By John Moccia, Canada Regulatory Affairs
In our previous issue of Global Perspectives, I explored the concept of the Foreign Trade Zone and reviewed some of the key differences between the United States and Canada. In Part 2, I take an even closer look into how Canada currently manages its Foreign Trade Zone policy.
In this new era of globalization and international competition, many countries seek to develop policies and strategies as a means towards establishing a strong global competitive framework. As discussed in Part 1, one such strategy many countries have embraced is the use of foreign trade zones (FTZs). In general, a FTZ refers to a specific location within a country that is officially designated for the deferral of duties and taxes on imported goods under certain conditions.
In Canada, the approach towards FTZs differs from the site-specific model to one, which is geographically flexible and national in scope. In essence, Canada as a whole can be viewed as a foreign trade zone. While on the surface, this may sound simplistic and appealing, as is often the case the devil remains in the details. Essentially, Canada has opted to implement FTZ like programs, which allows importers and exporters to select the program that best suits their particular needs.
The Duty Deferral Program (DDP)
The DDP is Canada’s main FTZ-type program that can postpone or refund duties and taxes. The DDP is made up of three components: Duties Relief Program, Drawback Program and the Customs Bonded Warehouse Program.
This program provides relief on duties paid on imports that are stored, processed or used to manufacturer other products, as long as they eventually export 70% of the goods. However, this program does not provide relief of the GST/HST.
- Drawback ProgramThis program allows for the refund of duties paid on imported goods that are subsequently exported. Eligible goods include goods in the same condition in which they were imported, or if they are used in the manufacturer of other goods that are exported. A claim for drawback may be filed within four years of the date of importation.
Note: Article 303 of NAFTA places limits on the amount of custom duties and anti-dumping and countervailing duties refundable by way of drawback or deferrable under the above Duty Deferral Programs.
Customs Bonded Warehouse Program
A customs bonded warehouse is a storage facility that a company operates under the – authority of the Canada Border Services Agency (CBSA). The program allows for deferral of duties and taxes until the goods enter the Canadian marketplace. Allowable activities include marking, labelling, storing, testing, inspecting, packing and so forth.
In addition to the above programs, Canada has two other programs specifically related to the relief of the Goods and Services Tax / Harmonized Sales Tax (GST/HST).
The Exporters of Processing Services Program
The Exporters of Processing Services Program (EOPS) exempts participants from the GST/HST on imports of goods owned by non-residents. Goods may be imported by manufacturing service companies for processing, distribution or storage and are subsequently exported.
The Export Distribution Centre Program
The Export Distribution Centre Program (EDCP) is intended to benefit export-oriented businesses that import goods and/or acquire goods in Canada, process them to add limited value and then export them. The “limited value” criterion is a key factor here, since the EDCP is not intended for companies that manufacture or produce new products for export. Unfortunately, the limitations of this program are significant, for example; the total value added through processing cannot exceed 20 percent. Likewise, 90 percent of the revenue generated by the participating company must come from export sales.
Canada’s Foreign Trade Zone Points
Recently, the Government of Canada has begun to establish Foreign Trade Zone Points across the country whose main purpose is to provide businesses with a single-point of access to information on Canada’s tax and tariff trade-related policies and programs. There are currently six FTZ Points in Canada: Edmonton (AB), Calgary (AB), Winnipeg (MB), Niagara (ON), Halifax (NS) and Cape Breton Regional Municipality (NS).
As businesses around the globe grapple with the ever-increasing challenges of moving goods and services between countries, the concept of the Foreign Trade Zone remains a viable and fundamental option for any organization to consider.