Vol. 148, No. 26 — December 17, 2014
SOR/2014-294 December 4, 2014
EXPORT AND IMPORT PERMITS ACT
Order Amending the Allocation Method Order (Beef and Veal)
Whereas the Minister of Foreign Affairs has, pursuant to subsection 6.2(1) (see footnote a) of the Export and Import Permits Act (see footnote b), determined an import access quantity for beef and veal;
Therefore, the Minister of Foreign Affairs, pursuant to paragraph 6.2(2)(a) (see footnote c) of the Export and Import Permits Act (see footnote d), makes the annexed Order Amending the Allocation Method Order (Beef and Veal).
Ottawa, December 3, 2014
Minister of Foreign Affairs
ORDER AMENDING THE ALLOCATION METHOD ORDER (BEEF AND VEAL)
1. Section 1 of the French version of the Allocation Method Order (Beef and Veal) (see footnote 1) is replaced by the following:
1. Arrêté sur la méthode d’allocation (bœuf et veau).
2. (1) The definitions “processor” and “retailer-processor” in section 2 of the Order are replaced by the following:
“processor” means a person who has processed beef and veal at their own facilities during the 12-month period ending on September 30 in the calendar year before the calendar year for which the person applies for an import allocation. (transformateur)
“retailer-processor” means a retailer who has processed beef and veal at their own facilities during the 12-month period ending on September 30 in the calendar year before the calendar year for which the retailer applies for an import allocation. (détaillant-transformateur)
(2) Section 2 of the Order is amended by adding the following in alphabetical order:
“FTA country” means a country from which imports of beef and veal are not subject to the tariff rate quota in accordance with a free trade agreement (FTA) with Canada. (pays ALÉ)
3. The heading before section 3 of the French version of the Order is replaced by the following:
4. Section 3 of the Order is replaced by the following:
3. (1) Subject to subsections (3) and (4), the method for allocating the import access quantity for beef and veal that may be imported into Canada in each calendar year is as follows:
- (a) applicants who are processors and retailer-processors shall receive a share of 75% of the import access quantity, in proportion to the quantity of beef and veal that did not originate in a FTA country and that was processed at their own facilities during the 12-month period ending on September 30 in the calendar year before the calendar year for which the import allocation applies; and
- (b) applicants who are distributors shall receive a share of 25% of the import access quantity, in proportion to their imports of beef and veal that did not originate in a FTA country during the 12-month period ending on September 30 in the calendar year before the calendar year for which the import allocation applies.
(2) Despite subsection (1) and subject to subsections (3) and (4), the method for allocating the import access quantity for beef and veal that may be imported into Canada in the 2015 calendar year is as follows:
- (a) applicants who are processors and retailer-processors shall receive a share of 75% of the import access quantity, in proportion to the quantity of beef and veal that did not originate in a FTA country and that was processed at their own facilities during either of the following base periods that an applicant identifies in an application for allocation:
- (i) the 16-month period ending on April 30, 2003 (prorated to a 12-month period), or
- (ii) the 12-month period beginning on August 1, 2013 and ending on July 31, 2014; and
- (b) applicants who are distributors shall receive a share of 25% of the import access quantity, in proportion to their imports of beef and veal that did not originate in a FTA country during the base period referred to in paragraph (a).
(3) In any given calendar year, if an applicant that has been granted an allocation of 100 000 kg or more in accordance with subsection (1) or (2) has used 20% or less of their allocation by July 1, their remaining allocation will be reduced by 50% for that calendar year.
(4) If an applicant under-utilizes their import allocation in any given calendar year, the import allocation for which they may be eligible for the following calendar year is the import allocation in accordance with subsection (1) or (2) reduced by the percentage of their import allocation not utilized in that given calendar year.
(5) Subsection (4) does not apply if the total amount of the applicant’s import allocation not utilized is less than 9 000 kg of beef and veal.
(6) If, on or before October 1 in a given calendar year an applicant that has been granted an allocation in accordance with subsection (1) or (2) informs the Minister, in writing, that they are returning a specified portion of their allocation, that portion will be considered as having been used for the purposes of subsection (4).
5. The schedule to the Order is replaced by the schedule set out in the schedule to this Order.
COMING INTO FORCE
6. This Order comes into force on January 1, 2015.
1. Carcasses and half-carcasses of bovine animals, fresh, chilled or frozen, that do not originate in a FTA country and are classified under tariff item No. 0201.10.10 or 0202.10.10 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.
2. Cuts of meat of bovine animals, fresh, chilled or frozen, with bone in, that do not originate in a FTA country and are classified under tariff item No. 0201.20.10 or 0202.20.10 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.
3. Boneless meat of bovine animals, fresh, chilled or frozen, that does not originate in a FTA country and is classified under tariff item No. 0201.30.10 or 0202.30.10 in the List of Tariff Provisions set out in the schedule to the Customs Tariff.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Order.)
