Anyone contemplating the acquisition, establishment or expansion of a business in Canada whose operations include imports and exports may be afforded certain preferences under international trade agreements. Nonetheless, such an entity needs to be mindful of duties, safeguards, import and export controls, and marking and labelling requirements under federal laws in Canada. Companies that anticipate selling their Canadian businesses should monitor compliance with such laws to avoid accruing liabilities under these legal requirements.
Canada’s regulation of international trade is governed by a broad array of federal legislation that is applied and enforced by an administrative structure based in Ottawa, the nation’s capital. Businesses contemplating the acquisition, establishment or expansion of a business in Canada whose operations include imports and exports, or whose competitors deal in cross-border trade, should include Canada’s trade legislation in their due diligence reviews.
International Trade Agreements
Canada is party to many international trade agreements, including: the World Trade Organization agreements, NAFTA, the Canada-Chile Free Trade Agreement, the Canada-Costa Rica Free Trade Agreement, the Canada-Israel Free Trade Agreement, as well as foreign investment protection and promotion agreements. Businesses should review the preferences afforded by these agreements, such as reduced duty rates and market access, non-discrimination and investment protection rights.
All goods entering Canada must be reported to the Canada Border Services Agency (CBSA), which verifies compliance with Canadian law, collects statistical information and levies applicable duties as well as goods and services, excise and, in some cases, provincial taxes. The customs duty rate is determined by: tariff classification under the Customs Tariff, country of origin according to the appropriate rule of origin, and value for duty under the Customs Act. Goods that meet the rules of origin under NAFTA and that can be so certified are entitled to enter Canada duty-free.
Anti-dumping and Countervailing Duties
Anti-dumping and countervailing duties assist Canadian producers experiencing unfair competition from imports. Under the Special Import Measures Act (SIMA), the CBSA has jurisdiction to determine whether there is dumping or subsidization, and the Canadian International Trade Tribunal has jurisdiction to determine whether there is injury to the domestic industry. Recently, China and India have been frequent targets of anti-dumping and/or countervailing duty actions in Canada.
During the 5-year term of an injury finding (which may be renewed), the CBSA will review (usually annually) normal values assigned to exporters. Injury findings not reviewed within five years automatically expire.
Import safeguards address large surges of imports. A safeguard is a trade remedy under the Canadian International Trade Tribunal Act that can be initiated by a federal Cabinet referral or a complaint from a domestic producer that a product is imported in such increased quantities and at such lower prices as to cause or threaten serious injury to the domestic industry.
A market disruption safeguard may be imposed where a rapid increase in imports from China causes a “market disruption” (i.e., a significant cause of material injury) to Canadian production. Also, a trade diversion safeguard may be imposed where the trade measures of other WTO Members against Chinese goods cause a significant diversion of those goods to Canada.
Import and Export Controls
Canada limits or prescribes conditions on the export and import of certain goods which are enforced by CBSA and the Department of Foreign Affairs and International Trade (DFAIT) in conjunction with federal government agencies with regulatory authority over particular products.
Restrictions on imports reflect Canadian security, agricultural and industrial policy, and are authorized by the Export and Import Permits Act and the Import Control List. They are administered by DFAIT, which allocates import quotas and issues import permits.
Canada controls the export of certain goods to all countries and of all goods to certain countries. Moreover, economic sanctions restrict a broad range of dealings with certain countries. Exporting goods covered by these controls requires an individual export permit or authorization under a General Export Permit for continuing exports.
Export permits are required if the goods are:
- destined for a country on Canada’s Area Control List; or
- on Canada’s Export Control List, which includes all goods of U.S. origin. (Exports to countries with which the U.S. has political or economic concerns, such as China, may receive closer scrutiny by Canadian authorities.)
The Defence Production Act requires any person or company dealing in “controlled goods” (including permitting foreign nationals access to such goods) to be registered under the Controlled Goods Program. “Controlled goods” include military, nuclear weapon-related and missile technology-related goods. Non-registration can result in civil or criminal penalties, including fines or imprisonment.
Marking and Labelling of Imported Goods
The Marking of Imported Goods Regulations requires prescribed goods to be indelibly marked with their country of origin. Since Canada has two official languages, English and French, all imports must meet bilingual labelling requirements. Foreign exporters planning sales into Canada need to review these requirements and determine where exceptions may apply.