Trade knowledge / Exporting to Canada: What You Need to Know
Date: 2017-12-02
Exporting to Canada: What You Need to Know
As our neighbor to the North, Canada is often the first place many U.S. exporters look to share their goods. A shared language, shared culture, and excellent economic relationship with Canada makes doing business there appealing to new and established exporters. And for good reason!
In this article, I’ll look at the history of U.S. trade with Canada; the process of exporting to Canada, including documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the Canadian market.
Trade and Exporting to Canada: A Brief Background
Since World War II, the growth of Canadian manufacturing, mining and service sectors “has transformed the nation from a largely rural economy into one primarily industrial and urban.” (CIA World Factbook) As of 2016, Canada was ranked 18th in the world as measured by a Purchasing Power Parity (PPP) basis that adjusts for price differences.
The 1989 Canada-U.S. Free Trade Agreement and the 1994 North American Free Trade Agreement dramatically increased trade and economic integration between the U.S. and Canada. Our countries have “the world’s most comprehensive and highly balanced bilateral trade and investment relationship,” according to the CIA World Factbook.
So what does the Canadian trade relationship with the U.S. look like today? Between the U.S. and Canada in 2016, there was:
Merchandise trade of $544 billion.
Services trade of over $80 billion.
Two-way investment stocks of nearly $700 billion.
More than 75% of Canada’s exports go to the U.S. each year, and Canada is the United State's largest foreign supplier of energy (including oil, natural gas, and electric power, and a top source of U.S. uranium imports).
As of this year, data from the U.S. Commercial Service’s Canada Country Commercial Guide shows that U.S. exports to Canada were $321 billion in 2016, or 15% of total U.S. exports.
Top U.S. Exports to Canada
According to the Office of the U.S. Trade Representative, the top U.S. export categories to Canada in 2016 according to two-digit HS numbers were:
Vehicles: $48 billion.
Machinery: $40 billion.
Electrical machinery: $24 billion.
Mineral fuels: $16 billion.
Plastics: $12 billion.
Notably, U.S. exports of agricultural products to Canada totaled $23 billion in 2016. Canada is the United States’ largest agricultural export market. Leading export categories include: prepared food ($1.9 billion), fresh vegetables ($1.8 billion), fresh fruit ($1.6 billion), snack foods ($1.3 billion), and non-alcoholic beverages ($1.2 billion).
Exporting to Canada: The Challenges
Fortunately for exporters interested in exporting to Canada, there are very few trade barriers to overcome.
Notably, many exporters forget that Canada is, indeed, a different country that requires specific export procedures. Some exporters forget that our neighbor to the north is, in fact, another country, and fail to follow export compliance regulations.
U.S. exporters must understand differing provincial regulations, conduct due diligence on market potential and sales channels, comprehend labeling and packaging requirements and certification standards and customs procedures, and in general must educate themselves on unique industry matters relevant to selling their goods or services in Canada. (Export.gov)
Exporters should be prepared for Canada Customs documentation, bilingual labeling, and packaging requirements; Canadian federal and provincial sales tax accounting; and, in some cases, should be aware of International Traffic in Arms Regulations (ITAR). (Export.gov)
Bidding for contracts can also be a challenge for U.S. exporters because of the requirements and security clearances.
Rules and Regulations in Canada
As previously mentioned, deciphering Canadian rules and regulations for exporting can be frustrating in the least and, at worst, cause issues that force an exporter to stop trade to the country completely.
There are ways to combat these issues when exporting to Canada:
Work closely with your local U.S. Commercial Service office. They will link you to offices in Canada that will help you establish your presence in Canada and assist you through difficulties you may face.
Additionally, the U.S. Department of Commerce's Advocacy Center can help you with early stages of your project.
Find partners who have experience working with Canada. Your freight forwarder and banker should have documented experience working with the country.
Exporting to Canada: The Opportunities
The potential rewards to exporting to Canada likely far outweigh any challenges exporters may face. Exporters should identify and cultivate opportunities while building a strategy to minimize the risks.
According to the Canada Country Commercial Guide, since 2016 U.S. exporters are finding new business opportunities in industrial, public infrastructure, governmental and consumer sectors. While some commercial opportunities are also available in energy and environmental industries, recent downturns of global crude oil prices have stressed the Canadian market. This is an area to watch for if you are interested in exporting energy products.
What does it take to compete in Canada? According to export.gov, the following things can set you apart:
Competitive pricing.
Provocative and imaginative marketing.
Deep discounts for agents and distributors.
Specialized training and flexible contract terms for agents and distributors.
After-sales support for end users of your goods.
Areas of Growth in Canada
According to the Canada Country Commercial Guide, the promising areas for future growth include the following:
Agricultural Machinery and Equipment
Agricultural Sector
Architecture, Construction, and Engineering Services (ACE)
Automotive
Civil Aviation
Consumer Goods
Defense Products and Services
Education and Training
Environmental Technology
Healthcare and Medical Equipment
Information and Communications Technology (ICT)
Mining and Minerals: Systems and Equipment
Oil and Gas
Power Generation and Renewable Energy
Safety and Security
Textiles
Travel and Tourism
Export Assistance
The best thing about exploring the opportunities to export to Canada is knowing you don’t need to go it alone. You can rely on assistance from your in-country allies, including the U.S. Commercial Service office, trade missions, and chambers of commerce.
