From: OVERSEAS BUSINESS REPORTS (CANADA)
University of Missouri-St. Louis
Match 6 DB Rec# - 22,205 Dataset-MARKET
Source : USDOC, International Trade Administration
Source key :IT
Program key :IT MARKET
Program :Market Research Reports
Update sched. :Monthly
ID number :IT MARKET 111100258
Title :CANADA - BUSINESS GUIDE - OBR9304
Data type :TEXT
End year :1993
Date of record:06/16/1993
Keywords 1 :
| 9304
| CANADA
| CC122
| ECONOMY
| FINANCE
| INVESTMENT
| MARKET|ASSESMENT
| OBR
| OBR9304
| STATISTICS
| ZEC
Country :
| CANADA
| ENTERPRISE FOR THE AMERICAS
| NAFTA
| NORTH AMERICA
| NORTH AMERICAN
| NORTH AMERICAN COUNTRIES
| NORTH AMERICAN FREE TRADE AGREEMENT
| OECD
| ORGANIZATION FOR ECONOMIC COOPERATION & DEVELOPMENT
| ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMET
| ORGANIZATION OF AMERICAN STATES
| WESTERN HEMISPHERE
| WH
Text :
CANADA - BUSINESS GUIDE - OBR9304
SUMMARY
This article is derived from a report dated April 1993, prepared at the U.S.
Department of Commerce - Washington, DC. The article consists of 91 pages
and discusses the economic and commercial climate in Canada, with emphasis
on information useful for potential U.S. sellers and investors. It includes
the following sections:
INTRODUCTION
FREE TRADE AGREEMENTS
EXPORTING PRODUCTS TO CANADA
SELLING SERVICES TO CANADA
GOVERNMENT PROCUREMENT
INVESTING IN CANADA
THE CANADIAN ECONOMY
OTHER ISSUES
LIST OF CONTACTS
CANADIAN CONTACTS IN CANADA
CANADIAN PROVINCIAL MINISTRIES
CANADIAN GOVERNMENT IN THE UNITED STATES
CANADIAN CONSULATES GENERAL
U.S. AND FOREIGN COMMERCIAL SERVICE DISTRICT OFFICES
MARKETING IN CANADA PUBLICATIONS
CANADIAN ENVIRONMENTAL LABELLING GUIDELINES
INSTRUCTIONS FOR COMPLETION OF THE CANADA CUSTOMS INVOICE
SAMPLE
A BUSINESS GUIDE TO CANADA
Prepared by: Reginald Biddle
the U.S. Department of Commerce
the Office of Canada
A BUSINESS GUIDE TO CANADA
TABLE OF CONTENTS
INTRODUCTION
Economic Statistics
The Canadian Market
CHAPTER I
FREE TRADE AGREEMENTS
The U.S.-Canada Free Trade Agreement (CFTA)
The North American Free Trade Agreement (NAFTA)
Market Access
Rules-of-Origin
Customs Issues
Government Procurement
Services
Financial Services
Investment
New Disciplines
CFTA Provisions Unchanged By NAFTA
CHAPTER II
EXPORTING PRODUCTS TO CANADA
Taxes and Tariffs
Import Taxes
Harmonized System
Most Favored Nation Rates
Advertising Matter
Educational Films and Related Materials
CFTA Rates
Drawback
CFTA and Drawbacks
Machinery Program
Goods Exported for Repair
Antidumping and Countervailing Duties
Customs Valuation For Duty
Restrictions On Transaction Value
Related Party Transactions
Leased Machinery
Other-Than-Prime-Quality Goods
Adjustments to Price
Discounts
Currency of Sale
National Customs Rulings
Customs Clearance
Method of Duty Payment
Nonresidential Importer
Direct Shipment
Indirect Shipments
Warehousing and Free Ports
Customs Review Process
Refund of Duties
Export Documentation
Canada Customs Invoice
Freight Allowances
Exporting By Mail
Country of Origin
CFTA CUSTOMS PROCEDURES
Claiming the CFTA Tariff
CFTA Rules-Of-Origin
Summary of the Rules-of-Origin
Temporary Imports
Personal Baggage
Display Goods
A.T.A. Carnet
Prohibited, Restricted, Controlled Goods
Labeling And Packaging Requirements
Consumer Packaging and Labeling
Quebec French Labeling Requirements
Country of Origin Marking
Weights and Measures
Guidelines for Environmental Claims
Product Standards
Standards and the CFTA
Standards & NAFTA
CHAPTER III
SELLING SERVICES TO CANADA
Services Under the CFTA and NAFTA
Citizenship Requirements
Mutual Recognition of Professional Standards
Taxation of Services
Checklist for Marketing Services in Canada
Market Opportunities
CHAPTER IV
GOVERNMENT PROCUREMENT
Procurement System
Procurement Information
Bidding Hints
Additional Information
CHAPTER V
INVESTING IN CANADA
Investment in Canada
CFTA Investment Provisions
Investment Regime
Business Organization
Incorporating in Canada
Provincial Incorporation
Extra-Provincial Company
Sole Proprietorship
Partnership
Investment Incentives
Quebec French Language Requirements
Foreign Ownership of Real Property
Provincial Real Estate Regulations
Taxation
Goods and Services Tax
Federal Corporate Income Tax
Corporate Tax Rates
Federal Personal Income Tax
Provincial Corporate Income Tax
Provincial Personal Income Tax
Provincial Sales Tax
The Labor Force
Payments and Benefits
Employment of Aliens
CHAPTER VI
THE CANADIAN ECONOMY
Product Distribution
Import Channels
Distribution Practices
Wholesale Trade
Retail Trade
Mail Order Sales
Quotations and Terms of Payment
Transportation
Railways
Motor Freight
Water Transport
Aviation
Banking
Stock Exchanges and Securities
CFTA Financial Services Provisions
The Federal Business Development Bank
Credit Information
Consumer Financing
Advertising and Market Research
Advertising Laws
Advertising Agencies
Radio and Television
The Press
Market Research
CHAPTER VII
OTHER ISSUES
Intellectual Property Rights
Patents
Trademarks
Copyrights
Industrial Designs
Additional Information
Business Travel In Canada
Entrance Requirements
CFTA Business Travel Provisions
Customs Requirements for Visitors
Business Hours
Standard Time Zones
Holidays
CHAPTER VIII
U.S. DEPARTMENT OF COMMERCE SERVICES FOR EXPORTERS
Office of Canada
U.S. and Foreign Commercial Service
US&FCS Export Assistance Programs
ANNEX I
LIST OF CONTACTS
CANADIAN CONTACTS IN CANADA
CANADIAN PROVINCIAL MINISTRIES
CANADIAN GOVERNMENT IN THE UNITED STATES
CANADIAN CONSULATES GENERAL
ANNEX II
U.S. AND FOREIGN COMMERCIAL SERVICE DISTRICT OFFICES
ANNEX III
MARKETING IN CANADA PUBLICATIONS
ANNEX IV
CANADIAN ENVIRONMENTAL LABELLING GUIDELINES
ANNEX V
INSTRUCTIONS FOR COMPLETION OF THE CANADA CUSTOMS INVOICE
SAMPLE
INTRODUCTION
Canada is the largest export market for U.S. goods and services. In 1992,
U.S. merchandise and service exports to Canada topped $100 billion.
American firms, especially those new to exporting, find Canada a relatively
easy market in which to do business. The ease of selling in Canada is due
in part to the similarities between U.S. and Canadian distribution
practices, business methods and customs, and promotional techniques.
Bilateral merchandise trade in 1992 totaled $189.1 billion. Over 20 percent
of total U.S. exports went to Canada, and Canada supplied 18 percent of U.S.
imports. In 1992, 74 percent of Canadian exports went to the United States,
while 77 percent of the country's imports were purchased from the United
States. Canadian trade with the United States accounts for 25 percent of
Canada's gross doemstic product (GDP).
The implementation of the U.S.-Canada Free Trade Agreement (CFTA) on January
1, 1989 has further enhanced an already thriving trade relationship. In its
fifth year, the CFTA continues to create new business opportunities as
tariff levels are reduced and other barriers to trade are removed.
This guide is a reference tool for American firms doing business in Canada.
It contains information on:
the U.S.-Canada Free Trade Agreement;
the North American Free Trade Agreement;
Canadian commercial laws, regulations, and customs; and
U.S. and Canadian sources of additional information.
U.S. and Canadian sources of additional information.
READERS
commenting on the Guide, see Quality Assurance Survey in Annex VI.
seeking help on doing business in Canada
PLEASE CONTACT:
U.S. Commerce Department
International Trade Administration
Office of Canada
Room 3033
Washington, D.C. 20230
Phone: (202) 482-3101
Fax: (202) 482-3718
Economic Statistics
1989 1990 1991 1992
Economy
GDP (US$ billions) 550.3 581.2 592.9 594.0
GDP (constant '86 US$'s) 477.7 486.3 487.9 464.4
GDP Per Capita (US$) 20,813.0 21,746.0 21,960 22,370
Inflation 5.0% 4.8% 5.6% 2.0%
Average Unemployment 7.5% 8.1% 10.3% 11.3%
Exchange Rate (1US$=C$) 1.18 1.17 1.14 1.19
Canadian World Exports (US$ billions) 116.7 125.2 123.7 127.7
Canadian World Imports (US$ billions) 112.8 115.9 117.2 122.8
Merchandise Trade (Billions US$)
U.S. Exports 78.8 83.7 85.1 90.6
U.S. Imports 87.9 91.4 91.1 98.5
TOTAL 166.7 175.1 176.2 189.1
BALANCE -9.1 -7.7 -6.0 -7.9
Services Trade (Billions US$)
U.S. Receipts 13.2 16.1 17.8 18.4 *
U.S. Payments 7.1 7.5 7.9 8.0 *
TOTAL 20.3 23.6 25.7 26.4
BALANCE 6.1 8.6 9.9 10.4
Direct Foreign Investment (Billions US$
U.S. Direct Investment in Canada 63.9 67.0 68.5 72.1**
Canadian Direct Investment
in the United States 30.1 30.0 30.0 27.5**
Sources: U.S. Department of Commerce
Statistics Canada
* Preliminary
** Estimate
CANADIAN GOVERNMENT
The Canadian federal government, seated in Ottawa, Ontario, is patterned
after the British Parliament. Unlike the United Kingdom, Canada is not a
unitary state. Canada is a democratic confederation of ten self-governing
provinces, which are the principal entities, plus two federally-governed
territories. The federal and provincial governments are responsible to
popularly elected legislatures.
The federal government has control over the regulation of international
trade and commerce, national defense, navigation and shipping, banking and
currency, and criminal law. The Parliament of Canada consists of an elected
House of Commons and a Senate appointed by the Prime Minister. A
Governor-General, representative of the British monarch, is appointed on the
advice of the Prime Minister. The role is largely ceremonial. The Prime
Minister is the effective head of state and is normally the leader of the
majority party in the House of Commons, which has 282 members.
The provinces retain more political power than the states in the United
States. They control education, municipal government, property and civil
rights, and other matters of local concern. Quebec Province has limited
authority in immigration matters. The provinces own their natural resources
and control their development except in instances where the mineral rights
have been reserved for the Crown (i.e., the federal government). The
provincial legislatures consist of unicameral assemblies.
The two territories have some legal administrative authority, although their
affairs are largely controlled by the federal government.
From east to west, the provinces are Newfoundland (and Labrador), Nova
Scotia, Prince Edward Island, New Brunswick, Quebec, Ontario, Manitoba,
Saskatchewan, Alberta, and British Columbia. North of the provinces lie the
two federal territories: the Northwest Territories and Yukon Territory.
