Follow-up to the Termination of the Machinery Program

Issue

The purpose of this notice is to advise interested parties of the Government's intention regarding the final phase of the transitional arrangement (which will expire on December 31, 2000) relating to the termination of the former Machinery Remission Program on January 1, 1998, and of the regime that will be in effect on January 1, 2001.

Background

It will be recalled that on January 1, 1998, as part of the introduction of the new simplified Customs Tariff, and following extensive consultations, the former Machinery Remission Program (the Program) was terminated. A transitional arrangement, which will expire on December 31, 2000, was put in place with respect to tariff relief requests on certain machinery covered by the former Program.

The simplified Customs Tariff introduced a number of important changes in the tariff regime for imported machinery and equipment. First, the Program was terminated and replaced with dutiable tariff items for machinery available in Canada, and machinery that was unavailable domestically became classified under duty-free tariff items. The termination of the Program helped to diminish the uncertainty for machinery users in terms of the impact of customs duties on cost, pricing and competitiveness, as it resulted in greater transparency and predictability in the Customs Tariff for machinery importers. Further, importers benefited from broadened access to duty-free machinery, as a large number of dutiable tariff items became free-rated as a result of tariff simplification, the Uruguay Round, and other input tariff cuts. As well, all machinery production parts became duty-free, and the majority of spare parts were also free-rated. Finally, several new duty-free items were introduced for new technology equipment.

When Canadian stakeholders were consulted on the termination of the Program, concerns were expressed that, in view of the thousands of previously approved applications for remission, the Government might be inundated with requests for restoration of pre-1998 tariff treatment. Some stakeholders were also concerned that the changes could have an adverse impact on their competitiveness, despite the tariff changes noted above.

To allay those concerns, the Government agreed for a transitional period of three years (until December 31, 2000), to accept "non-availability" from Canadian production as the sole criterion for providing tariff relief on machinery covered by previously approved remission applications and on the remaining dutiable production machinery covered under the former Program imported after January 1, 1998. Following the transitional period (i.e. beginning January 1, 2001) any request for tariff relief would be dealt with on the same basis as other requests for relief on manufacturing inputs. In order to help cope with the concerns raised by industry, the Government also undertook to review the duty rates on the remaining dutiable machinery tariff items covered by the former Program to determine which might be reduced or eliminated.

What Happened

Generally speaking, the concerns voiced during the consultations on the termination of the Program have not materialized. In fact, there have been relatively few requests for review of the status of imported machinery. To date, under the transitional arrangement, the Government has received some 120 submissions for duty-free entry of dutiable machinery, imported after January 1, 1998, that were covered under former Program tariff items. In the vast majority of cases, the goods have been determined to be available from Canadian production, and so few changes to the Customs Tariff have been made.

With respect to submissions seeking duty-free entry of machinery for which there were previously approved remission applications under the former Program, in most cases, the machines have been determined to be already classified under duty-free tariff items created during the tariff simplification exercise. In those cases where the machines were still not considered available from Canadian production and were classified under dutiable tariff items, amendments to the Customs Tariff were proposed to provide duty-free treatment for these goods. The number of amendments introduced has reduced the list of tariff items covering dutiable machinery covered by the former Program from 260 tariff items to 226. In the small number of cases where equipment has been confirmed as available from Canadian production, no changes to the Customs Tariff were introduced.

The conclusion drawn from this experience is that the current tariff structure for machinery seems to closely reflect the domestic market situation in the machinery sector. In the circumstances, there appears to be no basis to conduct an overall review of the remaining dutiable tariff rates for machinery covered under the former Program and it is therefore not the intention to undertake such a review.

Final Phase of the Transitional Arrangement

Any requests already received for changes to the dutiable status of machinery covered by the transitional arrangement will be reviewed, and the resolution of current cases is anticipated by late summer. In order to allow sufficient time for an examination of submissions before the end of the transitional arrangement, importers should ensure that requests are forwarded no later than September 15, 2000.

In this regard, submissions based on previously approved remission applications, as well as those based on production machinery imported during the transitional arrangement and covered under former Program items, should be forwarded to Ms. Frances P. Weigt, Canada Customs and Revenue Agency, Tariff Classification and International Nomenclature, Sir Richard Scott Building, 191 Laurier Avenue West, 7th floor, Ottawa, Ontario K1A 0L5. Submissions based on production machinery imported during the transitional period are to follow the criteria set out in Customs Memorandum D8-5-1.

Regime Beginning in 2001

Importers are reminded that the ability to seek tariff relief on production machinery will not expire with the termination of the transitional arrangement on December 31, 2000. In fact, requests for tariff relief on production machinery will be placed on an equal footing with requests for relief on other imported input goods, i.e. Canadian manufacturers and service providers will still be able to seek tariff relief on production machinery and such requests will be assessed on competitiveness grounds and on the basis of their impact on other Canadian producers. Relief, where warranted, will be provided through amendments to the schedule to the Customs Tariff and will become effective once approved by the Government. As is the case for other goods, retroactive relief will generally not be considered except in the most exceptional circumstances, e.g. to address serious anomalies or inequities in the tariff structure.

Views Welcomed

Should interested parties wish to comment on the above, views should be submitted in writing by September 15, 2000 to the Department of Finance, International Trade Policy Division, 140 O'Connor St., 14^th floor, Ottawa, Ontario K1A 0G5.

Enquiries can be made by contacting Paul Robichaud at (613) 992-2510 (telephone) or (613) 992-6761 (facsimile) or by e-mail at robichaud.paul@fin.gc.ca.