Vol. 149, No. 7 — April 8, 2015
SOR/2015-70 March 27, 2015
Regulations Amending the Customs Bonded Warehouses Regulations
P.C. 2015-341 March 26, 2015
His Excellency the Governor General in Council, on the recommendation of the Minister of Public Safety and Emergency Preparedness, pursuant to paragraph 99(f) of the Customs Tariff (see footnote a), makes the annexed Regulations Amending the Customs Bonded Warehouses Regulations.
REGULATIONS AMENDING THE CUSTOMS BONDED WAREHOUSES REGULATIONS
1. (1) The definition “Minister” in section 2 of the Customs Bonded Warehouses Regulations (see footnote 1) is repealed.
(2) The definition “bonded warehouse” in section 2 of the Regulations is replaced by the following:
“bonded warehouse” means a place that is licensed as a bonded warehouse by the Minister of Public Safety and Emergency Preparedness under subsection 91(1) of the Customs Tariff; (entrepôt de stockage)
2. Subsection 3(1) of the Regulations is amended by striking out “and” at the end of paragraph (b), by adding “and” at the end of paragraph (a) and by repealing paragraph (c).
3. Section 5 of the Regulations and the heading before it are repealed.
4. Paragraph 7(b) of the English version of the Regulations is replaced by the following:
- (b) makes a request in writing to that Minister that the licence be cancelled; or
5. (1) Subsection 9(1) of the Regulations is replaced by the following:
9. (1) The Minister of Public Safety and Emergency Preparedness shall, immediately after suspending a licence, give the licensee a notice that confirms the suspension and that provides all relevant information concerning the grounds for the suspension.
(2) Subsection 9(3) of the Regulations is replaced by the following:
(3) The Minister of Public Safety and Emergency Preparedness shall, before cancelling a licence under section 8, give the licensee 90 days’ notice of the proposed cancellation and provide the licensee with all relevant information concerning the grounds for the proposed cancellation.
6. The Regulations are amended by replacing “Minister” with “Minister of Public Safety and Emergency Preparedness” in the following provisions:
- (a) the portion of subsection 3(1) before paragraph (a) and the portion of subsection 3(4) before paragraph (a);
- (b) section 6;
- (c) the portion of section 7 before paragraph (a);
- (d) the portion of subsection 8(1) before paragraph (a) and the portion of subsection 8(2) before paragraph (a);
- (e) subsections 9(2) and (4); and
- (f) section 10.
COMING INTO FORCE
7. These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
In an increasingly competitive global economy, Canadian entrepreneurs and businesses need access to international markets in order to remain competitive. The Government of Canada (GoC) has worked to promote investment and reduce regulatory impediments to business growth by reducing the cost of importing key factors of production, such as machinery and equipment. While Canada has enjoyed success in providing entrepreneurs with an environment that promotes the development of manufacturing and processing of goods, other barriers remain. One of these barriers identified by businesses is the costs associated with the annual licence fee for the Customs Bonded Warehouses (CBW) Program. The requirement of businesses having to pay an annual fee impedes greater usage of CBWs by increasing their operating costs and inhibiting their ability to import key factors of production. The greatest impact of this fee is felt by small businesses and occasional users of CBWs, further limiting their international competitiveness.
As part of Canada’s Economic Action Plan 2011, the GoC committed to an examination of Canada’s foreign trade zone (FTZ) policies and programs in order to seek the views of Canadian industry on ways to enhance this programming for Canadian manufacturers and business.
Informed by stakeholder views, the GoC announced, as part of Canada’s Economic Action Plan 2013, measures to reduce red tape, cut costs, improve access to existing programs and to promote Canada’s FTZs advantage. The term FTZ generally refers to a specific designated location within a country that is eligible for duty and tax exemptions with respect to the purchase or importation of inputs of production or finished goods. These goods are then processed, assembled or packaged in the FTZ for re-export (in which case taxes and duties do not apply), or for entry into the domestic market (in which case taxes and duties would be deferred until the time of entry). The GoC offers FTZ-like programs which provide the same benefits as other FTZs around the world and are not geographically restricted.
