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Notice to Exporters

Textiles and Clothing - NAFTA Fabric Exports: TPL Allocation and Transfer Policies - Administration of the North American Free Trade Agreement relating to Exports of Cotton or Man-made Fibre Fabric and Made-up Goods (fabric) to the United States and the Application of the Tariff Preference Levels.

Serial No. 142
Date: December 21, 2004

Table of Contents

1.0 Purpose

1.1 The purpose of this Notice is to outline the Minister’s policies and practices respecting the allocation of fabric TPL, including to new entrants, and respecting the transfer of fabric TPL. This Notice should be read in conjunction with the Export and Import Permits Act (EIPA). Where elements of the present Notice augment the EIPA and Regulations, those elements are to be read as expressions of the Minister’s normal policies and procedures.

2.0 Coverage

2.1 This Notice replaces paragraph 4.1 of Notice to Exporters No. 101, dated September 2, 1997, regarding transfers of TPL allocations and paragraph 7.1 of Notice to Exporters No. 123 dated December 10, 1999, regarding allocation on a first-come, first-served basis. It refers to non-originating cotton or man-made fibre fabric and made-up goods exported to the United States provided for in Annex 300-B, Appendix 6, Part B, paragraph 4 of the NAFTA.

3.0 Definitions

3.1 For the purpose of this Notice:

(a) "Certificate of Eligibility" means the Minister's certification that a TPL holder's goods qualify for preferential treatment pursuant to the NAFTA. The Minister makes such qualification conditional on the TPL holder's maintenance of specified records. Such records are subject to verification;

(b) "Customs Broker" refers to a Canadian customs broker that has on-line access to the Export and Import Controls Bureau's computer system;

(c) "Department" means International Trade Canada;

(d) "EICB" means the office of the Export and Import Controls Bureau of International Trade Canada;

(e) "Minister" means the Minister of International Trade;

(f) "NAFTA" refers to the North American Free Trade Agreement;

(g) “Original allocation” means the initial allocation issued during the first week of December (for the next year) plus the final allocation issued on January 1, plus the bonus allocation issued during the first quarter of a year.

(h) "TPL holder" means an exporter to which TPL has been allocated;

(i) "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 imports of a particular good up to a specified quantity, measured in square metre equivalents, and at a different rate to imports of that good that exceed that quantity;

(j)"SME" means square meter equivalents (a measure of TPL quantity);

(k) "TPL allocation" means a specific level of TPL allocated to a Canadian-resident company in a given year;

(l) "Transfer" refers to the return, to the Minister, of TPL allocation by a TPL holder (“transferor”) and the subsequent re-allocation of the TPL allocation to another TPL holder (“transferee”). For purposes of the application of underutilization penalties, “transfer” also refers simply to the return of TPL to the Minister;

(m) "Year" unless otherwise specified, means a calendar year extending from January 1 to December 31;

4.0 Duration

4.1 This Notice shall remain valid until further notice.

5.0 Authority

5.1 Tariff Preference Levels (TPL) are special NAFTA provisions set out in Annex 300-B, Appendix 6, Part B, of the NAFTA, that provide tariff preferences for imports and exports of non-originating textile and apparel goods up to a specified quantity. Section 9.1(a) of the Export and Import Permits Act (EIPA) authorizes the Minister of International Trade to issue Certificates of Eligibility for TPL for the purpose of implementing an intergovernmental arrangement (e.g., NAFTA). The Minister allocates TPL quantities (in SMEs) to qualified applicants in accordance with the Issuance of Certificates Regulations and policy expressed in Notices to Exporters.

5.2 The annual TPL level for the export of non-originating cotton or man-made fibre fabric and made-up goods as provided in the special provisions of Annex 300-B, Appendix 6, Part B, paragraph 4(b) and Schedule 6.B.2 of the NAFTA, from Canada to the United States is 71,765,252 SME. Of this amount no more than 38,642,829 SME may be specified woven fabrics and made-up goods and no more than 38,642,829 SME may be specified knit fabrics and made-up goods.

5.3 Certificates of Eligibility for TPL are issued at the discretion of the Minister under the authority of the EIPA. Nothing in this or other Notices or other communications can guarantee or be taken to guarantee the issuance of a Certificate of Eligibility. However, it is the Minister’s intent to normally recognize TPL allocations in the disposition of applications for Certificates of Eligibility for TPL.

5.4 TPL allocations are not an asset of a TPL holder and there is no property value associated with a TPL allocation. All aspects of TPL utilization are subject to verification. Pursuant to sub-section 10.(1) of the EIPA, the Minister may amend, suspend, cancel or re-instate any permit, certificate, allocation or other authorization issued or granted under the Act.

