Notices to Exporters

Textiles and Clothing

Administration of the North American free trade agreement relating to exports of apparel and made-up goods to the united states and the application of the tariff preference levels

Transfer mechanism

Serial No. 111
Date: September 21, 1998

Table of Contents

Part I: General

1.0 Purpose

1.1 The purpose of this Notice is to advise exporters of a new system to transfer Tariff Preference Level (TPL) allocations for non-originating apparel and made-up goods exported to the United States.

1.2 This Notice amends Notices to Exporters No. 70, dated December 15, 1993, paragraph 15, and No. 101, dated September 2, 1997, paragraph 4.1, both regarding transfers of TPL allocations.

2.0 Definitions

2.1 For the purpose of this Notice:

  • (a) "Certificate of Eligibility" means the Minister's certification that a quota holder's goods qualify for preferential treatment pursuant to the NAFTA. The Minister makes such qualification conditional of the quota holder's maintenance of records which allow the Minister's auditors to identify the origins of materials used in the manufacture of goods eligible for access to TPL;
  • (b) "Company" refers to manufacturer and non-manufacturer;
  • (c) "Customs Broker" refers to a Canadian customs broker that has on-line access to the Export and Import Controls Bureau's computer system;
  • (d) "Department" means the Department of Foreign Affairs and International Trade;
  • (e) "EICB" means the office of the Export and Import Controls Bureau of the Department of Foreign Affairs and International Trade;
  • (f) "Goods" means NAFTA-specified textile apparel and made-up products which do not meet the NAFTA Rules of Origin specifications for classification as "originating" products (NAFTA, Annex 401);
  • (g) "Manufacturer" means an exporter that is a quota holder and either: (i) owns the woven or knit fabric used in the manufacture of apparel products, or owns the yarn in the knit to shape of apparel products; or (ii) cuts and sews the woven or knit fabric into apparel products, or knits to shape apparel products;
  • (h) "Minister" means the Minister of Foreign Affairs;
  • (i) "NAFTA" refers to the North American Free Trade Agreement;
  • (j) "Non-manufacturer" means an exporter that is a quota holder but does not meet the definition of a manufacturer, i.e., is a retailer, distributor or wholesaler, etc.;
  • (k) "Quota" means the amount of SME an exporter may access from the TPL;
  • (l) "Quota holder" means an exporter to which quota has been allocated to;
  • (m)"SME" means square meter equivalents;
  • (n) "Tariff Preferential Level" or "TPL" means the special provisions set out in Annex 300-B, Appendix 6, Part B, of the NAFTA, that provides for the application of a customs duty at a preferential rate to non-originating goods up to a specified quantity, as adjusted under the Agreement, measured in square metre equivalents, and at a rate different from goods that exceed that quantity;
  • (o) "TPL allocation" means a specific level of quota an exporter is allocated in a year;
  • (p) "Transfer" means the movement of quota from one quota holder to another quota holder and, if not specifically addressed, also means the return of quota to the Department;
  • (q) "Transferee" means a quota holder that receives a quota from another quota holder;
  • (r) "Transferrer" means a quota holder that transfers its quota to another quota holder;
  • (s) "Year" means the calendar year beginning January 1 to December 31;

3.0 Duration

3.1 This Notice shall remain valid until further notice.

Part II: Transfer Mechanism

4.0 Introduction

4.1 Transfer mechanism: The transfer mechanism will allow the temporary transfer of apparel TPL allocation between quota holders. As such, the existing system of reallocating unused TPL after October 1 and November 15 of each year will be replaced by a mechanism whereby unused TPL allocation at the end of the year will be reallocated by the Minister in the subsequent year. The purpose of this transfer system is to maximize utilization and to provide a simplified framework in which the industry can better manage the use of TPL for exports of non-originating apparel goods to the United States.

4.2 Scope and Implementation dates of the Transfer Mechanism: The transfer mechanism applies only to quota holders that export apparel goods to the United States. The transfer mechanism will be available on October 1, 1998, for wool apparel quota holders. Given the amount of non-wool TPL remaining this year on a first-come-first-served basis, the transfer mechanism for non-wool quota holders will be implemented on January 1, 1999.

4.3 Who can make transfers: Only manufacturers that hold TPL allocation can apply to receive transfers of TPL allocations from other companies. The transferee must be the final exporter of the apparel goods benefitting from the transferred TPL quota. Quota holders can transfer out TPL.

