Canada Business Guide
Introduction
Canada is a country occupying most of northern North America. It is the world's second-largest country by total area, and extends from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean. Canada shares land borders with the United States to the northwest and south. Inhabited first by aboriginal peoples, Canada was founded in 1867 as a union of British North American colonies. It gained independence from the United Kingdom in an incremental process that ended in 1982. It remains a Commonwealth Realm with Queen Elizabeth II as its head of state.
Canada is a federal constitutional monarchy with parliamentary democracy. Comprising ten provinces and three territories, Canada is a bilingual and multicultural country, with both English and French as official languages at the federal level. A technologically advanced and industrialized nation, Canada maintains a diversified economy that is heavily reliant upon its abundant natural resources and upon trade — particularly with the United States, with which Canada has had a long and complex relationship. Canada is one of the world's wealthiest nations with a high per capita income, a member of the Organisation for Economic Co-operation and Development (OECD) and Group of Eight (G8). Canada is a free market economy with slightly more government intervention than the United States, but much less than most European nations. Canada has traditionally had a lower per capita gross domestic product (GDP) than its southern neighbour (whereas wealth has been more equally divided), but higher than the large western European economies. For the past decade, the Canadian economy has been growing rapidly with low unemployment and large government surpluses on the federal level. Today Canada closely resembles the U.S. in its market-oriented economic system, pattern of production, and high living standards. As of October 2006, Canada's national unemployment rate of 6.3% is among its lowest in 30 years, provincial unemployment rates vary from a low of 3.6% in Alberta to a high of 14.6% in Newfoundland and Labrador. In the past century, the growth of the manufacturing, mining, and service sectors has transformed the nation from a largely rural economy into one primarily industrial and urban. As with other first world nations, the Canadian economy is dominated by the service industry, which employs about three quarters of Canadians. However, Canada is unusual among developed countries in the importance of the primary sector, with the logging and oil industries being two of Canada's most important. Canada is one of the few developed nations that is a net exporter of energy. Canada has vast deposits of natural gas on the east coast and large oil and gas resources centred in Alberta, and also present in neighbouring British Columbia and Saskatchewan. The vast Athabasca Tar Sands give Canada the world's second largest reserves of oil behind Saudi Arabia. In Quebec, British Columbia, Newfoundland & Labrador, Ontario and Manitoba, hydroelectric power is a cheap and relatively environmentally friendly source of abundant energy.
Economy
Canada is one of the world's most important suppliers of agricultural products, with the Canadian Prairies one of the most important suppliers of wheat and other grains. Canada is the world's largest producer of zinc and uranium and a world leader in many other natural resources such as gold, nickel, aluminum, and lead; many, if not most, towns in the northern part of the country, where agriculture is difficult, exist because of a nearby mine or source of timber. Canada also has a sizeable manufacturing sector centred in southern Ontario and Quebec, with automobiles and aeronautics representing particularly important industries.
Canada is highly dependent on international trade, especially trade with the United States. The 1989 Canada-U.S. Free Trade Agreement (FTA) and 1994 North American Free Trade Agreement (NAFTA) (which included Mexico) touched off a dramatic increase in trade and economic integration with the U.S. Since 2001, Canada has successfully avoided economic recession and has maintained the best overall economic performance in the G8. Since the mid 1990s, Canada's federal government has posted annual budgetary surpluses and has steadily paid down the national debt.
Market Overview
The United States and Canada share the world’s longest open border. 90 percent of Canada’s 32 million people, a population one-tenth that of the United States, live within 100 miles of the U.S. border. As a result, the U.S. and Canadian economies are closely intertwined. Also, the United States and Canada are each other’s largest trading partner, and the United States is the largest foreign investor in Canada and the most popular destination for Canadian investment. According to official Canadian statistics, in 2006, the two-way trade in goods amounted to approximately US $500 billion, up from US $479 billion in 2005, representing US $1.3 billion of goods crossing the border each day. U.S. exports to Canada have exceeded U.S. exports to the entire European Union for the previous five years, even though the EU has 15 times Canada’s population. The twoway trade that crosses the Ambassador Bridge between Michigan and Ontario equals all U.S. exports to Japan.
