Toolkit

This Toolkit includes Factsheets that provide an overview of Tariff Rate Quotas (TRQs) and Origin Quotas and their administration in Canada.

The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) will include quotas for the following commodities:

1. TRQs for European Union exports of cheese and industrial cheese into Canada; and,
2. Origin Quotas for Canadian exports of high-sugar containing products, sugar confectionary and chocolate preparations, processed foods, dog and cat food, fish and seafood, textiles and apparel, and vehicles into the European Union.

Questions

• Tariff Rate Quotas

  1. What is your preferred allocation methodology for the new cheese Tariff Rate Quota (TRQ)? Why?
  2. Should there be a cap on the amount of quota that any one allocation holder (and related parties) may receive?
  3. What criteria should be used to determine applicants’ eligibility for an allocation?
  4. What sort of activity requirements should be used to determine whether, and the extent to which, applicants are active in the cheese sector?
  5. Should new entrants have access to a larger portion of the new TRQ than the minimum required under CETA? Please elaborate.
  1. Under CETA, during the TRQ phase-in period (Year 1 to Year 5) at least 30 percent of the TRQ will be made available to new entrants, while from Year 6 onward this level drop to at least 10 percent of the TRQ.
  6. Should the eligibility criteria and activity requirements for new entrants differ from other applicants? Why or why not?  If so, what should they be?
  7. Are there other considerations that should be taken into account in allocating the new TRQ? If so, what are they and why?
  8. Are there any Canadian regional considerations that should be taken into account in allocating the new TRQ? If so, what are they?
  9. Are there Canadian consumer/market demographics that should be taken into account in allocating the new TRQ? If so, what are they?
• Origin Quotas

  1. Should Canada have a role in administering export Origin Quotas (e.g., using export administration mechanisms, such as export permits, quota allocation etc.)?
  2. How should Canada administer exports under the Origin Quota(s)?

Reference material

• Comprehensive Economic and Trade Agreement (CETA) Text (PDF, 1.44 MB)
• Annexes to Chapters 2, 4, 5, 8, 9, 10, 11 and 13 of CETA (PDF, 210 KB)
• Declaration of the Parties concerning tariff rate quota administration (PDF, 153 KB)
• Protocol on rules of origin and origin procedures (PDF, 1.27 MB)

Factsheets

Select the questions below to learn more about TRQs and Origin Quotas.

Tariff Rate Quotas

• What is a tariff rate quota (TRQ)?

  A TRQ is an import mechanism whereby a set amount of a specific product(s) may be imported at a low or zero rate of duty. In Canada, this is commonly referred to as the “within access commitment”. An important feature of TRQs is that they do not function as an absolute limit on the amount of product that may be imported. The “within access commitment” is, therefore, complemented by an “over access commitment”. The latter does not set any limits on the amount of product that may be imported, but applies a different, generally higher, rate of duty.  Imports face this higher rate of duty once the “within access commitment” amount has been reached or requirements associated with the “within access commitment” are not satisfied. 

  By way of example, under the World Trade Organization (WTO) in 1995, Canada replaced its existing cheese import quota with a TRQ.  The “within access commitment” for Canada’s WTO cheese TRQ is 20,411,866 kilograms that may be imported at a rate of duty that ranges from 0% of duty up to 3.32 cents per kilogram, depending on the country from where the product is imported. The rate of duty for “over access commitment” imports is 245.5% of the declared value of the product imported but not less than 3.53 to 5.78 dollars per kilogram; this rate of duty applies regardless of the country from where the product is imported. 

• Who can import a product that is controlled by way of a TRQ?

  A product that is subject to a TRQ can be imported only by someone who has a valid import permit issued under the authority of the Export and Import Permits Act (EIPA). Import permits are issued only to residents of Canada. Canadian residents who apply for an import permit may also need to demonstrate that they meet further requirements, such as eligibility criteria and activity tests, which vary by TRQ.

• How is Canadian resident defined?

  Under the Export and Import Permits Act (EIPA), a Canadian resident is defined as follows: “resident of Canada” means, in the case of a natural person, a person who ordinarily resides in Canada and, in the case of a corporation, a corporation having its head office in Canada or operating a branch office in Canada.

• What is an allocation?

  An allocation is an amount of the TRQ that is granted to an eligible applicant.

• How does an allocation work?

