he U.S. and Canada enjoy one of the most comprehensive trading relationships globally and are each others’ largest markets for exports. By December 2021, Canada’s footwear and textile products exports were valued at CAD$ 452.3, and in 2020, Canada and the U.S. traded goods and services worth US$ 615 billion. Canada continues to be the primary exporter for 30+ American states.
When it comes to exporting apparel and textiles from Canada to the U.S., garments made of fabrics or yarns that do not originate in the U.S., Canada, or Mexico can still be traded duty-free between NAFTA countries — provided that they meet the Tariff Preference Levels (TPLs).
The Tariff Preference Level (TPL) is a concept where certain qualifying imported goods are assigned a duty-free level. Under these TPLs, an allotted quota of apparel cut and sewn in Canada can be exported to the U.S. under preferential duty rates, despite not qualifying for USMCA’s rules of origin. This article will help you understand Tariff Preference Levels and how you can enjoy preferential duty rates on your Canadian apparel and textile exports.
What are Tariff Preference Levels (TPLs)?
Tariff Preference Levels (TPLs) are a pre-determined quantity of a product that can be imported from Canada into the U.S. with special tariff treatment at the preferential tariff rate. A TPL is the maximum value of fabric and yarn that may be used in the production of a garment for it to qualify for duty-free tariff treatment under the free trade agreement.
TPLs are beneficial to Canadian exporters because they allow them to ship goods into the U.S. without paying duty up to a certain quantity, which translates into lower operating costs and increased competitiveness. TPLs are relatively small and are not intended for large trade between countries. Still, they provide an opportunity for small exporters to enter the U.S. market without paying tariffs.
The U.S. has pre-determined TPLs for products of Canadian origin, which means that Canadian exporters can export an agreed-upon amount of a product to the U.S. each year without paying its duties. This measure applies only to Canadian exports and comes as a result of the negotiated North American Free Trade Agreement (NAFTA).
Tariff Preference Levels (TPLs) are a World Trade Organization (WTO) concession granted to Canada and the United States. Established under NAFTA and maintained under the CUSMA/USMCA/T-MEC, TPLs provide for the application of preferential tariffs for imports and exports of non-originating textile and apparel goods — up to a specified quantity. They are designed to prevent non-NAFTA countries from using a NAFTA country as a manufacturing base for goods that would then be exported to another NAFTA country. Tariff Preference Levels can apply whether or not the goods are related to a NAFTA certificate of origin.
What goods are eligible for TPLs?
For apparel goods to be eligible for Tariff Preference Levels, they must be:
- Wool or cotton or man-made fibre apparel goods of Chapters 61 and 62, and goods classified under heading 96.19 that is of textile material other than wadding; or
- Goods of heading 96.19 that are knit to shape, only if those goods would otherwise be entitled to the preferential tariff treatment; or
- Apparel produced using foreign sewing thread, narrow elastics, and pocket lining.
Apparel and Textile imports and exports subject to TPLs are regulated by Canada’s Export and Import Permits Act (EIPA). Under this Act, all TPL-eligible exports to the United States and Mexico require a Certificate of Eligibility. Non-qualifying textiles and apparel exported to the U.S. without TPL are subject to the Most Favoured Nation (MFN) tariff rate.
What are the annual limits for Tariff Preference Levels (TPLs)?
An annual TPL limit is applied to exporting Canadian textiles and apparel to the U.S, based on the quantity imported into the U.S. in any year. Once this quantity has been reached, the tariff rate that the U.S. government normally charges must be paid on any additional imports. The 2022 TPLs are outlined in the below table, noting that they are measured in Square Metre Equivalents (SMEs).
2022 Tariff Preference Levels | CUSMA Tariff Preference Level Utilization 2022 (international.gc.ca)
Are you in the business of exporting textiles and apparel from Canada to the U.S.? Book a meeting with us below, to check if your goods qualify for TPLs. Our experts can also help you apply for preferential tariff rates and streamline your export process with CBSA and CBP.