4.4 Wool suits and transfer: Of the wool apparel TPL, no more than 5,016,780 SME shall be men's or boys' wool suits of U.S. category 443. Once this level is reached, wool TPL will apply only to other kinds of wool apparel. Quota holders are advised to contact their customs brokers throughout the year regarding the utilization of this sub level.

4.5 Role of Customs Brokers: Canadian Customs Brokers will be able to make transfers electronically on behalf of quota holders and to query transfer accounts on behalf of their clients receiving transfers (refer to 7.0).

5.0 Main Features and Conditions for Transfers

5.1 A company cannot both transfer in and transfer out TPL allocation in the same year. Once a choice is made, only that type of transfer is permissible for that company for the remainder of that year.

5.2 Subject to 5.5, companies will be allowed to transfer out, without penalty, at any time during the year, up to 50 percent of their original TPL allocation.

5.3 Subject to 5.1, companies with an original TPL allocation of 2,000 SME or less, will have the option to transfer out, without penalty, up to 100 percent of their original TPL allocation. This option can be exercised only once in every three year period.

5.4 Companies will have the option to return to the Department by September 30 of each year, up to 25 percent of their original TPL allocation, without penalty. Returned TPL allocation will be redistributed temporarily by the Minister for use until the end of the year (refer to Notice to Exporters No. 93, September 20, 1996 and No. 101, September 2, 1997). Return of TPL allocations is not affected by the condition outlined in 5.1. This means that a return of TPL allocation is not affected by, nor does it influence the condition of the choice of transferring in or transferring out TPL allocation in a single year.

5.5 The combined amount of transfers out and returns of TPL allocation by a company cannot exceed 50 percent of its original TPL allocation, except for companies that elect to transfer out up to 100 percent of their TPL allocation as outlined in paragraph 5.3.

5.6 Transfers between the wool and cotton/man-made fibre TPL's are not allowed.

5.7 There is no limit to the number of transfer transactions a company can perform in a year, so long as it does not violate any of the transfer conditions.

5.8 Transfers and returns are valid only within a calendar year and will not carry-over to the next year.

5.9 No company will be permitted to obtain, through a combination of its original allocation and transfers in of TPL allocation, a share that exceeds 10 percent of the total TPL for the wool and non-wool TPL. Companies with a TPL allocation greater than 10 percent of the respective TPL will not suffer a reduction in their TPL allocation (notwithstanding provisions described herein) but, will only be permitted to transfer out and return TPL allocation, i.e., transferring in TPL allocation will be prohibited.

6.0 Carry-over, Borrow-forward and next year's TPL allocation

6.1 Carry-over or borrow-forward of transfers: Any amount of quota remaining at the end of the year will be lost by the quota holder as there is no carry-over of TPL allocation to the next year. There is no borrow-forward of TPL allocation from next year.

6.2 Role of transfers, returns and export utilization for next year's TPL allocation: For each quota holder, the amount of exports, transfers and returns in one year will be taken into account in calculating its TPL allocation for next year. Transferred out and returned TPL allocation will be reserved and may be given back to the quota holder as part of its TPL allocation for next year. Transferred in TPL allocation will be considered as part of the quota holder's export performance in determining next year's TPL allocation. A quota holder's TPL allocation for next year will be based on export performance for the entire current year and will depend on export shipments relative to the quota holder's available TPL allocation. This will be a percentage of the original TPL allocation, adjusted for transfers out and returns. Two examples that follow will help illustrate this.

6.3 Example 1:

A transferrer quota holder:
Original allocation100SME
Transfers out25SME
Export performance
Next year's TPL allocation:
Original allocation, minus
transfers out and returns
multiplied by  
export performance91%
plus transfers out25SME
plus returns20SME
Next year's allocation95SME

6.4 Example 2:

A transferee quota holder:
Original allocation100SME
Transfers out25SME
Export performance
Next year's TPL allocation:
original allocation, minus
transfers out and returns
multiplied by  
export performance88%
plus transfers out0SME
plus returns0SME
Next year's allocation88SME

7.0 Transfer Procedures

7.1 Transfer Services: Companies wishing to make, receive or query transfers of wool TPL allocations should make appropriate arrangements with Canadian customs brokers, since the implementation of the transfer mechanism will be in place on October 1, 1998.

