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Notices

Administration of the North American Free Trade Agreement Provisions Relating to Textile and Apparel Goods

Notice to Exporters
Export and Import Permits Act

Serial No: 70
Date: December 15, 1993

Table of Contents


Purpose

1. This Notice to Exporters supersedes Notices to Exporters, Nos. 34 and 35 dated August 1, 1988, No. 37 dated December 19, 1988, and No. 39 dated October 3, 1989, and has effect upon implementation on January 1, 1994 of the North American Free Trade Agreement (NAFTA). This Notice to Exporters provides an explanation of the provision of the NAFTA as they relate to textiles and apparel and outlines the criteria used in allocating to exporters their individual shares of the following Tariff Preference Level (TPL) export quotas: (1) cotton or man-made fiber apparel and made-up goods; (2) wool apparel and made-up goods; (3) cotton or man-made fiber fabrics and made-up goods; and, (4) cotton or man-made fiber spun yarn.

NAFTA Provisions

2. Annex 300-B, Appendix 2.1, Part A of the NAFTA, provides for the continued tariff elimination of customs duty on originating textile and apparel goods between the United States and Canada in accordance with Annex 401.2, as amended, of the Canada-U.S. Free Trade Agreement (FTA). Part C provides for the elimination of customs duty on originating textile and apparel goods between Mexico and Canada.

3. The rules of Origin for textiles and apparel goods are set out in Annex 401, Section XI and Appendix 6A, Annex 300-B. Although there are several specific exceptions, in general, the rule of origin may be described as a "yarn forward" rule, requiring the yarn, fabric and finished product to all originate from NAFTA countries. The exceptions range from a stricter "fiber forward" rule in the case of knit made up articles to a less rigid "single transformation" rule in the case of brassieres.

4. Annex 300-B, Section 6, and Appendix 6 set out special provisions applicable to certain textile and apparel goods. Under Appendix 6, Part B, goods which would not otherwise satisfy the NAFTA Rules of Origin (Annex 401), will nevertheless qualify for NAFTA duty rates up to specified annual levels, called Tariff Preference Levels (TPLs). Above these levels, non-originatingtextile and apparel goods will be subject to the Most-Favoured-Nation tariff rate.

5. In order to enable U.S. and Mexican Customs officials to recognize those Canadian export shipments which are eligible to receive NAFTA Preferential duty rates under Appendix 6 at the point of entry, the Export and Import Permits Bureau (EIPB) will issue "Certificate of Eligibility". This certificate must be transmitted to the U.S. and Mexican importers in advance of shipment for presentation to U.S. and Mexican Customs officials at the border. Without this certificate, such shipments will not receive the NAFTA rate of duty, but instead will receive the Most-Favoured-Nation tariff rate.

Metric TPL Levels

6. Exporters should note that under the NAFTA there is agreement for conversion of the primary units of measure (other than for yarns) into Square Metre Equivalents (SMEs) by means of conversion factors identified in Schedule 3.1.3 of Annex 300-B.

7. The metric TPL levels for exports from Canada to the United States and Mexico for 1994 are as follows:

A. Cotton or man-made fiber apparel and made-up goods:

80,000,000 SME1 - United States
6,000,000 SME - Mexico

1 No more than 60,000,000 SME shall be made form fabrics which are knit or woven in a non-NAFTA country.

B. Wool apparel and made-up goods:

5,066,948 SME2 - United States
250,000 SME - Mexico

2 No more than 5,016,780 SME shall be men's or boy's suits of U.S. category 443.

C. Cotton or man-made fiber fabrics and made-up goods:

65,000,000 SME3 - United States
7,000,000 - Mexico

3 No more than 35,000,000 SME may be in goods of Chapters 52 through 55, 58 and 63 (other than subheading 6302.10, 6302.40, 6303.11, 6303.12, 6303.12, 6303.19, 6304.11 or 6304.91) of the Harmonized System (HS); and no more than 35,000,000 SME may be in goods of Chapters 60 and subheading 6302.10, 6302.40, 6303.11, 6303.19, 6304.11 or 6304.91 of the HS.

D. Cotton or man-made fiber spun yarn:

10,700,000 Kg - United States
1,000,000 Kg - Mexico

Authority

8. Under the authority of Section 9.1 of the Export and Import Permits Act (EIPA), as amended, the Minister may, for the purpose of implementing an intergovernmental arrangement respecting the administration of Appendix 6, Annex 300-B of the NAFTA, issue a certificate with respect to an exportation of goods to the United States or Mexico stating the specific quantity of the goods for which a certificate is issued.