Every year since 2004, the Allocation Method Order (Beef and Veal) [AMO] has been amended to address the impacts of the bovine spongiform encephalopathy (BSE, or mad cow disease) situation on the Canadian beef market. The annual amendment allowed beef importers to apply for an allocation of the beef and veal tariff rate quota (TRQ) on the basis of either their recent activity or their activity prior to the BSE discovery. Allocations on the basis of only recent activity could have been detrimental to some importers. Although the Canadian beef market has now recovered from the BSE situation, the amendment is necessary for 2015 to allow importers using the pre-BSE reference period to transition to the recent reference period with minimal disruption to their business. It is expected that 2015 will be the last year in which the changes to accommodate the impact of BSE will be necessary.
In addition, a number of changes are being made to the AMO to ensure that the TRQ allocation method addresses new market conditions. These include the following: (a) introducing a within-year allocation claw-back provision for allocation holders that use little of their allocation during the first six months of the year; (b) advancing the unused allocation return date by a month; and (c) advancing the default reference period by a month to correspond with the modified return date and to facilitate the application process. These changes will also maximize TRQ utilization in future years.
The impact of fresh, chilled or frozen beef and veal from countries other than those with which Canada has a free trade agreement (hereinafter referred to as “non-FTA countries”) is controlled by the Import Control List made pursuant to the Export and Import Permits Act. Imports of such products are subject to an import permit requirement. In order to obtain an import permit, applicants must apply for an import allocation under the TRQ. In accordance with Canada’s international trade commitments, the import access level for beef and veal has been set at 76 409 tonnes per year. Imports within the TRQ benefit from a rate of duty of 0%; all other imports are subject to the higher rate of duty of 26.5%. The AMO is a ministerial regulation that establishes the method for allocating the import access quantity for the beef and veal TRQ. Seventy-five percent of the TRQ is allocated to processors and retailer-processors, the remaining 25% is allocated to distributors.
On May 20, 2003, the Canadian Food Inspection Agency announced that it had discovered a single case of BSE, commonly known as mad cow disease, on an Alberta farm. Following this announcement, many countries, including the United States, imposed restrictions on the importation of Canadian cattle, beef, and beef products. The market fallout from the BSE situation resulted in an ample supply of inexpensive Canadian beef being available to domestic processors. Many traditional beef importers decided to switch to domestic beef to help alleviate the situation.
Prior to 2004, the Canadian TRQ for beef and veal was allocated each year based upon the applicants’ level of processing or imports of beef from non-FTA countries during the previous 12-month period of November 1 to October 31.
In order to avoid penalizing the traditional importers that switched to domestic beef, a decision was made to amend the AMO to base the 2004 allocations on imports of beef from non-FTA countries during a 16-month period, prorated to a 12-month period, prior to the BSE discovery (January 1, 2002, to April 30, 2003). The decision made by the Minister at the time was supported by the Tariff Quota Advisory Committee (TQAC) and the Ad Hoc Beef and Veal Industry Committee (Ad Hoc Committee). The decision was valid for one year only.
Given that the disruptions in the North American beef market have continued, the TQAC and Ad Hoc Committee has recommended a similar amendment to the AMO every year since 2004. This consensus recommendation was aimed at allocating most of the TRQ to established industry members without penalizing those who had switched their usage to Canadian beef in the wake of the BSE situation, while addressing the needs of new industry entrants by reserving some portion of the TRQ for such new entrants. For every year since 2004, all TRQ applicants were provided with a choice between one of two possible base periods: (1) the 16-month period from January 1, 2002, to April 30, 2003 (prorated to a 12-month period); or (2) the most recent 12-month period from August 1 to July 31. The AMO was amended accordingly for 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, and 2014 to reflect the substantive intent of the consensus recommendation from the TQAC and Ad Hoc Committee.
In 2014, the North American beef market has recovered from the effects of BSE and the domestic supply situation has reversed. A Canadian market review and forecast of the beef industry provided by Agriculture and Agri-Food Canada in July 2014 indicates that tight supply and strong demand are escalating beef prices and profit margins for producers in Canada. Processors continue to feel pressure from a limited supply, Specified Risk Material (SRM) regulations, and a high Canadian dollar. The supply crunch, particularly for grinding beef, is expected to persist for the next two to three years, thereby increasing demand for imports. Notably, 2014 is the first time in more than five years that numerous supplemental import permit applications for beef and beef products have been submitted.
In that context, the TQAC indicated that continued reference-period amendments to the AMO were no longer necessary. In order to transition to the new regime, however, it agreed that the reference-period amendments should be made one last time for 2015. It further agreed that changes to the allocation return criteria were needed to ensure that the TRQ is responsive to domestic market needs.
By making this Ministerial Order, the Government intends to facilitate full utilization of the TRQ, in compliance with Canada’s international obligations. It further aims to transition to the single reference period in a way that minimizes disruption to industry, and to implement measures that will ensure that the TRQ allocation method is in line with market conditions.
