Investing In Canada

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 as part of doing due diligence to meet and screen potential agents and distributors, and to establish a trusting business relationship. One of the best ways to meet potential business partners is to visit Canada by participating in U.S. Commercial Service Canada programs to bring American companies together with Canadian firms.

Using an Agent or Distributor

Distribution channels in Canada vary greatly according to the products and commodities involved. Large industrial equipment, for example, is usually purchased directly by endusers. In contrast, smaller equipment and industrial supplies are frequently imported by wholesalers, exclusive distributors, or by manufacturers' sales subsidiaries. Many U.S. firms have historically appointed manufacturers' agents that regularly call on potential customers to develop the market.

Many sales agents expect to work on a two-tier commission basis. Agents receive a lower commission for contract shipments and a higher rate when purchases are made from the local agent's own stocks. Consumer goods are purchased by importing wholesalers, department stores, mail-order houses, chain stores, purchasing cooperatives, and many large, single-line retailers. Manufacturers' agents play an important role in the importation and distribution of consumer goods. In addition, the importance of department stores, mail-order houses and cooperative purchasing organizations as direct importers has increased substantially. Many of these groups have their own purchasing agents in the United States.

For assistance in identifying appropriate agents and distributors in Canada, U.S. companies new to exporting are advised to first contact the nearest U.S. Export Assistance Center for pre-export counseling. Companies with export experience are also invited to contact U.S. Commercial Service Canada to develop a customized program to find a business partner in Canada.

Establishing an Office

U.S. companies can establish a representative office or branch office, set up a sole proprietorship or partnership, or incorporate a wholly owned subsidiary or joint venture in Canada. Corporations can be public or private, and incorporated federally or under the laws of a province. Fees for federal incorporation are CDN $200 when submitted on-line and CDN $250 for other types of submissions. Incorporation fees vary among the provinces, although most provinces charge approximately CDN $200-300. Private and public corporations incorporated federally under the Canada Corporations Act may operate nationally or in several provinces, but must still register as an extra-provincial corporation in each province in which it does business. Corporations Canada has a pilot project for joint online extra-provincial registration for federal corporations with three provinces. Registration fees vary by province.

Corporations incorporated in Quebec must adopt a corporate name in French under Section 63 of Quebec’s Charter of the French Language. Extra-provincial corporations registered in Quebec must supply a French version of their corporate name. Firms considering establishing operations in Quebec are advised to contact the Office québécois de la langue française (Quebec Office of the French Language), which works with companies to develop plans for complying with Quebec's language laws.

Franchising

According to the Canadian Franchise Association, Canada's franchising sector is comprised of more than 850 franchises and over 85,000 individual units, ranging from restaurants to non-food retail establishments, from automotive product retailers to purveyors of business services. Annual sales generated by franchises in Canada, which account for only about 5 percent of total businesses in the country, total over US $85 billion, or 12 percent of Canada’s Gross Domestic Product (GDP). However, each province or territory in Canada should be viewed as a unique market. Canada is among the largest foreign markets for U.S. franchisors. U.S. franchisors have the advantage of strong recognition and familiarity with American products and services by Canadian consumers. This facilitates the search for franchise investors. However, each U.S. franchisor should do the necessary market research and financial analysis to determine that its concept will work in Canada, and make sure that all Canadian corporate registrations and other legal requirements are met, as part of its market expansion strategy.

Although there are no federal franchise laws, Ontario, and Alberta do have franchisespecific legislation, aimed at ensuring that small business investors are better able to make informed decisions prior to committing to franchise agreements. Disclosure requirements provide prospective franchisees with information about how sellers plan to approach key contractual issues, such as termination, and afford buyers stronger legal remedies regarding court action. Similar legislation is under consideration in other provinces.

Direct Marketing

Canadians are the second largest users of the Internet after Americans. Online sales recorded their fourth consecutive year of strong double-digit growth in 2006. Combined private and public sector online sales increased 38.4 percent to C$39.2 billion. Online sales by private firms increased 37.2 percent to C$36.3 billion, while those by the public sector increased 55.4 percent to C$2.9 billion.