Allocation Criteria

9. The TPLs will be allocated to individual apparel/accessory and textile exporters according to the following criteria:

Exports to the United States

A) Cotton or man-made fiber apparel and made-up goods and cotton or man-made fiber fabrics and made-up goods:

The 1994 allocation of these two TPLs will be based on individual exporters' performance under the Canada-U.S. Free Trade Agreement tariff rate quota in 1993. In addition, a substantial non-allocated balance remains in the 1994 quota level for both these TPLs. It will be made available to all exporters on a "first-come, first-served" basis, whether or not they have received individual prior allocations. However, allocation recipients will have to fully use their allocations prior to accessing the "first-come, first-served" basket.

B) Wool apparel and made-up goods:

The 1994 allocation will be as follows:

a) 79.2% (4,013,424 SME) of the TPL will be allocated based on individual exporters' performance under the FTA Tariff Rate Quota in 1993. (Should 1993 actual shipments be greater than 4,013,424) SME, the allocation will be made on a pro rate basis). Where NAFTA conversion factors differ from previously applied FTA conversion factors resulting in a reduction or an increase in the number of units exported, consideration will be given, on a case-by-case basis, to adjusting the individual company's TPL allocation.

b) 15.8% (800,177 SME) will be set aside for non-NAFTA yarn wovens and knit apparel not previously included in the FTA Tariff Rate Quota for wool apparel. One-half, 7.4% (400,088 SME) of this amount will be allocated for non-NAFTA origin yarn wovens and one-half, 7.4% (400.088 SME) will be allocated for knit apparel. Applicants seeking access to these set-asides will be required to replace the last three digits of the TPL Commodity Code, used when submitting applications, with Annex Codes identified in the January 1, 1994 Handbook of Import and Export Commodity Codes.

c) 5% (253,347 SME) will be made available to exporters who have not received individual prior allocations, on a "first-come, first-served" basis. Access to this "first-come, first-served" basket will be based on confirmed shipments.

C) Cotton or man-made fiber spun yarn:

The 1994 TPL will be allocated on a "first-come, first-served" basis.

Exports to Mexico

D) All 1994 TPLs will be allocated on a "first-come, first-served" basis.

Future Years' Allocation

10. Allocations for all TPLs in 1995 will be based on the following:

a) Allocation recipients will receive an allocation equivalent to their use of the 1994 quota.

b) A new entrants' pool will be established equal to 1% of the 1994 quota plus any unused 1994 quota, up to a total of 5% of the 1995 quota.

c) Any additional quota will be placed in a "growth pool" available on a "first-come, first-served" basis based on confirmed shipments. Allocation recipients will be granted access to the "growth pool" when their allocations have been completely used. New entrants will be granted access when the new entrants' pool has been completely used.

11. Allocations for 1996 to 1999 will be based on the foregoing formula.

Unused Allocations

12. Prior to September 30 of each year, commencing in 1994, allocation recipients may return up to 25% of their allocation for use by others on a "first-come, first-served" basis without incurring a reduction in their following year's allocation.

13. On October 1 of each year any unused portion of quota allocations up to 75% of the original allocation held by individual allocation recipients will be permanently forfeited and returned to the "growth pool".

14. On November 15 of each year, any unused portion of quota allocations up to 90% of the original allocation held by individual allocation recipients will be permanently forfeited and returned to the "growth pool".

Transfer of Quota Allocation

15. There is no proprietary right of transferability with respect to quota allocations. On the saleof total assets of a quota holding company, the quota reverts to the Government. The Government may, however, at its discretion, reallocate all or part of the quota to the new owner under conditions such as that production by the original quota holding company continues unaltered.

Records

16. Exporters are advised to maintain records on the country of origin of the imported fabrics, yarns or fibbers (whichever is applicable) which are used in making TEL textile and apparel goods, as well as information on where goods have been cut, sewn or otherwise assembled, as they may be requested to present them upon or subsequent to export. For further details on record-keeping requirements for the NAFTA, exporters should refer to Revenue Canada, (Customs and Excise) Memorandum D20-1-5.

Application for Certificates of Eligibility

17. When making an application for a certificate of eligibility you will be required to fill in "TEL" in the NAFTA Processing block or "DB" if claiming a 50% debit. You are also required to identify the origin of the fabric, yarn and fiber in the Country of Origin - raw material block.

Export and Import Permits and Certificates Fees Order, 1989

18. a) $10 will be levied for Certificate(s) of Eligibility delivered for a shipment containing up to 15 different commodities and delivered by a customs broker's office which is authorized by the Minister of Foreign Affairs to make such delivery and

b) $15 will be levied for Certificate(s) of Eligibility for a shipment containing up to 15 different commodities and delivered by the Export and Import Permits Bureau.

Certificate Cancellations

19. In cases where certificates of eligibility are subsequently not used (because of cancelled orders, or for any other reason), exporters must promptly return the pink copy of the Certificate of Eligibility to the EIPB for cancellation.

Director
Import Controls Division 1 (Textiles and Clothing)
Export and Import Permits Bureau
Department of Foreign Affairs and
International Trade
P.O. Box 481, Station "A"
Ottawa, Ontario
K1N 9K6

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