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APEC RULES OF ORIGIN - CANADA

2.3.1 CANADA: PREFERENTIAL RULES OF ORIGIN

2.3.1.1 BASIS OF SUBSTANTIAL TRANSFORMATION CRITERIA

Determination of substantial transformation is dependent on the trade agreement. Under the NAFTA substantial transformation may be based on tariff shift rules, tariff shift and regional value content or regional value content only. Rules containing a regional value content requirement will specify the percentage of the good's value that must originate from production occurring within the NAFTA territory. See Appendix 3.1 for further explanation of regional value content.

For other trade agreements such as the Australian or New Zealand Trade Agreement and the like, determination of substantial transformation is on a cost of processing basis expressed as a percentage. Origin is achieved when a threshold of 50 percent or more of factory cost is attributable to materials and/or processing of the country or area concerned.

2.3.1.2 BACKGROUND TO PREFERENTIAL RATES OF DUTY Trade Initiatives

Preferential rates of duty flow from the following trade initiatives:

* = GSP based tariff treatment

Variations in Rules of Origin

The rules of origin for most of Canada's preferential tariffs are generally the same. The area where a difference is quite visible though is between the NAFTA and all other tariff treatments.

Canada's Tariff

Canada's Tariff has preferential rates (MFN) specified throughout the schedule for most countries. Please note that Canada refers to the MFN more as a base rate or non-preferential rate as it offers the MFN to most countries in the world. There are currently only four countries to which Canada applies the General rate of duty.

The Tariff authorizes preferential (MFN) rates of duty for goods from preference countries that originate in that country. This is achieved when 50 percent of the cost of production of the goods was incurred by the industry of one or more of the countries that are beneficiaries of the Most- Favoured-Nation Tariff or the British Preferential Tariff, or by the industry of Canada, and the goods were finished in a country that is a beneficiary of the MFN or the BPT in the form in which they were imported into Canada.

The General Tariff applies to goods that are not considered to originate in a preference country.

2.3.1.3 LEGISLATION AND OTHER RULES/DOCUMENTS Legislation

Canada's preferential rules of origin are embodied in the following legislation:

Customs Act Section 35.1 ( Origin of Goods ) Customs Tariff Sections 13, 21, 22-45, 47-58

Other Publicly Available Documents

2.3.1.4 RESPONSIBILITY FOR CORRECT DETERMINATION OF ORIGIN

It is up to importers and/or their brokers to ensure, to the best of their abilities, that they are entitled to the tariff preference that they claim. Canada does not usually impose penalties for origin infractions unless they are repetitive or fraudulent in nature.

2.3.1.5 RULES OF ORIGIN

Under the Australia and New Zealand Trade Agreements there is no distinction between wholly obtained and produced or partly obtained and produced. In order for goods to originate in either of these countries not less than 50 percent of the cost of production of the goods must be incurred in New Zealand or Australia, depending on the agreement, or Canada, or both and the goods must be finished in New Zealand or Australia in the form in which they were imported into Canada.

(a) outside packing and expenses related thereto, required for the transportation of the goods, not including packing in which the goods are ordinarily sold for consumption;

(b) gross profit of the manufacturer or exporter and the profit or remuneration of any trader, broker or other person dealing in the article in its finished manufactured condition;

(c) royalties;

(d) customs or excise duty or tax paid or payable on imported materials;

(e) carriage, insurance and other charges from the place of production or manufacture in the country of origin to the port of shipment; and

(f) any other costs or charges incurred or to be incurred subsequent to the completion of the manufacture of the goods.

Cost of production includes:

(a) materials (exclusive of duties and taxes);

(b) labour; and

(c) factory overhead.

For the Most Favoured Nation or British Preferential Tariff Treatment the requirements are similar to those noted above with a minor exception. Where the MFN is claimed the 50 percent cost of production may be a combination of MFN and/or BPT beneficiaries and Canada or any combination thereof. Where the BPT is claimed the 50 percent cost of production may be a combination of BPT beneficiaries or BPT beneficiaries and Canada. The goods must also be finished in the form in which they were imported into Canada in either a BPT or MFN beneficiary country, that is, where the BPT is being claimed the goods must have been finished in a BPT eligible country.

(a) Goods wholly obtained or produced entirely in the territory of one or more of the NAFTA countries.1

(b) The good is produced entirely in the territory of one or more of the NAFTA countries and satisfies the specific rule of origin as set out in Annex 401 of the NAFTA. Note that the rule may be a tariff shift rule, regional value content rule or a combination thereof.

(c) The good is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating materials.

(d) The good is produced in the territory of one or more of the NAFTA countries and meets the regional value content rule but not the tariff shift as:

1. the good was imported in to the NAFTA country in an unassembled or disassembled form but was classified as an assembled good pursuant to General Rule of Interpretation 2(a) of the Harmonized System; or
   
2. the good incorporated one or more non-originating materials, provided for as parts under the HS, which could not undergo a change in tariff classification because the heading provided for both the good and its parts and was not further subdivided.
   
1. Goods wholly obtained are defined as:

   (a) Mineral goods extracted in the territory of one or more of the Parties

   (b) Vegetable goods, as such goods are defined in the Harmonized System, harvested in the territory of one or more of the Parties

   (c) Live animals born and raised in the territory of one or more of the Parties

   (d) Goods obtained from hunting, trapping or fishing in the territory of one or more of the Parties

   (e) Goods (fish, shellfish and other marine life) taken from the sea by vessels registered or recorded with a Party and flying its flag

   (f) Goods produced on board factory ships from the goods referred to in subparagraph

   (g) Provided such factory ships are registered or recorded with that Party and fly its flag

   (h) Goods taken by a Party or a person of a Party from the seabed or beneath the seabed outside territorial waters, provided that a Party has rights to exploit such seabed

   (i) Goods taken from outer space, provided they are obtained by a Party or a person of a Party and not processed in a non-Party

   (j) Waste and scrap derived from:

   (i) production in the territory of one or more of the Parties, or

   (ii) used goods collected in the territory of one or more of the Parties, provided such goods are fit only for the recovery of raw materials; and

   (k) goods produced in the territory of one or more of the Parties exclusively from goods referred to in subparagraphs (a) through (i), or from their derivatives, at any stage of production.