6.0 Annual TPL Allocation Policy

6.1 Subject the EIPA, the EIPA regulations and related policies, a company that received a TPL allocation in one year may receive an allocation in the next year that reflects its actual level of TPL use. TPL cannot be carried over to the next year, nor borrowed from the next year. All unused TPL reverts to the Minister.

6.2 Knit fabric and other goods of HS subheading 9404.90 (e.g. quilts, comforters) TPL types will continue to be allocated to historical TPL holders on a basis of their historical allocations, as adjusted, if necessary (e.g. for underutilization). Any balance remaining in these TPL types will be allocated on a first-come, first-served basis.

7.0 Under-utilization Policy

7.1 A company that uses less than 100% of the sum of (1) any transfers in and (2) its original allocation in a given year may receive an allocation in the next year that reflects the actual level of use. For purposes of calculating utilization, a TPL bonus allocation (see section 9.0 of this Notice) is treated as part of a TPL holder’s original allocation.

7.2 TPL returned to the Minister on or before the September 30 return deadline and TPL transferred out will not be considered as unused for purposes of calculating the under-utilization in accordance with paragraph 7.1.

8.0 New Entrant Policy

8.1 New Entrants are eligible for allocation of TPL respecting any fabric type (e.g. woven) that was fully allocated in the previous year. For such types, notwithstanding paragraph 6.1, 1% of the total TPL available will be set aside for allocations to new entrants (i.e., a maximum of 717,652 SMEs for all three types).

8.2 TPL may be allocated to new entrants who did not hold a TPL allocation for the fabric type in question in the previous calendar year and to new entrants who received an allocation of the fabric type in question in the previous year of less than 5,000 SME.

8.3 Eligibility for “new entrant” allocations is limited to Canadian-resident companies that manufacture the relevant type of TPL goods using owned or leased facilities and owned equipment, i.e., an applicant must produce the relevant TPL goods without contracting the work to other firm(s) and must have manufacturing, office, research and design staff on its payroll. To be eligible, a new entrant must not be affiliated with or associated with a person who is a current fabric TPL holder (see Annex III concerning Related Persons).

8.4 New entrants may submit applications between January 1 and May 31. Applications received after May 31 will not be eligible.

8.5 Allocations under this provision will be issued on a first-come, first-served basis.

8.6 Allocations under this provision are limited to 5,000 SME per eligible applicant, no portion of which may be transferred to another company.

9.0 Bonus Allocation Policy

9.1 The bonus allocation policy establishes and limits eligibility for bonus allocations to historical TPL holders with less than 10% of the total fabric TPL level, that utilized at least 95% of their TPL allocation in the previous year, and did not transfer out any TPL in the previous year.

9.2 Bonus allocations apply only to the fabric TPL type (e.g. woven) that was fully allocated in the previous year.

9.3 Bonus allocations will be allocated to eligible TPL holders on a pro-rata basis, using as a basis the sum of their previous year’s original allocation and any quantities that were transferred in.

9.4 After each TPL holder receives its original allocation in January, any remaining TPL will be issued through bonus allocations in accordance with (9.5) and (9.6) below.

9.5 An exporter whose TPL utilization in the previous year was between 95% and 100% may receive a bonus allocation in proportion to the exporter’s previous year’s allocation. The bonus proportion is the same for all exporters in this group.

9.6 Those exporters that transferred in TPL may receive an additional bonus allocation issued pro-rata on the basis of the amount of TPL transferred in.

9.7 The minimum bonus allocation to TPL holders under paragraphs 9.4 and 9.5 is 100 SME.

9.8 A TPL bonus allocation is treated as part of a TPL holder’s original allocation and as such is subject to the EICB’s TPL under-utilization policy (see section 7.0 of this Notice).

9.9 A TPL holder who does not wish to receive a TPL bonus allocation should inform the EICB within 30 days of receipt of its allocation.

10.0 Re-allocation of Unused TPL after Year-End

10.1 Following each calendar year, any unused TPL may be allocated to TPL holders

10.2 TPL holders will be advised in writing of any availability of TPL following a given year, and will be invited to apply for TPL. The deadline for such applications is January 31.

10.3 Should requests exceed the level of TPL available for re-allocation, such allocations will be issued on a pro rata basis.

11.0 Transfer Policy

11.1 Cotton or man-made fibre fabric and made-up goods TPL may be transferred to an exporter that is eligible for a TPL allocation.

11.2 Only a TPL holder may be a transferee. A transferee must be a TPL holder and must be the final exporter of the goods benefitting from the transferred TPL.

