Doing Business in Canada

A Hot Tip about Business Environment in Canada

Posted on: 4 Jan 2010

Market Overview

The United States and Canada share the world's longest common border, which runs 5,525 miles long and hosts over one hundred border crossings. In addition, ninety percent of Canada's 33.5 million people, approximately one-ninth of the total U.S. population, live within 100 miles of the border. These are just a few of the many unique factors that have served to intertwine the U.S. and Canadian economies and societies more closely any other two nations in the world.

 

The United States and Canada are each other’s largest trading partners and share the single largest trading relationship in the world. The United States is the largest foreign investor in Canada and the most popular destination for Canadian foreign investment. According to official U.S. Bureau of Census Statistics for 2007, two-way merchandize trade between the United States and Canada was valued at approximately US$561 billion, representing about US$1.6 billion in goods crossing our shared border each day and every day of the year. To put this extraordinary trade relationship into perspective, it is worth noting that U.S. exports to Canada exceed U.S. exports to the entire European Union, which includes 27 nations and a population 15 times larger than Canada’s.

 

Even at this high level, U.S. – Canada trade has continued to expand on an annual basis. In 2007 (the last full reporting period), U.S. goods exported to Canada were valued at US$248 billion. Corresponding U.S. imports from Canada totaled US$313 billion. In 2007, the U.S. merchandize trade deficit with Canada was US$65 billion, a decrease of $8 billion from $73 billion in 2006 due to the strength of the Canadian dollar and increase in overall U.S. exports to Canada. Over 75% of total Canadian exports are sold to the United States and the United States holds about an 83% share of Canada’s total imports.

 

U.S. trade with Canada is greatly facilitated by the market’s close proximity, common culture, comparable standard of living, similar business practices, language, lifestyle pursuits, and the ease of travel between both countries for business and pleasure. Furthermore, the North American Free Trade Agreement (NAFTA) gives U.S. exporters a clear competitive advantage in Canada.

 

In late 2007 the Canadian exchange rate climbed above parity with the U.S. due to high demand for Canadian energy products and commodities. With the onset of the global economic crisis in late 2008, the value of the Canadian dollar value dropped to more traditional levels and currently stands at approximately US$1 to CDN$1.23. At the same time Canadian consumer spending growth has slowed dramatically, from an average quarterly pace of 5.3 percent in 2008 to only 1.7 percent in early 2009.

 

Canada’s Gross Domestic Product in 2007 was estimated at US $1.1 trillion (Official Exchange Rate GDP), and the Bank of Canada revised forecast has it growing 0.7 percent in 2008. After falling steadily for years and reaching thirty year lows just one year ago, Canada's unemployment rate rose at the end of 2008, and currently stands at 6.6 percent, still below unemployment rates in most G7 states. Canada’s Consumer Price Index for December 2007-2008 was up by 1.2 percent. However, at the time of this writing Canada’s leading economic indicators are beginning to show increased weakness as the global economic crisis continues. For the latest economic indicators, it is recommended that readers visit the website of Statistics Canada.

 

The current global economic crisis notwithstanding, Canada continues to be the most receptive market in the world for U.S. goods and services. Therefore, U.S. companies that are new to exporting or interested in expanding their international business activities are strongly encouraged to contact the U.S. Commercial Service in Canada to explore the many efficient and cost effective business development programs and services available to them under the "Canada First – Building Bridges to Prosperity" initiative.

 

Market Challenges

Due to NAFTA, American products, with the exception of a few agricultural products, enter Canada duty free. The North American Free Trade Agreement (NAFTA) came into force on January 1, 1994 and replaced the U.S.-Canada Free Trade Agreement (FTA), which was originally implemented in 1989. The phase-out of tariffs between Canada and the United States was completed on January 1, 1998, except for tariff-rate quotas (TRQ) that Canada retains on certain supply-managed agricultural products.

 

Canada does maintain some non-tariff barriers at the federal and provincial levels that are a concern as they impede market access to some U.S. goods and services. Nevertheless, recent studies show that 99 percent of all trade passes across the border without incident or controversial trade restrictions as many more Canadian product standards become are closely harmonized with U.S. standards.

 

However, it would be a mistake to assume that doing business in Canada is identical to doing business in the United States, and U.S. companies need to be aware of the discrepancies (See Chapter 5). Although customs documentation, bilingual labeling and packaging requirements and Canadian federal and provincial sales tax accounting may seem onerous at first, in comparison to domestic trade in the United States, most U.S. exporters find that with a little experience they are able to master these requirements with little difficulty. Particularly since there are many international trade professionals such as: customs brokers, freight forwarders and consultants who offer services to assist small and medium sized firms with the research and paperwork required to export to Canada successfully.

 

An important key to achieving market penetration and expanding export sales to Canada is to minimize the customer’s work by making the transaction resemble a Canadian domestic transaction to the extent possible. An ideal way to accomplish this is for the U.S. exporter to become a non-resident importer.

 

Market Opportunities

The best prospect sectors in Canada for U.S. exporters in 2009-2010 are:

1. Medical Devices (MED)

2. Safety and Security Equipment (SEC)

3. Agricultural Machinery and Equipment (AGM)

4. Aerospace and Defense (AIR) and (DFN)

5. Consumer Electronics (CEL)

6. Travel and Tourism (TRA)

7. Automotive Aftermarket Parts & Accessories/Service Equipment (APS)

8. Computer Hardware (CPT)

9. Telecommunications Equipment (TEL)

10. Computer Software (CSF)

11. Oil and Gas Field Machinery (OGM)

12. Electrical Power Systems (EPS)

 

The fastest growing commercial sectors in Canada are medical devices, security/safety equipment, agricultural machinery and equipment, aerospace and defense and consumer electronics. For Canadian companies upgrading their plants and equipment, as well as for those constructing new facilities, the United States is a principal source of new machinery and technology. U.S. companies will continue to find Canada an extremely attractive and accessible place to do business.

 

Major project opportunities identified by U.S. Commercial Service in Canada can be found in the Market Research Library on the U.S. Export Portal website and include:

- Alberta oil sands development

- Atlantic Canada renewable energy projects

- Ontario energy sector and Canada power projects

- British Columbia construction and port development projects

- Security projects for maritime and ports

- Ontario highway infrastructure projects

- Canada's strong defense budget

 

Market Entry Strategy

Making direct shipments to Canadian customers may not require a visit to Canada unless pre-sales presentations or post-sales installation are required. However, to expand sales in Canada, it is essential to have a presence in the country, either by setting up an office or by appointing an agent or distributor. It is highly advisable to visit Canada in order to perform the necessary due diligence, meet and screen potential agents and distributors, and establish solid business relationships. One of the most effective ways to meet potential business partners is by participating in U.S. Commercial Service programs that are designed to bring American companies together with Canadian firms.

 

Read the full market research report


Posted: 04 January 2010

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