ARCHIVED — Vol. 148, No. 23 — November 5, 2014

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Registration

SOR/2014-238 October 24, 2014

CUSTOMS ACT

Regulations Amending the Proof of Origin of Imported Goods Regulations

P.C. 2014-1119 October 23, 2014

Whereas the annexed Regulations give effect to public announcements made on June 30, 2012, and January 8, 2013 known as Customs Notice 12-022 and Customs Notice 13-002, respectively;

And whereas Customs Notice 12-022 and Customs Notice 13002 provide that the regulatory amendments to the Proof of Origin of Imported Goods Regulations (see footnote a) come into force on July 1, 2012 and January 8, 2013, respectively;

Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister of Public Safety and Emergency Preparedness and the Minister of Finance, pursuant to subsection 35.1(4) (see footnote b), section 164 (see footnote c) and paragraph 167.1(b) (see footnote d) of the Customs Act (see footnote e), makes the annexed Regulations Amending the Proof of Origin of Imported Goods Regulations.

REGULATIONS AMENDING THE PROOF OF ORIGIN OF IMPORTED GOODS REGULATIONS

AMENDMENTS

1. (1) Subsection 6(1) of the Proof of Origin of Imported Goods Regulations (see footnote 1) is replaced by the following:

6. (1) Subject to subsections (2) to (5), if the benefit of preferential tariff treatment under NAFTA, CCFTA, CCRFTA, CPFTA or CCOFTA is claimed for goods, the importer or owner of the goods shall, for the purposes of section 35.1 of the Act, furnish to an officer, as proof of origin, at the times set out in section 13, a Certificate of Origin for the goods, completed in English, French or Spanish.

(2) The portion of subsection 6(4) of the Regulations before paragraph (a) is replaced by the following:

(4) If the benefit of preferential tariff treatment under NAFTA is claimed for commercial goods whose estimated value for duty is less than $2,500 or if the benefit of preferential tariff treatment under CCFTA, CCRFTA, CPFTA or CCOFTA is claimed for commercial goods whose estimated value for duty is less than $1,600, the importer and owner of the commercial goods are exempt from the requirements of subsection 35.1(1) of the Act if

(3) Section 6 of the Regulations is amended by adding the following after subsection (4):

(5) If the benefit of preferential tariff treatment under NAFTA is claimed for locomotives classified under heading No. 86.01 or 86.02 or railway freight cars classified under heading No. 86.06 of the List of Tariff Provisions set out in the schedule to the Customs Tariff, the importer and owner of the goods are exempt from the requirements of subsection 35.1(1) of the Act with respect to those goods if they are transported overland from the United States into Canada.

COMING INTO FORCE

2. (1) Subsections 1(1) and (3) are deemed to have come into force on July 1, 2012.

(2) Subsection 1(2) is deemed to have come into force on January 8, 2013.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Issues

Canadian rail carriers compete in an integrated North American marketplace, with rail equipment regularly crossing the border to and from the United States. Since 2000, locomotives and freight railcars have been allowed to enter the United States from Canada or Mexico without the need to demonstrate proof of origin. However, locomotives and freight railcars entering Canada from the United States are still subject to the North American Free Trade Agreement (NAFTA) Certificate of Origin requirements. Amendments to the Proof of Origin of Imported Goods Regulations (the Regulations) are needed to ensure a consistent North American framework for railway operators.

Furthermore, as part of the Beyond the Border Action Plan (BBAP), in an effort to promote supply chain connectivity by harmonizing low-value shipment processes to expedite customs administration, Canada committed to increase the value threshold for exemption from the NAFTA Certificate of Origin requirement for commercial goods to align the Canadian requirements with those of the United States.

Background

These regulatory amendments concern two sets of modifications related to the proof of origin requirements for importers claiming the benefit of the NAFTA preferential tariff treatment. To claim the NAFTA preferential tariff treatment, the importer must have in its possession, at the time of importation, a proof of origin provided by the exporter or producer. This proof of origin is a prescribed form that certifies that the goods being exported from the territory of a party (e.g. the United States) into the territory of another party (e.g. Canada), and for which a NAFTA preferential tariff treatment will be claimed, in fact, qualifies as an originating good as per the criteria set out in the NAFTA Rules of Origin Regulations. The final assembly or production of the good must occur in a NAFTA territory prior to importation into Canada. No subsequent production process can happen outside the NAFTA territory, otherwise the good will lose its NAFTA preferential tariff treatment entitlement. For example, if a company in the United States produces shirts and sends them to Italy to be printed prior to importation into Canada, the shirts will lose their NAFTA eligibility. The proof of origin is used by the Canada Border Services Agency (CBSA) to validate the importer’s claim for duty-free treatment under the NAFTA. The NAFTA Certificate of Origin is the prescribed proof of origin as defined in the Regulations.