The trade relationship – and the U.S. trade deficit with Canada – continues to grow. As of 2005 (the last full reporting period), the U.S. goods trade deficit with Canada was $76.4 billion, an increase of $10.0 billion from $66.5 billion in 2004. U.S. goods exports in 2005 were $211.3 billion, up 11.3 percent from the previous year. Corresponding U.S. imports from Canada were $287.9 billion, up 12.3 percent. Canada is currently the largest export market for U.S. goods. Approximately 84% of Canadian exports go to the U.S. while the U.S. share of Canada’s total imports is 56%.
Trade with Canada is facilitated by proximity, common culture, language, similar lifestyle pursuits, and the ease of travel among citizens for business or pleasure. American products have gained an increased competitive edge over goods from other countries as the North American Free Trade Agreement (NAFTA) and geographical proximity gives U.S. exporters an advantage.
A prime reason for the strength of the Canadian dollar is the strength of the Canadian economy. Canada’s Gross Domestic Product in 2005 was CDN $1.06 trillion (approximately US $1 trillion) and 2006 is forecasted to be at CDN $1.09 trillion. The Consumer Price Index for December 2006 was up 1.6 percent over December 2005. Unemployment dropped to 6.1 percent. Canada’s other leading economic indicators can be found on the website of Statistics Canada. As is evident from these statistics, Canada is the most receptive market in the world for U.S. goods. U.S. companies new to export should therefore contact U.S. Commercial Service Canada and “Think Big! Think Canada!” when planning their export strategies.
Market Challenges
Due to NAFTA, American-made products enter Canada almost entirely 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, which was 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 still maintains some non-tariff barriers of concern at both the federal and provincial levels, impeding access to the Canadian market for U.S. goods and services. However, recent studies show that 99 percent of all trade passes the across the border without incident or without controversial trade restrictions. Many Canadian standards are harmonized with U.S. standards. Doing business in Canada is not, however, exactly the same as in the United States, and U.S. companies should beware of the discrepancies. While customs documentation, bilingual labeling and packaging requirements and Canadian federal and provincial sales tax accounting may seem onerous at first compared to domestic shipments, most exporters find that, with a little experience, they can master the requirements. There are also many international trade professionals such as customs brokers, freight forwarders and consultants that can, for a fee, handle much of the research and paperwork for smaller exporters without international sales departments.
The key to achieving market penetration for export sales to Canada is making the transaction resemble as much as possible a Canadian domestic transaction for the Canadian customer. One good way to do that is for the U.S. exporter to become a nonresident importer and take the entire importing burden off the shoulders of the Canadian importer.
Market Opportunities
The best prospect sectors over the 2006-2007 period are expected to be:
1. Automotive Parts and Service Equipment (APS)
2. Electrical Power Systems (EPS)
3. Building Products (BLD)
4. Plastics Materials/Resins (PMR)
5. Oil/Gas Field Machinery (OGM)
6. Computers/Peripherals (CPT)
7. Computer Software (CSF)
8. Medical Equipment (MED
9. Agricultural Machinery and Equipment (AGM)
10. Water Resources Equipment/Services (WRE)
11. Security/Safety Equipment (SEC)
12. Franchising (FRA)
The fastest growing commercial sectors in Canada are medical devices, security/safety equipment, oil and gas field machinery, computer software, and water resources equipment/services. 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. This is especially true with the current low U.S. dollar. U.S. companies will continue to find Canada an extremely attractive and accessible place to do business. Major project opportunities recently reported by U.S. Commercial Service Canada in the Market Research Library on the U.S. Export Portal website include:
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Alberta oil sands development
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Atlantic Canada renewable energy projects
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Ontario energy sector and Canada power projects
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British Columbia construction and port development projects
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Security projects for maritime and ports
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Ontario highway infrastructure projects