  An allocation functions like an account. The allocation holder, i.e., an applicant that has been granted an allocation under a TRQ, may request import permits against that allocation. By way of example, an allocation holder that has been granted an allocation of 100,000 kilograms under a cheese TRQ may request permits to import up to 100,000 kilograms of cheese. The allocation holder may utilize the entire amount by importing 100,000 kilograms under one import permit, or may draw down on the allocation by using a number of permits during the allocation year.

• How long is an allocation valid?

  TRQs are administered on an annual, 12-month basis. CETA TRQs are administered on a calendar year basis (i.e., January 1^st to December 31^st). Allocations are valid only for the year in which they have been granted. Applicants must re-apply each year and must demonstrate each year that they qualify for an allocation. Applications are assessed on the basis of the applicable eligibility criteria and activity tests.

  In addition, applicants that were granted an allocation in the previous year maybe assessed on the basis of their utilization of that allocation. Canada has a number of mechanisms in place to encourage maximum utilization of TRQs. These mechanisms include return policies, penalties for chronic returns and under-utilization of allocations.

• What are some of the current methods by which TRQs are distributed among eligible applicants within Canada?

  • First-come-first-served:  As the name implies, there is no allocation process. Eligible applicants may import product at the lower within access rate of duty up to the access level. Once that amount is reached (i.e., once the TRQ is filled), imports will be subject to the higher over access rate of duty.
  • Equal Share: All eligible applicants receive an equal allocation;
  • Market Share: All eligible applicants receive an allocation proportional to their respective market shares in relation to the total market calculated under the TRQ;
  • Previous year’s utilization: Eligible applicants receive an allocation equal to their total utilization of the TRQ during the previous year. Further allocations are available on a first-come-first-served basis so long as quota remains available;
  • Historical: The quota is fully allocated to importers who were active before the initial TRQs began, in proportion to their historical import activity;
  • Hybrid: The allocation method combines two or more of the above approaches noted above.
• What are eligibility criteria?

  Eligibility criteria are used to determine who is eligible to obtain an allocation under a TRQ or a permit to import or export products that are controlled under the Export and Import Permits Act (EIPA). In some cases, there is only one eligibility criterion, which is that the applicant be a resident of Canada.

  Often, there are additional eligibility criteria, depending on what the product is, whether it’s destined for retail sale or for manufacturing purposes, or depending on the number of applicants who are interested in importing that product. By way of example, and depending on the TRQ, applicants may have to demonstrate that they are distributors, processors or food service providers.

  Eligibility criteria are further defined by activity tests.

• What are “activity tests”?

  Activity tests serve two functions. First, they add further definition to eligibility criteria. It may not be sufficient, for example, for applicants to demonstrate that they purchase and/or sell cheese; they may, in addition, have to demonstrate that they have purchased and/or sold a certain minimum quantity of cheese in a given 12-month “reference period”. Applicants who do not meet this threshold would not be considered eligible for an allocation. This is a useful means of limiting the number of applicants who may apply for a given TRQ and ensure that the TRQ is allocated to applicants that are active in the industry.

  The second function of an activity test is to determine the size of each eligible applicant’s allocation where a TRQ is allocated, wholly or in part, on the basis of market share. 

• Can eligible applicants apply to import small amounts of product, or is there a minimum quantity for which applicants must apply?

   While there is often a maximum quantity that any one eligible applicant may be authorized to import under a TRQ, there is no minimum quantity. An applicant may, for example, apply for a small allocation with a view to importing a specialty product that is not available in Canada and for which there may be limited demand. 

• What is a “new entrant”?

  Under CETA a new entrant is defined differently based upon the year in which they apply. During the first five years of the TRQ, a new entrant is defined as an eligible applicant who is not an allocation holder under Canada’s cheese TRQ under the World Trade Organization (WTO). From Year 6 onwards, a new entrant is defined as an eligible applicant who is not an allocation holder under Canada’s WTO cheese TRQ or did not receive an allocation of the TRQs established under CETA in the preceding year.

• What does “return policy” mean, and why is there a “chronic return” penalty?

  As noted above, TRQs are administered on an annual basis, and allocations are valid only for the year in which they are granted. In addition, applicants who seek to obtain an allocation in the following year are assessed on the basis of their performance in the current year. A return policy is a provision that allows allocation holders that are unable to utilize their allocations to return all, or part, of that allocation by a specific date. The amount that is returned can then be made available to other eligible applicants that are able to utilize the allocation, which contributes to maximum utilization of the TRQ. It also allows an allocation holder that is unable to utilize the allocation in any one year to avoid facing an under-utilization penalty the following year.

