Currently, European textile and apparel goods are available in Canada. When the Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) is provisionally implemented, more European textiles and apparel goods may be imported into Canada. Canadian importers need to know the new Canada-EU CETA rules for textiles and apparel in order to take full advantage of the new opportunities.
The Canada-EU CETA contains 8 rules of relevance to those interested in textile and apparel goods:
1. Canada’s schedule of commitments (Annex 2-A) immediately eliminates Canadian customs duties on all textile and apparel goods originating in the European Union. Currently, certain textiles and apparel goods are subject to up to 18% MFN duties upon importation into Canada. The cost of importing EU-origin textiles and apparel goods will decrease. If the cost savings are passed on to consumers, then demand may increase for EU-origin textiles and apparel goods. Further, it may be that a U.S. equivalent good is not duty free due to more restrictive NAFTA rules of origin. As a result, EU-origin textile and apparel goods may be cheaper than U.S.-origin goods.
2. The CETA rules of origin are more flexible than the NAFTA rules of origin. The Protocol on rules of origin and origin procedures sets out the product-specific rules of origin. You must know the H.S. classification number in order to find the appropriate rule of origin.
3. Annex 1 of the Protocol on rules of origin and origin procedures contains special rules of origin to apply when applying the product specific rules of origin. Certain non-originating materials may be disregarded in applying textile and apparel rules of origin. Article 2 of Annex 1 of the Protocol on rules of origin and origin procedures states:
“For greater certainty, non-originating materials of Chapter 1 through 49 or 64 through 97, including materials that contain textiles, may be disregarded for the purpose of determining whether all the non-originating materials used in the production of a product of Chapter 50 through 63 satisfies the applicable rule of origin set out in Annex 5.”
4. The CETA rules of origin are primarily based upon a double transformation principle. The double transformation principle is understood to mean, in simple terms, that weaving and sewing, plus all subsequent manufacturing stages must be carried out in the beneficiary country in order to be considered to be originating. Annex 6 of the Protocol on rules of origin and origin procedures contains the Joint declaration concerning rules or origin for textiles and apparel. Article 1 of Annex 6 states:
“Under [CETA], trade in textiles and apparel between the Parties is based on the principle that double transformation confers origin, as reflected in Annex 5 (Product-specific rules of origin) of the Protocol on rules of origin and origin procedures.”
5. The rules of origin include origin quotas for textiles and apparel. Article 2 of Annex 6 of the Protocol on rules of origin and origin procedures – the Joint declaration concerning rules of origin for textiles and apparel provides for limited, reciprocal origin quotas for textiles and apparel. These origin quotas are expressed in terms of volumes classified by product category, and include considering dyeing as equivalent to printing, for a limited and clearly identified range of product categories. Tables C.1, C.2, C.3 and C.4 of Annex 5 of the Protocol on rules of origin and origin procedure set out the origin quotas applicable for imports of EU textiles and apparel into Canada. The origin quotas, which are exceptional, will be applied in strict adherence to the Protocol on rules of origin and origin procedures.
- Table C.3 applies to certain textiles imported into Canada under H.S. Classification Chapters 50, 51, 52, 54, 56, 57, 59 and 63.
- Table C.4 applies to certain apparel goods imported into Canada under H.S. Classification Chapters 61 and 62.
6. The origin quotas for textiles and apparel will be increased as needed. For each of the products listed in Tables C.1, C.2, C.3 and C.4, if more than 80 per cent of an origin quota assigned to a product is used during a calendar year, the origin quota allocation will be increased for the following calendar year. The increase will be 3 per cent of the origin quota assigned to the product in the previous calendar year. The growth provision will apply for the first time after the expiry of the first complete calendar year following the entry into force of this Agreement. The annual origin quota allocations may be increased during a period of up to ten years. Any increase in the origin quota volume will be implemented in the first quarter of the subsequent calendar year.
The CETA rules of origin for textiles remain complicated – but, they are significantly less complicated than the fibre-forward, yard-forward and fabric-forward rules of origin in NAFTA. It will be necessary to review the CETA rules on a textile-by-textile, apparel-by-apparel basis to see what opportunities may be pursued by Canadian importers.
7. The certifications of origin on EU-origin goods may result in lower Canada Border Services Agency (“CBSA”) reassessment risk.
8. The Canada-EU CETA does not contain geographic indications relating to textiles and apparel goods.
For more information about the Canada-EU CETA, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@Lexsage.com. More information about the Canada-EU CETA is posted on the LexSage web-site.