LEARNING OUTCOMES After reading this chapter. you should be able t uniries and at ments in the Customs Tariff * Differentiate bet a transhipment + Explain the rul * Calculate the regional val when to apply the de minimis rule * List the countries wi cific tari Scanned with CamScannerScanned with CamScannerCHAPTERS TanFe TREATMENTS BL TABLES. Tariff Treatments and Tariff Treatment Code ‘Mast-Favoured-Nation (MFN) Australia (AUT 4 wealth Caribbean Countries ( States (UST 10 Mexico (MT) - a Mexico United States (Mi w Canada~Chile (CT ioeland (IT Switzeriand~Liechtenstein (St 24 Canada~Colombia (COLT 26 Canada—Panama (PAT 28 Canada -Honduras (WNT) 29 Canada Korea {KRT) 50 ‘Canada ~ European Union (CEUT) 3 — | Canada Ukraine (CUFTA\ 32 Comprehensive and Progressive Agreement for | 33. Trans-Pacific Partnership (CPTPP)O82 areobucrIon To CUSTOMS AbWineTRATION AND PHOCEDURES direct shipment ‘Occurs when goods are shipped directly to a consignee ithe party and ‘place where the goods are ‘shipped) in Canada on a ‘through bill of lading; goods ‘may pass through another ‘country on their way to ‘Canada, but the journey ‘must be ueintestupted. Ifyou follow the alphatvetical list under the heading “Country Name” to Italy, you will see an "X" in the column under Most-Fayoured-Nation (MPN) tariff treatment and under “Other” il shows CEUT. This means that Italy is entitled to MEN tariif treatment and the tariff treatment under the Canada~European Union Comprehensive Economic and Trade Agreement FIGURES1. Excerpt from the List of Countries and Applicable Tariff Treatments | Country Name MeN] ran x aq om x) x Sa [Ireland [x a CEU [ste or man x ceEUT Israck 7 cx CiAT aly) x Cap jeer [x | cee Japan x CPIPT [paren sa stistresiculenri [x] = a) Kazakhstan Lx] | When a country is eligible for two or more tariff treatments, the tariff treat- ment that provides the most favourable rate of duty is applied, provided that the requirements of the tariff treatment and trade agreement are met is Obie nile The North American Free Trade Agreement (NAFTA) between Canada, the United States, and Mexico came into force on January 1, 1994, creating the largest free-trade region in the world by GDP. DIRECT SHIPMENT AND TRANSHIPMENT Direct shipment and transhipment, which are both defined in the Customs Tariff, must be considered when determining the origin, and ultimately the tariif treatment, of imported goods. Direct shipment occurs when goods are shipped. directly (o a consignee (the party and place where the goods are shipped) in Canada on a through bill of lading, Goods may pass through another country ‘99 their way to Canada, but the journey must be uninterrupted. The transfer of Copyright © 2020 Eins Mownigrrery PULALUDNL AK Right Renate, Scanned with CamScannerScanned with CamScanner84 wTRODUCTION TO CUSTOMS ADMINISTRATION AND PROCEDURES 1@ ethers Goods that are destined for Canada are shipped from Germany ‘on a through bill of lading and travel through the United Kingdom before arriving in Canada. The goods were in the United Kingdom for 4 period of four months and remained in customs transit control during that time. The goods were not used nor were they further processed DISCUSSION Under these circumstances, has the fact that the goods were tran= shipped affected the tariff treatment? RULES OF ORIGIN In order to be eligible to use a particular tariff treatment, the imported goods must originate in a country that is a signatory toa particular trade agreement. Section 16(1) of the Customs ‘Tariff provides the following definition of “originate” Subject to any regulations made under subsection (2), for the purposes of this Act, goods originate in a country if the whole of the value of the goods is pro duced in that country This means that unless section 16(2) states otherwise, goods originate in a par ticular country if the entire value of the goods is derived from production in that country Specific rules of origin are used to determine the origin of goods under specific tariff treatments, Before using these rules, itis important to haye first determined. the correct tariff classification of the goods Example Let's say you are trying to determine if a shipment of pig iron in blocks is an originating