CANADA IN BRIEF
TOTAL AREA:
9,976,139 Square Kilometers (second largest in world)
POPULATION:
27,296,859 (1991)
ETHNIC ORIGIN:
Percent of Population 1991
British Origin 61%
French 26%
Italian 2%
German 2%
Other 9%
LARGEST METROPOLITAN AREAS:
Areas:Population
Toronto, Ontario 3,812,100
Montreal, Quebec 3,114,900
Vancouver, British Columbia 1,587,500
Ottawa, Ontario (national capital)
/Hull, Quebec 891,900
Edmonton, Alberta 842,100
Calgary, Alberta 742,000
Winnipeg, Manitoba 653,600
(December 1991)
GDP:
$594 billion (1992)
UNEMPLOYMENT:
11.3% (average annual, 1992)
INFLATION RATE:
2.0% (1992)
WORLD MERCHANDISE TRADE SURPLUS:
US$ 4.9 billion (1992)
The Canadian Market
Due to the harsh geography of much of Canada, the population is heavily
concentrated in a relatively few urban centers along the border with the
United States. As a result, the Canadian market is in effect 4,000 miles
long and 100 miles wide. This market is comprised of a 750 mile-long
megalopolis and several densely populated metropolitan areas, which are
separated by large sparsely populated areas. Canada's population is
approximately 27 million, about one-tenth the size of the United States.
A large share of Canada's population lives in the major metropolitan areas.
More than six million persons reside in either metropolitan Montreal or
metropolitan Toronto. The French-Canadian market is of considerable
importance, since over a quarter of the total Canadian population is of
French origin. Two-thirds of this market, which is concentrated in the
Province of Quebec, speaks French only.
Marketers cannot merely translate English advertisements into French and
expect to promote products successfully in Quebec and other French-speaking
areas. Colloquial French is essential.
Differences in taste between the English and French-speaking populations may
require tailoring the product's styling, size, design, color assortment,
and advertising messages to the French-Canadian market.
CHAPTER I
FREE TRADE AGREEMENTS
The U.S.-Canada Free Trade Agreement (CFTA)
The U.S.-Canada Free Trade Agreement (CFTA), implemented in 1989, has
created vast opportu-nities for U.S. exporters and investors in Canada. As
a result of the agreement, trade barriers have come down, investment rules
have been liberalized, and bilateral cooperation on a wide range of issues
has expanded.
The provisions of the CFTA and how they impact on U.S.-Canada trade in goods
and services and investment are explained below under NAFTA and throughout
the Guide under the appropriate subject headings. For example, information
on the removal of tariffs under the CFTA can be found on page under the
discussion of CFTA rates.
The North American Free Trade Agreement (NAFTA)
In the fall of 1992, the United States, Canada, and Mexico completed
negotiations on a North American Free Trade Agreement (NAFTA). This
historic Agreement brings Mexico into the North American free trade area.
NAFTA also expands the scope of the CFTA in some areas. For example, NAFTA
contains a number of new disciplines not covered by the CFTA, including
intellectual property rights, land transportation, and the environment.
Many of the improve-ments to the CFTA are a direct result of experience
gained by the United States and Canada in implementing the bilateral
accord. In fact, the CFTA served as a model for NAFTA. As a result, U.S.
firms already familiar with the CFTA are well positioned to reap early
benefits from NAFTA.
Once NAFTA is approved by the legislatures in the three countries, the
Agreement is expected to enter into force on January 1, 1994. U.S. traders
and investors who do business with Canada need to know how NAFTA will modify
and improve the benefits accorded them by the CFTA. Accordingly, the
following presentation describes the provisions of the CFTA by major issue
area and notes the changes in those provisions which result from NAFTA.
Provisions which apply only to Mexico are not discussed.
Market Access
One of the most important market access provisions of the CFTA is the
elimination of tariffs on goods produced in the United States and Canada.
Many products traded between the two countries already entered duty-free
prior to the CFTA. For those products which were subject to duties, the
CFTA established three tariff elimination categories. Duties on some
products were eliminated immediately on implementation of the CFTA (January
1, 1989), while other products became duty free on January 1, 1993. Duties
on import-sensitive products, like tex-tiles, apparel, or agricultural
products, are being removed in ten equal, annual cuts ending on January 1,
1998. Tariff cuts on these products reached the halfway point on January 1,
1993.
The CFTA does not change the duty rates levied on goods from other
countries. For U.S. exporters, this means that American goods are now more
price competitive in the Canadian market than goods from other countries.
U.S.-made household scales, for example, now enter Canada duty free, while
scales from other countries are accessed a 10.2 percent duty.
NAFTA:
Makes no change in the staging process for elimination of tariffs on
qualifying products traded between the United States and Canada.
Rules-of-Origin
Only those items produced in the United States or Canada benefit from the
preferential rates mandated by the CFTA. Therefore, the CFTA establishes
specific rules-of-origin which prevent transshipment of goods from third
countries through one CFTA partner to another in order to escape higher
tariffs.
Those items which are produced entirely in the United States or Canada from
U.S. or Canadian raw materials, such as potatoes grown in Idaho or iron ore
mined in Alberta, automatically qualify for CFTA duties.
Products manufactured in the United States and Canada using inputs imported
from outside the United States or Canada, only qualify if they meet specific
rules-of-origin. Generally, the rules require that the inputs be
transformed in specified ways during processing in the United States or
Canada to qualify for CFTA tariff treatment. In some cases, the rules also
require that 50 percent or more of the direct cost of processing be U.S.
and/or Canadian. For example, unwrought lead must not only be processed in
the United States or Canada, the value of the materials going into producing
the lead and the direct costs of processing in the United States or Canada
must be at least 50 percent of the total value of the end product.
NAFTA:
Simplifies and harmonizes the administration of the
rules-of-origin.
Qualifies as North American products with small quantities (no
more than 7 percent) of non-North American parts.
Requires that passenger vehicles and light trucks have 62.5
percent (60 percent for other vehicles) North American inputs/direct costs
to qualify for preferential treatment.
Simplifies rules-of-origin for certain electronics products.
Strengthens rules-of-origin for textiles; garments must be made
from both fabric and yarn of North American origin. A tariff rate quota
will allow a certain number of garments which to do not meet the rules to
qualify as North American. In some cases, certain textiles also will have
to incorporate NAFTA-produced fibers.
Customs Issues
The CFTA covers a range of issues related to administration of customs. For
example, duty drawback, or the refund of duties on imported inputs
incorporated into products for export, was to be eliminated under the CFTA
by January 1, 1994. The United States also agrees to eliminate customs user
fees for Canadian products by January 1, 1994.
NAFTA:
Extends the deadline for elimination of duty drawback to January
1, 1998.
Provides duty-free temporary entry of tools of the trade and
professional equipment for after-sales and service providers.
Allows all goods returned after repair or alteration in another
NAFTA country to re-enter duty free and duty/taxes are paid only on the
repair portion of the good.
Government Procurement
The CFTA expands the size of the government procurement markets which are
open to free and fair (non-discriminatory) competition between U.S. and
Canadian suppliers. The Agreement requires clear, fair rules of bid
selection and provides for an effective Bid Challenge System (BCS). The
CFTA applies to certain federal procurement valued at $25,000 and above.
This means that a U.S. company bidding on a $30,000 Supply and Services
Canada contract competes on an equal footing with its Canadian competitors;
the company will be judged solely on its ability to deliver a low-cost,
high-quality product. As a result of these measures, U.S. suppliers
successfully competed for 591 Canadian contracts worth over $33.1 million
from January 1989 through 1992.
NAFTA:
Extends coverage to listed government-owned corporations for
goods and services contracts valued at above $250,000 and construction
contracts valued at over $8 million.
Extends coverage to services contracts valued over $50,000 and
construction contracts valued over $6.5 million by listed federal government
agencies.
Adds Crown Corporations to the list of covered entities, --the
St. Lawrence Seaway Authority, the Royal Canadian Mint, the Canadian
National Railway (freight), and Via Rail (passenger service).
Expands Canadian federal entity coverage to include
Communications Canada, Transport Canada, and the Ministry of Fisheries and
Oceans.
Services
The CFTA is the first trade agreement to include trade in services. The
Agreement ensures that companies in over 150 service sectors can provide
their services in the partner country without discrimination. The Agreement
requires that business regulations for services be clear and explicit. The
CFTA does not change existing regulations governing services in the two
countries but locks in current levels of protection. In effect, the
Canadian Government is prohibited from passing new legislation which would
further restrict the right of a U.S.-based engineering, advertising, or
other covered service firm from doing business in Canada. The services
chapter of the CFTA includes special provisions for the architecture,
tourism, and telecommunications sectors.
NAFTA:
Extends coverage to nearly all service sectors (vice only 150).
Eliminates existing federal and local regulations restricting
partner country access to services markets, unless reserved.
Removes citizenship or permanent residency requirements for
licensing of professional service providers.
Financial Services
The CFTA removes virtually all discrimination on the basis of nationality in
the financial services sector (commercial and investment banks, savings and
loan institutions, and certain insurance activities). Specifically, the
CFTA eliminates Canadian restrictions on market share and asset and capital
expansion for U.S. bank subsidiaries in Canada and gives U.S. financial
institutions the same rights as Canadian financial institutions to establish
insurance companies, trust companies, and certain types of banks in Canada.
The CFTA also provides that the benefits of further liberalization in both
countries be extended to the financial institutions of the partner country.
NAFTA:
Establishes a comprehensive set of principles and rules
governing trade and investment in financial services.
Covers state/provincial and local, as well as federal, measures.
Guarantees U.S. firms in Canada the right to process data in the
United States.
Provides access to the NAFTA dispute settlement mechanisms for
NAFTA financial services firms.
Investment
The CFTA locks into place Canada's liberal investment measures and bars most
new measures which would adversely affect U.S. investment. The Agreement
prohibits discrimination against investment from the partner country;
eliminates rules requiring an investor to export a certain percentage of
production or to give preference to local inputs; requires fair compensation
for expropriation; and guarantees free transfer of capital and profits. The
Agreement also required revisions of the Investment Canada Act, which
governs the review of foreign investment in Canada.
Canada has eliminated review of U.S. indirect investments and increased the
threshold for review of U.S. direct investments to C$150 million (as
measured in constant 1992 dollars). Under the CFTA, investment decisions
can be based on business factors, not on artificial barriers.
NAFTA:
Expands the definition of investor to include companies owned by
non-NAFTA individuals but operating in a NAFTA country.
Increases coverage to include real estate, stocks, bonds, and
certain contracts and technologies.
Provides for binding arbitration of disputes between covered
investors and NAFTA governments.
New Disciplines
NAFTA introduces two new disciplines not covered by the CFTA: protection of
intellectual property rights (IPR) and liberalization of land
transportation. NAFTA is also the first trade agreement to ensure that its
trade enhancement provisions do not prevent the NAFTA countries from
protecting the environment.
Intellectual Property Rights
NAFTA:
Extends patent protection to a minimum of 20 years.
Limits compulsory licensing, notably of pharmaceuticals.
Provides new copyright protection for a host of products, such
as computer programs, sound recordings, motion pictures, satellite signals,
and other works.
Strengthens protection for trademarks, service marks, trade
secrets, integrated circuits, industrial designs, plant breeders' rights,
and geographical indications.
Provides procedures for enforcement of IPR rights.
Land Transportation
NAFTA:
Locks into place current favorable U.S. access to Canadian
markets by ensuring that future Canadian regulations, laws, and policies
will not discriminate unfairly against U.S. land transportation service
providers.
Environment
NAFTA:
Allows the Parties to maintain existing health, safety, and
environmental standards and to impose new standards which are scientifically
justifiable, transparent, and non-discriminatory.
Acknowledges the right of the Parties to enforce specific
environmental treaty obligations.
Ensures that environmental concerns are addressed in trade disputes
and includes provision for scientific review boards to advise dispute panels
concerning environmental issues.
At this writing, a side agreement covering the environment is being
negotiated by the United States, Canada, and Mexico.
CFTA Provisions Unchanged By NAFTA
Some provisions of the CFTA remain essentially unchanged by NAFTA. These
include:
the CFTA's agriculture measures, such as elimination of Canadian
import licenses on certain U.S. agricultural products, prohibition on the
use of export subsidies on goods traded between the two countries, and
exemptions on meat import quotas;
the CFTA's streamlined border crossing procedures for business
travel;
the CFTA's energy chapter, which removes barriers to trade in energy
and provides secure access to energy supplies and markets;
other CFTA provisions on technical standards and alcoholic
beverages; and
the CFTA's exemption for Canadian cultural industries.
Further details are available in the publication, "Impact of the North
American Free Trade Agreement (NAFTA) on the U.S.-Canada Free Trade
Agreement (CFTA)" (See Annex III, List of Publications).
