Canada - Economic Outlook

An Expert's View about Business Environment in Canada

Posted on: 29 Jan 2012

Recent Developments
•Canada maintains a liberal trade regime. There are no foreign exchange restrictions, and import licenses are only required for a limited number of goods. Imports are generally subject to import duties.
•Canada imposes anti-dumping and/or countervailing duties on several imports from the Chinese mainland, including flat hot-rolled carbon and alloy steel sheet and strip, hot-rolled carbon and high-strength low alloy steel plate, casing, seamless carbon steel or alloy oil and gas well, oil country tubular goods, pup joints, carbon steel welded pipe, carbon steel pipe nipples and adaptor fittings, steel grating, carbon steel fasteners (or carbon steel screws), mattress innerspring units, stainless steel sinks, copper pipe fittings, aluminnum extrusions, thermoelectric containers and bicycles.
•Hong Kong's total exports to Canada grew by 4% to US$2.9 billion in the first eleven months of 2011, while imports from Canada rose by 15% to US$1.6 billion.
•Canada has a substantial investment in Hong Kong, with a total stock of US$7.5 billion (or HK$58.2 billion) as at the end of 2010.
•Canada continued to show resilience in 2011, after emerging from its first recession since 1992 in 2010. Recuperating external demand in the early part of 2011, mainly from the US, helped the country end last year with estimate growth of 2.3%. Looking ahead, the ongoing European debt crisis and uncertain US and worldwide economy will likely take its toll on the Canadian economy, leading the country to see more moderate growth of 1.7% in 2012.

Current Economic Situation

Bouncing back from its first recession since 1992, Canada, after a 3.2% growth in 2010, is estimated to have recorded further expansion of 2.3% in 2011. The country’s healthy banking and financial system continued to support domestic business and consumers, while the recuperating external demand, especially from the US in the early part of 2011, and a weaker Canadian dollar pepped up exports.

Looking forward, the ongoing European debt crisis and the lingering uncertainty in the US economy will remain major drags to the country’s growth in 2012, while the slowing global recovery would moderate the pace of job creation and industry revival. Taken together, the Canadian economy is forecast to see a lower GDP growth rate of 1.7% in 2012.

Trade Policy

Canada maintains a liberal trade regime. There are no foreign exchange restrictions, and import licenses are only required for a limited number of goods. Imports are generally subject to import duties.

Import licenses are required for items regulated under the Export and Import Permits Act. The Act lists various agricultural products (poultry, eggs, and dairy products), a number of textile and clothing items, and certain steel products.

The importation of certain commodities is however tightly controlled. Examples of regulated goods include: food products, drugs and medical devices, hazardous products, some offensive weapons and firearms, endangered species and motor vehicles.

Duties are assessed on the transaction value (the price actually paid or payable for the goods), including commission, brokerage, packing, royalties and transportation to the Canada point. Hong Kong and China origin goods are eligible for the preferential tariffs under the Canadian General Preferential Tariff (GPT) Scheme.

To enhance the productivity and boost the overall competitiveness of local businesses, Canada has become the first G-20 economy to eliminate all remaining tariffs on manufacturing inputs, of which about 76% are textiles items and the remainder includes chemicals, plastics and articles, and certain articles of wood, glass, aluminium and graphite, and machinery and equipment. Duties on 1,541 tariff lines were eliminated on 5 March 2010, while duties on an additional 381 tariff lines will be phased out over a five-year period and removed altogether on 1 January 2015. The full list is available at http://www.cbsa-asfc.gc.ca/trade-commerce/tariff-tarif/2010/tn49-eng.html.

A provincial sales tax (PST) is assessed on all imports to Manitoba (7%), Prince Edward Island (10%), Quebec (7.5%) and Saskatchewan (5%). Additionally, a broad-based value-added sales tax, known as the goods and services tax (GST), is levied at 5%, effective 1 January 2008. In Newfoundland and New Brunswick, the PST and GST were combined in April 1997 to form a harmonised sales tax (HST) at a standard rate of 15% for all goods and services, which was reduced to the current rate of 13% on 1 January 2008, while Nova Scotia restored the HST to 15% on 1 July 2010. On the same date, British Columbia and Ontario harmonised their sales taxes at HST rates of 12% and 13% respectively. In addition, excise duties and taxes are charged on goods such as spirits, wine, beer, tobacco products, fuel-inefficient vehicles, automobile air conditioners and certain petroleum products.

