In the early 1970s, the U.N. promoted a foreign-aid concept aimed at helping the poorest nations of the world increase and diversify their exports of manufactured goods through better access to western consumers. Most major developed countries developed such programs; Canada established the General Preferential Tariff (GPT) in 1974. GPT tariff rates are lower than Most-Favoured-Nation (MFN) tariff rates for imports from developing countries.
The 2012 Economic Action Plan promised a comprehensive review of the GPT system to refocus on its initial goal of aiding the poorest nations. As a result, the 2013 Federal Budget removed 72 countries from the General Preferential Tariff (GPT) beneficiary list, effective January 1, 2015 (currently there are 175 beneficiaries).
The EU introduced major changes to its own similar program recently, to better focus on countries in need.
However, the U.S. has not changed its system recently. A February 2013 Globe and Mail article states, “After an internal study on a sample of 15,700 products, Canadian Tire Corp. Ltd., found out that four out of five of the goods subject to duty that it imports face a higher tariff in Canada than in the United States. This difference translated into $8.4 million in extra costs in 2011- costs that are amplified with sales taxes once the retailer passes them on to consumers.” Tariffs are blamed for much of the price discrepancy between the U.S. and Canada for various goods (although transportation costs are another very large factor).
The government’s strategy is to accommodate the changing nature of the global market. Many countries, such as Brazil, Russia, India and China, no longer require such economic subsidies according to the government. Two economic criteria were used in the review. Entitlement to GPT benefits will be withdrawn from:
- Countries that are classified for two consecutive years as high income or upper-middle income economies according to the latest World Bank income classifications; or
- Countries with a share of world exports equal to or greater than 1% for two consecutive years according to World Trade Organization trade statistics.
Going forward, the GPT will be reviewed every two years, using the above criteria.
Modifications were made to the rules of origin regulations under Canada’s Least Developed Country Tariff (LDCT) regime as LDC exports will continue to be duty-free when imported into Canada, even when incorporating inputs from countries that will no longer be eligible for the GPT.
Under the outward processing program, Canadian importers have a reduced rate of duty when importing apparel produced in a GPT country when that apparel is made from Canadian textiles.
For importers, if a country, such as Mexico, loses GPT status but has a free trade agreement with Canada, there is no overall change in tariff payable.
Net impact of the changes is expected to result in $333 million annually in additional tariff revenues. The Withdrawal Order states that the changes affect less than 2% of total imports into Canada, and shouldn’t affect the overall gross domestic product or consumer prices.
The Customs Tariff is based on the World Customs Organization’s (WCO) Harmonized Commodity Description and Coding System (HS). In Canada it is administered by the Canada Border Services Agency (CBSA).
How Will GPT changes affect the Sportfishing Industry?
The Canadian International Merchandise Trade Database (Statcan) Harmonized System (HS) Commodity 9507 assesses the total value of fishing rods (Code 9507.10) imported into Canada in 2013 at $17.5 M., as outlined in Table 1. Thus of the $17.5M in total imports for fishing rods, $13.3M, or 76%, is comprised of imports from countries that will no longer be eligible for the “free” tariff rate due to GPT status as of 2015, and that are not eligible for other preferential tariff treatments due to other international trade agreements, such as is the case with Mexico, Columbia, Israel, Cayman Islands, Jordan, Costa Rica, Dominica, Peru and Barbados, all countries of which export fishing-related products into Canada. Importers will either have to find other suppliers, or pay an additional 6.5% in tariffs, which is the Most Favoured Nation (MFN) tariff rate. This will add an additional $866,905 in tariff costs to importers of the fishing rods, assuming the import values remain the same.
Similarly, the total value of fishing reels (Code 9507.30) imported in 2013 was $24.7M, as outlined in Table 2. Of these imports, $21.9M, or 88.6%, is sourced from countries that will be subject to an additional 6.5% tariff effective January 2015. This will increase tariff costs by $1.4M assuming the same level of imports.
The latest breakdown of individual items in the “Other” category for fishing equipment is for 2011. The breakdown is outlined in Table 3. In 2011, a total value of $41.4M was imported under the code 9507.90 for ‘other’ fishing-related equipment. By 2013, the total value of imports under this code was $50.4M. The increase in total value of imports makes it difficult to determine the actual breakdown for 2013. To come up with a projected impact for this code, we determined that 91% of the 2011 “Other” Code related to recreational fishing where the ‘Most Favoured Nation’ tariff was 6.5% (we didn’t consider the extra one-half percent for packaged fishing line; the net bag etc., does not have a tariff assessment and decoys aren’t for recreational fishing). We then multiplied the total value of imports for 2013 for code 9507.90 by .91 then by .065 to determine the impact.
Table 4 provides the total value of the ‘Other’ Fishing-Related Equipment imported into Canada in 2013 and the list of countries (along with the value of their imports) which will be affected by the changes to GPT status. What can be seen is that $50M in ‘Other’ Fishing-Related Equipment was imported into Canada in 2013. Of this amount, $22.8M, or 45% was imported from countries that will no longer be eligible for the free tariff rate under GPT. Instead, the MFN tariff rate of 6.5% (7% for packaged fishing line) will be applied, increasing total tariff costs by a projected $1.3M for 2015, assuming import levels remain the same.
The total value of fishing-related imports from China alone in 2013 was $50.1 M for all three categories. China is one of the 72 countries affected by the changes to the GPT. Tariffs for imports for China will be considered under the “Most Favoured Nation” regime, which is 6.5% for rods and reels; 7% for packaged fishing line and 6.5% for all other items except net bags, split rings, etc. which are free. Based on total value of imports from China in 2013, additional tariffs will amount to $817,295 for fishing rods and $1.1 M for fishing reels (see Table 5).
Appendix 1 provides Statistics Canada Tables of Trade Commodities of the top 50 (or fewer if there were fewer than 50 countries) from which Canada imported 950710 (Fishing Rods); 950730 (Fishing Reels) and 950790 (line fish tackle, nes, flanding, b/f &sim nets, dec birds & sim hunt/shoot req) along with the quantity and value of the goods imported. These tables formed the basis of this report.
It is projected that the changes to the GPT program to be implemented in January 2015 will result in increased tariff costs of $3.6M, or 3.9% of the total value of fishing tackle imports, based on 2013 figures.