General Preferential Tariff Withdrawal and Extension (2023 GPT Review) Order: SOR/2023-207

Canada Gazette, Part II, Volume 157, Number 22

Registration
SOR/2023-207 October 6, 2023

CUSTOMS TARIFF

P.C. 2023-1013 October 6, 2023

Whereas the Governor in Council is of the opinion that Lebanon and Tunisia are developing countries;

Therefore, Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed General Preferential Tariff Withdrawal and Extension (2023 GPT Review) Order under paragraphs 34(1)(a)footnote a and (b)footnote a of the Customs Tariff footnote b.

General Preferential Tariff Withdrawal and Extension (2023 GPT Review) Order

Withdrawal of Entitlement

1 Entitlement to the benefit of the General Preferential Tariff is withdrawn in respect of all goods that originate in the following countries:

Armenia, Belize, British Virgin Islands, Fiji, Georgia, Guatemala, Guyana, Iraq, Marshall Islands, Moldova, Nauru, Paraguay, Tonga, Turkmenistan, Tuvalu and Vietnam.

Extension of Entitlement

2 Entitlement to the benefit of the General Preferential Tariff is extended in respect of all goods that originate in the following countries:

Lebanon and Tunisia.

Exemption

3 Section 1 does not apply to goods that were in transit to Canada before January 1, 2025.

Amendments to the Customs Tariff Schedule

4 (1) The List of Countries and Applicable Tariff Treatments set out in the schedule to the Customs Tariff footnote b is amended by deleting, in the column “GPT”, the symbol “X” opposite the references in the column “Country Name” to “Armenia”, “Belize”, “Fiji”, “Georgia”, “Guatemala”, “Guyana”, “Iraq”, “Marshall Islands”, “Moldova”, “Nauru”, “Paraguay”, “Tonga”, “Turkmenistan”, “Tuvalu”, “Vietnam” and “Virgin Islands, British”.

(2) The List of Countries and Applicable Tariff Treatments set out in the schedule to the Act is amended by adding, in the column “GPT”, the symbol “X” opposite the references in the column “Country Name” to “Lebanon” and “Tunisia”.

Coming into Force

5 This Order comes into force on January 1, 2025.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the orders nor the regulations.)

Issues

Canada maintains non-reciprocal tariff preference programs for goods imported from developing countries under the Customs Tariff, including the General Preferential Tariff (GPT) and Least Developed Country Tariff (LDCT), for which legislative authority was renewed to December 31, 2034, through the Budget Implementation Act, 2023, No. 1 (BIA 2023, No. 1). The new General Preferential Tariff Plus (GPTP) program was also created through the BIA 2023, No. 1. The Commonwealth Caribbean Country Tariff (CCCT) is Canada’s regional program that does not expire in legislation.

As part of the renewal process, updates to program terms are necessary to ensure that the programs are accessible and align with Canada’s broader trade and development agenda. As the previous set of updates came into force in 2015, several areas of the programs warranted updating to better reflect beneficiary countries’ current economic status as well as to improve utilization of the programs.

Once they take effect, these orders and regulations will address four key issues:

  1. The beneficiary countries eligible for the GPT and LDCT programs have not been updated since 2015. As such, the eligibility of certain countries is out of date and not aligned with Canada’s economic criteria for the GPT or the international status of least developed countries (LDCs) based on the United Nations (UN) List of LDCs.
  2. The CCCT program does not offer tariff benefits for apparel products that could help to promote potential growth for Commonwealth Caribbean partners in this sector.
  3. The rules of origin for apparel products for all the non-reciprocal tariff preference programs, which determine the extent of production needed for these goods to be eligible for tariff benefits, are not aligned with current production processes in developing countries, making it more difficult for them to benefit from tariff preferences. In addition, these rules do not reflect Canada’s approach in several of its free trade agreements and are more restrictive than those under major developed partners’ equivalent programs, namely the European Union (EU) and Japan.
  4. The shipment requirements, currently set in the Customs Tariff, will need to be immediately re-established in regulations once removed from legislation by the relevant provisions of the BIA 2023, No. 1. Further, the direct shipment requirements can only be satisfied through one type of shipping document, a through bill of lading, which has become less common over the last several decades. As a result, the programs have become more difficult to access over time simply due to acceptable proof of compliance. In addition, current transhipment requirements limit the time that goods can remain in storage in an intermediary country to six months, which may disqualify shipments that need to remain in storage for longer periods from preferential tariff treatment and is not aligned with Canada’s standard practice under its free trade agreements. These requirements also apply to the Most-Favoured-Nation Tariff, the Australia Tariff and the New Zealand Tariff.

Background

Since the 1970s, along with other developed countries, Canada has maintained non-reciprocal tariff preference programs — the GPT, the LDCT and the CCCT — benefitting imports from developing countries. These programs aim to support the export-driven industrialization and economic growth of developing countries, while lowering costs for Canadian importers. The GPT and LDCT programs were set to expire under the Customs Tariff on December 31, 2024.

