1. Neither Party shall increase any existing customs duty, or introduce any customs duty, on goods originating in the territory of the other Party, except as otherwise provided in this Agreement.

2. Except as otherwise provided in this Agreement, each Party shall progressively eliminate its customs duties on goods originating in the territory of the other Party in accordance with the following schedule:

3. The base rate of duty for purposes of determining the interim stages of reduction for a tariff item under subparagraphs (b) and (c) of paragraph 2 is the rate indicated for the item in each Party's Schedule contained in Annex 401.2.

4. Except as otherwise provided in this Agreement, goods originating in the territory of the other Party that are provided for in each of the items designated as staging category D in each Party's Schedule contained in Annex 401.2 shall continue to receive the existing duty-free treatment indicated therein for such goods.

5. At the request of either Party, the Parties shall consult to consider acceleration of the elimination of the duty on specific items in the Schedule of each Party. An agreement between the Parties on such accelerated implementation of duty-free treatment shall be considered a part of this Agreement and the accelerated implementation schedule for an item shall replace and supersede the prior implementation schedule contained in this Agreement for the item.

6. Canada shall continue to exempt from customs duties certain machinery and equipment considered "not available" from Canadian production and certain repair and replacement parts originating in the territory of the United States of America, in accordance with Annex 401.6.

7. Canada shall not increase the rate of customs duty on goods originating in the territory of the United States of America that are set out in the Schedule of Statutory and Temporary Concessionary Provisions in the Canadian Tariff Schedule Converted to the Harmonized System, with the exception of the goods set out in Annex 401.7.

8. The United States of America shall not impose a customs duty on goods originating in the territory of Canada that were subject to a temporary suspension of the duty on October 3, 1987, and which are listed with a base rate of free in subchapter II of chapter 99 of the Schedule of the United States of America contained in Annex 401.2, except as noted in that subchapter and as listed in Annex 401.7.

To simplify application of interim staged rates in the removal of duties in accordance with subparagraphs 2(b) and (c) of Article 401, such rates shall be rounded down, with the limited exceptions set out in each Party's Schedule in Annex 401.2, to the nearest 0.1 percent ad valorem or, if the rate of duty is expressed in monetary units, to the nearest 0.1 cent. In no case shall a rate be rounded up.

1. Neither Party shall introduce customs user fees with respect to goods originating in the territory of the other Party.

2. Subject to paragraph 3, the United States of America may change the level of existing customs user fees.

3. The United States of America shall eliminate existing customs user fees on goods originating in the territory of Canada according to the following schedule:

1. Goods imported into the territory of a Party (including goods imported in bond or qualifying for benefit under a foreign trade zone, inward processing, or similar program) and subsequently exported to the territory of the other Party, or incorporated into, or directly consumed in the production of, goods subsequently exported to the territory of the other Party, shall be subject to the customs duties of the Party applicable to goods entered for consumption in the customs territory of that Party prior to their export to the territory of the other Party. Such duties shall not be reduced, eliminated or refunded by reason of such exportation, and their payment shall not be deferred upon such exportation.

2. The prohibition set out in paragraph 1 also applies where the imported goods are substituted by domestic or other imported goods exported to the territory of the other Party, or incorporated into or directly consumed in the production of goods subsequently exported to the territory of the other Party.

3. Goods exported to the territory of the other Party from a foreign trade zone or similar area shall be subject to the applicable customs duties of the Party maintaining the foreign trade zone or similar area as though the goods were withdrawn for domestic consumption.

4. Paragraphs 1, 2 and 3 do not apply to:

5. Paragraphs 1, 2 and 3 do not apply to a refund of customs duties imposed by a Party on particular goods imported into its territory and subsequently exported to the territory of the other Party, where that refund is granted by reason of the failure of such goods to conform to sample or specification, or by reason of the shipment of such goods without the consent of the consignee.

6. Solely for the purposes of this Article, the term "customs duties" includes the charges referred to in subparagraphs (b), (d) and (e) in the definition of customs duties contained in Article 410.