good under NAFTA, Pig iron is classified under heading 72.01, as seen in Figure 5.2. Copyright © 2020 Emons Mortgomery Pubicatons AA Fights RinsarvedScanned with CamScanner~~. B86 nTRODUCTION To CUSTOMS ADMINISTRATION AND PROCEDURES, marketing, after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs included in the total cost. The formula for the RVC when using the TV method is: talue ofnon-originating materials TV RVC = TV The formula for the RVC when using the NC method is: ave = Ne - Yaldeofnon-originating materials 49 NC In some cases, the specific rule of origin will indicate that, using the TV method, the RVC must be at least 60 percent for the goods to be considered as originating. DE MINIMIS RULE de minimis rule Certain tariff treatments allow the de minimis rule to be used when determin- Amie thatallowsa ing the country of origin. The dé minimis rule excludes a certain percentage of ee z non-originating parts and materials from having to meet the tariff-shift rule. The andmeteraistiommeet. percentage allowed for de minimis varies between tariff treatments and can vary ing thetarif-shift rule. within a tariff treatment according to the tariff item of the finished good. For example, look again at the rule for finished goods under heading 72.01, Imagine that the finished pig iron you are importing from the United States (US) alued at Cdn$10,000.00 and contains a small amount of ferro-nickel. Because ferro-nickel is also classified in chapter 72, the same chapter as pig iron, the specific rule of origin does not apply. However, ifthe ferro-nickel was valued at less than a certain percentage of the finished item, the pig iron would still originate using the de minimis rule. In most cases uncer NAFTA, the de minimis allowed is7 percent, which means that in order (o originate, the value of the ferro-nickel would have to be Cdn$700.00 or less SPECIFIC TARIFF TREATMENTS AND THE GENERAL TARIFF As well as determining the tariff classification number, you must also be able to determine the correct tariff treatment because it isthe tariff treatment, in combi- nation with the tariff classification number, that determines the rate of duty. i MOST-FAVOURED-NATION TARIFF TREATMENT Countries that are entitled to use the MFN tariff treatment are those that are sig- natories to the General Agreement on ‘Tariffs and ‘Trade, or GATT, Goods originate {in a country that isa beneficiary of the MFN tariff if Copyright © 2020 Ford Mentjornary Puicains, AB Rights Rasarved, Scanned with CamScannerScanned with CamScannerAFR CHAPTERS TARIFF " « not less than 50 percent of the cost of production of the goods is incurred by the industry of one or more countries that are beneficiaries of the MEN tariff, or by the industry of Canada; and. + the goods were finished in a country that is a beneficiary of the MEN tariff in the form in which they are imported into Canada, “The goods must be shipped directly to Canada from a country that is an MEN beneficiary country, with or without transhipment PROOF OF ORIGIN ‘To claim the benefits of the MEN tariff treatment, the owner or importer of the goods must provide: + a Canada Customs Invoice (C1), completed in English or French by | the importer or owner, that indicates that the goods originate in the applicable beneficiary country; + where the CCI does not indicate that the goods originate in the applicable beneficiary country, a commercial invoice, completed in English or French by the vendor or the transferee in the country ‘of export, that indicates that the goods originate in the applicable beneficiary country; or +* any other documentation, completed in English or French, that indicates that the goods originate in the applicable beneficiary country, Scanned with CamScannerScanned with CamScannerScanned with CamScanner2 = 5 8 3 € 5 8 = = 3 3 2 3cHaprens tanerracarwents 94 nnon-originating materials do not underyo the required change in tarif: However, ‘the goods do meet an RVG requirement of 60 percent when the TV method 4s used ‘0 50 percent when the NC method is used. CRITERION E Criterion F applies only to sertain automatic data processing goods and their parts. ‘These goods need not undergo any processing or have any value added. They