Locomotives and freight railcars

The first modification to the Regulations stems from a request by the rolling stock industry to harmonize the regulatory environment with that of the United States with respect to proof of origin. Such harmonization is consistent with the Budget 2011 commitment to streamline Canada’s Customs Tariff with a view to facilitating trade and lowering the administrative burden for business and government.

As noted above, locomotives and freight railcars entering Canada from the United States claiming NAFTA tariff treatment are subject to proof of origin requirements in the form of a NAFTA Certificate of Origin. However, since 2000, locomotives and freight railcars have specifically been allowed to enter the United States from Canada or Mexico without the need to demonstrate proof of origin as the United States modified their requirements regarding these importations. To ensure a consistent North American framework for rail operators, it was decided to harmonize these requirements in Canada by amending the Regulations. The regulatory modifications will allow the importer to claim the applicable NAFTA preferential tariff treatment for these conveyances (duty-free) without having to produce proof of origin. The importers will still have to meet all the other importation requirements not relating to the Certificate of Origin and present the required documentation in relation to the imported conveyances (e.g. Form B3 accounting document and all appropriate permits, licences or certificates, if required).

Increase of the threshold value for exemption from NAFTA Certificate of Origin

The second modification to the Regulations is linked to the BBAP, released on December 7, 2011. The BBAP was intended to provide a framework for the implementation of the principles contained in the Beyond the Border Declaration issued by the Prime Minister of Canada and the President of the United States in February 2011. The BBAP contains a commitment to “[p]romote supply chain connectivity by harmonizing low-value shipment processes to expedite customs administration.” Harmonizing the threshold for exemption from NAFTA Certificate of Origin requirements for all imported commercial goods, by increasing the value threshold from $1,600 to $2,500, meets this commitment.

The NAFTA includes an exception to provide a NAFTA Certificate of Origin (proof of origin) for all commercial importations which value does not exceed a low value threshold set amount. The original $1,600 threshold is an amount that was negotiated and agreed upon under the NAFTA in 1992. As part of the BBAP, this amount is now being revised upward to $2,500 for Canada and the United States. The objective of this exception remains the facilitation of the flow of commercial importations for low value shipments, by expediting the customs clearance as NAFTA preferential tariff treatment can be claimed without obtaining a NAFTA Certificate of Origin. The higher the threshold value, the more importations can qualify for this exemption. The amount of $2,500, as well as the implementation date of January 8, 2013, was agreed upon by Canada and the United States as part of the BBAP.

Paragraph 167.1(b) of the Customs Act allows regulatory changes that have previously been the subject of a public announcement to have a retroactive effect. Therefore, the CBSA has been administering the proof of origin requirements on a provisional basis since Customs Notices were issued. The public announcement and the upcoming amendments to the Regulations were posted by the CBSA in Customs Notices on June 30, 2012 (CN12-021 publicly announcing the exemption for rolling stock, and CN12-022 describing the required regulatory amendments), and on January 8, 2013 (CN13-001 publicly announcing the increase to the exemption threshold, and CN13-002 describing the required regulatory amendments).

These Customs Notices can be viewed at the following Web addresses:

  • CN12-021:
    www.cbsa-asfc.gc.ca/publications/cn-ad/cn12-021-eng.html
  • CN12-022:
    www.cbsa-asfc.gc.ca/publications/cn-ad/cn12-022-eng.html
  • CN13-001:
    www.cbsa-asfc.gc.ca/publications/cn-ad/cn13-001-eng.html
  • CN13-002:
    www.cbsa-asfc.gc.ca/publications/cn-ad/cn13-002-eng.html

The regulatory amendments will finalize the process that begun with the public announcements and description of the regulatory modifications contained in the Customs Notices, formalizing proof of origin processes that are already being administered. These amendments will officially incorporate the modified proof of origin requirements into Canada’s existing regulatory regime.

Objectives

The amendments to the Regulations will harmonize NAFTA Certificate of Origin requirements between Canada and the United States

  • 1. by waiving the NAFTA Certificate of Origin requirement on specified locomotives and railway freight cars; and
  • 2. by increasing the value threshold for exemption from NAFTA Certificate of Origin requirements for commercial goods from $1,600 to $2,500.

