The Minister of Finance (Canada), the Honourable James Flaherty, tabled the 2013 Federal Budget ("Budget 2013") on March 21, 2013 announcing a number of measures that could have an impact on the cost of engaging in international trade activities and on participation in business or investment in Canada.

Canadians investing or exporting abroad, as well as foreign businesses involved in the Canadian market, may feel the impacts of several budget measures, the more notable being:

  • General Preferential Tariff Regime Elimination for Certain Countries
  • Tariff Relief on Sporting Goods and Baby Clothes
  • Use of Foreign Trade Policy Zones
  • Canada-US Border Programs
  • Regulations on EDC's Role in the Domestic Market
  • Defence Procurement Strategy
  • Funding for the Strategic Aerospace and Defence Initiative

General Preferential Tariff Regime Elimination for Certain Countries

Canada's General Preferential Tariff (GPT) offers lower-than-normal tariff rates for imports from "developing" countries. The GPT regime will be amended to reflect the economic profile of these countries, taking into account the tariff preferences granted by other countries.

The Government will act to remove 72 higher-income and trade-competitive countries from the GPT list, including Brazil, Russia, India, China, and South Korea. In total, the 72 countries removed account for more than 20% of imports to Canada. The subsequent higher tariffs on products from these countries may significantly impact the cost of goods and, according to budget documents, will generate roughly $300 million in duty revenues. Changes to the GPT regime will affect goods imported on or after January 1, 2015.

For those countries still on the GPT list, the Government will renew the preference regime for another 10-year period beginning January 1, 2015. However, the Government will also perform bi-annual reviews of each beneficiary country to determine if they should keep their status.

Tariff Relief on Sporting Goods and Baby Clothes

The Government proposes to permanently eliminate all tariffs on baby clothing and on sports and athletic equipment. This tariff relief is intended to reduce the gap in retail prices that Canadian consumers pay compared to those in the United States. The government estimates the value of the tariff reduction, and the savings to Canadian consumers, at $76 million. The tariff reductions will be given effect by amendments to the Customs Tariff and will be effective in respect of goods imported into Canada on or after April 1, 2013.

Use of Foreign Trade Policy Zones

This is a continuation of an initiative begun with Economic Action Plan 2012, in which the Government examined Canada's current foreign trade zone policies and programs. Based on the information learnt from the 2012 consultations, there are a number of changes to the program, including:

  • Elimination of the annual registration fee for the Customs Bonded Warehouse Program;
  • Simplification of the application process;
  • Acceptance of applications for new foreign trade zone "single window" initiatives to deliver foreign trade zone programs at strategic locations in Canada; and
  • A budget of $5 million over five years to market Canada's free trade zone advantage.

The Government says these measures are intended to help Canadian businesses in the development in strategic locations of manufacturing, processing and warehouse hubs.

Canada-US Border Programs

Under the Canada-US Beyond the Border Action Plan the government has put forward various economic and security initiatives to enhance perimeter security to reduce delays and to facilitate legitimate trade and travel.

The following economic initiatives will be implemented over the next five years:

  • Upgrading four border crossings in Quebec, Ontario, Manitoba and Saskatchewan with border wait-time technology;
  • Creating a single window for companies to electronically submit the data required by Government for arriving shipments;
  • Commencing pilot projects in Prince Rupert and Montreal to expedite truck and rail traffic under the "cleared once, accepted twice" concept;
  • Launching pilot projects to automate small and remote ports of entry to increase hours of operation; and
  • Increasing low-value shipment thresholds to expedite customs clearance.

Budget 2013 also introduces government-to-government actions to increase bilateral security cooperation.

Regulations on EDC's Role in the Domestic Market

Export Development Canada's temporary role as a provider of credit capacity in the domestic market is being extended until March 12, 2014, or the date that new regulations come into force to provide a more permanent regulatory structure. EDC's domestic credit and insurance powers will be replaced in the new regulations, which are expected to clarify and limit EDC's role in the domestic market to providing credit capacity to Canadian exporters in a manner that complements private sector lenders.

Defence Procurement Strategy

In Budget 2011, the Government committed to develop a procurement strategy that would emphasize job creation and support Canadian manufacturing capabilities and innovation. In Budget 2013, the Government has endorsed a proposal contained in a recent commissioned report to identify and focus on key Canadian industrial capabilities as a means of leveraging the economic development opportunities of defence procurement projects. The Government plans select both interim and long term key industrial capabilities for the procurement strategy to focus upon, as well as to assess the remaining recommendations from the report.

By 2027, foreign prime contractors are projected to assume $49 billion in Industrial and Regional Benefits obligations in Canada. In that regard, including a plan for the participation of Canadian industry will be made a precondition for the approval of all major procurements.

Funding for the Strategic Aerospace and Defence Initiative

The Government received the final report of the Aerospace Review on November 29, 2012 (which examined policy options to increase the competitiveness of Canada's aerospace sector) and will determine over the coming year what recommendations to implement with respect to programs and practices affecting the aerospace and space sectors. Prior to completing that review, the Government is renewing the funding of the Strategic Aerospace and Defence Initiative. Over the next five years, almost $1 billion in funding will be committed to research and development on next generation technologies.