7.2 Role of Brokers: Canadian customs brokers with on-line access to the Export and Import Controls Bureau will be able to make transfers on behalf of quota holders, and to query accounts for quota holders receiving transfers (as well as conducting the services they are already providing, such as applying for certificates of eligibility and querying balances). The fees or charges by customs brokers for these transfer services are private matters between transferrers and transferees and brokers. The EICB takes no responsibility for these private payment arrangements. However, as indicated below, transferrers and transferees must send the EICB written notices of authorization before on-line brokers can either conduct or query transfer accounts on their behalf. Notices of any changes or cancellations of authorizations for brokers must be provided to the EICB in writing, and these do not come into effect until the change or cancellation is confirmed by the EICB. A list of customs brokers having access to the on-line computer system may be obtained from the EICB on request.

7.3 Customs Brokers ability to make transfers: A quota holder (manufacturer or non-manufacturer) can effect transfers to manufacturers through any Canadian customs broker for which it has provided notice of authorization to the EICB. Exporters holding TPL are required to give written notice to the EICB that a particular customs broker is authorized to make transfers on its behalf. A written notice is not required afterwards for each individual transfer made by the broker for that quota holder. Attached under Annex I of this Notice is a copy of the form which should be used by the quota holder.

7.4 Custom Brokers ability to query transfer accounts: A quota holder (transferee or transferrer) will be able to query all aspects of its account through any customs broker for which it has provided, in writing to the EICB, a notice of authorization to the EICB to have access to its file. The on-line information will include a reference or tracking number for each transaction, the amount and type of transfer (in, out or return) and other relevant transactions, the date, and the original allocation and remaining balance in the account. (i.e., amounts exported or transferred). Attached under Annex II of this Notice is a form that may be used by a quota holder to authorize one or more brokers to query and obtain this information of its behalf. This on-line access will not be available for companies that do not use customs brokers.

7.5 Designating Type of transfer: Quota holders will be required to designate the type of transfer: transfer in, transfer out or a return.

7.6 EICB company numbers for transfers: A company's current EICB company number must be used for all transfer and return transactions.

8.0 Account Balances

8.1 Exports and adjustments to TPL allocation: Exports of non-originating apparel products to the United States will be counted against the TPL allocation balance in the company's account.

8.2 Utilization and adjustments to TPL allocation: Transfer and return of TPL allocation will be treated as a TPL allocation adjustment and the quantities automatically entered into the company's account once the transfer/return request has been processed and accepted by the EICB. Company's account balances will therefore be adjusted immediately.

8.3 Transfer Balance: Given the time lag between transfer and shipments, the balance in any account may be different than the actual allocation level remaining in the account. Therefore, quota holders and their brokers must ensure that they maintain accurate records of all transfers and shipments.

8.4 Amendments or cancellations of transfers: Customs brokers will not be able to make amendments, reversals or cancellations of transfers. Once a transfer has been entered and accepted by the EICB computer, any amendment, reversal or cancellation of the transfer (e.g., a reduction in the amount transferred or a change in the company receiving the transfer) must be requested in writing to the EICB. Such changes will not take effect until the EICB has verified the request with the involved parties and has provided written confirmation. This restriction is required in order to protect interests of the involved companies. Should the number of such changes become unmanageable, the EICB reserves the right to deny further changes.

8.5 Timely notice: Notification of authorization for a Canadian customs broker to make transfers on behalf of a quota holder must be made to the EICB sufficiently in advance of the first intended transfer (and hence exportation) so that the accounts for the transfer can be established. If this is established before the shipment of non-originating apparel goods is exported to the United States, the likelihood of goods being shipped under the Most-Favoured-Nation duty rate will be reduced.

Part III: Further Information

9.0 List of Quota Holders

9.1 List of quota holders: Click for a list of quota holders and the type of TPL allocation they possess.

10.0 Information about the transfer mechanism

10.1 Who to ask: Inquiries about the Canadian procedures described in this Notice or about the NAFTA, as well as authorizations for brokers to conduct services related to transfers, may be addressed to:

Textiles and Clothing Section,
Trade Controls Policy Division (EPM)
Export and Import Controls Bureau
Department of Foreign Affairs and International Trade

Mailing address:

P.O. Box 481, Station A
Ottawa, Ontario K1N 9K6

Courier address:

Tower C, 4th floor
Lester B. Pearson Building
125 Sussex Drive
Ottawa, Ontario
K1A 0G2

Telephone: (613) 996-3711
Facsimilie: (613) 995-5137