CIFTA Rules of Origin Regulations: SOR/2019-276
Canada Gazette, Part II, Volume 153, Number 17
SOR/2019-276 July 30, 2019
P.C. 2019-1115 July 26, 2019
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsection 16(2) footnote a of the Customs Tariff footnote b, makes the annexed CIFTA Rules of Origin Regulations.
CIFTA Rules of Origin Regulations
Rules of Origin
1 The following provisions of the Canada-Israel Free Trade Agreement have the force of law in Canada:
- (a) Article 3.1;
- (b) paragraph 1 of Article 3.2;
- (c) Articles 3.3 to 3.10;
- (d) paragraph 1 of Article 3.11;
- (e) Articles 3.12 to 3.14; and
- (f) Annexes 3.4 and 3.12.
2 The CIFTA Rules of Origin Regulations footnote 1 are repealed.
Coming into Force
3 These Regulations come into force on the day on which the Act to amend the Canada-Israel Free Trade Agreement Implementation Act and to make related amendments to other Acts, chapter 6 of the Statutes of Canada, 2019, comes into force, but if they are registered after that day, they come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the regulations.)
In order to implement the modernized Canada-Israel Free Trade Agreement (CIFTA or the Agreement), An Act to amend the Canada-Israel Free Trade Agreement Implementation Act and to make related amendments to other Acts was tabled in the House of Commons on October 23, 2018, and received royal assent on May 27, 2019. The modernized CIFTA, like all of Canada’s free trade agreements, includes rules of origin that specify how much production must occur in Canada and/or in Israel for a product to be considered originating and therefore eligible for the preferential tariffs under the Agreement. The regulations are necessary to implement, in domestic law, provisions to allow importers to benefit from the preferential tariffs of the modernized CIFTA.
On May 28, 2018, Canada and Israel signed the Protocol Amending the Free Trade Agreement Between the Government of Canada and the Government of the State of Israel. This protocol modernizes the CIFTA, a goods-only agreement in force since January 1, 1997, that eliminated tariffs on all industrial products manufactured in Canada and Israel, as well as on a limited number of agricultural and fisheries products.
A modernized CIFTA will further strengthen the bilateral commercial relationship and improve access to the Israeli market for Canadian companies through further elimination and reduction of tariffs on agricultural and fisheries products. Streamlined rules of origin will also make it easier for Canadian exporters to take advantage of opportunities under the Agreement. Furthermore, this modernization will make CIFTA a 21st-century agreement by reducing technical barriers to trade, enhancing cooperation, increasing transparency in regulatory matters and reducing red tape for business. With the inclusion of new progressive elements on gender, small- and medium-sized enterprises and corporate social responsibility, as well as labour and environmental protections, the modernized CIFTA will signal the importance of progressive trade and better ensure that the benefits and opportunities that flow from trade and investment are more widely shared.
Israel, with a gross domestic product (GDP) of $455.3 billion, is an important economic player in the Middle East and offers a range of opportunities for Canadians and Canadian businesses, including in trade, investment, science, technology and innovation. Since CIFTA first came into effect, Canada’s two-way merchandise trade with Israel has more than tripled, totalling $1.7 billion in 2017. This modernized Agreement will give Canadian exporters the opportunity to compete on a more level playing field with competitors from other countries, notably the United States and the European Union. Once the modernized Agreement enters into force, virtually 100% of current Canadian exports of agriculture, agri-food, and fish and seafood products will benefit from preferential tariff treatment, up from 90%, while Canada will provide additional duty-free access on products such as baked goods, wine, and fruit and vegetable juice.
- To fully implement Canada’s negotiated tariff elimination commitments under the modernized CIFTA; and
- For importers, to be able to claim the preferential tariff treatment of the modernized CIFTA.
The CIFTA Rules of Origin Regulations repeal and replace the CIFTA Rules of Origin Regulations (SOR/97-63) and implement, in Canada, the rules of origin negotiated by Canada and Israel in the modernized CIFTA that will be used to determine when goods have undergone sufficient production to qualify for preferential tariff treatment. The rules of origin in the modernized CIFTA were simplified, liberalized, and brought up to date with Canada’s approach in more recent free trade agreements.
The Regulations Amending the CIFTA Rules of Origin for Casual Goods Regulations amend the CIFTA Rules of Origin for Casual Goods Regulations (SOR/97-65). These Regulations replace the conditions under which goods acquired in Israel by travellers are considered originating goods and therefore entitled to preferential tariff treatment. Where travellers acquire goods in Israel that are either marked “made in Israel,” or not marked to the contrary, the traveller can claim the CIFTA tariff preference on importation of the goods into Canada.
The CIFTA Tariff Preference Regulations repeal and replace the CIFTA Tariff Preference Regulations (SOR/97-64). These modernized Regulations allow eligible goods that are not shipped directly between Israel and Canada to retain the eligibility for preferential tariff rates provided the goods remain under customs control in third countries.