U.S. Commercial Service Offices
One of the first places to consider are your local and in-country Commercial Service offices. The Commercial Service in-country offices offer U.S. exporters business partners in Canada—boots on the ground in the country—and include representation by an agent, distributors or partners who can provide essential local knowledge and contacts that can be critical for your success. You can learn more about in-country offices in our article, Tapping into the U.S. Commercial Service's In-Country Offices.
District Export Councils (DECs)
DECs across the country can help exporters by supporting trade and services that strengthen individual companies, stimulate U.S. economic growth, and create jobs. DEC members also serve as mentors to new exporters and can provide advice to smaller companies.
Trade Missions
Sponsored by state and local trade offices as well as commercial service offices, trade missions are a great way to get introduced to and network with contacts. Check into them.
International Trade Administration (ITA)
The ITA is an excellent resource to help you combat problems. Staff at the ITA are resident experts in advocating for U.S. businesses of all sizes, customizing their services to help solve your trade dilemmas as efficiently as possible. If you find yourself caught in an unfair international trade situation, the ITA is a valuable resource that can expeditiously help you understand and solve your problems. The ITA makes it easy to report a problem, allowing you submit your report online.
U.S.-Canada Chambers of Commerce
Chambers of commerce may be a way to help you when exporting to Canada. You can learn more about various chambers in our article, The Chamber of Commerce Role in Exporting.
Export Document Requirements for Canada
When exporting to Canada, documentation and procedures are still critical. According to export.gov, the most important document a U.S. exporter needs to when exporting to Canada is the Canada Customs Invoice or a standard commercial invoice that includes all the required information.
Other documents you need to export to Canada will vary depending on your products and how you are shipping, but they include:
Bill of lading;
NAFTA Certificate of Origin;
Packing list;
Sales contract;
Proforma invoice;
AES filing;
Customs declaration; and
Insurance policy.
Export Compliance Issues When Exporting to Canada
It’s important to understand the regulations covering exports to Canada. You must be concerned with complying with export regulations no matter where you ship, but, fortunately, understanding regulations is easier to do than, say, if you were exporting to China.
This doesn’t mean you can take export compliance lightly. You need to understand what is required of you and what you risk if you don’t do your job in complying with those regulations.
Product Classification for Export Controls
The first step in ensuring export compliance is determining who has jurisdiction over your goods: the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department's Directorate of Defense Trade Controls (DDTC).
If they fall under the jurisdiction of the Commerce Department, which most products do, you must determine if your export requires authorization from the Bureau of Industry and Security (BIS), which is part of the Commerce Department, you need to answer the following questions:
What is the ECCN of the item?
Where is it going?
Who is the end user?
What is the end use?
To do that, you must know how to determine the correct classification of your item, also known as determining the Export Control Classification Number (ECCN). There are three ways to classify your products for export controls: you can self-classify your products, submit a SNAP-R request for a ruling, or rely on the product vendor. You can learn about that process in our article, 3 Ways to Classify Your Products for Export Controls.
By making sure your product is classified correctly, you’ll be protecting the U.S. from threats abroad and protecting yourself from severe fines, penalties and even jail time.
Export License Determination
There are several reasons the U.S. government prevents certain exports to Canada without an export license. Companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once you know why your products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. These countries are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
The Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that will use the ECCN code for your product(s) and the destination country and tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process Redesign (SNAP-R) before you can export their products.
There are export license exceptions, like low-value or temporary exports, that allow you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce and not items that are controlled by the State Department or some other agency.
Deemed Exports
Surprise! You May Be an Exporter without Even Knowing It! A sometimes overlooked compliance issue for exporting to Canada is deemed exports, or exporting without shipping a product. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR under 734.2(b)(9)), is released to a foreign national within the United States.
Sharing technology, reviewing blueprints, tours of facilities, and other disclosures of information are considered potential exports under the deemed export rule and should be handled accordingly. You can learn about how to apply this principle here.
Restricted Party Screenings
Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with.
There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization, they may have a history of corrupt business practices, or they may otherwise pose a threat to national security.
Restricted party screening (or denied party screening) refers to the process in which a company checks a potential customer or business partner against one or more of the restricted party lists to ensure they are not doing business with a restricted party.
The primary restricted party lists in the United States are published by the Department of Commerce, Department of State, and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.
When exporting to Canada, it’s imperative you check every single restricted party list every time you export.
Fines for export violations can reach up to $1 million per violation in criminal cases. (Bureau of Industry and Security).
Administrative cases can result in a penalty amounting to the greater of $250,000 or twice the value of the transaction.
Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Export Documentation and Compliance Software
If you’re an exporter who is considering exporting to Canada, consider this: Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Download a free trial version of the Shipping Solutions software to see how it can revolutionize the way you’re currently creating your export paperwork.
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