7. Except as the Parties may agree to delay the application of this Article, this Article shall apply to customs duties imposed on imported goods that are:

8. Unless otherwise agreed by the Parties, this Article shall not apply to:

1. Neither Party shall, after the later of June 30, 1988 or the date of approval of this Agreement by the Congress of the United States of America, introduce any new program, expand with respect to then-existing recipients or extend to any new recipient the application of a program existing prior to such date that waives otherwise applicable customs duties on any goods imported from any country, including the territory of the other Party, where the waiver is conditioned, explicitly or implicitly, upon the fulfillment of performance requirements.

2. Neither Party shall, explicitly or implicitly, condition upon the fulfillment of performance requirements the continuation of any program existing on the date referred to in paragraph 1 that provides for the waiver of customs duties on any goods imported from any country, including the territory of the other Party, and entered or withdrawn from warehouse for consumption on or after January 1, 1998.

3. Whenever the other Party can show that a waiver or a combination of waivers of customs duties granted with respect to goods for commercial use by a designated person has an adverse impact on the commercial interests of a person of the other Party, or of a person owned or controlled by a person of the other Party that is located in the territory of the Party granting the waiver of customs duties, or on the other Party's economy, the Party granting the waiver either shall cease to grant it or shall make it generally available to any importer.

4. The provisions of paragraph 2 shall not apply with respect to the granting of waivers of customs duties conditioned, explicitly or implicitly, upon the fulfillment of performance requirements, to the manufacturers of automotive goods listed in Part One of Annex 1002.1 in accordance with the headnote to that Part. Nothing in this Agreement affects the rights of either Party under any agreement, other than this Agreement, with respect to the granting of such waivers of customs duties.

The Parties' respective Customs Administrations shall cooperate as specified in Annex 406 (Customs Administration).

1. Subject to the further rights and obligations of this Agreement, the Parties affirm their respective rights and obligations under the General Agreement on Tariffs and Trade (GATT) with respect to prohibitions or restrictions on bilateral trade in goods.

2. The Parties understand that the GATT rights and obligations affirmed in paragraph 1 prohibit, in any circumstances in which any other form of quantitative restriction is prohibited, minimum export- price requirements and, except as permitted in enforcement of countervailing and antidumping orders and undertakings, minimum import-price requirements.

3. In circumstances where a Party imposes a restriction on importation from or exportation to a third country of a good, nothing in this Agreement shall be construed to prevent the Party from:

4. In the event that either Party imposes a restriction on imports of a good from third countries, the Parties, upon request of either Party, shall consult with a view to avoiding undue interference with or distortion of pricing, marketing and distribution arrangements in the other Party.

5. The Parties shall eliminate the restrictions as set out in Annex 407.5.

Neither Party shall maintain or introduce any tax, duty, or charge on the export of any good to the territory of the other Party, unless such tax, duty, or charge is also maintained or introduced on such good when destined for domestic consumption.

1. Either Party may maintain or introduce a restriction otherwise justified under the provisions of Articles XI:2(a) and XX(g), (i) and (j) of the GATT with respect to the export of a good of the Party to the territory of the other Party, only if:

2. With respect to the implementation of the provisions of this Article, the Parties shall cooperate in the maintenance and development of effective controls on the export of each other's goods to third countries.

For purposes of this Chapter:

consumed means transformed so as to qualify under the rules of origin set out in Chapter Three, or actually consumed;

Customs Administration means, in Canada, that part of the Department of National Revenue for which the Deputy Minister of National Revenue for Customs and Excise, or any successor thereof, is responsible, and, in the United States of America, the United States Customs Service, Department of the Treasury, or any successor thereof;

customs duty includes any customs or import duty and charge of any kind imposed in connection with the importation of goods, including any form of surtax or surcharge on imports, with the exception of:

existing customs duty means a duty, the rate of which is set out as the base rate for a tariff item in each Party's schedule contained in Annex 401.2;

performance requirement means a requirement that:

restriction means any limitation, whether made effective through quotas, licenses, permits, minimum price requirements or any other means;

total export shipments means the total shipments from total supply to users located in the territory of the other Party;

total supply means shipments to domestic users and foreign users from:

waiver of customs duties means relief by any means from customs duties on goods imported into the territory of a Party.