  Allocation holders that return a significant portion of their allocation in two or more consecutive years may face a chronic return penalty if they apply for an allocation in subsequent years. The details of the chronic return policy, including what is meant by a “significant portion”, vary by TRQ. Generally, the applicant’s allocation will be adjusted downward in proportion to the amounts returned in previous years. The purpose of the chronic return penalty is twofold: to direct allocations to applicants that can utilize them and to encourage maximum utilization of the TRQ.

• Why is there a penalty for under-utilization, and how does it operate?

  The purpose of the under-utilization policy is to encourage maximum utilization of the TRQ by directing allocations to applicants that will utilize them. Applicants that apply for allocations they are unable to utilize, and that do not make use of the return policy, will have their allocations in the following year adjusted downward in proportion to the amount they did not utilize. The threshold below which an allocation is considered under-utilized varies by TRQ. In some TRQs, allocation holders that have utilized 85% of their respective allocations are considered to have fully utilized their allocations and will not be subject to an under-utilization penalty in the following year. In other TRQs, the threshold may be as high as 95%.  

Origin Quotas

• What is an export “Origin Quota”?

  An Origin Quota is a mechanism whereby a specified quantity of a specific product(s) can qualify as originating under the CETA, even if it contains non-Canadian and non-European Union sourced materials, provided that it has undergone sufficient production based on the alternative, less restrictive rule of origin associated with that Origin Quota. These products are considered originating and are thus eligible for the preferential tariff treatment that a Party provides under CETA.

  Under CETA, for specified processed products to meet the CETA rules of origin and be eligible for preferential tariff treatment, the main rules of origin place restrictions or limitations on the use of specific non-originating materials or ingredients, while the alternative rules of origin provide the flexibility to use more non-originating materials or ingredients in the production of that product. Under the alternative rules of origin that apply to the Origin Quotas, producers can use more non-originating materials or ingredients than otherwise permitted under the main rules of origin.

  Relying on the Origin Quotas to export preferentially to the European Union, is only necessary for products that do not satisfy the main product-specific CETA rules of origin or do not enter the European Union via a tariff line that is already Most-Favoured Nation (MFN) duty-free.

• How do I determine if I need to use the Origin Quotas to export goods to the European Union?

  Canadians planning to export to the European Union should start by reviewing the general rules of origin set out in the CETA Protocol on rules of origin and origin procedures. Many Canadian products, such as fish caught in Canadian waters, will qualify as originating under the CETA article on wholly obtained products.

  For products made using non-originating, or imported (from elsewhere other than the European Union), materials or ingredients, the “main” product-specific rules of origin (Annex 5) may apply. If this main product-specific rule of origin is satisfied, there is no need to refer to the Origin Quota, and the product can be exported to the European Union at the preferential duty rate.  

  Certain products that do not satisfy the main product-specific rule of origin may qualify as originating under the alternative product-specific rules of origin (Annex 5-A). The alternative rules of origin allow products to include more non-originating, or imported, materials or ingredients than otherwise permitted under the main rules of origin. Producers and exporters should assess whether their products could qualify as originating under these alternative rules of origin. Exports of originating products based on the alternative rules of origin will be able to receive preferential tariff treatment, but are limited by the volume associated with the applicable Origin Quota.

• Why might the Canadian Government consider not administering an export Origin Quota?

  Should Canada decide not to administer the Origin Quotas, no export documentation will be required from Global Affairs Canada. Any exporter whose goods qualify for an Origin Quota would be able to export to the European Union. Exporters would be subject only to documentation and administrative requirements established by the European Union.

• If the Government decides to administer an Origin Quota, what would this entail?

  Should Canada decide to administer the origin quotas, a valid Canadian-government issued export permit would be required under the authority of the Export and Import Permits Act (EIPA). If an export permit requirement is established, the European Union would only recognize products covered by a Canadian export permit as being eligible to enter under the Origin Quota and to receive preferential tariff treatment under CETA.

• Who would be eligible to apply for an export permit?

  If an export permit is required under the Export and Import Permits Act (EIPA), permits may be issued by Global Affairs Canada to Canadian and non-Canadian residents. A Canadian resident would be required to apply for an export permit on behalf of a non-Canadian resident.

