Vol. 148, No. 26 — December 17, 2014

Registration

SOR/2014-278 November 28, 2014

CUSTOMS TARIFF

Textiles and Apparel Remission Order, 2014

P.C. 2014-1299 November 27, 2014

His Excellency the Governor General in Council, on the recommendation of the Minister of Public Safety and Emergency Preparedness, pursuant to section 115 (see footnote a) of the Customs Tariff (see footnote b), makes the annexed Textiles and Apparel Remission Order, 2014.

TEXTILES AND APPAREL REMISSION ORDER, 2014

REMISSION

1. (1) Remission is granted to the companies set out in Schedule 1 of customs duties paid or payable under the Customs Tariff in respect of goods for which the Canada Border Services Agency, in error, issued authorizations for remission of customs duties in the course of its administration of the initial remission orders set out in column 1 of Schedule 2.

(2) The amount of the remission granted to each company is calculated in accordance with the initial remission order under which the authorization for remission was issued.

CONDITIONS

2. The remission is granted to each company on the following conditions:

COMING INTO FORCE

3. This Order comes into force on the day on which it is registered.

SCHEDULE 1
(Subsection 1(1))

4033167 Canada Inc.
Basic Fashion Service (1422545 Ontario Inc.)
Beker Fashions
Honey Fashions Ltd.
Lana-Lee Fashions Inc.
Nikaldi Sportwear Inc.
SCP Collections Inc.
T. Lipson & Sons Ltd.
7131780 Canada Inc.
9201-2392 Québec Inc.
Behar Cline Manufacturing Ltd.
Innotex Inc.
Chemises L. & L. Lessard Inc.
Suzy’s Inc.
Canadian Uniform Limited
Premium Uniforms Inc.
Nygard International Ltd.
BVD Shirts Inc.
Le Chateau Inc.
4459792 Canada Inc.
Creations Claire Bell Inc.
Delmar International
Tribal Sportswear Company
Triple G Manufacturing Inc.
Kelsey Sportswear Ltd.
Winnipeg Pants & Sportswear MFG. LTD.
Peerless Garments LP

SCHEDULE 2
(Subsection 1(1) and paragraph 2(c))

Item Column 1


Initial Remission Order		 Column 2

Deadline for Receipt of Application for Remission
1. Tailored Collar Shirts Remission Order, 1997 five years after importation of the goods
2. Outerwear Greige Fabrics Remission Order, 1998 three years after importation of the goods
3. Shirting Fabrics Remission Order, 1998 five years after importation of the goods
4. Outerwear Apparel Remission Order, 1998 five years after importation of the goods
5. Blouses, Shirts and Co-ordinates Remission Order, 1998 five years after importation of the goods
6. Outerwear Fabrics Remission Order, 1998 three years after importation of the goods

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Executive summary

Issues: The Canada Border Services Agency’s (CBSA) Textiles and Apparel Remission Order (TARO) program administered six remission orders issued by the Department of Finance. The remission orders permitted companies listed in the schedule to each order to import qualifying goods free of customs duties until December 31, 2012, when the remission orders expired.

In the summer of 2010, the CBSA discovered irregularities in its administration of the TARO program. As a result, in the fall of 2010, the CBSA put into abeyance the processing of all remission claims under the TARO program while it undertook a comprehensive Quality Assurance Review (QAR) of the program.

The QAR confirmed that in 2008 the CBSA began allowing several companies listed in the schedules to the six TARO program remission orders to transfer their remission entitlement under each order to other companies. In written authorizations, the CBSA permitted each acquiring company to use the transferred remission entitlement on qualifying imports. The erroneous authorization of remission entitlement took two forms: (i) erroneously authorized transfer of remission entitlement; and (ii) erroneously authorized transfer of unused remission entitlement from past years.

The CBSA’s Departmental Legal Services Unit (DLSU) confirmed that the transfer of remission entitlements was contrary to law and should not have been authorized. However, each company relied in good faith on the CBSA’s written authorization and made business decisions based on the reasonable expectation that it could import qualifying goods free of customs duties using the transferred remission entitlement through December 31, 2012. Therefore, the CBSA decided that it would be unfair to these companies to revoke the authorizations and collect the customs duties payable.

The QAR also confirmed two other errors. The first of these other errors was the inadvertent omission of a company from the schedule to the Tailored Collared Shirts Remission Order when the order was updated. Despite the omission, the company had nevertheless been allowed to import qualifying goods free of customs duties. The second related to three companies who imported non-qualifying goods free of customs duties seemingly with the approval of the CBSA.

As these companies also relied in good faith on the CBSA’s administration and representations, the CBSA decided that it would be unfair to seek to collect the customs duties payable. The CBSA decided to seek legal authority under section 115 of the Customs Tariff to remit the customs duties payable flowing from these errors.