are considered originating when imported into a NAFTA country, regardless of the country of origin, when the MEN duty rate is common to all NAFTA parties CRITERION F Criterion F applies to agricultural goods imported itito Canada from Mexico that are not subject to quantity restrictions in Canada. ‘Ihe exporter or producer must first determine whether the goods are originating under criteria A, B, or C and then, if the goods are wholly produced in Mexico or jointly produced in Mexico and the US, or Mexico and Canada, determine whether the goods are qualifying under the terms of NAFTA. PROOF OF ORIGIN All NAFTA originating goods must be documented on either a NAFTA Certificate of Origin or an exporter’s low-value Statement of Origin. An exporter’s low Value Statement of Origin may be used for goods that are valued at less than Cn$2,500,00, A NAFTA Certificate of Origin is reproduced at the end of this chapter (see Figure 5.4) Once passed, the Canada—US~ Mexico. Agreement will replace NAETA. CANADA-ISRAEL AGREEMENT TARIFF Countries that aré entitled to use the Canada—tIotael Agreement Tariff (CIAT) are Israel and any territories to which the laws of Israel apply. These include the West Hank and the Gaza Strip, The Canada—Israel Free Trade Agreeinent {CIFTA) was implemented on January 1, 1997, CIFTA rules of origin are used to determine whether goods originate under this trade agreement. PROOF OF ORIGIN Once it has been determined that the goods qualify under CIFTA, the exporter, producer, or manufacturer must complete a certificate of origin. For CIFTA goods exported from Canada, the certificate of origin can be completed by the exporter, producer, oF manufacturer in Canada. the certificate of origin for CIFTA goods ‘may be completed in Linglish, French, Hebrew, ot Arabic (Sopyrg © 2579 Err) Manigomnery Pynicancee. A gta Masao92. INTRODUCTION TO CUSTOMS ADMINISTRATION AND PROCEDURES CHILE TARIFF TREATMENT ‘Canada and Chile are signatories to the Canada-Chile Free ‘Trade Agreement (CCETA), implemented on July 5, 1997. Originating goods are entitled to use the Chile tariff (CT) treatment. CCFTA rules of origin are used to determine whether goods originate under this trade agreement. PROOF OF ORIGIN A certificate of origin must be completed for goods quill rates of duty. For imported goods, it is completed by the exporter, producer, ‘or manufacturer and for qualifying goods exported from Canada, it must be com- pleted by the exporter, producer, or manufacturer in Canada, The certificate of ori- gin for CCETA goods may be completed in English, French, or Spanish. Specific origin o preference criteria, similar to those required on the NAFTA Certificate of Origin, must be noted when completing the certificate of origin. \g under the CCFTA. Canada and Costa’ Rica: are me eipualories PROOF OF ORIGIN A certificate of origin must be completed for goods qualifying under the CCRFTA rates of duty. For imported goods, itis completed by the exporter, producer, or manufacturer and for qualifying goods exported from Canada, it must be com: pleted by the exporter, producer, or manufacturer in Canada. ‘The certificate of origin may be completed in inglish, French, or Spanish, Specific origin criteria must be noted when completing the certificate of origin. There are four origin or preference criteria under the CCRFTA EUROPEAN FREE TRADE ASSOCIATION ‘The European Free ‘Irade Association (EFA), implemented on July 1, 2009, includes kceland, Norway, Switzerland, and Liechtenstein, PROOF OF ORIGIN ‘The required proof of origin is a statement, referred to as an Origin Declaration. can be provided on an invoice or other supporting document that describes the originating product in sufficient detail to enable its identification. The declaration Copyisgtt ©2120 Earn Mousigorrmny Putacatons At Rights Reserved,Scanned with CamScannerNADIAN EU] Scanned with CamScanner2 = 5 8 3 € 5 8 = = 3 3 2 396 nTRODUCTION TO CUSTOMS ADMINISTRATION AND PROCEDURES FIGURES4 NAFTA Certificate of Origin wl Sees ARTA eat NORTH AMERICAN FREE TRADE AGREEMENT CERTIFICATE OF ORIGIN (instructions Attacted) eae pre ype erence eae Best Natale ‘777 mighway 28 Jat er. 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