This is the fourth year in a row that the overall value of e-commerce sales in Canada increased by 38 percent or more. To put this into perspective, the increase in online sales was six times the rise in overall retail sales in Canada in 2006. In general, Internet use rises provincially from east to west, although only three provinces have usage rates above the national average of 68 percent – Ontario (72%),
Alberta (71%) and British Columbia (69%).

The Canadian Marketing Association and the Direct Marketing News are two leading sources of information about direct marketing in Canada. Tapping into this market can be as easy as placing an advertisement in a magazine or on the Internet. In general, Canadian audiences are targeted using the same techniques that are used in the United States.

Shipping goods to Canadian customers requires customs documentation. If the value of goods you are exporting is Cdn $1,600 or more, the following documentation is required for the goods to enter Canada:

• bill of lading
• manifest or cargo control document
• Canada Customs Invoice or commercial invoice
• import permits, as required
• any other documents that may be necessary to meet the Canada Border Services Agency (CBSA) requirements, e.g. NAFTA Certificate of Origin, or those of other government departments.

If the value of goods you are exporting is less than Cdn $1,600, the following documentation is required for the goods to enter Canada:

• bill of lading
• manifest or cargo control document
• commercial invoice
• import permits, as required
• any other documents that may be necessary to meet the CBSA requirements, e.g. NAFTA Certificate of Origin, or those of other government departments.

Basically, to reduce customs clearance charges, low volume shipments should be sent by air courier or by mail, and not “ground delivery.” Exporters with a sufficient volume of Canadian orders should explore developing a customized shipping program with a courier service, package delivery service, mail consolidator or customs broker/freight forwarder. Many of these companies offer on their websites innovative solutions to cross-border shipment such as combining bulk shipment and customs clearance at the border with individual package delivery to the Canadian consumer. These services can also be combined with Canada’s non-resident importer program, in which the U.S. exporter includes all shipping, customs clearances and duties and taxes in the shipping and handling fees charged to the customer, who could even be charged in Canadian dollars. In this way, the transaction appears to the Canadian consumer as a domestic transaction. This makes the ordering process transparent to the customer, helping build Canadian sales.

It is recommended that individual parcel shipments (internet orders) to Canadian consumers be sent by mail or air courier service. While international shipping to Canada using “ground delivery” may be convenient to the shipper, and the shipping cost itself may be economical, the problem with using “ground delivery” for shipments valued at more than CDN $20 (US $17) is that the ground package delivery service typically must clear the parcel individually through Canadian customs at the border, with the necessary time-consuming paperwork, for which the company charges the Canadian customer the brokerage charges and related fees as well as Canadian customs duties and federal and provincial sales taxes.

The result is that the total cost to the consumer is much higher than shipment by mail, for which Canada Post charges only CDN $5 for customs clearance of individual parcels of a value in excess of CDN $20 (duties and taxes must still be paid by the customer). Sometimes these fees and charges can exceed the value of the parcel, and they can be an unpleasant and painful surprise to the customer.

Joint Ventures & Licensing

In the broadest sense, any arrangement in which two or more businesses combine resources for some definable undertaking is considered a joint venture. The Canadian legal system provides great flexibility and imposes few restrictions as to the form that joint ventures may take, such as equity or non-equity. Some joint ventures require approval from the Government of Canada under the Investment Canada Act. Approval is based on the "net benefit" of the venture to Canada. The "net benefit” criteria include: the level of Canadian participation; the positive impact on productivity; technological development; product innovation; industrial efficiency; and product variety in Canada. In certain key industries, joint ventures with Canadian partners may prove to be the most effective or, in some cases, the only means of market entry for US companies. There are a variety of reasons that Canada is an attractive market for foreign licensors. Most notably, Canada has no regulatory scheme governing licensing arrangements. Foreign licensors also do not require registration or public disclosure. Moreover, the Investment Canada Act has no direct application to licensing unless it relates in some way to the control of a Canadian enterprise.