CHAPTER II
EXPORTING PRODUCTS TO CANADA
Taxes and Tariffs
Import Taxes
Canada Customs collects the 7 percent Goods and Services Tax (GST) on
imported goods by applying it to the duty-paid-value (customs value plus
import duties). Since imported services cannot practically be taxed at the
border by Customs, special rules apply. If the importer is a registrant
under the GST system, no tax need be calculated. If the importer is an
exempt entity--for example, a bank or an insurance company--the importer is
required to self-assess the tax due and remit it to Revenue Canada.
Additional information on the GST can be found on page .
Each province, except Alberta, the Yukon, and the Northwest Territories,
levies a provincial sales tax (PST). With the exception of goods bound for
Quebec, the PST is not collected on imports. (Additional information on the
PST can be found on page .)
Harmonized System
On January 1, 1988, Canada introduced the Harmonized Commodity
Classification and Coding System (HS), which classifies goods for customs
purposes and for compiling import and export statistics. The HS import
codes consist of ten digits, with the first six digits based on the
international HS. Export codes consist of eight digits with the first six
consisting of the same international code.
HS classification requires a very detailed product description on commercial
documents in order to establish the correct customs classification and
duties payable. If product descriptions are insufficient, Canada Customs
may not release goods coming into Canada. Vendors should describe the
products and their use carefully in non-technical terms.
The following information will be sufficient for most product
classifications:
1) Product name;
2) Use;
3) Condition;
4) Composition; and
5) Size or dimension.
Most Favored Nation Rates
Unless covered by a preferential agreement, products imported into Canada
from most countries are subject to the Most-Favored-Nation (MFN) tariff
rates. In general, products from the United States, which do not qualify
under the U.S.-Canada Free Trade Agreement, are subject to the MFN rate.
Most raw materials and exotic products imported into Canada are free of
duty. Duties become progressively higher as the goods become more highly
processed.
Canada imposes special duties for various reasons:
Seasonal duties apply on certain fruits and vegetables as tariff
protection to Canadian growers during the harvest season.
Special temporary low or duty free entry is granted on many imported
parts or materials needed for incorporation into Canadian manufactures.
"Designated" vehicle manufacturers in Canada who are entitled to the
provisions of the US-Canada Automotive Products Trade Agreement (Auto Pact),
outlined in the Motor Vehicles Tariff Remission Order (MVTO) or who have
Auto Pact status through Special Orders-In-Council, may import certain motor
vehicles duty free, subject to the conditions of the Auto Pact or the
special orders. Parts, accessories, and parts thereof may also be imported
duty free by manufacturers of the class of vehicles in question or by their
suppliers when for use as original equipment in vehicles produced in
Canada. Importations of motor vehicles, and parts and accessories, and
parts thereof not meeting the conditions mentioned herein, are subject to
duty.
Remission of the duty and taxes paid on production machinery and
equipment is possible if the goods are "not available in Canada." (See
section entitled "Machinery Program", page ).
Advertising Matter
Advertising matter, printed or stamped on paper or cardboard, is admitted
free of duty into Canada from the United States: when imported by mail or
courier in individual packages with a production value of less than C$20 per
package and addressed to different firms or persons. Single copies of
advertising matter may enter duty free:
(1) if the literature is not specially prepared for the Canadian trade
and
(2) if the literature is identical to the material distributed in the
home market, regardless of whether the name of a Canadian dealer or seller
agency is stamped on it.
Advertising matter admitted free of duty under the above provisions is not
exempt from the GST. Hence, the value of advertising matter should be noted
on the invoice when the material is included in shipments of dutiable
articles, whether merchandise is for sale or samples for distribution.
Trade magazines are also granted duty free entry if sent in single copies.
All printed matter, whether duty free or dutiable, is required to bear an
indication of the country of origin, such as "printed in U.S.A." Further
details are available from: Canada Customs and Excise in Ottawa. (See
Annex I, List of Contacts.)
Educational Films and Related Materials
Motion picture films, separate sound film track, slides, certain sound
recordings, static and moving models, videotape recordings, and wall charts,
maps, and posters are permitted duty-free entry into Canada.
To qualify for duty-free status, companies must submit to Revenue Canada, a
certificate attesting to the international, educational, scientific, or
cultural character of the goods. Application for the certificate may be
made to the U.S. Information Agency, Attestation Officer. (See Annex I, List
of Contacts.)
CFTA Rates
Under the CFTA, all tariffs on qualifying goods traded between the United
States and Canada are being eliminated in stages by January 1, 1998. All
dutiable products are assigned to one of the following staging categories:
duty-free immediately (on January 1, 1989); elimination in five equal
annual cuts, which became duty free on January 1, 1993; and elimination in
ten equal annual cuts to be duty free on January 1, 1998. In almost all
instances, staging on a particular product is the same in both countries.
(See page on "Claiming the CFTA Tariff.)
Drawback
Canada's Home Consumption Drawback helps manufacturers meet foreign
competition by granting them relief from a portion of duties on specific
imported goods used in Canada.
Eligible products include steel, hot-rolled hexagon bars of iron or steel,
yarns of man-made fibers, single ply veneers of hardwood, and undenatured
ethyl alcohol. Commodities eligible for some percentage of duty drawback
must usually be used for a specific purpose.
The Export Drawback helps Canadian manu-facturers compete in foreign markets
by removing internal Canadian duties and taxes from the cost of Canadian
goods exported. Drawback of 100 percent of duties and taxes is granted on
imported goods re-exported in an unused condition and on imported goods
incorporated into Canadian manufactured goods which are subsequently
exported. Applications for drawback must be filed on forms provided by
Canada Customs and must be supported by documentation proving eligibility
for drawback.
Sources of Tariff Information
U.S. exporters can obtain nonbinding information on Canadian tariff
rates and classifications from Canada Customs and Excise, Tariff Programs
Appraisal.
Information on Canadian duties applied to specific products and the
CFTA tariff phase out schedule may also be obtained from the U.S. Department
of Commerce, Office of Canada. Companies requesting tariff information
should have the product HS Tariff Classification Numbers before calling. HS
numbers can be obtained from customs brokers, Canada Custom and Excise, and
some U.S. Customs offices.
See Annex I, List of Contacts.
CFTA and Drawbacks
The CFTA alters the Canadian drawback system. After January 1, 1994, goods
imported into either country under programs that confer benefits (Canada's
duty drawback and inward processing programs, or the U.S. foreign trade
zones) will be treated for tariff purposes as if the goods were entered for
consumption in the producing country. Hence, duties will be payable. NAFTA
extends the deadline for elimination of drawbacks from January 1, 1994 to
January 1, 1996.
Duty waivers linked to performance requirements generally will end January
1, 1998. If either country grants a company specific duty waiver, the
waiver must be made generally available or the waiver must be ended if the
commercial interest of the other country is harmed.
Machinery Program
Certain kinds of machinery, equipment, and replacement parts are subject to
duty remission, when the goods are not available from production in Canada.
The program increases efficiency throughout Canadian industry by enabling
users to acquire, at the lowest possible cost, hi-tech machinery and
equipment not available from Canadian manufacturers. Application forms are
available from Canada Customs offices.
Information on the program and further details concerning the conditions
under which applications are considered are available from Canada Customs
offices or from the Machinery and Equipment Advisory Board. (See Annex I,
List of Contacts.)
Goods Exported for Repair
Duties and taxes on Canadian goods and goods previously entered for
consumption and subse-quently sent abroad for repairs will be assessed on
the value of the repair. However, if Canada Customs believes that repair
facilities exist in Canada, the returned goods will be subject to assessment
based on the full market value of the good and repair. Canada Customs may
accept a verbal declaration from the exporter or his agent that the repair
work could not be done within a reasonable distance in Canada. Written
evidence confirming the non-availability of repair facilities is sometimes
required.
U.S. and/or Canadian origin goods may be returned to Canada duty free after
having been repaired in the United States free of charge under warranty. HS
Tariff Number 9820.00.00 should be cited. The GST is payable on the full
value of the goods repaired under warranty if the goods are not tax exempt.
All goods sent abroad for repair must be exported under Canada Customs
supervision and documented on form E15, "Identification of Goods Exported or
Destroyed." Canada Customs must be satisfied that the repairs could not
have been made in Canada either at the place where the goods were located or
within a reasonable distance from such place, and the goods must be returned
to Canada within twelve months of the date of export.
A Canada Customs Invoice or equivalent must be completed where applicable.
The full market value of the goods at the time of their return to Canada is
shown in the appropriate column of the invoice.
The charge for the repair service performed abroad is shown in the selling
price column. A statement setting out the market value of the processing,
repair, addition, or adjustment is to be shown in the body of the invoice.
The cost of the material used, labor, factory overhead, plus a normal profit
markup are to be taken into consideration when calculating the value,
regardless of whether a charge is actually made for the service (e.g., free
under warranty or similar arrangement).
Articles exported to be tested only and not altered or repaired may be
reimported under the provisions noted in the Canadian Harmonized System
headings 9813.00.00 and 9814.00.00.
NAFTA provides that by 1998, all goods returned to Canada after repair or
alteration in the United States or Mexico will re-enter duty free.
Antidumping and Countervailing Duties
The United States and Canada apply national antidumping (AD) and
countervailing (CVD) laws to goods imported from the other country.
Canada's Special Import Measures Act (SIMA) is designed to comply with the
International Antidumping Code negotiated under the auspices of the General
Agreement on Tariffs and Trade (GATT). Under the Act, two conditions must
exist before an antidumping duty may be levied:
(1) the goods must be dumped, i.e., sold for export for less than is
normally charged in the home market, or sold below their full or total costs;
(2) the dumping of the goods have caused or threaten to cause
material injury to Canadian producers, of like goods, or materially retard
the establishment of new production in Canada.
As a signatory to the GATT Subsidies Code, Canada may impose countervailing
duties on imports which have benefitted from foreign subsidies and which
cause or threaten to cause material injury to domestic production. Before a
countervailing duty can be levied, two conditions must be established:
(1) financial and other commercial benefits for subsidies have the
effect of lowering the price of goods imported into Canada; and
(2) the subsidized imports are causing or threating to cause injury to
the production of like goods in Canada, or materially retard the
establishment of new production in Canada.
Under the CFTA, each country continues to apply their own AD/CVD laws to
goods imported from the partner country. When requested, final
determinations are reviewed by a binational panel in place of court review.
The panels must apply national laws in rendering their decisions.
In the United States, the Department of Commerce's Import Administration
makes dumping or subsidy determinations in AD/CVD investigations and reviews
of AD/CVD orders. The U.S. International Trade Commission makes final
determinations in AD/CVD investigations as to whether a U.S. industry has
been injured or is threatened with injury.
The Antidumping and Countervailing Division, Revenue Canada, Customs and
Excise, makes dumping and subsidy determinations in AD/CVD investigations
and reviews AD/CVD injury findings. The Canadian International Trade
Tribunal determines whether Canadian producers of like goods have been or
will be injured by the dumped or subsidized goods. The Tribunal also
determines if new Canadian production has been materially retarded by the
presence of dumped or subsidized goods.
Customs Valuation For Duty
Canada has acceded to the GATT Customs Valuation Code which provides that
the customs value of imported goods shall be the transaction value, i.e.,
the price actually paid or payable for the goods. Under the transaction
value system, the value for duty is the total payment for the goods made by
the buyer to the seller.
The transaction value generally will be accepted by Canada Customs if the
goods are sold for export to Canada and if the price paid or payable for the
goods can be determined. Under the transaction valuation system, the value
for duty of imported goods will normally be determined from data submitted
by the importer. However, preparation of proper documentation by the
exporter significantly contributes to expeditious entry. (See Export
Documentation on page 16).
Restrictions On Transaction Value
The transaction value will be rejected where:
restrictions are placed on the use or disposition of the goods
(other than restrictions required by law) that limit the geographical area
in which the goods may be resold or that substantially affect the value of
the goods;
conditions are placed on the sale of the goods or the price paid
or payable for the goods for which a value cannot be determined;
the payment is made by the purchaser to the vendor for
subsequent release, disposal, or use of the goods for which a value cannot
be determined; and/or
the vendor and purchaser are related and the relationship has
influenced the price paid or payable for the goods.