The Regulations Amending the Regulations Defining Certain Expressions for the Purposes of the Customs Tariff amends the Regulations Defining Certain Expressions for the Purposes of the Customs Tariff (SOR/97-62). These Regulations replace the definition of “imported from Israel or another CIFTA beneficiary” for the purposes of the Customs Tariff. The current definition allows certain originating goods that have undergone some processing in the United States to be considered imported from Israel or another CIFTA beneficiary and therefore eligible for preferential treatment. Updating the definition is necessary, as the modernized CIFTA allows for processing to occur in an expanded list of non-parties (i.e. the European Union, the Member States of the European Free Trade Association, Jordan, Mexico as well as the United States). Therefore, even if the last step of production occurs in a country other than Canada or Israel, the good may still be considered originating under the modernized CIFTA.
These regulations are technical and consequential, as they implement negotiated outcomes of the modernized CIFTA. Therefore, there have been no public consultation conducted specifically on these regulations. However, Canadian industry and other stakeholders were extensively consulted before and during negotiations of the amendments to CIFTA, which gave stakeholders the opportunity to input on the negotiated outcome that is reflected in these regulations. In October 2011, a public consultation process was launched through the Canada Gazette and the Global Affairs Canada (GAC) departmental website, with a period for submissions from October 29 to December 30, 2011. The level of stakeholder interest was modest, as only two submissions, both positive, were received during this process. GAC and Agriculture and Agri-food Canada also conducted targeted outreach with other industry stakeholders during negotiations. In addition, in 2014, notice in the Canada Gazette was given of an environmental assessment to inform the negotiations.
Given that these regulations are not controversial and broad consultation on the modernized CIFTA has occurred, publication of the regulations in the Canada Gazette, Part I, was not considered necessary.
Modern treaty obligations and Indigenous engagement and consultation
As a result of these regulations, benefits in the form of reduced duties will be accessible to anyone seeking to import goods from Israel if they meet the necessary requirements, including Indigenous peoples.
These regulations fully implement Canada’s negotiated tariff elimination commitments under the modernized CIFTA and are necessary for importers to be able to claim the preferential tariff treatment of the modernized CIFTA. These regulations represent the only instruments for achieving this objective.
Costs and benefits
These are non-discretionary enabling regulations with no cost impact. They do not make changes to the importing or exporting of goods, including the required customs forms; they link the preferential tariff treatment provided for under the modernized CIFTA with the rules of origin requirements under the modernized CIFTA to enable the claiming of the preferential tariff. Without the implementation of these four regulations, importers of originating goods from Israel would not be able to claim the CIFTA preferential tariff treatment, and would have to use most favoured nation tariff treatment, even after the modernized CIFTA entered into force. This would place Canada in violation of its commitments under the CIFTA.
While not a direct impact of these regulations, when Canada’s tariff commitments under the modernized CIFTA are fully implemented, it is estimated that annual duties foregone by the Government would be approximately $2.9 million based on recent trade patterns with Israel. These duties represent a benefit, in the form of lower customs duties to be paid by Canadian importers of products originating from Israel. The removal of CIFTA tariffs on Canadian exports will similarly make Canadian goods more competitive in Israel, potentially leading to increased exports across a range of sectors.
Small business lens
The package of regulations does not make changes to the importing or exporting of goods, including the required customs forms; they link the preferential tariff treatment provided for under the modernized CIFTA with rules of origin requirements under the modernized CIFTA to enable the claiming of the preferential tariff. Therefore, all businesses, including small businesses, will be able to claim the preferential tariff treatment on goods originating from Israel and will see benefits in the form of lower duties paid on their imports from Israel.
This package of regulations does not make changes to the importing or exporting of goods, including the required customs forms; they link the preferential tariff treatment provided for under the modernized CIFTA with rules of origin requirements under the modernized CIFTA to enable the claiming of the preferential tariff.
Accordingly, there is no incremental change to the level of administrative burden or compliance costs currently imposed on businesses as a result of implementing the regulations. Therefore, the “One-for-One” Rule does not apply.
Regulatory cooperation and alignment
These regulations are not related to a work plan or commitment under a regulatory cooperation forum. They are necessary for Canada to fulfill its commitments under the modernized CIFTA, which is an international agreement.
Strategic environmental assessment
Global Affairs Canada conducted an environmental assessment of the Agreement in accordance with The Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals. The initial environmental assessment encompassed both qualitative and quantitative analyses. The overall findings of the initial environmental assessment were that Canadian environmental impacts, as a result of the modernized CIFTA, are expected to be very minor, mainly because the economic impact of the Agreement will be modest relative to Canada’s overall economic activity.
These regulations are consequential to the implementation of the modernized CIFTA. Therefore, a separate environmental assessment was not conducted on these regulations.
Gender-based analysis plus
No gender-based analysis plus (GBA+) impacts have been identified for this package of regulations.
Implementation, compliance and enforcement, and service standards
The Canada Border Services Agency (CBSA) will monitor compliance with the terms of these regulations in the normal course of its administration of customs- and tariff-related legislation and regulations. As in the case of previous free trade agreements, the CBSA will update its systems to account for the implementation in Canada of the modernized CIFTA and will inform importers of all relevant CIFTA-related issues pertaining to these regulations.
International Trade Policy Division
Department of Finance Canada