Selling to the Government

The Government of Canada buys approximately US $12 billion worth of goods and services every year from thousands of suppliers. There are over 85 departments, agencies, Crown Corporations and Special Operating Agencies. Public Works and Government Services Canada (PWGSC) is the government's largest purchasing organization, averaging 60,000 contracts totaling US $8.5 billion annually. While PWGSC buys goods for most departments of the federal government, the departments buy most services themselves. Chapter Ten of the North American Free Trade Agreement (NAFTA) provides national treatment in Canada for U.S. companies on Canadian federal government procurement contracts above the following thresholds:

• Contracts of CDN $32,400 (approximately US $27,300) or more offered by a federal entity such as a Department or Agency for goods. The list of these federal entities was expanded to include Communications Canada, Transport Canada, and the Ministry of Fisheries and Oceans.
• Contracts of CDN $84,000 (approximately US$71,000) or more offered by a federal entity for services.
• Contracts of CDN $10.9 million (approximately US $9.2 million) or more offered by a federal entity for construction services.
• Contracts of CDN $420,000 (approximately US $350,000) or more offered by a Crown corporation or other federal government enterprise for goods and services. The list of these corporations includes the St. Lawrence Seaway Authority, The Royal Canadian Mint, the Canadian National Railway, Via Rail, Canada Post, and numerous others.
• Contracts of CDN $13.4 million (approximately US$11.3 million) offered by crown corporations or federal government enterprises for constructions services.

In addition to NAFTA, the WTO Agreement on Government Procurement (WTO-AGP) applies to most federal government departments. This multilateral agreement aims to secure greater international competition. The WTO-AGP applies to the procurement of goods and services valued at CDN $245,000 (approximately US $207,000) or more, and construction requirements valued at CDN $9.4 million (approximately US $7.9 million) or more.

Provincial and local procurements generally do not offer national treatment opportunities to U.S. companies as they are excluded from Chapter Ten of NAFTA. However, provincial and local government entities such as Ontario may still hold opportunities for U.S. goods and services. PWGSC is responsible for ensuring conformity with Canada's trade obligations under the NAFTA and the WTO-AGP. PWGSC handles the federal government's procurement requirements in the following areas:

• architectural and engineering consulting services
• construction and maintenance services
• goods and services

The PWGSC website gives valuable information on how to sell to the Canadian government. PWGSC may incorporate terms and conditions contained in the Standard Acquisition Clauses and Conditions (SACC) Manual by reference into procurement documents. Business Access Canada (formerly Contracts Canada) is an interdepartmental initiative to improve supplier and buyer awareness and simplify access to federal government purchasing information. The Canadian government’s official Internet-based electronic tendering service MERX gives subscribers access to more than 1,500 open tenders from the federal government, provincial governments, and many municipalities, school boards, universities, and hospitals that are subject to Canada’s trade agreements. Approximately 200 new tenders are posted daily. The MERX system provides U.S. suppliers with easy access and excellent opportunities to sell a wide range of products and services to Canada's public sector. The Basic Subscriber package is free of charge providing U.S. companies with access to Federal Government procurement opportunities. From there, it is possible to search, view and download tender documents at no charge. This package also includes a free delivery of Opportunity Matching results, and one free Opportunity Matching Profile that automatically searches for opportunities of interest to a company’s criteria in the profile it can create. In order to access opportunities, other than federal government opportunities, users must subscribe to one of the fee-based packages. In addition, the Supplier Registration Information (SRI) service is used by federal government buyers to identify potential suppliers for purchases not subject to any of the trade agreements (for which they use MERX). The Canadian government’s fiscal year is from April 1 to March 31 (like Japan). More information can be found at U.S. Export Portal in a report entitled Accessing Government Procurement at the Federal and Provincial Levels.