Related Party Transactions
If the vendor and purchaser are related, the transaction value can be used
provided the importer can demonstrate that the relationship has not
influenced the price paid or payable for the goods. If the relationship has
influenced the price for the goods, one of the following methods of
valuation would be used. (The methods are listed in the order in which they
must be considered. For example, the second method is considered only if
the first method cannot be used.)
1. Transaction Value of Identical Goods
2. Transaction Value of Similar Goods
3. Deductive Value of the Goods
4. Computed Value of the Goods. (At importer's request the order
of the Deductive and Computed Value Method can be reversed.)
5. Residual Value Method
CUSTOMS INFORMATION
Contact Canada Customs and Excise for detailed information and technical
assistance on valuation for duty purposes, classification rulings,
documentation, custom's review process, and other customs issues. See Annex
I, List of Contacts for addresses and telephone numbers.
Leased Machinery
For machinery and equipment marketed in the country of export on a lease
basis, the value for duty is determined on a case by case basis, depending
on the facts surrounding the particular case.
Other-Than-Prime-Quality Goods
The value for duty on used goods is determined on a case by case basis.
When used goods are sold for export and meet all requirements of the
transaction value method, then that is the method used. If the requirements
of the transaction value method are not met, subsequent methods are to be
used.
Adjustments to Price
The transaction value is calculated by determining the price paid or payable
for a good including all direct and indirect payments for the vendor's
benefit. Certain adjustments are to be made. These include the following
additions, if applicable and not already included in the aforementioned
transaction value:
commissions except buying commissions;
domestic and export packing costs;
the value of "assists" (i.e., goods or services supplied free of
charge or at a reduced cost by the purchaser for use in connection with the
production and sale for export of the imported goods);
royalty and license fee payments that are in respect of the
goods and are a condition of sale of the goods for export to Canada;
(However, payments made for the right to reproduce the goods in Canada are
not to be included.)
subsequent proceeds, accruing to the vendor; and
transportation, insurance, and associated costs up to and at the
point of direct shipment.
The following amounts are to be deducted in determining the transaction
value to the extent that they are included in the price paid or payable for
the imported goods:
transportation, insurance, and associated costs from the point
of direct shipment;
construction, erection/assembly costs, etc. after importation;
and
import duties and taxes.
Any costs, charges, or expenses incurred in shipping goods from the place of
direct shipment in the country of exportation to the delivery destination in
Canada are not to be included as part of the transaction value. The
following costs, charges, and expenses would be excluded from the price paid
or payable:
the cost of transportation;
loading, unloading, and handling charges;
other charges and expenses associated with transportation; and
the cost of insurance relating to transportation.
Discounts
Under the transaction valuation system, all discounts which are earned at
the time of entry may be deducted from the transaction value.
If the conditions of the discount are not met or earned at the time of
entry, the discount may not be deducted from the transaction value. The
exception to this is cash discounts. If an importer knows that he will take
advantage of the cash discount, it may be deducted from the transaction
value.
Currency of Sale
The value for duty is based on the price paid or payable for the goods. If
the vendor charges the purchaser of the goods in Canadian funds, that amount
can be shown on the Customs Invoice.
When the sale is made in U.S. dollars the selling price should be stated in
that currency. The value for duty purposes of the goods shall be converted
into Canadian currency based on the exchange rate on the date of direct
shipment.
National Customs Rulings
Canada Customs will give Canadian importers binding determinations of tariff
classification, origin, and value for duty prior to shipment of the
products. The National Customs Ruling (NCR) is given at the request of an
importer or importer's agent and is binding upon Revenue Canada Customs and
Excise and the importer.
In general, requests for NCR's must be submitted in writing by the importer
and contain a complete statement of all relevant information. In making the
request for an NCR, the importer may need the following kinds of information
from the U.S. exporter depending on the nature of the ruling.
Request for Tariff Classification
A full description of the goods, the manufacturing process, and the
use of the goods;
The manufacturer's literature or schematics for the goods; and
A sample to permit proper testing.
Request for Value Duty
Documentation to establish the value of the goods, including but
not limited to commercial invoices, contracts of sale, warranty agreements,
letters of credit.
Request of Origin Determination
An origin determination questionaire filled out by the product's
manufacturer (copies of these questionnaires are available from any Customs
Regional Office);
All the information required for tariff classification above.
For further information contact Canada Customs and Excise, Tariff Programs
Appraisal (See Annex I, List of Contacts).
Customs Clearance
Method of Duty Payment
Payment of import duty is normally the responsibility of the Canadian
importer. Except for mailed advertising matter, no means of prepayment by
the U.S. exporting firm is available unless it employs a Canadian customs
broker as a nonresident importer.
Nonresidential Importer
A person outside Canada (a nonresident importer), lacking an agreed sale,
can arrange for the goods to be imported into Canada with the intention of
selling the goods after importation. In this case, the selling price column
of the Canada Customs invoice is to be left blank or marked "N.A." for not
applicable. The value for duty purposes would be based on one of the
methods of valuation. The nonresident would be considered the importer of
record.
If the nonresident importer receives an order from a Canadian customer and
imports the goods into Canada to sell to the customer, the nonresident
importer is the importer of record.
The value for duty purposes would be based on the selling price of the goods
to the Canadian purchaser less appropriate adjustments.
For valuation purposes, the importer is the purchaser resident in Canada at
the time of importation. If no purchaser is resident in Canada (i.e., where
goods are imported on consignment but not sold before importation), the
consignee shall be deemed the importer. The selling price column of the
Canada Customs invoice is to be left blank or marked "N.A." for not
applicable. The value for duty will be the price to the consignee where
possible. If final sale has not been made at the time of importation, the
importer will be required to assess a value under one of the five methods
provided under Canadian Customs regulations.
Direct Shipment
The Customs Act states that where goods are exported to Canada from any
country, the goods shall be deemed to be shipped directly to Canada from the
first mentioned country. The place of direct shipment (subject to
prescribed terms and conditions) will be considered to be the originating
country.
In such cases, the bill of lading for the transportation of goods must show
the ultimate destination of goods from the place of original shipment. The
original bill of lading, or certified copies thereof, must be filed with the
Customs entry.
Indirect Shipments
For Customs purposes, the place of direct shipment is that place from which
the goods begin their direct and uninterrupted journey to Canada. The
journey may be broken only for purposes of trans-shipment. Trans-shipment
occurs only when the transport of goods has been interrupted solely for the
purpose of transferring the goods to a subsequent conveyance so that the
goods can continue their journey to their final destination.
Warehousing and Free Ports
Goods may be cleared at customs ports on the border or if intended for
inland destinations, may be forwarded in bonded carriers to the port city
nearest to the destination at which customs examination may be made and
duties and taxes paid.
Canada has no free ports or free trade zones. Sufferance warehouses under
private ownership have been established for the storage and deposit of all
imports received by various transportation modes, pending customs
examination and clearance. An entry for consumption or into a bonded
warehouse must be presented to Customs within 30 days.
Goods may be entered into customs bonded warehouses without the payment of
duty but must be cleared either for export or for Canadian consumption
within two years. Additional periods are provided for certain goods by
regulation.
Goods taken from bonded warehouses for consumption are dutiable at the rates
of the Customs Tariff then in effect, and the value for duty purposes is the
value at the time of entry for warehousing. Goods exported from bonded
warehouses to third countries are subject to Canadian export regulations.
Repacking and sorting can be carried out in customs bonded warehouses with
the permission of Canada Customs, but assembly or other industrial activity
is prohibited.
Customs Review Process
A determination of the tariff classification and/or value appraisal of the
goods made within 30 days after accounting of the goods is final and
conclusive (Section 58 determination). A written request to the Tariff
Values Admini-strator by the importer for a redetermination/ reappraisal can
be made within 90 days (or within two years where the Minister deems
advisable) of the Section 58 determination. The prescribed form must be
filed at the port of entry within the 90 day period, and an appeal must be
filed on each entry.
Further appeals can be made to the Deputy Minister, the Canadian
International Trade Tribunal, and the Federal Court (on a point of law).
Refund of Duties
Form B2R is used by an importer to request a refund of duties. Reasons for
such requests include: clerical errors on the customer's invoice, error in
exchange rate, and damage to goods in transit. Application must be made
within two years of the date of entry.
Export Documentation
Canada Customs Invoice
A properly completed Canada Customs Invoice or its equivilant is required
for all commercial shipments valued over C$1200 to Canada. Documentation
accompanying all commercial shipments valued over C$1200 entering Canada is
required to contain all of the information listed on the Canada Customs
Invoice. This information requirement can be met by providing, in English
and/or French, one of the following:
A commercial invoice prepared by any means (typed, handwritten,
telex, or computer prepared). The invoice must indicate the buyer and
seller of the goods and the price paid or payable, and must provide an
adequate description, including quantity of the goods contained in the
shipment, together with the remaining data listed on the Canada Customs
Invoice.
A fully completed Canada Customs Invoice. (See Annex III, for a
sample of the Canada Customs Invoice and instructions for completing the
document.)
Freight Allowances
Exporters are required to show the amount of any freight prepaid and the
amount of any freight allowance made by the exporter to the purchaser in
Canada on the Canadian Customs Invoice.
In some cases, the amount of the freight allowance may be unknown when
invoicing. In such cases, the exporter should clearly indicate that the
invoice value is subject to a freight allowance. The importer may show the
amount on the invoice.
Exporting By Mail
A copy of the invoice should be included with shipments sent by mail;
additional copies should be forwarded under separate cover to the
consignee. An accurate and detailed customs declaration, which references
HS tariff codes and any tariff treatment (e.g. CFTA) claimed by the
importer, will facilitate the processing and clearance of mail shipments.
The addressee's purchase order number and shipper's order number should be
on the address label and on all copies of the invoice to identify the
shipment.
THE EXPORT PROCESS
1) Exporter prepares invoice, and
2) Carrier transports shipment;
CFTA Certificate of Origin (if goods
reports shipment to
are eligible for preferential
Canada Customs
tariff treatment)
3) Importer submits minimum
4) Importer submits detailed
documentation; Customs authorizes
documentation on shipment;
release of shipment to importer
pays duties, GST
5) Canada Customs audits/verifies paper
work for accuracy and completeness
Country of Origin
For general customs purposes, each manufactured article listed on the
invoice must have been finished in the country specified as the country of
origin. The country of origin of invoiced goods is the country where the
goods are grown, produced, or manufactured.
Operations such as packaging, splitting, and sorting may not be considered
as sufficient operations to confer origin. Each manufactured article on the
invoice in its present form, ready for export to Canada, must have been
substantially transformed so as to meet the applicable rules-of-origin in
the country of origin.
In cases where the exporter does not reside in the country of origin from
which the goods are shipped directly to Canada or, for other reasons, is
unable to certify on the invoice as to the origin of the goods, a separate
invoice, signed by the suppler in the country of origin from which the goods
are shipped directly, must be supplied. Such invoice must bear a full
description of the goods and the marks and number of the packages so that it
may be identified with the shipment.
If reasonable efforts to obtain a separate invoice are unsuccessful, any
other documentation indicating the country of origin, such as an order for
the goods, a certificate of origin (for non-
CFTA preferential tariff treatment), or bills of lading, may be presented as
proof of origin. The non-CFTA certificate of origin must be issued by a
competent body, such as a board of trade or chamber of commerce, in the
country of origin from which goods are shipped directly to Canada.
SPECIAL NOTE
This section "Country of Origin" does not describe the process to be used to
determine country of origin for the U.S.-Canada Free Trade Agreement. (See
"CFTA Rules-of-Origin," for a full discussion of the CFTA process.)
CFTA CUSTOMS PROCEDURES
Claiming the CFTA Tariff
Under the CFTA, U.S. and Canadian tariffs are being phased out on qualifying
goods. The importer claims the CFTA tariff, but the exporter is responsible
for determining whether his/her products qualify (i.e. meet the appropriate
CFTA rule-of-origin). If the goods qualify, the exporter must complete a
CFTA Exporter's Certificate of Origin and send it to the importer in order
to claim the preferential tariff. (If the Certificate is not available, the
MFN tariff will be applied.) The certificate must be completed accurately
to avoid penalties.