The GPT program extends duty-free treatment or reduced tariffs to eligible developing countries based on Canada’s standard criteria of income classification (i.e. economy below upper-middle income) and export performance (i.e. global export share below 1%). The GPT program covers the majority of goods, but excludes apparel, footwear, certain textiles and sensitive agricultural products. The LDCT program offers duty-free treatment for essentially all goods of countries categorized by the UN as LDCs, excluding only over-access, supply-managed dairy, poultry and egg products. The CCCT is a regional program extending duty-free treatment to 18 Commonwealth countries in the Caribbean, with product coverage currently similar to the GPT.

The BIA 2023, No. 1 renewed the GPT and LDCT programs until December 31, 2034, and created the new GPTP program with the same end date under the Customs Tariff. This program, which will be operationalized as its product coverage and other parameters are scoped out in the coming years, would provide expanded tariff benefits for GPT countries that adhere to international norms relating to sustainable development and labour and human rights. Once given effect, the relevant provisions of the BIA 2023, No. 1 will also amend the direct shipment and transhipment provisions in the Customs Tariff to allow for the requirements to be set by regulation, which can be updated in a more timely fashion in the future to reflect changing shipping practices, as necessary. Goods produced in Haiti may continue to satisfy the less stringent direct shipment requirements contained in the Haiti Deemed Direct Shipment (General Preferential Tariff and Least Developed Country Tariff) Regulations.

The shipment provisions set out in sections 17 and 18 of the Customs Tariff also apply to the Most-Favoured-Nation (MFN) Tariff, which is extended to all countries other than North Korea, Russia and Belarus, as well as the Australia Tariff and the New Zealand Tariff, which are extended to those respective countries for a small subset of goods.

Objective

The measures in this package complete the renewal process, while improving program terms to liberalize certain requirements, facilitate access to tariff benefits, and advance trade and development among beneficiary countries in line with Canada’s broader objectives. While these program changes are set to come into force on January 1, 2025, the relevant regulations are made to provide Canadian importers reliant on Canada’s non-reciprocal tariff preferences with advance notice and lead time to adjust their supply chains, operations or practices, as necessary.

More specifically, the measures address the four key issues above and achieve the following:

  1. Updating beneficiaries eligible for the GPT and LDCT programs, in order to ensure that eligibility meets Canadian and international criteria, and that the programs benefit those countries whose economic and development needs align with Canada’s wider trade and development objectives;
  2. Expanding CCCT benefits to cover apparel products, in order to advance trade and investment opportunities in the Caribbean and further encourage industrial growth in the region;
  3. Liberalizing and harmonizing the rules of origin for apparel products across all of Canada’s programs, in order to reduce issues of compliance identified by stakeholders and thereby maximize utilization of benefits across all programs, as well as to increase policy consistency for beneficiaries by aligning with the rules of origin under equivalent programs in the EU and Japan; and
  4. Broadening the types of documentation that can be used to prove direct shipment and eliminating the time limit on the storage of goods in an intermediary country, in order to reflect the way that companies currently do business when shipping goods, ensure that access to Canada’s programs is not restricted by administrative or logistical issues, and align with Canada’s shipment requirements under its free trade agreements.

Description

This package contains measures that would come into force on January 1, 2025, in order to

  1. Withdraw and reinstate eligibility of certain countries with respect to the GPT program based upon Canada’s standard criteria. The countries for which GPT preferences are to be withdrawn are Armenia, Belize, British Virgin Islands, Fiji, Georgia, Guatemala, Guyana, Iraq, Marshall Islands, Moldova, Nauru, Paraguay, Tonga, Turkmenistan, Tuvalu and Vietnam. The countries to be reinstated are Tunisia and Lebanon;
  2. Withdraw eligibility of Cape Verde, Samoa and Vanuatu with respect to the LDCT program given their previous graduation from the UN List of LDCs;
  3. Expand the CCCT program’s duty-free coverage to cover all apparel products;
  4. Simplify the rules of origin for apparel products under the LDCT program and harmonize them with new rules of origin for apparel products under the GPT, GPTP and CCCT programs, allowing for the cutting and sewing of non-originating fabrics in developing countries to confer origin; and
  5. Reinstate direct shipment and transhipment requirements in regulations, amending the requirements to broaden the types of documentation that can serve as proof that goods were shipped directly to Canada, as well as to remove the time limit on the storage of goods in an intermediary country.

Regulatory development

Consultation

In the context of the renewal of Canada’s programs, the Government held public consultations over 60 days in fall 2022 that informed legislative changes in the BIA 2023, No. 1 and the program updates in this package.

