Canadian tariff preference levels for apparel and textile exporters

The textile and apparel industries are among the largest and fastest-growing sectors worldwide. Canada's apparel and textile exporters can leverage tariff preference levels (TPLs) to compete in the biggest markets on earth, including the United States.

Typically, to benefit from lower tariff levels, exporters must comply with strict rules of origin for their goods. Free trade agreements, such as the Canada-United States-Mexico Agreement (CUSMA), include some exemptions from normal rules of origin through TPLs. Canadian businesses, in particular apparel and textile exporters, can maintain competitiveness in foreign markets by understanding how to leverage TPLs in the United States and other large economies.

What is a tariff preference level (TPL)?

A tariff preference level (TPL) is a rule that allows a limited quantity of specific goods to be imported at a lower tariff than normal. Typically, TPLs are used to reduce the cost of duties for goods that don’t comply with the standard rules of origin under a free trade agreement. In this scenario, even if a product doesn’t meet the rules of origin for a reduced tariff, the exporter can leverage a TPL to qualify for lower or even zero tariffs.

Rules of origin for goods often require that a minimum percentage of the production takes place in a country that participates in the free trade agreement. If the product doesn’t meet the threshold to qualify for a preferential tariff because of rules of origin, the exporter can apply a TPL to get an exception.

From an exporter's perspective, TPLs could be seen as a way to provide some flexibility for traders who export goods that have some materials or processes that don’t originate in the same jurisdiction as the free trade agreement.

How do Canadian textile exporters benefit from TPLs?

For apparel and textile traders in Canada, TPLs offer a strategic way to reduce costs in foreign markets, including the United States. Traders can qualify for reduced tariffs while sourcing low-cost materials and processes from countries that aren’t accepted as part of CUSMA’s rules of origin. Usually, a limited amount of apparel and textiles will qualify for TPL rates.

One of the primary benefits of TPLs revolves around competing in different markets. If a Canadian product enters a market such as the U.S. at a lower cost than a competitor from a non-CUSMA company, Canada’s export will have a significant advantage in that market.

In some cases, TPLs open up new opportunities when rules of origin would normally prevent exports under CUSMA regulations. A TPL would allow the Canadian textile exporter to source materials or processes from non-CUSMA partners and still benefit from a reduced tariff level, thereby opening up the opportunity to export.

Common TPL trade agreements for Canadian apparel and textile exporters

Canada maintains friendly relationships with many nations across the globe, resulting in a variety of free trade agreements that can benefit Canadian businesses. The most common agreements with TPLs for Canadian exporters include:

Canada-United States-Mexico Agreement (CUSMA)

CUSMA provides TPL opportunities for Canadian textile and apparel exporters moving goods to the U.S. and Mexico. Products finished or assembled in Canada, with fabric or items like zippers sourced from overseas, can qualify for significantly reduced tariffs under CUSMA. This can allow Canadian producers to compete in some of the largest markets in the world.

Comprehensive Economic and Trade Agreement (CETA)

CETA offers TPLs that Canadian textile exporters can use to make it easier to access the markets of the European Union. Under CETA regulations, a Canadian apparel or textile exporter can leverage TPL exceptions to access reduced tariffs, helping to enhance the competitiveness of Canada’s goods in the EU.

Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)

The CPTPP encompasses countries mostly in the Asia-Pacific region of the globe, including Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United Kingdom, and Vietnam. The original agreement was signed in March 2018, with the CPTPP expanding in July 2023 with the addition of the United Kingdom as a member nation.

Maximize the benefits of TPLs for exporters

Canadian textile and apparel exporters can leverage TPLs through careful planning and adherence to the regulatory requirements outlined in free trade agreements such as CUSMA, CETA, and the CPTPP. Exporters need to maintain impeccable documentation and monitor quotas closely to qualify for TPLs and ensure compliance under international agreements.

Engaging with a customs brokerage with expertise in Canadian exports and TPLs can ensure compliance while maximizing the benefits of TPLs. An experienced broker also provides valuable insights into quota-related trends while helping you navigate trade agreements and regulations with ease.

Cole International has more than a half century of experience with companies operating across the U.S. and Canada. Reach out and connect with one of our customs leaders today.

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