Distribution & Sales Channels

Sales to Canadian companies are handled through relatively short marketing channels, and in many cases products move directly from manufacturer to end-user. A large number of Canadian industries are dominated by a handful of companies that are highly concentrated geographically. In many cases, 90 percent or more of the prospective customers for an industrial product are located in or near two or three cities. Canada's consumer goods market, on the other hand, is much more widely dispersed than its industrial market. The use of marketing intermediaries in consumer goods is common practice. Often, complete coverage of the consumer market requires representation in the various regions of Canada. Toronto, the largest metropolitan area and commercial center of the country, is usually the most logical location for establishing a sales agent/representative and/or distributor. From a regional perspective, the country may be divided geographically into six distinct markets, plus the territories. Establishing representation in each of these markets provides optimal coverage and the ability to target promotional programs to suit specialized market needs.

Selling Factors & Techniques

Selling in Canada is similar to selling in the United States, despite the differences in standards and regulations and French-language requirements. The biggest difference is in adapting sales methods in the six marketing regions in Canada. Some of these differences will have an impact on the way U.S. firms approach these markets. These regions are: The Atlantic Provinces: New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador.

The Atlantic Provinces represent a geographic area close to the size of France and have a combined population of 2.4 million. The only Atlantic province that borders a US state (Maine) is New Brunswick, and it is, therefore, one of the principal entry points for American-made goods. Additional products enter the region through distribution centers in Ontario and Quebec, adding significantly to the total sales and consumption of US products in this region. This most eastern Canadian region is known for their resource sectors, notably the major energy projects, and the diverse industries represented in its four, economically independent provinces: New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island.

Historically, the Atlantic Provinces have been net importers of finished products, and exporters of resource-based and semi-processed materials and services. This traditional mix has changed over recent years as services, IT products, and assorted finished goods are exported from the region, along with fishery and forestry products, and natural gas. The region enjoys strong relationships with states in the northeast US, the result of a long-standing trading pattern that began before Canadian confederation. However, with the support of the Canadian federal and provincial governments, companies in all four provinces have increased that reach to include many other U.S.
states.

Well-placed distributors, agents, and manufacturer's representatives, many of whom have long established relationships with US suppliers across diverse sectors, serve local and regional business. Because of the geographic distance between US suppliers and these four provincial markets, some type of local representation in the region is normally essential for sales success.

Buyers in the area regularly state that American companies are better served by representatives located in the Atlantic Provinces, than by those based in Ontario or Quebec. Personal contact between vendor and purchaser is highly valued in this part of Canada, and, where pricing and other factors are not major issues, these relationships can greatly influence the success of a US company in this market. This is very important for new-to-market companies, where an intimate knowledge of local business practices often makes the difference between success and failure. Typical are those situations requiring after-sale service or high levels of quality control, as is often seen in sales to governments and institutions. Purchasing requirements are not necessarily the same in every province, even though product specifications may be similar. Population size should not be the sole indicator for determining market potential. A diverse industrial base, major projects, international traders, and seasonal industries such as tourism, all contribute to major procurements for the region and for offshore markets. For major projects, business relationships such as joint ventures, partnering, and various forms of alliances and consortia have all been applied successfully and are viewed by local business as an effective way to win sales. The energy sector continues to provide an economic push to the region with work on the Panuke offshore gas field moving ahead in 2007 as well as four LNG plants at various stages of planning or construction. Also, this part of Canada is known for the significant number of telecommunications companies, a high level of activity in marine technologies, and a strong environmental sector.

The province of Quebec is Canada’s second largest economic region after Ontario. Quebec is North American in geography, French in origin, and British in parliamentary tradition. Of its 7.6 million people (representing 23.5 percent of Canada’s population), 80 percent are French-speaking. Quebec is home to an increasingly diverse, pluralistic society exposed to highly competitive global markets. The capital of the province, Quebec City, has a population of 717,000. Montreal is the province’s largest city with a majority French-speaking population of 3.6 million that is largely bilingual in English. The members of the Board of Trade of Metropolitan Montreal are the driving power in Quebec’s economy. Many U.S. companies have located sales and manufacturing facilities in Quebec. According to the Conference Board of Canada, the Quebec economy grew at a 2 percent rate in 2006, as the economy contended with weakening consumer demand and new housing demand. The export-driven manufacturing sector still faces challenges.