The following steps can be taken to determine eligibility for the CFTA
tariff and to complete the Exporter's Certificate of Origin.
I. Obtain the HS number for the product to be exported. HS numbers
(sometimes called the Schedule B numbers) can be obtained from customs
brokers, freight forwarders, local U.S. Customs offices, or from Canada
Customs. (See Annex I, List of Contacts.)
II. Determine the Canadian Tariff rate (both the most-favored-nation (MFN)
rate and the United States Tariff rate under the CFTA) by calling the U.S.
Department of Commerce, Office of Canada or Canada Customs.
a. If the MFN duty rate is free, the Exporter's Certificate of Origin is
not required.
b. If the CFTA rate is lower than the MFN rate, the exporter must
determine if the exported product meets the specific rule-of-origin for that
HS Number. If the product meets the rule-of-origin, the product "qualifies."
III. If the product does not qualify, the Exporter's Certificate of Origin
is not to be completed, because the product is subject to the MFN rate.
IV. If the product qualifies, the exporter must complete the CFTA
Exporter's Certificate of Origin to obtain the preferential CFTA tariff
rate.
Claiming the CFTA Tariff
CFTA Rules-Of-Origin
One of the primary benefits of the CFTA is the removal of tariffs on
U.S.-Canada trade. To ensure that this benefit accrues only to U.S. and
Canadian manufacturers, the CFTA contains rules-of-origin to determine the
origin of a good.
The CFTA rules-of-origin are based on the principle of substantial
transformation which ensures that processing that is physically and
commercially significant takes place in the United States or Canada before
such goods can benefit from the CFTA tariff preference. NAFTA significantly
clarifies and improves the CFTA rules-of-origin.
Summary of the Rules-of-Origin
An exported product wholly produced in either the United States and/or
Canada qualifies for the CFTA tariff. An exported product (identified by HS
number), containing any imported raw material or component, must qualify on
the basis of the specific CFTA rule-of-origin which applies to the exported
good.
The rules-of-origin can be summarized as follows:
Goods wholly produced in either the United States or Canada. This
category has NO tolerance for ANY components or ingredients from a third
country. This category usually applies to goods harvested in the United
States or Canada, mineral goods extracted in the United States or Canada,
and like goods.
For goods that contain imported materials, the imported products must
be changed in ways that are physically and commercially significant before
being exported to the partner country. Physically and commercially
significant processing is identified by changes in HS tariff classification
required by the specific rules-of-origin.
In some cases, products must meet a change in tariff classification
rule plus at least 50 percent of the value of originating materials plus the
direct cost of processing must be U.S. and/or Canadian.
In some cases where no change in tariff classification is possible
between the exported product and the imported materials, the specific
rule-of-origin requires at least 50 percent of the value of originating
materials, plus the direct cost of processing must be U.S. and/or Canadian.
For detailed customs information, obtain:
"U.S.-Canada Free Trade Agreement:
Guide to Exporting Procedures"
Complete legal text of rules-of-origin.
Help on using the rules.
Instructions for completing the Exporter's Certificate of Origin.
Samples of completed Certificates.
Order Number: PB92-145929, $19.50
NTIS
5285 Port Royal Road
Springfield, Virginia 22161
Tel: (703) 487-4650
Temporary Imports
All goods entering Canada are subject to a Customs assessment with some
exceptions.
Personal Baggage
Personal baggage may be brought into Canada duty and tax free, provided the
items are declared to Customs on arrival and are not subject to
restriction. Personal baggage may include tape recorders, typewriters,
personal computers, dictating and calculating machines, and similar items
for personal use. Tools and repair equipment are not admissible as personal
baggage and are subject to Customs assessment in most cases.
In most cases, personal baggage is received without any control
documentation or requirements. At the discretion of the examining Customs
inspector, a Temporary Admission Permit Form E29B may be issued to document
the entry of a vehicle or tools into Canada to facilitate their
re-exportation on termination of the stay in Canada. A refundable deposit
will be required in these cases.
Security may be posted in the form of cash, certified check, or a bond
acceptable to Canada Customs. Checks are to be payable to the Regional
Collector of Customs and Excise in Canadian funds. U.S. currency and
travellers checks may be accepted. The amount will be adjusted to reflect
the prevailing exchange rate.
Display Goods
Display goods classified under Harmonized System (HS) tariff number
9819.00.00 may be temporarily imported free of duties and taxes. Display
goods are products which are intended for display including those products
that form part of the entire display such as stands, tables, backdrops,
decorations, display booths, tents, and other housings or coverings. The
length of time that the goods are in Canada must not exceed 180 consecutive
days from the time the goods are imported.
A brochure, "A Guide to Canada Customs for Meetings, Conventions,
Exhibitions and Trade Shows of American Organizations," available from
Tourism Canada, outlines entry requirements for all material brought into
Canada for business meetings and conferences. The publication may be
obtained from: Tourism Canada, 235 Queen Street, Ottawa, Ontario, Canada
K1A 0H6; Telephone: (613) 954-3982.
More detailed information on temporary entry in Canada is contained in
"Temporary Importation Provisions for Canada." (See Annex III, List of
Publications.)
A.T.A. Carnet
The purpose of the A.T.A. (Admission Temporaire-Temporary Admission) carnet
is to facilitate the temporary admission of certain goods. With an A.T.A.
carnet, payment of duties and taxes is guaranteed and no other security is
required by Canada Customs. The goods, however, must qualify for admission
under the temporary importation legislation currently being applied by
Canada Customs.
Goods intended for processing or repairs are not allowed entry on a carnet.
A carnet is valid for a maximum period of one year and cannot be extended or
renewed.
U.S. business persons can purchase carnets prior to departure. An issuing
fee of $120 and up is charged based on the value of the goods covered. To
secure a carnet, the exporter must provide an itemized list of merchandise
and security in the amount of 40 percent of the total value of the
merchandise listed. Payment may be in the form of a certified check, an
insurance bond, or a bank letter-of-credit. Carnets can be obtained from
the U.S. Council for International Business. (See Annex I, List of
Contacts.)
The carnet document must be validated by U.S. Customs prior to the departure
of the goods from the United States.
Prohibited, Restricted, Controlled Goods
Most imports from the United States are free from Canadian import
restrictions. However, under the Canadian Customs Tariff certain
commodities cannot be imported, including oleomargarine, reprints of
Canadian copyrighted work, and some game birds.
Other goods are controlled, regulated, or prohibited under other government
departments' legislation. Examples of regulated goods include: food
products, clothing, drug and medical devices, hazardous products, some
offensive weapons and firearms, endangered species, and motor vehicles.
Under the CFTA, motor vehicles imported from the United States are no longer
subject to the Customs' used vehicle prohibition. A list of qualified
automobiles can be obtained from Transport Canada, Vehicle Importation. (See
Annex I, List of Contacts.)
All importations of motor vehicles are subject to the requirements of the
Motor Vehicle Safety Act. Information regarding these requirements may be
obtained by contacting Transport Canada, Road Safety and Motor Vehicles.
(See Annex I, List of Contacts.)
Some items are regulated under the Export and Import Permits Act and require
an import permit or certificate to be eligible for importation into Canada.
The Act lists various agricultural products, such as poultry and certain
dairy products, a number of textile and clothing items, and certain steel
products. Goods originating in Haiti, Yugo-slavia, Iraq, and certain goods
from South Africa cannot be imported. Questions concerning the issuance of
import permits or certificates and quota allocations should be directed to
the De-partment of External Affairs, Export and Import Permits Bureau (see
Annex I, List of Contacts).
Labeling And Packaging Requirements
Canada requires bilingual labeling (French and English) for most products.
In general, all products and product literature sold in Quebec must be
clearly marked in French.
Consumer Packaging and Labeling
Bilingual designation of the generic name on most prepackaged consumer
products is required by the federal Consumer Packaging and Labeling Act.
Under the act the following information must appear on the label of a
consumer good sold in Canada:
The Product Identity Declaration describes a product's common or
generic name, or its function. The declaration must be in both English and
French.
The Net Quantity Declaration should be expressed in metric units of
volume, when the product is a liquid, gas, or is viscous; or in metric units
of weight, when the product is solid; or by numerical count. Net quantity
may be expressed in other established trade terms.
The Dealer's Name and Principal Place of Business where the
pre-packaged product was manufactured or produced for resale. In general, a
name and address sufficient for postal delivery is acceptable. The
decla-ration should be in both English and French.
Questions concerning the Act and subsequent regulations may be directed to
Consumer and Corporate Affairs Canada, Consumer Products Branch. (See Annex
I, List of Contacts.)
Quebec French Labeling Requirements
The Province of Quebec requires that all pro-ducts sold in that province be
labeled in French and that the use of French must be given equal prominence
with other languages on any packages or containers sold in Quebec stores.
The Charter of the French Language requires the use of French on product
labeling, warranty certificates, directions for use, public signs, and
written advertising. Questions should be directed to the Office de la
Langue Francaise, Public Relations Service. (See Annex I, List of Contacts.)
Country of Origin Marking
Canada Customs requires an indication of the country of origin, such as
"Made in the U.S.A.," on several classes of imported goods and on all
printed matter. Goods not properly marked cannot be released from Customs
until suitably marked. The goods can be marked, at the importer's expense,
either on Canada Customs premises or on the importer's own premises under
the supervision of Canada Customs. For further information on country of
origin marking requirements contact: Canada Customs and Excise,
International Programs Division. (See Annex I, List of Contacts.)
NAFTA makes substantial changes to Canada's marking requirements.
Weights and Measures
Canadian regulations require that declarations of net content of all
packaged consumer goods be stated in metric units in both English and
French, although British or imperial units may also be shown.
Most products may be packaged in random English measure size containers with
the metric equivalents expressed on the label. However, specified
metrically dimensioned packaging is required for some products, chiefly
foods, per-sonal care products, and detergents. Tooth-paste, for example,
may be marketed only in the following authorized sizes: 25, 50, 75, 100,
125, or 150 ml and in increments of 50 ml beyond 150 ml.
Labeling Legislation
Three Canadian laws regulate product labeling and marking. Information on
these laws can be obtained from Consumer and Corporate Affairs Canada, and
Agriculture Canada (See Annex I, List of Contacts).
Consumer Packaging and Labeling Act
Weights and Measures Act
Agricultural Product Standards Act
Guidelines for Environmental Claims
Under Canada's Consumer Packaging and Labeling Act and its Competition Act,
environmental claims and representations concerning consumer products are to
provide accurate and relevant information which allow comparisons to be made
between products. Accordingly, the Canadian Government agency charged with
overseeing product labeling, Consumer and Corporate Affairs Canada, has
released a set of guiding principles governing the use of environmental
labelling and advertising. Some of the guidelines concerning environmental
claims are summarized in Annex V, Environmental Guidelines.
Industry is responsible for ensuring that any environmental claims are
accurate and are in compliance with relevant legislation. In general,
environmental claims that are ambiguous, vague, incomplete, misleading, or
irrelevant and that cannot be substantiated through credible information
and/or test methods should not be used. In all cases, environmental claims
should indicate whether they are related to the product itself or to the
product's packaging materials.
American firms seeking information or clarification of the regulations
governing environmental claims should contact Consumer and Corporate Affairs
Canada, regional offices. (See Annex I, List of Contacts.)
Product Standards
Canada's standards are not identical to those in the United States. This
does not mean that Canadian standards are more or less stringent than those
in the United States, merely that they are different. Like the U.S.
Government, the Canadian government is concerned with protecting its
citizens from faulty or unsafe products. However, in delineating the precise
technical specifications that are required to ensure that safety, the two
countries often use slightly different standards.
Under the aegis of the Standards Council of Canada(SCC), several private
standards-writing organizations administer technical codes and standards for
areas ranging from electrical and plumbing products to health care
technology. These organizations include: the Canadian General Standards
Association, Underwriter's Laboratories of Canada, the Canadian General
Standards Board, and the Canadian Gas Association. The Canadian federal
government also has numerous commodity standards to safeguard the public
welfare. The standards organizations try to avoid duplication of
responsibility, but there is some overlap.
