other proposal would allow goods to be transhipped through, and to undergo specified minor processing operations in, the United States, without losing their eligibility for preferential tariff treatment under CIFTA. The proposals, which are set out in the Schedule below, have been developed jointly by the Governments of Canada and Israel.

The purpose of this notice is to seek further advice from industry and from other interested parties on these proposed amendments. Upon completion of these domestic consultations, the Governments of Canada and Israel will review the public comments to determine whether the proposals will be implemented as changes to the rules of origin in the CIFTA.

Background

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.

The CIFTA De Minimis Rule for Originating Goods stipulates that certain goods shall be considered to originate in a CIFTA country even if some non-originating materials used in the production of the good do not undergo the required change in tariff classification, so long as the value of such non-originating materials is no more than ten per cent of the value of the good. Article 3.12(6)(c) of CIFTA sets out the requirements for calculating the value of such non-originating materials for the purpose of this rule, which currently include all costs incurred in transporting the material to the location of the producer. Under the proposed amendment to Article 3.12(6)(c) the value of non-originating goods is based on all costs incurred in transporting the material to the point of importation. The change will liberalize the De Minimis Rule, particularly for Canadian producers, as costs incurred between the point of importation and the location of the producers will no longer be included in the value of non-originating materials.

When CIFTA came into force on January 1, 1997, Canada and Israel agreed pursuant to Article 5.12(4) of the Agreement, that the transhipment and minor processing provisions in Article 3.5(1)(c) would come into force only when procedural measures were established and agreement was reached on verification methods. The Government consulted widely with Canadian industry associations and individual companies during the negotiations of CIFTA.

After CIFTA came into force the Government continued consultations with the textile and apparel industries which had expressed concern during the negotiations about including certain operations relating to textile products in the definition of "minor processing" and were uncertain that verification procedures would prevent non-qualifying apparel products from being incorrectly imported under the provisions of the CIFTA. As a result of these consultations, it is proposed that certain operations relating specifically to textiles and apparel be removed from the definition of "minor processing" in Article 3.13 and that textiles and apparel of Chapter 50 through 63 of the Customs Tariff be excluded from the transhipment provision of Article 3.5(1)(c). This proposal also introduces an obligation in Article 5.12(9) by Canada and Israel to review the application of Article 3.5(1)(c) by January 1, 2005, with respect to international trade in textiles to account for changed circumstances. In addition, to ensure that certain minor processing operations of particular interest to Israel are clearly provided for, the proposal introduces definitions for "alteration" and "repair" and, in the definition for "minor processing", adds certain relabelling to the provision for packaging.

Finally, the proposal amends Article 3.5(1)(c) to include a new provision to specify the percentage by which the value of an originating good may be increased by any processing that occurs in the United States without the good losing its eligibility for CIFTA tariff preferences. The ten per cent value increase permitted is consistent with CIFTA's de minimis.

Officials of the Canadian and Israeli governments have developed these proposals to alleviate industry concerns that have prevented certain articles of the Agreement from becoming operative. It is intended that the proposed amendments would enter into force on March 1, 2002.

The CIFTA is posted in its entirety, including Articles 3.12 and 3.13, which would be amended by the proposal set out in the schedule to this Notice, and the inoperative provisions of Article 3.5(1)(c) at http://www.dfait-maeci.gc.ca/tna-nac/cifta-e.asp

Submissions from Interested Parties

All submissions must be received no later than January 24, 2002.

In developing comments, interested parties should focus on the impact that the proposed provisions set out in the schedule might have on products of interest to them.

Address for Submissions

Submissions must be received at the following address by January 24, 2002: Robert Hunter, International Trade Policy Division, Department of Finance, 14th Floor, East Tower, 140 O'Connor Street, Ottawa, Ontario K1A 0G5.

Schedule

Proposed Amendments to Canada-Israel Free Trade Agreement Provisions for Transhipment, De Minimis and Minor Processing

Paragraph 1 - Delete subparagraph (c) and replace with the following:

(c) subject to Article 5.12(4) and except for a good listed in Chapter 50 through 63, the good is transhipped through the territory of a non-Party with which each Party has entered separately into a free trade agreement under Article XXIV of the GATT 1994 before this Agreement enters into force and:

(i) does not undergo further production other than minor processing in the territory of that non-Party, or

(ii) any processing that occurs in the territory of that non-Party with respect to that good does not increase the transaction value of the good by greater than ten per cent.

Paragraph 6 - Delete subparagraph (c) and replace with the following:

(c) where not included under subparagraph (a) or (b), include freight, insurance, packing and all other costs incurred in transporting the material to the point of importation.

Add, after the definition for adjusted to an F.O.B. basis, the following definition:

alteration means a modification, other than a repair, that does not include an operation or process that either destroys the essential characteristics of a good or creates a new or commercially different good;

In the definition of minor processing, delete subparagraph (f) and replace with the following:

(f) packaging or repackaging of the good for retail sale or relabelling of the good in one or more official languages of a Party, or

In the definition of minor processing, delete subparagraphs (h) and (i).

Add, after the definition for production, the following definition:

repair means the adjustment of a machine, instrument, electrical device or other article, including replacing or refitting parts to restore the article to its original operating condition;

Paragraph 4 - Delete subparagraphs (a), (b) and (c) and replace with the following:

the agreement by the Parties on the method of verification by a customs administration that a good has undergone no further production other than minor processing in the territory of a non-Party referred to in Article 3.5(1)(c) or that any processing that occurs in the territory of that non-Party with respect to that good does not increase the transaction value of the good by greater than ten per cent, based on the principles of Article 5.6;

the establishment by the Parties of a Declaration of Minor Processing for the purpose of certifying that the good has undergone no further production other than minor processing in the territory of a non-Party referred to in Article 3.5(1)(c) or that any processing that occurs in the territory of that non-Party with respect to that good does not increase the transaction value of the good by greater than ten per cent; and

the establishment by the Parties of an obligation regarding the completion of the Declaration of Minor Processing and the obligations regarding importations, exportations and record-keeping with regard to a good that undergoes minor processing or any processing that does not increase the transaction value of the good by greater than ten per cent, as referred to in Article 3.5(1)(c), based on the principles set out in Articles 5.1 to 5.5.

Add, immediately after paragraph 8, the following:

9. The Parties will, no later than January 1, 2005, review the application of Article 3.5(1)(c) to take into account changed circumstances, such as technological advances or changes in market conditions with respect to international trade in textiles.