Description

Paragraph 35.1(4)(c) of the Customs Act authorizes the Governor in Council to make regulations exempting persons or goods, or classes thereof, from the requirement in subsection 35.1(1) to furnish proof of origin for all imported goods. A new subsection is being added to section 6 of the Proof of Origin of Imported Goods Regulations in order to provide such an exemption for locomotives and railway freight cars (specifically classified under heading No. 86.01, 86.02 or 86.06 of the List of Tariff Provisions set out in the schedule to the Customs Tariff) that have been transported overland from the United States into Canada and for which preferential tariff treatment under NAFTA is claimed.

The new subsection will waive the requirement for an importer to possess and present a completed NAFTA Certificate of Origin for the goods in question. By waiving the NAFTA Certificate of Origin requirement for locomotives and freight railcars, such conveyances can be accounted for as NAFTA-originating and can enter Canada duty-free from the United States without having to be in possession of a NAFTA Certificate of Origin, thereby eliminating the administrative burden of obtaining and maintaining the information necessary for a NAFTA Certificate of Origin and harmonizing Canada’s proof of origin requirements with those of the United States by allowing rolling stock to circulate more easily across the border.

Subsection 6(4) of the Regulations is also being amended to raise the value threshold for exemption from NAFTA Certificate of Origin requirements for commercial goods to $2,500. This amendment will harmonize Canadian requirements with those of the United States and realize one of the commitments of the BBAP, resulting in more importations qualifying for the exemption.

“One-for-One” Rule

The amendments to the Regulations regarding the locomotives and freight railcars will reduce administrative costs for business. However, as the regulatory modifications address tax or tax administration, they are carved out from the “One-for-One” Rule.

Small business lens

The small business lens does not apply to this proposal, as there are no costs on small business.

Consultation

A notice seeking the views of stakeholders concerning the proposed amendment to the Regulations to waive the NAFTA Certificate of Origin for locomotives and railway freight cars was published in Part I of the Canada Gazette on Saturday, October 8, 2011 (Vol. 145, No. 41). The Railway Association of Canada wrote in support of this amendment and no opposition was received.

After the release in February 2011 of the Beyond the Border Declaration, the Government of Canada conducted extensive consultations, through provincial and territorial governments, bilateral meetings with key stakeholders and online consultation, to seek the views of the trading public. The commitment to increase the value threshold to $2,500 for exemption from NAFTA Certificate of Origin requirements for commercial goods is part of the BBAP, which was announced and released by the Prime Minister of Canada and the President of the United States on December 7, 2011.

Details of the BBAP and the Beyond the Border Declaration can be viewed at the following Web address: http://actionplan.gc.ca/eng/feature.asp?mode=preview&pageId=337.

The regulatory proposals contained herein were announced by the CBSA in Customs Notices CN12-022 and CN13-002. These Customs Notices provided further opportunities for the public to review the proposed regulatory changes and provide comments to the government. No comments were received.

Rationale

Firstly, virtually all locomotives and freight railcar equipment used in North American rail freight service are, or were, manufactured in North America and therefore would qualify as originating in a NAFTA party (Canada, Mexico or the United States) and therefore would be entitled to enter Canada from the United States on a duty-free basis, if accompanied by a NAFTA Certificate of Origin. Furthermore, as mentioned previously, locomotives and freight railcars have specifically been allowed to enter the United States from Canada or Mexico without the need to demonstrate proof of origin, as the United States modified their requirements regarding these importations in 2000. This modification to the proof of origin requirement will allow Canada to offer the same treatment to locomotives and freight railcars entering Canada from the United States.

Secondly, as part of the BBAP, Canada committed to increase the value threshold from $1,600 to $2,500 for exemption from NAFTA Certificate of Origin requirements for commercial goods, thereby aligning Canadian requirements with those of the United States. The threshold value was set at $1,600 in 1992 and had not been updated since.

This change does not have revenue implications for the Government. In fact, before the threshold increase, commercial importations valued at less than $2,500 but more than $1,600 required a NAFTA Certificate of Origin in order to qualify for NAFTA preferential tariff treatment. Now the same importations will benefit from the same NAFTA preferential treatment, but instead of necessitating coverage from a NAFTA Certificate of Origin, a written statement, on an invoice or other supporting document, can be provided in lieu of a formal Certificate of Origin.

Implementation, enforcement and service standards

The CBSA will continue to monitor compliance with the Regulations in the course of its regular administration of customs- and tariff-related legislation and regulations.

Contact

Brenda Goulet
Trade and Anti-Dumping Programs Directorate
Canada Border Services Agency
150 Isabella Street, 8th Floor
Ottawa, Ontario
K1A 0L8