U.S. manufacturers and exporters should determine what standards are
applicable to their products. If certification is required, it generally
must be obtained before the goods are imported into Canada. The process can
be time-consuming, therefore certification should one of the first steps
taken in establishing an export market in Canada.
Information on which standards or organization(s) administer standards
applicable to the firm's product can be obtained from the Standards Council
of Canada (see Annex I, List of Contacts).
Standards and the CFTA
Legitimate public policy objectives (i.e. protection of human, animal, or
plant life or health; preservation of the environment; and protection of
essential security interests) necessitate technical regulations and
standards. Since the purpose of technical standards is to promote safety,
not discourage trade, both the U.S. and Canadian governments sought to
minimize the trade distorting effects of standards in the CFTA.
The basic CFTA rule is simple: standards must not create unnecessary
barriers to trade. To reduce such barriers, the CFTA applies basic
principles to bilateral trade: (1) testing facilities and certification
bodies are treated in a nondiscriminatory manner; (2) federal standards
related measures will be harmonized to the greatest extent possible; and (3)
greater openness will be provided in the regulatory process.
Greater standards compatibility removes structural barriers to the Canadian
and U.S. markets and increases the competitiveness of U.S. and Canadian
manufactures. Significant progress toward greater compatibility between
U.S. and Canadian technical standards is taking place under the aegis of the
CFTA.
Standards organizations in the United States and Canada continue to work
cooperatively in the development of joint standards and have made progress
in several areas. For example, the Air Conditioning and Refrigeration
Institute (ARI) and the CSA have harmonized performance standards for air
conditioners and heat pumps, packaged water chillers, and water-source heat
pumps. Underwriters Laboratories (UL) and CSA have established common
electrical safety standards for air conditioners, heat pumps, and
refrigerant motor-compressors.
During 1992, two U.S. testing and certification organizations, UL and the
American Plywood Association (APA), received accreditation in Canada. Also
in 1992, CSA was officially recognized by the U.S. Occupational Safety and
Health Administration (OSHA) as a Nationally Recognized Testing Laboratory.
SCC and OSHA accreditations mean that U.S. manufacturers can gain product
approval for both the United States and Canada from one source, thereby
eliminating the time and expense of pursing separate certification for each
market. Several other U.S. testing and certification organizations have
accreditation applications pending before SCC.
Standards & NAFTA
The NAFTA strengthens CFTA technical standards obligations; expands coverage
to include Mexico; sets up a committee on standards-related measures;
establishes an Automotive Standards Council; identifies specific products
for standards harmonization efforts through the creation of subcommittees on
land transportation and telecommunications standards, and on labelling of
textiles and apparel goods.
CHAPTER III
SELLING SERVICES TO CANADA
The service sector is a large and growing contributor to U.S. economic
growth and job creation and is gaining prominence in international trade.
The United States is the world's leading exporter of services with
competitive telecommunications, aerospace, financial, software, and
entertainment industries. Trade in services is the fastest growing part of
the U.S.-Canada commercial relationship, totaling an estimated $26.4 billion
in 1992.
Canada's $285 billion services market is both highly competitive and
potentially lucrative for U.S. business and professional services providers
who can offer expertise, experience, and flexibility to customer needs.
U.S. firms may trade services directly such as through the sale of a
computer software program or indirectly as an input into the production of
goods. For example, design and engineering services are major components of
many large capital goods like aircraft engines and mass transportation
systems. Hence, many U.S. firms may not be aware that they already export
to Canada. Removal of tariffs under the CFTA will continue to spur U.S.
exports to Canada, increasing the demand for services which support the
production, sale, and distribution of goods.
Services encompass a wide range of disparate business activities ranging
from architecture and engineering to business related services such as
advertising, franchising, and management consulting. Canadian laws,
regulations, and market considerations vary depending upon the services
being sold. As a general rule, few federal regulations govern the sale of
services in Canada; most businesses and professional services are regulated
at the provincial level. In some instances, unless a U.S. professional,
such as an accountant or engineer, is licensed to practice in a particular
province, U.S. providers may need a Canadian partner to do business.
Specific information on provincial licensing and certification requirements
can be obtained from Canadian Provincial Ministries. (See Annex I, List of
Contacts.)
Services Under the CFTA and NAFTA
The CFTA guarantees U.S. companies the right to provide services in over 150
service sectors on a non-discriminatory basis. NAFTA goes beyond the CFTA
by ensuring U.S. firms non-discriminatory access to virtually all service
sectors, vastly improving accessibility to the Canadian service market.
NAFTA also will eliminate existing federal barriers and remove citizenship
or permanent residency requirements for licensing of professional service
providers. Under the CFTA (and NAFTA) services trade is governed by a
comprehensive set of principles:
National treatment--assures U.S. service provides the same
treatment in Canada that Canadian providers receive. At the provincial and
local level, national treatment means the best treatment given to any
domestic service provider.
Most-favored Nation Treatment--assures U.S. service providers that
they will receive treatment equivalent to the best treatment offered by
Canada to service providers of any other country.
Prohibition on Local Presence Requirements--assures that service
providers will not be forced to establish a local presence before they may
provide a service.
These principles grant CFTA/NAFTA service providers equal treatment and
allow them to choose their preferred method of serving a market by
eliminating requirements for service firms to establish local companies in
order to do business. As a result, U.S. firms may provide services on site
in Canada or from their U.S.-based location.
Citizenship Requirements
Under NAFTA, the United States, Canada, and Mexico agreed to eliminate all
citizenship requirements-including permanent residency (as defined by the
Immigration and Naturalization Services) -- affecting the licensing and
practice of professions within two years of entry into force of the
Agreement. "Professionals" are defined narrowly in the Agreement to include
only those professions requiring post-secondary education and experience,
e.g. lawyers, accountants, doctors, nurses, engineers. In the United
States, most citizenship requirements are enacted at the state level.
The CFTA and NAFTA do not remove the need to comply with other relevant
laws, regulations, or professional standards associated with offering a
particular service. For instance, professionals as defined above must
obtain the appropriate license or certification necessary to practice their
trade in a given locale.
Mutual Recognition of Professional Standards
Both the CFTA and NAFTA encourage mutual recognition of professional
standards and criteria for licensing and conduct of professionals. U.S.
architects are the first professional services sector to successfully
complete reciprocity negotiations with their Canadian counterparts under the
CFTA.
In 1992, the two umbrella organizations responsible for overseeing
architectural regulatory matters in the United States and Canada, the
National Council of Architectural Registration Boards (NCARB) and the
Committee of Canadian Architectural Councils (CCAC), ratified a system
through which qualified architects from each country can be registered to
practice in the other.
The procedures, criteria, and standards established by the two regulatory
authorities have been endorsed by both countries professional organizations,
the American Institute of Architects and the Royal Architectural Institute
of Canada. Under the agreement, NCARB and CCAC accept each organization's
education, training, and examination standards as equivalent.
Once in place, the new reciprocity system will make "across the border"
registration possible. NCARB will act as a clearinghouse for architects
seeking registration in either country. If an architect's qualifications
meet the jointly agreed criteria, NCARB will issue a certificate which then
forms the basis for registration in the other country.
Several other professions have undertaken similar initiatives. For
instance, U.S. and Canadian Consulting Engineers have concluded a Memorandum
of Understanding between their respective regulatory and professional bodies
to exchange information concerning education and accreditation requirements,
codes of professional ethics and conduct, and other relevant practices which
could affect the cross border movement of engineers. In addition, the
American Institute of Certified Public Accountants, the Canadian Institute
of Chartered Accountants,and the National Association of State Boards of
Accountancy have developed principles for reciprocity as a basis for future
discussions toward a mutual recognition agreement.
The U.S. and Canadian governments encourage private sector efforts to
develop and adopt mutual recognition agreements that grant reciprocal market
access to professional service providers. Both governments will continue to
offer assistance in developing such agreements as well as work to ensure
their effective implementation with state and provincial governments. Under
NAFTA, U.S. and Canadian officials will work closely with the states and
provinces to remove citizenship requirements affecting professional services.
Taxation of Services
Most services produced or consumed in Canada are subject to the GST. Just
as the GST is assessed on imported goods, services that are purchased
outside Canada but imported and consumed in Canada are subject to taxation.
However, assessment and collection of the GST differs substantially from
that of goods.
As a general rule, the Canadian customer is responsible for collecting and
remitting GST on an imported service. Only in limited circumstances do U.S.
exporters need to assess or collect GST on the sale of services to Canada.
Two factors determine whether U.S. exporters need be concerned with GST: (1)
the use of the imported service and (2) the customer's registration status.
If the Canadian customer is not registered with Revenue Canada to collect
GST, or does not import the service for use exclusively in a commercial
activity, the Canadian customer is required to remit the GST payable on the
value of the service to Revenue Canada. If the Canadian customer is a GST
registrant who imports the service for use exclusively in a commercial
activity, no GST is payable on the service. The U.S. exporter is not
responsible for collecting the GST in either case.
In some cases, for instance, when part of a service is performed in Canada,
the supplier may need to register with Revenue Canada and collect the GST
regardless of the registration status of the customer. For more information
on the tax status of imported services into Canada or to request a copy of
"GST Memorandum 300-9, Imported Services and Intangible Property," contact
the Revenue Canada Excise office in Ottawa (see Annex I, List of Contacts).
Checklist for Marketing Services in Canada
To successfully market a service in Canada, service providers may need to be
familiar with customs regulations, immigration procedures, provincial
licensing requirements, and other factors affecting the smooth delivery of
their service and associated products. For instance, a U.S. management
consulting firm conducting a study for a Canadian company may need to send
personnel across the border to visit the client's location. A tree trimming
company clearing branches from power lines in Canada may need to take it's
specialized equipment into Canada. An appliance repair shop advertising in
Canada must calculate applicable duties and taxes before printing a price
list.
When marketing in Canada, U.S. service providers should consult the
following checklist. (A list of publications identified below can be found
in Annex IV.)
Business Travel: The CFTA provides streamlined entry into Canada for
American business persons engaging in professional activities.
Professionals, such as scientists, accountants, engineers, agriculturists,
lawyers, teachers, hotel managers, and management consultants, must have a
baccalaureate degree or credentials demonstrating their standing as a
professional. Application for Professional status can be made at a Canadian
visa office or at a port-of-entry.
The applicant must present a letter from his/her Canadian or American
employer or other documentation identifying the professional work to be
done, the purpose of entry, and the educational background or credentials
demonstrating professional status. Professional standing may be supported
by licenses, diplomas, degrees, certificates, or membership in professional
organizations. The CFTA provisions covering business travel remain
unchanged by NAFTA. Further Information on business travel for Business
Visitors, Traders and Investors, and Intra-Company Transferees may be found
in the publication, "Border Crossing Procedures Under the United
States-Canada Free Trade Agreement" and on page , Business Travel In Canada.
After-Sales Service Repair: The ability to provide rapid and reliable
after-sales service (installation, warranty, or maintenance) enhances the
competitiveness of many U.S. products. Personnel visiting Canada to provide
after-sales service repair may qualify as a Business Visitor if the repair
is being supplied as a part of the original contract to purchase the goods.
Business Visitors entering Canada to provide after-sales service should
comply with the following Canada Customs guidelines.
The traveler must show copies of the sales agreement and warranty
or service agreement which support the purpose of entry.
The machinery, equipment, or computer software must be purchased
from a seller outside of Canada, and the good must not be a product of
Canada.
The traveler must possess specialized knowledge essential to the
seller's contractural obligation. Hands-on building and construction work
is not considered specialized knowledge.
Installation includes setting-up and testing of the equipment or
software; it does not include site preparation.
Further information is available in the publication "U.S.-Canada Free Trade
Agreement After-Sales Service and Repair Questions and Answers." Canadian
consulates should be consulted on individual cases (see Annex I, List of
Contacts).
Temporary Importation: Many service providers use specialized equipment and
supply products as part of their service. Canada Customs has specific
provisions for the temporary entry of certain goods. Such goods may enter
under an ATA Carnet or under Canada Customs Form E29B and may require either
a refundable deposit or a proportional duty deposit. (See Temporary Imports
on page for more information.) However, some specialized equipment, motor
vehicles, and other goods used in the supply of a service may be assessed
duty and taxes on the full value of the good. Service providers wishing to
take their equipment with them into Canada should contact Canada Customs
before departure to determine applicability of duty and taxes.