Specifically, the Government published a consultation paper outlining potential program amendments, held stakeholder meetings, and accepted written input from all interested stakeholders on all of the updates. The Government heard from Canadian importers, retailers, and industry associations, including those in the apparel and agricultural sectors, labour and human rights groups, and civil society groups. In total, 12 submissions were received, including from all key implicated industries, and the Government held several targeted discussions to further solicit and clarify feedback. Stakeholders were supportive of each of the program changes, and provided views and suggestions that have been reflected in these regulations. They agreed with the proposed changes to country eligibility under the GPT and LDCT programs as well as the future expansion of tariff preferences, providing feedback on potential benefits and conditions that could shape the new GPTP. This program was highlighted as potentially beneficial to the transition of certain developing countries, as well as in advancing Canada’s inclusive trade agenda on labour rights, human rights, and environmental protection.

Stakeholders also emphasized the need to improve access to program benefits by updating certain technical program requirements. In particular, they strongly supported simplified rules of origin for apparel products and more facilitative shipment conditions, stressing that harmonization of these requirements across all of Canada’s programs, including the new GPTP, would provide a consistent policy environment and certainty for their future operations under the programs.

The direct shipment requirements for the Most-Favoured-Nation Tariff, the Australia Tariff and the New Zealand Tariff were not consulted on, as they are not expected to generate significant interest and would align with the requirements of other tariff treatments.

Based on the consultations, extensive input received and wide-ranging support for the updates, these measures were granted an exemption from the requirement to prepublish in the Canada Gazette, Part I.

Modern treaty obligations and Indigenous engagement and consultation

The orders and regulations are not expected to impact potential or established Aboriginal or treaty rights, which are recognized and affirmed in section 35 of the Constitution Act, 1982.

Instrument choice

Making orders and regulations as provided for under sections 16, 17, 34, 38, and 42 of the Customs Tariff is the most appropriate mechanism to update Canada’s non-reciprocal tariff preference programs, which are governed by these legislative authorities. Section 234 of the BIA 2023, No. 1 provides for the amendments to the Customs Tariff direct shipment and transhipment provisions contained in section 229 to come into force on a day to be fixed by order of the Governor in Council.

Regulatory analysis

Benefits and costs

Over the period from 2025 to 2029, these measures will account for annual foregone tariff revenues estimated at net $40.1 million, driven almost entirely by the anticipated increase in LDCT program uptake for apparel imports benefitting from simplified and liberalized rules of origin ($40.7 million foregone). This is balanced out by $0.6 million in tariff revenue collected on imports of former GPT beneficiaries to which MFN tariffs will apply. The expansion of duty-free treatment to apparel products under the CCCT program represents $0.03 million foregone.

All of these are net zero transfer payments. Costs in terms of lower revenue collected by the Government will be offset by benefits to importers of products and Canadian consumers, and will result in zero net change in welfare.

Small business lens

Analysis under the small business lens concluded that the orders and regulations will not impact Canadian small businesses.

One-for-one rule

The one-for-one rule does not apply, as there is no incremental change in administrative burden on business and no regulatory titles are repealed or introduced. These measures do not make changes to the importing and exporting of goods, nor to the burden of the required customs forms. No change for Canadian importers in the level of effort required to obtain and retain documents related to proof of origin is anticipated to occur because of these regulations.

Regulatory cooperation and alignment

Although there is no formal regulatory cooperation component to these regulations, the updated rules of origin for apparel products under Canada’s LDCT program are harmonized with those of equivalent programs maintained by the EU and Japan, in order to increase policy consistency for beneficiary countries.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for these orders and regulations. The amendments are not expected to create any impacts from a gender or distributional perspective.

Implementation, compliance and enforcement, and service standards

These updates will come into force on January 1, 2025. In particular, the coming into force date of the Order triggering the amendments to the direct shipment and transhipment provisions in the Customs Tariff is set to coincide with the incorporation of these updated requirements in regulations on January 1, 2025. Based on stakeholder interests, new rules of origin and shipment conditions will also be established for the GPTP program starting on this date, in order to ensure harmonization of these requirements across all of Canada’s programs. This will provide consistency and certainty in support of the operations of Canadian importers sourcing from various developing countries under the different programs, including those that may benefit from the GPTP in the future.

The lead time on program updates is necessary to provide importers with advance notice of the upcoming changes well ahead of time. As may be needed to account for the updates to country eligibility, program benefits and technical requirements, importers require notification well in advance to adjust their supply chains, operations and practices. The Government will continue to engage with relevant stakeholders in the period prior to the coming into force of the updates. The Canada Border Services Agency (CBSA) will monitor utilization of the programs and compliance with the terms and conditions of the orders and regulations in the normal course of its administration of customs and tariff-related legislation and regulations. The CBSA will inform importers of these updates through the publication of a Customs Notice.

Contact

Mike Mosier
Director
Trade and Tariff Policy
International Trade Policy Division
Department of Finance
Ottawa, Ontario
K1A 0G5
Email: tariff-tarif@fin.gc.ca