Description: The Textiles and Apparel Remission Order, 2014 (the Order) provides the CBSA with the legal authority to correct the errors in its administration of the TARO program. The Order authorizes the remission of customs duties payable on qualifying imports by the 27 companies listed in the schedule.

Remission is available for goods for which an authorization for remission was issued before December 31, 2012, and which were imported into Canada during the period beginning January 1, 2008, and ending December 31, 2012.

Cost-benefit statement: The maximum remission of customs duties payable permitted under the Order is $28,425,927.74, which represents

  1. $11,014,869.92, the benefit of which has already been received by the companies in the form of customs duties payable not having been collected;
  2. $8,930,982.01 to pay qualifying claims submitted by the companies during the QAR and which remain in abeyance; and
  3. up to $8,480,075.81 to pay qualifying claims that may be submitted in accordance with the time delays of the original six remission orders.

“One-for-One” Rule and small business lens: The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business. The small business lens does not apply to this proposal, as there are no costs to small business.

Background

In 1988, the Department of Finance introduced a series of remission orders that were intended to be a temporary measure, of limited duration, to help Canadian textile and apparel manufacturers face the challenges of increased international competition.

In 1997–98, the orders were superseded by updated versions; while the orders were originally performance-based (i.e. duty remission was conditional on a certain volume of goods being produced in Canada), the North American Free Trade Agreement (NAFTA), obligated signatories to eliminate performance-based measures. The orders were therefore changed to remove the performance requirement and to establish a maximum remission amount for each company based on the total amount of remission that was granted in 1995.

The six remission orders listed below formed the basis of the CBSA’s TARO program:

The six orders permitted specific companies to import certain goods (e.g. tailored collar shirts) free of customs duties, provided that the conditions described in each of the orders were met (e.g. the claims for remission took place within five years of the importation of qualifying goods, were imported within a certain timeframe, and were for an amount not exceeding the total remission granted in 1995).

The companies listed in the schedules to the six remission orders did not obtain an automatic right to their annual remission entitlement; remission of customs duties owing or paid was only available for the importation of qualifying goods by a company listed in a schedule to one of the remission orders, producing qualifying goods in Canada. For example, if a company named in the schedule to one of the remission orders stopped producing qualifying goods, that company was no longer entitled to claim remission of customs duties pursuant to the order.

In the summer of 2010, the CBSA discovered irregularities in its administration of the TARO program regarding the transfer of remission entitlements between several companies. After confirming with the Agency’s DLSU that the transfer of remission entitlements between these companies was prohibited, the CBSA put into abeyance the processing of all TARO program claims in the fall of 2010, while the Agency undertook a comprehensive Quality Assurance Review (QAR) of the program.

A QAR is an internal examination of CBSA practices undertaken by a small team of designated officers.  Its objective is to ensure that the CBSA is correctly applying the relevant law and internal policies and procedures. QARs have been a normal practice for the CBSA’s Trade programs for close to five years. Quality assurance officers were formally introduced in 2009 and a dedicated unit was created in 2012, focusing primarily on the review of compliance verifications of tariff classification, origin and valuation that are carried out by the Agency’s regional trade officers.

When the issue with the transfer of remission entitlement was identified, quality assurance officials were asked to immediately begin a comprehensive review of that program in order to identify and quantify any administrative errors that had been made.  The review was extensive and extremely detailed. The QAR commenced in the fall of 2010, but transfers and claims dating back to 2008 were reviewed as part of the process; some of the transfers and claims reviewed related to importations dating back to 2003. The scope of the review period was selected because it represented all of the transfers of remission entitlement that were confirmed to have been authorized in error.

The QAR confirmed three errors by the CBSA.

  1. Beginning in 2008, several of the companies listed in the schedules to the remission orders were permitted to transfer all or part of their remission entitlement to another company.
    • The erroneous authorization of remission entitlement took two forms:
      • (i) Erroneously authorized transfer of remission entitlement: The QAR determined that several of the companies listed in the schedules to the six remission orders had transferred, presumably for a fee, all or part of the remission allocation to which they were entitled under the program. These transfers were made either on a permanent basis or for a specified period. Furthermore, these transfers of remission allocation were authorized by a CBSA officer.
      • (ii) Erroneously authorized transfer of unused remission entitlement from past years: Remission entitlement that had gone unused in previous years was also transferred to other companies; the companies that received the unused remission allocation then amended past importation documents to retroactively claim refunds of customs duties previously paid.
    • When the irregularities in the administration of the TARO program were discovered in 2010, there were 62 refund claims related to the retroactive transfer of remission entitlement that had not yet been processed. These claims were submitted by clients in 2010, but were held in abeyance during the QAR.
    • A claim for remission is generally made at the time of importation, meaning the entity claiming remission never pays duties otherwise owed on the goods in question. In the case of a drawback, however, the entity pays duties upon importation and then applies at a later date to have the duties refunded.
  2. One company was inadvertently omitted from the schedule to the Tailored Collared Shirts Remission Order when the Department of Finance updated the order. Despite the omission, the company had been importing qualifying goods free of customs duties.
  3. Three companies had imported non-qualifying goods free of customs duties seemingly with the approval of the CBSA.