NAFTA will allow duty-free entry of tools of the trade and professional
equipment used by services providers who are covered by the business travel
provisions of the Agreement.
Government Procurement: The Canadian Government purchases a wide range of
goods and services. Access to Canadian Government procurements is limited
due to restrictive "buy national" policies of Canadian governments at all
levels. To date, purchases of services, excluding those which are an
incidental part of the purchase of the goods, have been excluded from market
opening agreements such as the General Agreement on Tariffs and Trade (GATT)
Government Procurement Code and the CFTA. NAFTA is the first trade
agreement to open government procurement markets for service providers. If
approved, NAFTA will open certain Canadian federal government procurements
of services valued over $50,000 to free and fair competition between U.S.,
Canadian, and Mexican service providers. Construction contracts let by
specified federal government entities and specified federal Crown
Corporations valued over $6.5 million and $8 million respectively will be
open to U.S., Canadian, and Mexican companies on an equal basis. Additional
information on Canada's government procurement process can be found on page .
Market Opportunities
The following service sectors in Canada are expected to demonstrate high
receptivity to U.S. exports over the next several years.
Construction Services: Canada's construction-related services industry is a
global leader, posting a huge trade surplus and operating all over the
world. However, most Canadian firms are not integrated: architectural
firms rarely have an engineering capability; engineering firms rarely have a
contracting capability.
Federal government construction contracts are contracted through three
purchasing agencies: Public Works Canada, Defense Construction Limited, and
the Department of Indian Affairs and Northern Development (see Annex I, List
of Contacts).
Management Consulting Services: Although Canada maintains rigorous
suggested standards of performance for consultants, certification to
practice in Canada is not required by federal or provincial regulations.
American consultants offering specialized expertise not available in Canada
and knowledgeable about binational issues, should find promising
opportunities in Canada.
American consultants usually operate in Canada through a subsidiary.
Consultants without Canadian offices who cross the border to work may be
disadvantage due to lack of familiarity with local markets.
Advertising Services: Despite the recession, the Canadian advertising
industry grew during the early 1990's and is expected to continue to show
strong growth through 1995. U.S. advertising agencies have been present in
Canada for years, because U.S. agencies have supplied Canadian subsidiaries
of multinational firms with advertising for their English-Canadian as well
as American customers. Many Canadian firms contract for advertising
production in the United States to cut costs and take advantage of technical
sophistication. Good opportunities exist for U.S. advertising agencies
serving small Canadian retailers who are not currently being adequately
served by the Canadian industry.
Franchising: Franchising is an increasingly attractive method of doing
business in Canada, in part because no federal regulations restrict
franchising. Alberta is the only province to have established franchising
legislation which stipulates that the franchise must be registered with the
provincial securities commission. Franchising is still considered to be
relatively new but low-risk method of doing business in Canada. The public
perceives franchising as an unlimited opportunity.
Canada is the dominant foreign market for U.S. franchisers, with 240
franchise firms operating 11,182 franchise units. A large proportion of
franchise units are in convenience restaurants, non-food retail, convenience
and food establishments, automotive products and services, and business
services. The steady growth in the Canadian market for franchises is
expected to continue. According to the Canadian Franchise Association
(CFA), the best franchising prospects are for fast food shops which will
continue to thrive as long as "two income" families are the mode in Canada.
Do it yourself franchises also are expected to do well in the 1990's, as are
franchises that make housekeeping and lawn care chores more convenient.
For more information and assistance on franchising, contact the Canadian
Franchise Association, the Federal Business Development Bank, and/or the
International Franchise Association, a U.S. entity. (See Annex I, List of
Contacts.)
Software: Canada is an excellent market for U.S. software products,
especially customized programs and off-the-shelf, prepackaged software.
Systems integration also is a growing area of opportunity for software and
service providers as Canadian mainframes are converted to accomodate the new
open systems environment.
Computer software programs stored on disks or other tangible medium and
shipped to Canada are duty free but subject to 7% GST on the value of the
program being sold. Software is taxed somewhat differently than other
services due to the fact that it crosses the border in the form of a
tangible good. Hence GST is payable upon entry of the software into
Canada.
In addition to the GST, sales of off-the-shelf, prepackaged software is
subject to a 10% Canadian withholding tax. Canadian customers normally
deduct 10% from the invoice price on a purchase of imported software, remit
this amount to Revenue Canada, and send the remaining payment (90% of the
invoice amount) to the seller.
U.S. exporters should be aware of this practice before making a software
sale to Canada to avoid misunderstandings with their customer about the
amount the seller is owed. U.S. exporters may claim the amount paid to
Revenue Canada on their U.S. corporate income tax return as a Foreign Tax
Credit by filing IRS Form 1118.
The United States and Canada are re-evaluating the status of prepackaged
software sales to determine if these sales should be treated like the sale
of a book, record, or other tangible products (for withholding tax purposes)
rather than a licensed product.
CHAPTER IV
GOVERNMENT PROCUREMENT
The Government of Canada is an important customer for U.S. goods. U.S.
suppliers will find that selling to the Canadian federal government can
result in reliable, well-defined, long-term contracts. The CFTA opened up
many new opportunities in the Canadian government procurement market for
U.S. products.
The CFTA applies to goods purchased by selected agencies of the Canadian
federal government. Purchases by most federal government departments are
covered, with the exception of Transport, Communication, Fisheries and
Oceans. Non-defense products purchased by the Department of National
Defense are covered by the CFTA; defense related acquisitions may or may not
be covered. Local and provincial government purchases are not covered, nor
are service contracts, unless the services represent less than 50 percent of
a proposed procurement for goods.
These restrictions are the same as those which apply to contracts covered by
the General Agreement on Tariffs and Trade (GATT) Government Procurement
Code. The CFTA, however, covers contracts valued from $25,000 to $171,000,
while the GATT Code applies to large-scale contracts over $171,000.
NAFTA extends the CFTA by opening more contracts to U.S. suppliers of goods,
services, and construction contracts.
NAFTA:
includes services and construction above specified dollar values, and
adds new federal entities and crown corporations.
Procurement System
The principle government contractor for goods in Canada is the Department of
Supply and Services Canada (DSS), which acts as the central purchasing agent
for all federal departments and agencies. Public Works Canada (PWC) acts as
the central purchasing agency for construction contracts for most, but not
all, federal entities, and Defense Construction Limited (DCL) handles
projects for the Department of National Defense.
Procurement Information
In 1990, DSS moved to a more open and competitive bid procedure for GATT
Code-and CFTA-covered purchases. Under the new procedures, U.S. companies
no longer need to pre-qualify in order to submit a bid on a GATT Code or
CFTA-covered procurement.
Bidding on CFTA and GATT Code-covered procurement is straightforward, and
U.S. firms generally report few problems with the procedures. The bid
package contains all of the specific information and product specifications
required to submit a bid. Companies requesting bid packages must specify
the procurement of interest by citing the bid solicitation number listed in
the notice.
All proposed procurements, handled by DSS or other government agencies and
subject to the CFTA or GATT Code, are published in Canada's "Government
Business Opportunities" (GBO). The GBO is published daily and contains
information on government tenders and contract awards. Subscriptions for
"Government Business Opportunities" can be obtained from Canada
Communications Group--Publishing. (See Annex I, List of Contacts.)
DSS no longer distributes bid packages to suppliers for open bidding
procurements. Rather, the Open Bidding Service (OBS) is the official
distribution channel for all open bidding procurement notices and bid
solicitation documents valued above $25,000 issued by DSS. OBS is being
expanded to include notices of other federal government departments and
provincial government procurement organizations.
To receive bid packages, suppliers must become subscribers of the OBS.
Because OBS is the only source of bid documents, it is accessible to all
suppliers with or without a computer link.
Procurement notices are available on the OBS the same day they are printed
in the GBO and are maintained in the system until five days before the bid
closing date. OBS offers two access methods; the fee charged for the
service depends on the access method chosen by the subscriber.
1) OBS-Online Service subscribers are linked to the service using a
micro-computer, modem, and telephone line. Direct computer link provides
access to the full directory of current DSS procurement opportunities,
advanced contract award notices, inter-national opportunities, and contract
award notices. Subscribers can automatically request the bid package for
any procure-ment which appears on the OBS screen.
2) OBS-Bid Request Line (OBS-BRL) subscribers do not require computer
linkage with OBS. Rather, subscribers may phone or fax their request for a
bid package to the OBS directly. However, OBS-BRL subscribers must know the
solicitation number (as published in the OBS, GBO, or elsewhere) for the bid
package in order to make a request. BRL operators will not search the
online service to locate a bid package for a subscriber. A document
surcharge is applied to bid packages, clarifications, or update requested
through the OBS-BRL service.
For more information or to subscribe to the service, U.S. suppliers should
contact the OBS-BRL. (See Annex I, List of Contacts.)
Notices of selected contracts covered by the CFTA and procurement subject to
the GATT Code are included in the U.S. Department of Commerce's Trade
Opportunities Program (TOP). TOP leads are distributed electronically via
the U.S. Department of Commerce Electronic Bulletin Board and are printed
daily in leading commercial newspapers, such as the "Journal of Commerce".
TOP leads are also available through the U.S. Department of Commerce
district offices which are located in major cities in the United States.
(See Annex II, List of U.S. Department of Commerce, U.S. and Foreign
Commercial Service District Offices.)
Bidding Hints
The following are essential factors in the bidding process:
Time is critical. Bids are generally open for 40 calendar days after the
publication date. The open time can be shorter in cases of emergency.
Make use of the fax number included in the notice to request bid packages.
Bid package requests by mail can result in delays of up to two weeks for
publication and mailing.
Bidders must be responsive to the product requirements specified in the bid
package. General bids for any procurements of specified products, or simply
sending general product literature, will not be successful.
Price and technicial specifications are key considerations. The Canadian
government is seeking to reduce a large federal budget deficit. Hence,
price matters.
Bid submissions are considered final. On occasion, an opportunity is
provided to negotiate a lower, competitive (best and final) offer.
Additional Information
Further information on selling to the Canadian Government is available in
the pamphlet "Government Procurement Opportunities in Canada." (See Annex
III, List of Publications.)
CHAPTER V
INVESTING IN CANADA
Investment in Canada
U.S. direct investment in Canada in 1991, which totalled an estimated $72.1
billion 1, is higher than in any other country in the world. The United
States is Canada's principal supplier of foreign capital, accounting for
well over half of all foreign direct investment.
Investment is subject to national as well as provincial jurisdiction.
Provincial restrictions on foreign investment differ but are largely
confined to the purchase of land, whether for speculative or agricultural
purposes, and to some financial intermediation. Federal law requires that
all foreign investment transactions be reported to Investment Canada, a
federal government agency.
CFTA Investment Provisions
The CFTA includes the first bilateral investment agreement between the
United States and Canada. The Agreement reduces the screening of U.S.
investments in Canada, eliminates most trade-distorting performance
requirements, and provides security and guarantees for investors in both
countries. The CFTA Investment Chapter assures a more open and secure
environment for foreign investment. Investor rights in both countries are
protected through assurances that new discriminatory barriers to investment
will not be erected. The CFTA provides the stable and predictable business
environment needed to encourage investment by the private sector in order to
realize the full economic gains available from free trade.
Under the CFTA, the threshold for the review of U.S. direct acquisitions
will remain at C$150 million as measured in constant 1992 Canadian dollars
to prevent erosion by inflation. Canada's "cultural" and energy industries
are exempt from these CFTA investment provisions.
Investment Regime
The Canadian government liberalized its foreign investment regime in 1985 by
abolishing the Foreign Investment Review Agency (FIRA) and replacing it with
Investment Canada. During FIRA's ten year existence, all direct foreign
investment was subject to review, and Canadian government approval was not
always easily obtained. Investment Canada, however, actively promotes
Canada as a secure and profitable place to invest.
Investment Canada no longer reviews (and pursuant to the CFTA potentially
blocks) most new "greenfield" foreign investments and has ended reviews of
acquisitions of most smaller and medium-sized businesses. Review of
investments is maintained for certain activities that are related to
Canada's "cultural industries."
