Canada: Outsourcing For NAFTA Benefits: How Marking Rules Can Remove Duties

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade & Investment, June 2009

A recent decision by the Canadian International Trade Tribunal (CITT) demonstrates the complexity of international trade rules, as well as the resulting benefits to those companies who take extra care to work through them in detail. In this case, the importer of certain T-shirts who outsourced assembly to Mexico successfully demonstrated that the goods were eligible for "duty-free" importation into Canada under the North American Free Trade Agreement (NAFTA). However, the journey leading to the result was not entirely free of complications.

The recent CITT decision in A & G Inc. d.b.a. Alstyle Apparel v. President of the Canada Border Services Agency dealt with imports into Canada of certain T-shirts made exclusively of U.S. origin parts that were sewn together in Mexico. The importer and the Canada Border Services Agency (CBSA) were in agreement as to the proper tariff classification of the goods (the goods in issue were classified under tariff item No. 6109.10.00 of the schedule to the Customs Tariff) and also that the goods qualified for preferential tariff treatment under NAFTA. The issue concerned how much of a benefit under NAFTA was available to the goods at issue.

In particular, at the time the T-shirts were imported into Canada in March 2001, all customs duties had been eliminated on qualifying goods originating in the U.S.; however, customs duties imposed on qualifying goods originating in Mexico were still subject to the gradual elimination provisions under NAFTA. At the time the T-shirts were imported, they would be "duty free" if the "U.S." tariff rules applied, but would be subject to duties of 5% if the "Mexico" tariff rules applied.

In arriving at its decision, the CITT referred to: one international agreement (the North American Free Trade Agreement); no fewer than four statutes:

  • Customs Tariff
  • Customs Act
  • Official Languages Act
  • Interpretation Act

and no fewer than five regulations:

  • NAFTA Rules of Origin Regulations
  • Proof of Origin of Imported Goods Regulations
  • NAFTA Tariff Preference Regulations
  • Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations
  • CCFTA Verification of Origin Regulations .

Once the CITT worked through the various applicable statutes and regulations, the CITT concluded that the issue could be resolved by the country of origin marking rules: namely, the T-shirts would be subject to the "U.S." tariff or "Mexico" tariff depending on which "country of origin" applied to the goods.

The CITT first considered the rules in the Customs Tariff on when "preferential tariff treatment" may be claimed on imported goods and the two conditions that must be met. The first is the requirement that "proof of origin" be shown. This essentially requires that an exporter's certificate of origin be issued and available to the CBSA. The CITT noted the certificate requirement but did not confirm whether factually the certificate was duly prepared and in existence. The second condition for preferential tariff treatment to apply is a demonstration that the goods are in fact eligible for the preferential tariff treatment claimed (i.e., either the duty-free U.S. tariff or the 5% Mexico tariff).

In considering whether the U.S. tariff or Mexico tariff should apply to the T-shirts, the CITT zeroed in on the NAFTA Tariff Preference Regulations, which in turn required a detailed review of the Determination of Country of Origin for the Purposes of Marking Goods (NAFTA Countries) Regulations (the NAFTA Marking Regulations). The relevant rules comprised 10 separate sections, subsections and/or paragraphs which are drafted so that they must be considered in sequential order until a provision is found that is applicable to the goods at issue.

The CITT reviewed nine of the 10 rules before finding one that was applicable to the T-shirts at issue, namely the rule dealing with "simple assembly". In particular, section 7(b) of the NAFTA Marking Regulations indicates that if the production of goods is by "simple assembly" and the parts that merit equal consideration have the same country of origin, the country of origin of the parts applies to the goods. Four requirements must be satisfied in order for the goods to meet the definition of "simple assembly". The goods at issue met the first and second criterion which required there to be five or fewer parts, all of which were foreign. The third criterion, which was also met, was that the goods were assembled by sewing. Finally, the most complex requirement under definition of "simple assembly" is that the five or fewer components must be fit together "by bolting, gluing, soldering, sewing or any other means without more than minor processing".

The CITT noted that there were two possible interpretations of this criterion under the English text of the Regulation. One possible interpretation was that the fitting together of the pieces must take place by "sewing" or "any other means without more than minor processing". The other possible reading was that the assembly must take place by "sewing ... without more than minor processing" or by "any other means without minor processing".

Fortunately for the appellant, the French text of the NAFTA Marking Regulations resolved these ambiguities. The French wording and punctuation clarified that it is permissible for something else, in addition to sewing, to be done to the goods (e.g., the addition of a label) so long as it is "minor processing". Accordingly, the CITT was of the view that the proper interpretation was that the means of fitting together five or fewer parts by sewing constitutes a "simple assembly". The CITT then determined that the various T-shirt components meriting equal consideration had the same country of origin – the United States – and therefore the goods were considered U.S.-origin and subject to the U.S. preferential tariff, which enabled duty-free importation of the goods.

This decision highlights the benefits that may accrue to traders who take the extra time to understand rules of origin, complex as they may be, and who structure their operations to take advantage of the preferential tariffs. The decision should provide some comfort to companies, like the appellant in this case, that outsource to the extent that generally goods will not lose their entitlement to a preferential tariff based simply on the fact that their assembly has taken place in another territory so long as that assembly operation does not go beyond sewing (or bolting, gluing, soldering, or any other means, as the case may be) in addition to other "minor processing".

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
27 Oct 2016, Seminar, Toronto, Canada

Please join members of the Blakes Commercial Real Estate group as they discuss five key provisions of a commercial real estate purchase agreement that are often the subject of much negotiation but are sometimes misunderstood.

1 Nov 2016, Seminar, Toronto, Canada

What is the emotional culture of your organization?

Every organization and workplace has an emotional culture that can have an impact on everything from employee performance to customer or client satisfaction.

3 Nov 2016, Seminar, Toronto, Canada

Join leading lawyers from the Blakes Pensions, Benefits & Executive Compensation group as they discuss recent updates and legal developments in pension and employee benefits law as well as strategies to identify and minimize common risks.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.