2. Goods produced entirely in the territory that meet a specific rule of origin are those that incorporate non-NAFTA materials into the finished product as per the rules contained in Appendix B.
   
3. Goods that are produced exclusively from originating materials are those that are a combination of wholly obtained or produced and those that originate as a result of meeting a specific rule of origin.
   
4. Goods that meet the RVC only but do not meet a tariff shift are exactly that. In the two particular instances noted tariff shift is not possible and as such RVC provisions only apply. The RVC is explained in Appendix 3.1.

2.3.1.6 DIRECT SHIPMENT PROVISIONS

Direct shipment, on a through bill of lading, is a requirement for all goods where preferential treatment is claimed. Transshipment is generally allowed for all tariff treatments other than the BPT provided that the goods meet certain conditions including that the goods remain in Customs control while in transit. There are certain conditions that apply to transshipment where the BPT is concerned and amongst others is the condition that the goods may be transshipped through a BPT beneficiary country only.

2.3.1.7 OTHER CONDITIONS OR REQUIREMENTS

2.3.1.8 REVIEW PROCEDURES

When a decision is taken to assess a higher duty rate on a particular shipment the duty must be paid, or a bond posted, before an appeal may be filed. The appeal period is generally within up to one year from the date that the goods were accounted for, that is, presented to Customs.

2.3.1.9 CONTACTS

Bill ClaypoleDirector
Origin Determinations Directorate
555 MacKenzie Ave.
Connaught Building, 6th Floor Ottawa, Ontario

2.3.2 CANADA: NON-PREFERENTIAL RULES OF ORIGIN

To begin with, this outline has not considered the Most Favored Nation Tariff Treatment as non- preferential due to the fact that it was cited as a preferential treatment in the Australian request for Canada's preferential rules of origin. As such the MFN rules can be found in Canada's Compendium of Preferential rulesof Origin.

1. country of origin marking
2. trade statistics purposes/invoice requirements
3. application of import quotas
4. application of countervailing duties
5. application of anti-dumping duties
6. government procurement purposes (a version of the NAFTA rules of origin are used for this purpose)
   

Note Canada will assess the General Tariff to goods exported from the four countries with which we have no trade agreements or in cases where none of the preferential rules of origin can be met.

Canada has a number of different rules of origin for all non-preference purposes. For country of origin marking Canada has two sets of rules, one for goods imported from a NAFTA country and another for goods imported from non-NAFTA countries. For NAFTA countries the marking rules are generally based on wholly obtained or produced rules or tariff shift rules; for non-NAFTA countries the rule is that of substantial transformation.

Where anti-dumping is concerned, there is no definition in the Special Import Measures Act respecting the origin of goods. All orders or finding issued pursuant to that Act use the term "originating in or exported from". For example, countervailing duty is levied on all importations of "boneless manufacturing beef originating in or exported from the European Economic Community". Findings respecting the product of a specific manufacturer are worded accordingly, for example, "....produced or exported by or on behalf of .... or the companies with which it is associated","...produced by or on behalf of ....".

In instances where false marking or labeling is suspected and the actual origin of the goods becomes an issue, Canada Customs is guided by the documentation (paperwork) relevant to the goods, for example, Customs invoice, commercial invoice, shipping documents. Also taken into consideration is the routing of the goods, for example, goods marked "Made in the U.S.A." but shipped from an Asian country would be suspect.

In such instances, the country of origin has been determined on an ad-hoc basis in light of any or all several considerations:

(a) change in tariff classifications;

(b) industry practices;

(c) other countries' rules or origin and practice;

(d) other government departments' opinions and practice;

(e) common sense; an

(f) logic.

2.3.2.3 LEGISLATION AND OTHER RULES/DOCUMENTS

Canada's Non-preferential Rules of Origin are embodied in the following legislation: Customs Act Section 35.01 (Marking of Goods) Section 35.1 (Origin of Goods)

Customs Regulations:

• The Determination of Country of Origin for the Purpose of Marking Goods (NAFTA Countries) Regulations
• The Determination of Country of Origin for the Purpose of Marking Goods (Non- NAFTA) Regulations
• The Marking of Imported Goods Regulations
  

2.3.2.4 RESPONSIBILITY FOR CORRECT DETERMINATION OF ORIGIN

Canada's system of self-assessment for entry clearance places the responsibility for correct clearance of goods through Customs on the importer. Customs compliance monitoring for issues such as origin, tariff classification or anti-dumping, usually take place after clearance/release of goods. The marking of goods however is examined at the time of release.

These rules, used for the marking of goods, and to determine the proper NAFTA tariff treatment, are available from Revenue Canada, Customs, Trade Administration Branch.

The only non-preferential rules that contain other conditions or requirements are the marking rules for goods from a NAFTA country.

As covered in the preferential rules of origin compendium any person may appeal an origin decision with regard to tariff preference, or lack thereof. Canada is currently working on appeal procedures for disagreements concerning the marking of goods imported from a NAFTA country.

Bill Claypole
Director
Origin Determinations Directorate
555 MacKenzie Avenue
Connaught Building 6th Floor
Ottawa, Ontario