These activities are:
the publication, distribution, or sale of books, magazines, periodicals, or
newspapers in print or machine readable form but not including the sole
activity of printing or typesetting any of the foregoing;
the production, distribution, sale, or exhibition of film or video
recordings;
the production, distribution, sale, or exhibition of music recordings;
the publication, distribution, or sale of music in print or
machine-readable form; and
radio communication in which transmissions are intended for direct
reception by the general public; all radio, television, and cable television
broadcasting undertakings; and all satellite programming and broadcast
network services.
Foreign investment in these activities may require review if the Canadian
government orders it within 21 days of the date when a completed notice of
the investment is filed.
For more information about Canadian government regulations on foreign
investment contact Investment Canada. (See Annex I, List of Contacts.)
Business Organization
The choice of the most appropriate form of business organization is
dependent upon individual circumstances. Business is carried on in Canada
in forms similar to those in the United States. Public or private
corporations, partnerships, and sole proprietorships are all familiar forms
of doing business in Canada.
Foreign investors usually prefer to conduct their business in corporate
form. Initial operations are often carried on as a branch of a foreign
entity. However, a branch is not recognized by Canadian Customs as a legal
entity capable of assuming liability for paying duties and importing goods.
This could be a disadvantage in some instances.
Incorporating in Canada
Although the corporate form of organization is often used by foreign
investors in Canada, a foreign corporation is not obligated to incorporate
its operation in Canada.
Corporations can be either federally or provincially incorporated.
Incorporating in Canada is considered to be a relatively simple and
inexpensive procedure and can be accomplished federally under the Canada
Business Corporations Act (CBCA) or under one of the ten provincial
corporations acts. The general requirements are similar for both federal
and provincial incorporation.
Incorporating under the Canada Business Corporations Act permits a company
to do business in all ten provinces, although separate registration to carry
on business is still necessary in most of the provinces. Incorporating
provincially permits a firm to conduct business only in the province where
the incorporation takes place. However, a number of provinces have
reciprocal agreements under which the registration requirement is waived.
The federal and some provincial legislation requires that a certain portion
of companies' directors be Canadian citizens and/or residents of Canada or
the province. A flat fee of C$500 is charged to incorporate federally.
Fees vary among the provinces, depending in some cases on the authorized
capital of the company to be incorporated. About three weeks or less is
generally required to process an application of incorporation once the
requisite documents have been received. Information on incorporating
federally under the Canada Business Corpor-ations Act can be obtained from
Consumer and Corporate Affairs Canada, Corporations Branch. (See Annex I,
List of Contacts.)
Provincial Incorporation
A company incorporated under the laws of one province must take out a
license to do business in each of the other provinces in which it
contemplates carrying on business. An important exception is the reciprocal
arrangement between the Provinces of Ontario and Quebec, whereby licensing
requirements do not apply to a company incorporated in the other province.
The Province of New Brunswick does not require registration of
extra-provincial companies. Information about the documents which must be
submitted when applying for incorporation in one of the provinces may be
obtained from the Canadian Provincial Ministries. (See Annex I, List of
Contacts.)
Companies applying for a provincial charter in Quebec must comply with the
provisions of the Charter of the French Language. (See page Quebec French
Language Requirements.)
Since obtaining a provincial license involves practically as much expense as
incorporating, many American firms prefer to incorporate under federal
procedures. In addition, Canadian profits are more easily segregated in a
local corporation, and the determination of liability for Canadian and U.S.
income taxes is facilitated.
Extra-Provincial Company
Registration as an extra-provincial company is generally required to do
business in each of the Canadian provinces in which a foreign company
establishes an office, shop, warehouse, or branch plant. However, some
provinces define "carrying on business" more broadly than others. A foreign
corporation is required to take out a license and pay a fee in each province
in which it is deemed to be carrying on business.
Whether or not to obtain a license in a Canadian province to do business as
an extra-provincial company rather than to incorporate federally will depend
on the nature, extent, and duration of the anticipated business activities.
For example, where the company's business activities can be conducted
through a small sales office in one province without the necessity of
opening an office in other provinces, registration as an extra-provincial
company may be a suitable method of operation.
Sole Proprietorship
An individual may, subject to various formalities and licenses that may
apply to specific types of activities, create or purchase a business without
the necessity of registering or executing similar legal formalities.
However, Quebec is an exception to this rule. In Quebec an individual must
register if married, to indicate his/her marital status. The owner has the
sole responsibility for the operations in which engaged. In settlement of
obligations, not only business assets but also personal goods and property
may be attached.
Where an individual elects to trade under a business name other than one's
own or to add "and company" or similar words to his/her own, registration is
necessary and involves disclosure of the name, address, and occupation of
the individual concerned.
Partnership
A partnership may be formed under the laws of the several provinces to
conduct commercial, manufacturing, and mining activities, but not banking,
insurance, or any public utility.
The types of partnerships and the general principles relating to the rights
and liabilities of partners are broadly similar to those applying under
English or American law. Partnerships are subject in all the provinces to
registration requirements, which in general involve the filing of a
declaration signed by all the partners. The declaration gives the names and
addresses of each partner, the firm's name, and a description of the
character of the business.
The place of registration varies but is most frequently the registry office
of a county or district court. Before entering into a partnership specific
local requirements should be researched.
Investment Incentives
Most federal and provincial incentives are designed to attract manufacturing
companies to areas of slow economic growth, increase employment, facilitate
research and development, and update plant and equipment. Canadian and
foreign firms are treated alike under most incentive programs.
Financial assistance is available to industry in the form of grants,
forgivable loans, loans at favorable interest rates, loan guarantees, and
loans providing for long-term repayment schedules that accommodate a
company's cash-flow pattern. Non-monetary help--such as statistical
information, advice, support for trade missions abroad, sponsorship of trade
fairs, and various other arrangements for facilitating contacts between
Canadian sellers and foreign buyers--is also available.
Investment Incentives
For listing of investment incentive programs, see "Assistance to Business in
Canada", published by the Federal Business Development Bank. Information is
also available from the Government of Canada, Industry, Science, and
Technology Canada, Business Center. (See Annex I, List of Contacts.)
Quebec French Language Requirements
Firms established or operating in the province of Quebec must comply with
the requirement of Quebec's Charter of the French Language, which made
French the official language of the province.
The Act's provisions of greatest interest to a firm contemplating operations
in Quebec are, the following:
French is the official language of labor relations. Employers must use
French in communications intended for employees, as well as in offers of
employment and promotion.
A company must earn a certificate that it has adopted a program to increase
the use of French in its business.
A company applying for a provincial charter must state its company name in
French, although an unofficial English version may accompany it.
Except for certain specific cases, detailed in the regulations, products
must be labeled in French. (See Quebec French Labeling Requirements.)
A representative from the Office de la Langue Francaise will work with
companies to develop a plan to comply with Quebec's language plans. (See
Annex I, List of Contacts.)
Foreign Ownership of Real Property
Aliens may acquire, hold, and dispose of real and personal property in the
same manner as a Canadian citizen, with certain exceptions. Foreign
investment is restricted in some areas--such as finance, information, media,
transportation (including coastal shipping and aviation), certain types of
commercial fishing, and some kinds of professional activities. Under the
Broadcasting Act, a license to operate a broadcasting station or permission
to operate a network of stations can only be granted to Canadian citizens.
Various provinces have their own regulations in the areas of liquor
distribution and real estate and professional services. Each province sets
its own requirements regarding the ownership of real estate by nonresidents,
including foreigners.
Provincial Real Estate Regulations
Alberta limits the sale of Crown land to Canadian citizens or to
corporations having 75% or more Canadian ownership. However, some small
parcels of land may be sold for commercial and industrial purposes to
persons who are not Canadian citizens or to corporations having less than
75% Canadian ownership.
The province restricts the sale of agricultural and recreational land to
non-Canadians, non-permanent residents, and foreign-controlled
corporations. Such persons and corporations cannot acquire more than two
parcels of controlled land totalling 20 acres. Mineral rights and the land
within the boundaries of cities, towns, villages, and summer villages are
not controlled. Lands transferred pursuant to a will or otherwise on death
are uncontrolled. However, trusts cannot be used to circumvent the
restrictions.
In British Columbia, disposition of provincial Crown lands must be to
persons who are Canadian citizens. Only leasehold interests can be acquired
in lakefront and grazing lands. Other classes of Crown lands can be
obtained on a fee simple basis. No regulations restrict the purchase of
private land.
In Manitoba, disposition of Crown land can be made only to Canadian citizens
resident in Manitoba. The sale of agricultural land is restricted to
persons resident in Manitoba. The province bars nonresidents and foreign
controlled corporations from acquiring more than 20 acres of agricultural
land.
New Brunswick's Crown lands are sold only at public auction and are
generally small isolated lots. No regulations prohibit the sale of private
land to foreigners.
In Newfoundland and Labrador, no regulations restrict the acquisition of
public or private land.
In Nova Scotia, no Crown land is available for sale. No regulations
restrict private land acquisition, but nonresidents must make a declaration
of land holdings to the provincial government.
Ontario does not maintain residency or citizenship restrictions on the sale
or lease of public lands. Ontario has no restrictions on the acquisition of
private land in the province, but different tax rates apply to private land
transfers involving nonresidents.
Prince Edward Island has very little public land for disposition, and sales
to nonresidents, corporate or otherwise, must be approved by the provincial
Cabinet. Sale of land, when available, is advertised by public tender. The
province limits the amount of land that any nonresident (including Canadians
from other provinces) may acquire.
Quebec has no restrictions on the purchase or lease of public lands.
However, certain provincial statutes apply to the transfer of land to
nonresidents. For instance, the Act to Preserve Agricultural Land and the
Act Governing the Acquisition of Farm Land by Nonresidents, require official
approval of purchases of agricultural land by nonresidents.
Saskatchewan has established regulations controlling the sale of farm land
to nonresidents. For example, the province limits forest management license
agreements to companies incorporated under the laws of the province. The
province also limits the amount of agricultural land that may be acquired by
nonresidents of Saskatchewan and by non-agricultural corporations that are
not majority owned by resident farmers.
In the Northwest Territories and the Yukon Territory, no regulations
restrict the sale of federal and private lands to nonresidents. However,
agricultural, recreational, and residential land under the control of the
Commissioner for Yukon Territory may not be sold to nonresidents.
Taxation
Taxes are levied by federal, provincial, territorial,and municipal
authorities. Federal taxes are levied on income and capital gains and
include value-added-taxes, excise and sales taxes, and customs duties.
Federal taxes are imposed under the authority of the Federal Income Tax Act
and related statutes and regulations. Although all the provinces and the
two territories have their own tax legislation, most provincial taxes are
administered and collected by the federal government. The Province of
Quebec, however, administers its own tax system for both individuals and
corporations. Alberta and Ontario have independent corporate tax systems
only, with other taxes collected by the federal government.
Goods and Services Tax
The Canadian government replaced its Federal Sales Tax (FST) with a more
broadly-based Goods and Services Tax (GST) on January 1, 1991. The GST is a
value-added-tax (VAT) similar to those found in most European countries.
The GST, of 7 percent, is imposed on most goods and services consumed in
Canada. The tax is not applied to exports, since they are not destined for
consumption in Canada.
Since the GST is a value-added-tax, manufacturers and businesses in the
distribution chain pay tax only on the value they add to the product or
service. Only the final consumer bears the full effect of the tax. Unlike
consumers, businesses in the production and distribution chain get tax
credits for the GST they paid in the manufacture or acquisition of the
product.
Goods and services exempt from the GST, in addition to exports, are basic
groceries, prescribed medical devices and drugs, most agricultural and fish
products, and certain major purchases by farmers and fishermen. Most
educational services, most financial services (including insurance), health
and dental care services, daycare services, and long-term residential rents,
are also exempt from GST. More information on the GST may be obtained by
contacting Revenue Canada, Excise office (See Annex I, List of Contacts.)
Federal Corporate Income Tax
A corporation resident in Canada is taxed on its income earned both within
and outside of Canada. This includes profits from all business and property
and one-half of capital gains net of losses. Deductions are permitted. A
corporation that is not resident in Canada is taxable on the