11.3 Canadian customs brokers may make transfers electronically on behalf of TPL holders and may query transfer accounts on behalf of their clients who are transferees (refer to transfer procedures in paragraphs 11.8 to 11.15).

Conditions for Transfers

11.4 The sum of a quantity transferred in, plus a company’s original allocation at the start of the year, cannot exceed 10% of the total TPL for that TPL type (e.g. woven, knit). Accordingly, only companies that hold less than 10% of a given TPL type may transfer in TPL.

11.5 A TPL holder (excluding new entrants) may return TPL to the Minister on or before September 30 each year. However, the sum of TPL transferred out and TPL returned to the Minister is limited to 25% of a company’s original TPL allocation each year.

11.6 Subject to paragraphs (11.4) and (11.5) above, there are no limits to the number of transfers each year. However, a company cannot transfer TPL in and transfer TPL out in the same year.

11.7 Since the sum of the two sub-limits exceed the overall TPL level (see paragraph 5.2), it is not possible to utilize fully both sub-limits in any given year. Fabric TPL also includes goods of HS 9404.90 such as quilts, comforters, pillows and other textile goods (other TPL) subject to the overall limit of 71.76 SME. Transfers between each type of TPL will be constrained by the sub-limits levels.

Transfer Procedures

11.8 TPL holders wishing to make or receive transfers of cotton or man-made fibre fabric and made-up goods TPL or query their TPL accounts should make appropriate arrangements with a Canadian customs brokers.

11.9 Canadian customs brokers with on-line access to the EICB’s Export and Import Controls System may make transfers on behalf of TPL holders, and may query accounts for TPL 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 transferors and transferees and brokers. The EICB takes no responsibility for these and related arrangements. However, as indicated below, transferors and transferees must send the EICB a written authorization before on-line brokers can either conduct transfers or query transfer accounts on their behalf. Requests for any changes to 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 requests is confirmed by the EICB. A list of customs brokers having access to the EICB’s on-line computer system may be obtained from the EICB.

11.10 A TPL holder can effect a transfer to another TPL holder 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 copy of the form which should be used by the TPL holder for this purpose is attached in Annex I of this Notice. A written notice is not required for each individual transfer made by the broker for a TPL holder.

11.11 A TPL holder (transferee or transferor) may query 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 an identification number for each transaction; the amount and type of a transfer (in, out or return) and other relevant transactions; the date; and the original allocation and remaining balance in the account (i.e., reflecting amounts exported or transferred). Attached under Annex II of this Notice is a form that may be used by a TPL holder to authorize one or more brokers to query its account and obtain this information of its behalf. This type of on-line access will not be available for TPL holders that do not use customs brokers.

11.12 When making a request to their customs broker to effect a transfer, a TPL holder will be required to designate the type of transfer (transfer in, transfer out or a return) in order to ensure that the transaction is correctly processed.

11.13 A TPL holder's current EICB number must be used for all transfer and return transactions.

12.0 Account Balances

12.1 Exports of non-originating cotton or man-made fibre fabric and made-up goods to the United States will be deducted from the TPL allocation balance in a TPL holder's account.

12.2 Transfer and return of TPL allocations will result in an immediate TPL allocation adjustment and associated quantities will be automatically deducted from a TPL holder's account once the transfer or return request has been processed by the EICB.

12.3 TPL holders and their brokers should ensure that they maintain accurate records of all transfers and shipments.

12.4 Customs brokers cannot amend, reverse or cancel a transfer. Once a transfer has been entered and accepted by the EICB computer system, 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 and unless the EICB has verified the request with the involved parties and has provided written confirmation to the requesting party.

12.5 Notification of authorization for a Canadian customs broker to make transfers on behalf of a TPL holder must be made to the EICB sufficiently in advance of the first intended transfer (and hence exportation) so that the necessary arrangements can be made by the EICB. If this occurs before the shipment of non-originating cotton or man-made fibre fabric and made-up goods is exported to the United States, the likelihood of goods being shipped under the Most Favoured Nation duty rate will be reduced.

13.0 List of TPL Holders

13.1 A list of current TPL holders can be found on the EICB web site.

14.0 Additional Information

14.1 Inquiries concerning TPL administration, as well as correspondence authorizing brokers to conduct services related to transfers, may be addressed to:

International Trade Canada
Trade Controls Policy Division
Export and Import Controls Bureau (EPM)
Textiles and Clothing Section
Tower C, 4th floor,
Lester B. Pearson Building,
125 Sussex Drive
Ottawa, Ontario
K1A 0G2

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