The company acquiring remission entitlement received a written letter of authorization from the CBSA permitting it to purchase the remission entitlement and to import qualifying goods free of customs duties using the newly acquired entitlement. The CBSA issued such a written authorization each time remission entitlement was transferred.

Each company affected by the three errors relied in good faith on the CBSA’s representations and administration of the TARO program. Each company made business decisions based on the reasonable expectation that it could import qualifying goods free of customs duties through December 31, 2012.

Issues

The CBSA erroneously represented to several companies that large sums of customs duties were not payable to the Government of Canada. However, the errors originated with the CBSA, whereas the impacted companies acted in good faith and correctly followed the procedures associated with the TARO program.

The companies subject to this Order therefore made business decisions based on the reasonable expectation that the noncollection of duties under the TARO program would continue in a manner consistent with previous communications from, and decisions taken by, the CBSA. These companies relied in good faith on these representations and imported goods accordingly.

Objective

To remit to the companies listed in the schedule to the Order the customs duties payable on qualifying imports related to three errors made by the CBSA in its administration of the TARO program.

Description

The Order remits to the companies listed in the schedule the customs duties payable on qualifying imports related to three errors made by the CBSA in its administration of the TARO program.

Remission of duties paid or payable will be granted to the 27 companies named in the Schedule to this order in respect of qualifying goods imported into Canada during a period beginning on January 1, 2008, and ending on December 31, 2012, and for which an authorization was issued to the company in error by the CBSA.

Regulatory and non-regulatory options considered

It has been determined that the most appropriate manner to correct the errors made by the CBSA in its administration of the TARO program is remission of the customs duties payable on qualifying imports in accordance with section 115 of the Customs Tariff.

Benefits and costs

The benefits of the Order are limited to the 27 companies listed in the schedule who will receive remission of the customs duties payable on qualifying imports to an amount not exceeding $28,425,927.74.

This approach ensures that the companies that relied in good faith on the CBSA’s representations and administration of the TARO program are not penalized financially. It would be unjust to penalize these companies now, as these companies made business decisions based on the expectation that they were entitled to claim the remission in question.

Cost-benefit statement
Claims authorized in error
  Duties already remitted Maximum remission still available Retroactive claims held in abeyance
A. Quantified impacts (in CAN$, 2014 price level/constant dollars)
Costs
Entitlement transferred in error $10,143,041.39 $8,450,846.87 $8,930,982.01
Inadvertent omission $343,440.05 $29,228.94 N/A
Claims for ineligible goods $528,388.48 $0.00 N/A
Total $11,014,869.92 $8,480,075.81 $8,930,982.01
B. Quantified impacts in non-dollars (e.g. from a risk assessment)
Positive impacts N/A N/A N/A
Negative impacts N/A N/A N/A
C. Qualitative impacts
As noted above, the benefits of the Order are limited to the 27 importers named in the schedule to the Order who will receive remission of the customs duties payable on qualifying imports, subject to verification by the CBSA. These companies will now be able to operate with business certainty knowing that the issue surrounding the erroneous authorizations has been resolved.

“One-for-One” Rule

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.

Consultation

The Department of Finance was consulted during the QAR and the development of the Order and agrees that the Order is appropriate in the circumstances. The CBSA will inform the 27 companies listed in the schedule when the Order is published.

Rationale

The 27 companies listed in the schedule to the Order would face financial hardship if the CBSA sought to collect the customs duties payable on qualifying imports related to three errors made by the CBSA in its administration of the TARO program.

Implementation

The Order grants remission of customs duties payable to the companies listed in the schedule on qualifying imports related to three errors made by the CBSA in its administration of the TARO program.

The Order grants remission to the companies listed in the schedule the Order if the following conditions are met:

All claims for remission under the Order will remain subject to verification by the CBSA.

Contact

Anne Kline
Executive Director
Trade and Anti-dumping Programs Directorate
Canada Border Services Agency
150 Isabella Street, 11th Floor
Ottawa, Ontario
K1A 0L8
Telephone: 613-954-7338
Fax: 613-954-4494
Email : Anne.Kline@cbsa-asfc.gc.ca