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So, what is TPL exactly?
TPL or Tariff Preference Levels are preferential quotas outlined in NAFTA.
As it stands, the NAFTA Rules of Origin only allow apparel made in North America and Mexico from fabrics made in the prior-mentioned territories to qualify for free tariffs.
Goods that are TPL-eligible are goods that do not meet the requirements for these Rules of Origin. However, these goods can still get the same tariff treatment (up to a negotiated quantity) if they meet certain parameters– such as being cut and sewn in Canada.
How TPL allocation works
The Department of Foreign Affairs & International Trade (DFAIT) are responsible for the allocation of TPL to Canadian companies. This is typically based on these companies’ past exporting records.
Companies that require TPL for the first time will receive a new entrant allocation.
DFAIT will adjust a company’s allocation based on how the company has used their allocation in the last year. In this right, companies must use 95% or more of their received allocation to maintain the same level. If the allocation is unused, the allocation will be redistributed to others.
TPL unit of measurement (SMEs)
Square Metre Equivalents or SMEs is how TPL is measured out. SMEs are to be calculated on the basis of certain conversion factors featured within NAFTA (Annex 300-B, Schedule 3.1.3). While the conversion factors are indeed arbitrary, they cannot be modified in any way.
Can I transfer TPL?
If a Canadian company fails to receive allocation from DFAIT, they may be able to purchase TPL. In fact, the government allows for companies to transfer up to 25% of their TPL allocation if they so choose.
What considerations should be kept in mind before trading TPL?
There are a few issues that need to be considered before going through with a TPL trade. For instance, the transfer must be between similar TPL sub-categories, as there are separate categories for apparel made from imported textiles, or textiles produced in North America / Mexico.
It is also important to note that these transfers must be made by a Canadian customs broker with access to the EICB. (Learn more here)
How else can I get more TPL (bonus & retroactive)?
The TPL that is re-allocated at the beginning of the year is referred to as a bonus. Of course, these bonus TPL allocations aid companies in growing their exports. The bonus is allocated based on previous years.
Due to the fact that the majority of quota is allocated at the beginning of the year, it’s possible that TPL is retroactively allocated, by applying to duties that were paid when a company ran out of TPL. However, it is not wise to rely on receiving retroactive allotment.
A major element of proper tariff planning is having a good understanding of your product line and the duty paid on the fabrics, as well as duties that would be due if NAFTA wasn’t in force. Essentially, it’s important to plan your TPL usage so that the exporter gets the most value out of it.