  Other eligibility requirements for export permits could include historical activity in the sector or company type (e.g. manufacturer). These conditions could be linked to specific allocation decisions related to access to the Origin Quota.

• How is a Canadian resident defined?

  Under the Export and Import Permits Act (EIPA), a “resident of Canada” means, in the case of a natural person, a person who ordinarily resides in Canada and, in the case of a corporation, a corporation that has its head office in Canada or operating a branch office in Canada.

• What are the current methods that Canada has in place for administering export quotas?

  • First-come-first-served:  Eligible applicants may request permits on an on-demand basis to export products under a quota (at the preferential rate of duty) until the quota is fully utilized. Once that threshold is reached (i.e., once the quota is filled), Canada stops issuing export permits and the importing country applies the Most-Favoured Nation (MFN) rate of duty to any further shipments of Canadian goods;
  • Equal Share: All eligible applicants receive an equal allocation;
  • Market Share: All eligible applicants receive an allocation proportional to their respective market shares;
  • Previous year’s utilization: Eligible applicants receive an allocation equal to their total utilization of the quota during the previous year. Further allocations are available on a first-come-first-served basis so long as quota remains available;
  • Historical: The quota is fully allocated to exporters who were active before the initial quotas began in proportion to their historical export activity;
  • Hybrid: The allocation method combines two or more of the above approaches.
• How does an allocation work?

  An allocation functions like an account. The allocation holder, i.e., an applicant that has been granted an allocation under an origin quota, may request export permits against that allocation. For example, an allocation holder that has been granted an allocation of 1,500 metric tonnes under the processed food origin quota may request permits to export up to 1,500 metric tonnes of eligible processed foods. The allocation holder may utilize the entire amount by exporting 1,500 metric tonnes under one export permit, or may draw down on the allocation by using a number of permits during the allocation year. Once a company has used their entire quota, additional quota may be available on a first-come-first-served basis, so long as quota remains.

• How long is an allocation valid?

  Under CETA, Origin Quotas are to be administered on a calendar year basis (e.g. January 1^st to December 31^st). Allocations would be valid only for the year in which they have been granted.

• What are “activity tests”?

  Activity tests serve two functions. First, they add further definition to eligibility criteria. It may not be sufficient, for example, for applicants to demonstrate that they produce sugar confectionery; they may, in addition, have to demonstrate that they have processed a certain minimum quantity of sugar confectionery in their own plants in a given 12-month “reference period”. Manufacturers who do not meet this minimum threshold would not be eligible to receive an allocation. This is a useful means of ensuring that the quota is allocated to applicants that are genuinely active in the industry and are likely to fully utilize their quota allocation.

  The second function of an activity test is to determine the size of each eligible applicant’s allocation if a quota is allocated, wholly or in part, on the basis of market share. 

• What does “return policy” mean, and what is a “chronic return” penalty?

  As noted above, quotas are administered on an annual basis and allocations are valid only for the year in which they are granted. In addition, applicants who seek to obtain an allocation in the following year are assessed on the basis of their performance in the current year. A return policy is a provision that allows allocation holders that are unable to utilize their allocations to return all, or part, of that allocation by a specific date. The amount that is returned can then be made available to other eligible applicants that are able to utilize the allocation, which contributes to maximum utilization of the quota. It also allows an allocation holder that is unable to utilize the allocation in any one year to avoid facing an under-utilization penalty the following year.

  Allocation holders that return a significant portion of their allocation in two or more consecutive years may face a chronic return penalty if they apply for an allocation in subsequent years. The details of the chronic return policy, including what is meant by a “significant portion”, vary by quota. Generally, the applicant’s allocation will be adjusted downward in proportion to the amounts returned in previous years. The purpose of the chronic return penalty is twofold: to direct allocations to applicants that can fully utilize them and to encourage maximum utilization of the quota by industry.       

• Why is there a penalty for under-utilization, and how does it operate?

  The purpose of the under-utilization policy is to encourage maximum utilization of the quota by directing allocations to applicants that will utilize them. Applicants that apply for allocations they are unable to utilize, and that do not make use of the return policy, will have their allocations in the following year adjusted downward in proportion to the amount they did not utilize. The threshold below which an allocation is considered under-utilized varies by quota. In some quotas, allocation holders that have utilized 85% of their respective allocations are considered to have fully utilized their allocations and will not be subject to an under-utilization penalty in the following year. In other quotas, the threshold may be as high as 95%.