Duty Deferral Program (DDP)
The DDP, which is administered by the Canada Border Services Agency (CBSA), relieves customs duties on imported goods that are subsequently exported. This is Canada’s main FTZ-like program, deferring or refunding approximately $1 billion of duties and taxes per year to some 2 000 clients. A key component of the DDP includes the deferral of duties and taxes, generally for up to four years, through the CBW Program.
The CBW Program provides FTZ benefits, such as deferring all duties and taxes on imported goods that are subsequently exported. A CBW is a facility operated by the private sector but regulated by the CBSA. However, it does not have to be a conventional warehouse. A CBW could be part of an office building or a hotel room depending upon the immediate requirements of the business. Through the CBW Program, businesses may qualify for a complete deferral of customs, anti-dumping and countervailing duties and excise duties and taxes, including the Goods and Services Tax and the Harmonized Sales Tax, for generally up to four years. While in the warehouse, goods may undergo certain minor manipulations, such as marking, labelling, testing, inspection, packaging, display, dilution, normal servicing and maintenance, grading, shorting, trimming, slitting or cutting and repackaging. Businesses only pay duties and taxes on the portion of goods entering the Canadian market, resulting in improved cash flow. If a business later exports the goods, then they do not have to pay any duties. To access the CBW Program, applicants must fill out an application and submit it to the CBSA. Should the CBSA be satisfied that the applicant meets the required program eligibility criteria outlined in the Customs Bonded Warehouse Regulations (the Regulations), they must then post security acceptable to the CBSA. The amount of the security required is 60% of the total value of the maximum amount of duties and taxes of the goods in a CBW that would be payable at any time in the following year a licence is issued. The security requirement is necessary as many of the goods stored in CBWs are considered high risk, for example, alcohol or tobacco. The security therefore acts as a form of insurance against the possibility that goods go missing.
The amendments to the Regulations include removing the annual fee for a licence to operate a CBW. The removal of the annual licence fee will help facilitate and promote access to the CBW Program, contributing to the Government’s 2013 budget commitment of enhancing Canada’s FTZ-like programs.
The amendments to the Regulations also replace the term “Minister” in the Regulations with “Minister of Public Safety and Emergency Preparedness.”
Currently, the eligibility criteria for the issuance of a licence set out in subsection 3(1) of the Regulations includes payment of the annual licence fee. The amendments to the Regulations will remove this criterion from subsection 3(1). Section 5 of the Regulations, which requires every licensee to pay the annual licence fee and stipulates the manner for determining the amount of the fee, will also be removed.
In addition, technical changes are made to replace the term “Minister” with “Minister of Public Safety and Emergency Preparedness.” The term “Minister” was previously defined as the Minister of National Revenue. However, it is now the Minister of Public Safety and Emergency Preparedness that is responsible for the administration of customs bonded warehouses.
The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.
Small business lens
The small business lens does not apply to this proposal, as there are no costs to small business.
The Economic Action Plan 2011 committed to an examination of Canada’s FTZ policies and programs in order to reduce red tape, cut costs, improve access to existing programs and promote Canada’s FTZ advantage. The GoC held nationwide consultations, led by the Department of Finance, from December 2011 to February 2012 to seek the views of Canadian industry on ways to enhance this programming.
During consultations, stakeholders noted that the annual licence fee for the CBW Program imposed a cost that inhibited usage, particularly among small and medium-sized enterprises and occasional users. In response, the Government eliminated the annual licence fee, effective April 1, 2013.
The Regulations contribute towards the GoC’s objectives of improving access to Canada’s FTZ programs. The elimination of the annual licence fees will provide an annual average savings of approximately $400,000 to some 199 licensees.
By eliminating the fee associated with operating a CBW, businesses will have lower costs when attempting to access a CBW, which will help entrepreneurs in the development of manufacturing, and processing warehouse hubs in strategic locations throughout Canada. By reducing the costs to business in accessing Canada’s DDPs, the implementation of these Regulations will enhance Canada’s global business environment, providing a foundation that is more attractive to foreign investment in Canada while helping to create jobs for Canadians and fostering long-term economic growth.
Implementation, enforcement and service standards
The elimination of licence fees charged under the Regulations was implemented on April 1, 2013. The Regulations will come into force on the day on which they are registered. There is no enforcement associated with the Regulations.
Senior Program Advisor
Trade Incentives Unit