In Budget 2016: Growing the Middle Class, the Government of Canada announced its intention to eliminate customs duties on imports of certain food manufacturing ingredients, excluding supply-managed (TRQ) products. This decision is part of the government’s action plan to support investment and job creation in Canada’s agri-food manufacturing industry by making agri-food manufacturers more cost competitive, in both domestic and foreign markets. This represents an important opportunity for importers of food manufacturing ingredients to ensure they benefit from tariff elimination.

Given the sheer size and importance of Canada’s agri-food sector, this proposal will have a significant impact on numerous stakeholders. A 2015 report published by Agriculture and Agri-Food Canada noted that Canada’s food and beverage processing industry is the largest of all domestic manufacturing industries, accounting for the largest share (16.0 percent) of the total manufacturing sector’s GDP in 2013, as well as the largest share (16.7 percent) of jobs in the manufacturing sector (see Agriculture and Agri-Food Canada, An Overview of the Canadian Agriculture and Agri-Food System 2015).

Scope of the Tariff Elimination Proposal

The government’s proposal will eliminate tariffs by changing the current MFN rates of customs duty on certain items to rates of “Free”, without a requirement that these items meet free trade rules of origin. Beneficiaries include manufacturers who purchase inputs falling into the following categories: (i) certain vegetable inputs; (ii) certain animal or vegetable fats and oils (and their cleavage products) and prepared edible fats; (iii) certain prepared foodstuffs (only those used in the manufacture of food products or beverages), beverages, spirits and vinegar and (iv) certain products of the chemical or allied industries. To put potential savings and cost advantages into perspective, the MFN rates of duty currently applied to imports of agri-food items falling into these categories range from 2 to 17 percent.

The Department of Finance has also noted that it is willing to accept views on additional tariff items not covered by the current proposal.

Manufacturers Should Carefully Review Affected Tariff Items

In order to determine whether a specific ingredient of interest is covered by the tariff elimination proposal, manufacturers should consult the complete list of tariff items identified in the Department of Finance Notice on the Customs Tariff and their corresponding descriptions in the Customs Tariff. This review is critical for determining the extent to which manufacturers can expect to reduce production costs as a result of the proposal, and in turn their interests in participation in the consultation process.

The review will also be critical for determining whether a manufacturer can benefit from elimination of duties on additional tariff items not captured in the government’s current proposal. This consultation process presents a unique opportunity for manufacturers to make a case for tariff elimination on additional ingredients used as inputs in the targeted argi-food processing sector.

Finally, customs duty elimination is tied to tariff classification. It is important that agri-food manufacturers take this opportunity to ensure they are accurately tariff classifying their imported ingredients as the starting point of their analyses.

Contents of Public Submissions

Parties wishing to comment on the proposed tariff elimination should submit their views, in writing, to the International Trade Policy Division (Agri-Food Inputs), Department of Finance by June 21, 2016. At a minimum, public comments must include:

  1. Canadian company/industry association name, address, telephone number, and contact person;
  2. relevant eight-digit tariff item(s) and description of the goods of particular interest;
  3. reasons for the expressed support for, or concern with, the proposed tariff elimination, including detailed information substantiating any expected beneficial or adverse impact; and
  4. if concern is expressed with respect to the proposed tariff elimination for one or more eight-digit tariff item(s), views on ways to alleviate such concerns (e.g., limiting tariff elimination to certain end uses, gradual tariff elimination over a longer time period)

If any information contained in a submission is commercially sensitive, the submitting party should clearly identify the information as such.

Conclusion

Given the unusual opportunity for permanent production cost savings, agri-food manufacturers are encouraged to carefully consider the scope of their participation in the government’s consultation process: to support the current proposal or to expand the scope of the proposal by inclusion of other agri-food ingredients. In order to ensure their efforts maximize the cost savings flowing from this new tariff elimination policy, manufacturers are encouraged to consult with experienced customs legal counsel.