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1. Canada shall continue to exempt from customs duties the machinery and equipment listed as "not available" from Canadian production in Column I of Schedule I of Appendix A to Memorandum D8-5-1 of March 11, 1987, published by the Department of National Revenue, Customs and Excise (the Memorandum), with the exception of the following (identified by the product code used in connection with such machinery and equipment in Column I of Schedule I of Appendix A to the Memorandum):

02 BC L. 02 BC M. 02 BC N.

02 BC P. 02 BC Q. 04 FE B.

04 FK .. 04 FN .. 07 CA ..

07 EC .. 07 FD .. 07 HA ..

07 LA .. 17 DH .. 18 B. ..

18 FD .. 41 CD A. 45 GB ..

59 BN .. 61 AC .. 61 AD ..

61 AE .. 61 AG .. 61 AH B.

61 DB A. 61 DF A. 61 DF B.

63 AS .. 69 D. .. 71 CD ..

71 JE A. 71 JE C. 71 JF C.

2. Canada shall also continue to exempt from customs duties repair and replacement parts for the machinery and equipment that it exempts from customs duties, as set out in paragraph 1, with the exception of repair and replacement parts listed as "available" from Canadian production in column II of Schedule I, or listed as not eligible for remission of customs duty in Schedule II, of Appendix A to the Memorandum.

3. Canada shall review, by January 1, 1989, for the purpose of exempting from customs duties, the machinery and equipment set out as exceptions in paragraph 1, as well as the machinery and equipment not listed as either "available" or "not available" in Schedule I of Appendix A to the Memorandum.

1. Canada may exempt the following goods (identified by the code for them in the Schedule of Statutory and Temporary Concessionary Provisions in the Canadian Tariff Schedule Converted to the Harmonized System) from the undertaking in paragraph 7 of Article 401:

1695 3175 4205

4210 4211 4212

4220 4225 4300

4305 4315 4380

4381 4382 4780

4865 5175 5180

5960 6235 6335

6340 6600 6650

6655 6850 6851

2. The United States of America may exempt the following goods (identified by the code for them in the Harmonized System) from the undertaking in paragraph 8 of Article 401:

Imported Goods

1. Subject to paragraph 3, each Party may:

2. Each Party shall:

3. Either Party may provide for exemptions from compliance with paragraph 1.

4. Each Party shall ensure that records are kept with respect to the goods subject to paragraphs 1 and 2, and shall ensure that such records are subject to whatever audit or other statutory requirements apply to importers' records.

5. In furtherance of their mutual interest in ensuring the effective administration of paragraphs 1 and 2, and in the prevention, investigation and repression of unlawful acts, the Parties shall cooperate fully in the enforcement of their respective laws in accordance with this Agreement and other treaties, agreements and memoranda of understanding between them.

6. The Parties, through their Customs Administrations, shall consult with each other concerning the uniform application of the principles set out in Chapter Three. Each Party shall make its precedential decisions applying these principles available to the other Party.

7. Each Party shall provide the same rights of review and appeal with respect to a decision relating to the origin of imported goods represented as meeting the requirements of Chapter Three as are provided with respect to the tariff classification of imported goods.

8. The Parties shall cooperate, to the extent possible, in customs matters in order to facilitate the flow of trade between them, particularly in matters relating to the collection of statistics with respect to the importation and exportation of goods, the harmonization of documents used in trade, and the exchange of information.

9. The Parties shall notify and consult with each other with respect to and, where possible, in advance of, major proposed changes in customs administration that would affect the flow of bilateral trade, such as:

1. Canada shall eliminate, as of January 1, 1989, the embargo (set out in Tariff Item 99216-1 of Schedule C of the Customs Tariff, or its successor) on used or second-hand aeroplanes and aircraft of all kinds.

2. The United States of America shall eliminate, as of January 1, 1993, the embargo set out in 19 U.S.C. § 1305 on any

for a United States lottery, printed in Canada.