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3.6. Annex: Canadian Content Policy: Rules of Origin Determination

* For general information on the Canadian Content Policy, please see 3.130 Canadian Content Policy.

  1. The Canadian Rules of Origin for Goods (Chapter 4 and Annex 401 of the North American Free Trade Agreement) and Canadian Customs Tariff Harmonized System (HS) are used to determine if imported components that go into the production of an item for resale to the government are sufficiently altered or converted in Canada to be considered "Canadian".
  2. The Harmonized Commodity Description and Coding System is a structured classification system for goods that has been adopted by Canada and most of the world's trading nations, for customs purposes. The most recent Canadian Customs Tariffs can be found on the Canadian Border Services Agency website.
  3. For the purposes of this determination, the reference to "territory" in the Rules of Origin must be replaced with "Canada".
  4. Products containing imported components may be considered Canadian when they have undergone sufficient change in Canada in a manner that satisfies this amended definition. There are three basic steps to determine if any product that is partially or wholly constructed from imported components meets the Rules of Origin definition:
    1. Locate the heading number in the Harmonized System that best reflects the final product for sale.
    2. Find the appropriate heading number in the Harmonized System that identifies imported components used to construct the final product.
    3. Look up the section in the rules of origin that defines whether the conversion that took place in Canada allows the goods to be defined as Canadian.

Example 1: Determining whether a good is Canadian

  1. A bidder proposes hats, which are manufactured in Canada that use imported calves leather.
  2. Analysis of Canadian content:
    1. Look up "hats" in the index of the HS and find the type that matches the kinds of hats to be sold: Hats and other headgear, plaited or made by assembling strips of any material, whether or not lined or trimmed. The HS number is 6504.00. The first two numbers indicate the good is listed in Chapter 65.
    2. Look up "leather, bovine" in the index: it falls under HS heading 4104.
    3. Finally, refer to the Rules of Origin which lists the conditions for transforming goods listed in the HS into Canadian goods (Chapter 65 is for Headgear and Parts Thereof and is listed in Section XII of the rules). The second rule for Chapter 65 applies: A change to 65.04 through 65.07 from any heading outside that group. As the leather is classified outside 65.04 through 65.07, the final product (the hats) for sale are considered to be sufficiently transformed and therefore the hats are deemed to be Canadian for the purposes of this policy.

Example 2: Determining whether a mix of goods and services meets the 80 percent Rule of Origin

  1. There is a PWGSC solicitation for:
    • 100 wooden office desks;
    • 100 electric space heaters with maintenance and repair included;
    • 100 telephone sets with maintenance and repair included, and
    • 100 metal swivel chairs.
  2. A bidder has proposed:
    • unfinished wooden office desks which are imported into Canada and finished in Canada;
    • electric space heaters which were constructed using domestic labour/materials and imported parts. The maintenance/repair of the electric space heaters is being done by Canadian-based personnel;
    • telephone sets which were constructed using domestic labour/materials and some imported parts. The maintenance/repair of the telephones is being done by United States-based individuals;
    • metal swivel chairs which were constructed using domestic labour/materials and some imported parts.
  3. Below are the prices for the goods and services offered in the bid:
    • 100 wooden office desks @ $150 each = $15,000
    • 100 electric space heaters @ $200 each = $20,000
    • Maintenance/Repair = $5,000
    • 100 telephone sets @ $50 each = $5,000
    • Maintenance/Repair = $1,000
    • 100 metal swivel chairs @ $25 each = $2,500
    • Total Bid Price= $48,500
  4. Analysis of Canadian content:
    1. Wooden office desks:
      1. Unfinished wooden office desks (HS 9403.30) were imported and finished in Canada by painting them.
      2. The NAFTA rules of origin covering HS 9403.30 (wooden office desks) require a change from another chapter, or a change from subheading 9403.90 provided there is a regional value content of not less than 60 percent where the transaction value method is used or 50 percent where the net cost method is used.
      3. As a general rule of interpretation of the HS, finished and unfinished articles fall into the same heading or subheading where the unfinished article has the essential characteristics of the finished. As such, the final good (finished wooden office desks) falls in same the subheading (HS 9403.30) as the unfinished good. There was also no change from subheading 9403.90. Thus, this rule is not met.
      4. Therefore, the wooden office desks are not considered Canadian goods.
    2. Electric space heaters:
      1. Electric space heaters (HS 8516.29) were constructed using domestic labour/materials and imported parts (HS 8516.90).
      2. The NAFTA rules of origin covering HS 8516.29 (electric space heaters) require a change from any other subheading, including another subheading within that group. This rule is satisfied.
      3. Therefore, the electric space heaters are considered Canadian goods.
    3. Telephone sets:
      1. Telephone sets (HS 8517.11) were constructed using domestic labour/materials and some imported plastic tubes (HS 3917).
      2. To be Canadian, the NAFTA rules of origin covering HS 8517.11 (telephone sets) require a change to subheading 8517.11 from any other subheading. This rule is satisfied.
      3. Therefore, the telephone sets are considered Canadian goods.
    4. Metal swivel chairs:
      1. Metal swivel chairs (HS 9401.30.10) were constructed using domestic labour/materials and some imported parts (HS 9401.90).
      2. The NAFTA rules of origin covering HS 9401.30 (metal swivel chairs) require a change from any other chapter, or from subheading 9401.90, provided there is a regional value content of not less than 60 percent where the transaction value method is used or 50 percent where the net cost method is used.
      3. After calculations are done, the regional value content is found to be 37 percent using the transaction value method and to be 23 percent using the net cost method.
      4. Therefore, the metal swivel chairs are not considered Canadian goods.
    5. Maintenance/repair of telephones:
      The maintenance/repair of telephones is being done by U.S.-based individuals. Therefore, this service is not considered a Canadian service.
    6. Maintenance/repair of electric space heaters:
      The maintenance/repair of electric space heaters is being done by Canadian-based individuals. Therefore, this service is considered a Canadian service.
  5. Calculation of Percent of Bid Price Considered Canadian
    1. Canadian goods and services
      • 100 electric space heaters = $20,000
      • 100 telephone sets = $5,000
      • Maintenance/Repair = $5,000
      • Total Canadian Goods and Services = $30,000
    2. Non-Canadian goods and services
      • 100 wooden office desks = $15,000
      • 100 metal swivel chairs = $2,500
      • Maintenance/Repair = $1,000
      • Total non-Canadian Goods and Services= $18,500
      • Total Bid Price= $48,500
    3. Percent of the Bid Price that is composed of Canadian goods and services = $30,000/$48,500 = 62%
  6. Conclusion
    The supplier has not met the Canadian content requirement that "no less than 80 percent of the bid price consists of Canadian goods and services".