Canada may impose anti-dumping duties on imports considered to be priced less than the "normal" price charged in the exporter's domestic market and caused material injury to the concerned industry in Canada. Furthermore, if a country is found to be unfairly subsidising its exporters, Canada is authorised to impose a countervailing duty equal to the amount of the subsidy expressed as a percentage of the export price of the goods. These duties remain in place for five years and can be renewed for additional terms of five years. Currently, Canada imposes anti-dumping and/or countervailing duties on several imports from the Chinese mainland, including flat hot-rolled carbon and alloy steel sheet and strip, hot-rolled carbon and high-strength low alloy steel plate, casing, seamless carbon steel or alloy oil and gas well, oil country tubular goods, pup joints, carbon steel welded pipe, carbon steel pipe nipples and adaptor fittings, steel grating, carbon steel fasteners (or carbon steel screws), mattress innerspring units, stainless steel sinks, copper pipe fittings, aluminnum extrusions, thermoelectric containers and bicycles.

Canada may also invoke China-specific safeguard against imports from China if such imports are being imported in such increased quantities or under such conditions as to be a significant cause of market disruption to domestic producers of like or directly competitive goods in Canada. The first case was initiated in July 2005 and involved self-standing barbeques for outdoor use from China. In that instance, the Canadian International Trade Tribunal (CITT) allegedly found evidence of market disruption and established a 15% safeguard duty for a period of three years. The provisions relating to safeguard inquiries specific to China under the Protocol on the Accession of the People’s Republic of China to the World Trade Organization will expire on 11 December 2013.

Global safeguard is another trade remedy measure available in Canada. For instance, safeguard tariffs were imposed on imports of bicycles in 2005 with the exception of the US, Mexico, Israel and Chile. The safeguard tariff rates are 30% during the first year, 25% during the second year, and 20% during the third year.

On 9 June 2010, safety Bill C-36, known as the Canada Consumer Product Safety Act (CCPSA) was introduced into the Canadian parliament for a first reading. After acceptance, this Bill would establish a broad prohibition against manufacturing, importing, advertising or selling consumer products that pose an unreasonable hazard to human health or safety. The scope of the products under CCPSA does not include natural health products, food, drugs, cosmetics or medical devices. The CCPSA is substantially similar to the previous product safety legislation, known as Bill C-6 that was originally tabled in January but held up due to legislative process. The latest Bill includes amendments that account for concerns raised by stakeholders and parliamentarians, the result of which is clarification of the Bill’s intent along while retaining the originally desired level of consumer protection.

Canada requires bilingual labelling (English and French) for most products. Bilingual designation of the generic name on most pre-packaged consumer products is required under the federal Consumer Packaging and Labelling Act. Under this Act, the product identity declaration, net quantity declaration and dealer’s name and principle place of business must appear on the package/label of a consumer good sold in Canada.  In addition, Textile Labelling and Advertising Regulations have been amended to allow the use of lastol and PLA (or polyactic acid) as generic fibre names in textile and apparel labels in April 2010.

The agency responsible for inspection of imports, Canada Customs and Revenue Agency, also requires an indication of the country of origin on several classes of imported goods. Goods not properly marked will not be released from Canada Customs until suitably marked. In general, environmental claims that are ambiguous, misleading or irrelevant, or that cannot be substantiated, should not be used.

The North American Free Trade Agreement (NAFTA) signed by Canada, the US and Mexico took effect in January 1994. This agreement sets out the objective to eventually eliminate tariffs on most goods originating in Canada, the US and Mexico over a maximum transition period of 15 years. Under the US-Canada Free Trade Agreement, trade between the two nations became duty-free on 1 January 1998. NAFTA preferential tariffs apply only to goods determined as originating within the NAFTA territory. Apart from NAFTA, Canada also concluded free trade agreements (FTAs) with Israel, Chile and Costa Rica. On 1 July 2009, Canada’s free trade agreement with Norway, Switzerland, Iceland and Liechtenstein – the four countries making up the European Free Trade Association outside the EU came into effect. In the meantime, Canada is proactively pursuing other possible FTAs, including the one with South Korea.

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Posted: 29 January 2012

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