This Ministerial Order amends the AMO for 2015 such that beef and veal import allocation applicants will have the choice between a 16-month reference period (January 1, 2002, to April 30, 2003, prorated to a 12-month period), and a more recent 12-month reference period (August 1, 2012, to July 31, 2013) to determine the amount of their 2015 allocations.
Through this Order, the Minister approves the TQAC recommendation that the method used for 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, and 2014 allocations be continued in 2015. However, it is expected, and the TQAC agrees, that this would be the last year in which this method would be used.
This Ministerial Order also contains a provision that stipulates that allocation holders with allocations of 100 000 kg or more that have utilized 20% or less of that allocation by July 1 in any year will see their remaining allocation amount for that year reduced by 50%.
This Ministerial Order also moves the return date for unused allocation quantities up from October 31 to October 1, and changes the default reference period accordingly (i.e. from the 12-month period ending on October 31 in the preceding calendar year to the 12-month period ending on September 30 in the preceding calendar year).
Finally, this Ministerial Order clarifies certain aspects of the previous AMO.
The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business. The administrative requirements for businesses remain the same under the amendment as they have been since 2004.
Small business lens
The small business lens does not apply to this proposal, as there are no costs (or costs are not significant) to small business.
Members of the TQAC were consulted concerning the proposed amendment. The committee is made up of representatives from all the major beef and veal industry associations, including cattlemen, packers, processors, distributors, importers, retailers and foodservice operators and from Agriculture and Agri-Food Canada, the Canada Border Services Agency, and Foreign Affairs, Trade and Development Canada.
The TQAC members unanimously supported the proposed changes.
Consultations with Agriculture and Agri-Food Canada and the TQAC have confirmed that markets have essentially recovered from the BSE situation and that it is no longer necessary to perpetuate the adjustments made to this AMO since 2004 to accommodate the situation. However, since the reference period amendment to the AMO has been made annually for the past 10 consecutive years, industry stakeholders have developed an expectation that the option of two base periods will remain open to them (at least in the short term). Stakeholders therefore concurred that the amendment to the AMO for 2015 is required at this time to ensure business continuity while transitioning to the single reference period. This will provide applicants with a choice of reference periods upon which to apply for their 2015 allocations, based on the optimal period for their individual circumstances. Not making this change could result in disruption to the industry as companies are already in the advanced stage of planning for 2015.
TRQ imports serve to alleviate tight domestic supply. This objective can be enhanced by making changes to the return policy for 2015 and beyond to ensure that the TRQ allocation method is in line with market conditions. Between 2009 and 2013, market conditions in Canada and in exporting countries resulted in low TRQ utilization and large import allocation returns. During those years, on average, the TRQ was 58% utilized, with 40% of allocation holders returning more than 75% of their import allocation. In sum, 49% of the TRQ was returned each year, primarily by allocation holders that had applied for import allocations based on the pre-BSE reference period. In addition, only approximately 20% of import allocation quantities that were returned were subsequently requested for re-allocation.
According to stakeholders, given the time necessary to arrange for and receive shipments from countries eligible under the TRQ, the return deadline (of October 31) was too late in the year to make effective use of the quantities returned. The introduction of the within-year allocation claw-back provision and the change to the return date (to October 1) will make returned quantities available earlier in the year. The impact on allocation holders should be minimal. With regard to the claw-back provision, utilization data over the past five years shows that only 3% of import allocation holders would have used in the second half of the year a portion of their allocation that will be subject to the July 1 claw-back provision. Given current market conditions, most applicants are expected to be in a position to adjust their importing schedule to avoid the claw-back.
The change to the default reference period, from the 12-month period ending on the previous October 31 to the 12-month period ending on the previous September 30, is needed to ensure timely applications and allocations. To ensure an orderly transition between allocation years, advances on the following year’s allocations are usually given to eligible applicants in early December. For applicants to demonstrate their eligibility, they must provide data on their reference period activity. This requires that adequate time be allotted between the end of the reference period and the time wherein new import allocations are provided to allow applicants to collect the data and to enable officers of Foreign Affairs, Trade and Development Canada to process applications. The change will also align the end date for the reference period with the return date.
Implementation, enforcement and service standards
The policies governing the administration of the beef and veal TRQ, including the allocation method, are set out in Notices to Importers published by Foreign Affairs, Trade and Development Canada (typically on an annual basis). A Notice to Importers will be issued in the fall of 2014 calling for applications for the Beef and Veal TRQ for the 2015 quota year. The present regulatory amendment will be incorporated in the new Notice and in the allocation and administration of the TRQ in 2015.
An announcement would be included in the Notice to the effect that this is the last year in which the amendment, which allows a choice of two reference periods, will be made, thereby giving companies advance warning to adjust their activities, if required.
Ms. Katharine Funtek
Trade Controls Policy Division
Trade Controls and Technical Barriers Bureau
Foreign Affairs, Trade and Development Canada
125 Sussex Drive