A seemingly trivial notice published in the December 22, 2012
edition of the Canada Gazette, Part I could have a major
financial impact not only for importers, but also for Canadian
consumers. Indeed, the proposed amendments to the General
Preferential Tariff (GPT) by the Canadian government could trigger
an increase in tariffs on imported goods from more than 70
different countries. Importers should conduct a thorough review of
their imports as of now in order to determine whether the proposed
measures will affect them.
In 1974, Canada, on the recommendation of the United Nations
Conference on Trade and Development and in concert with other
industrialized nations, instituted a preferential customs tariff
program to promote the importation of products originating in
developing countries. The program, known as the GPT, was intended
to assist in the industrialization of countries with relatively
precarious economic situations. Today, the GPT grants a
preferential tariff (or, in certain cases, even a complete
exemption from tariffs) on the importation of a multitude of
products originating in about 175 countries.
When the GPT came into effect, it was intended that renewal
would occur on a 10-year cycle and this was indeed the case, with
the GPT being renewed in 1984, 1994 and 2004. The current cycle,
meanwhile, will terminate in June 2014. In anticipation of the
renewal of the program, Canada's Finance Minister recently
announced that an exhaustive analysis of the GPT regime should be
carried out. In this respect, "tidying up" the program
would seem to be very much in order given the fact that certain
economic powers like China and India are still on the list of
countries eligible for the GPT.
Proposed Changes to the GPT
Many countries that were developing countries in the 1970s today
find themselves in a much more enviable position, with some joining
the ranks of industrialized nations. As a result, the Government of
Canada announced some weeks ago a comprehensive review of the GPT
regime "[t]o better reflect the current global economy and to
ensure that this form of development assistance is aligned with
Canada's development policy objectives".
To that end, the Department of Finance has stated its intention
to withdraw the benefits of the GPT regime from those countries
are classified for two consecutive years as high income or
upper-middle income economies according to the latest World Bank
income classifications; or
have a share of world exports equal to or greater than 1% for
two consecutive years according to the latest trade statistics of
the World Trade Organization (WTO).
As a result of the proposed changes, 72 countries, including
China, India, Brazil, South Korea and Russia, would no longer be
entitled to the benefit of the GPT regime. Two of the
newly-excluded countries (Equatorial Guinea and Maldives) would
also lose the benefit of access to duty-free status under the Least
Developed Country Tariff (LDCT).
The new measures are expected to come into effect on July 1,
Many Canadian importers will accordingly have to carefully
review their import countries of origin to determine whether the
measures announced will have an economic impact and, if so, the
extent of that impact. Given that the rule of origin for the GPT
contemplates that at least 60% of the value of a product must be
derived from inputs originating in a country that benefits from the
GPT (or from Canada), importers will have to exercise extra caution
when merchandise is manufactured from materials originating in
other countries (e.g., China) that will no longer be on the list of
GPT beneficiaries. It should be noted that the "60% rule"
has also been included in the review process and could, therefore,
be modified as well.
It is anticipated that talks will be initiated with the
objective of signing free trade agreements between Canada and some
of the countries that are to be removed from the GPT list. From an
economic perspective, it obviously makes more sense for Canadian
businesses to be able to benefit from reciprocal preferential
treatment measures on imports and exports than to be restricted to
unilateral measures that support only the import market.
Countries that will lose the benefit of GPT treatment also have
access to the generally less advantageous Most-Favoured-Nation
Tariff (MFN) with respect to their imports into Canada. As of July
1, 2014, the MFN will become the only applicable tariff for the
majority of those countries, except where a free trade agreement is
already in effect (as is the case, for example, for Chile).
1. No change to the LDCT is envisaged for now although
the LDCT also expires on June 30, 2014.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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