Nonetheless, with an abundance of natural resources and energy, Quebec remains strong in the forestry and mining and a North-American leader in aluminum and magnesium production, as well as for hydroelectricity. The traditionally strong manufacturing and service sectors provide stability to the highly industrialized Quebec economy. Growth in the aerospace, telecommunications, pharmaceuticals, biotechnology, and information technology sectors is helping Quebec maintain its status as a high-tech powerhouse.

Overall, Quebec represents one fifth of Canada’s economy – 25 percent of the information technology sector, 55 percent of aerospace production, 30 percent of the pharmaceutical industry, 40 percent of biotechnology companies and 44 percent of all Canadian high-tech exports.

U.S.-Quebec two-way trade of US $68 billion (2005) would rank Quebec as the #8 trading partner with the United States if Quebec were a country. Quebec’s imports of goods from the United States of nearly US $16 billion (2005) represent over 28 percent of Quebec’s imports from outside Canada. Leading imports from the United States are vehicles, computers, aircraft engines and parts, telecommunication equipment, automobile parts, trucks and tractors, electronic parts, airplane and helicopter parts, pharmaceuticals and medicines, plastics, chemicals, wood products and paper. Companies in the aerospace, pharmaceuticals, biotechnology and information technology sectors heavily import goods, services, parts, equipment and supplies from the United States.

French Canadians are North Americans, with buying habits that are similar to people in English-speaking Canada and the United States. It should not be assumed that their patterns of consumption would be similar to France any more than it would be appropriate to assume that Americans’ consumption patterns reflect Britain. Since the predominant language is the Quebec dialect of French (analogous to the relationship of American English to British English), promotion and packaging need to reflect local needs as well as Quebec’s French-language requirements.

Ontario’s 12 million people (almost 40 percent of Canada’s total population) help make it the country’s most dynamic province. Ontario is the economic engine of Canada due to its substantial and highly diverse industrial base. Ontario’s capital, Toronto, is Canada’s commercial center, home to half the country’s largest financial institutions, 90 percent of its international banks, and over 75 percent of US subsidiaries in Canada. Toronto boasts a population that represents some 100 nationalities. Located in the heart of North America, Ontario provides easy access to prosperous consumer and industrial markets. The province has a modern, integrated transportation infrastructure, including commuter and urban public transit, an excellent rail system, worldwide cargo aviation systems, and extensive in-land and international marine shipping facilities. In 2007, the Ontario economy is expected to continue to adjust to the strong Canadian dollar and high commodity prices. Ontario’s GDP is expected to remain steady at 1.6 percent to the end of 2007, according to the National Bank of Canada.

Ontario’s highly diversified economy offers excellent opportunities in all sectors ranging from automotive, plastics, and aerospace to information and telecommunications technology, computer software, and the life sciences. Knowledge-intensive industries such as computers, software, and medical technologies are among the fastest growing sectors in Ontario. The automotive industry accounts for 21 percent of Ontario’s manufacturing output and 45 percent of its exports. Ontario rivals the State of Michigan as North America's largest auto assembly center. However, Ontario’s manufacturing sector, including automotive and steel, has been shrinking recently, lowering the anticipated overall economic growth of Ontario during 2006-2007.

Ontario is the nucleus of the Canadian high-tech industry. Ottawa, Canada's national capital, is an important center for both the telecom and photonics industries. The city’s high-tech sector has experienced remarkable growth in the last few years and has attracted the attention of numerous information technology and telecommunications companies from across the United States. Home to high-tech companies such as Nortel Networks, Corel Corporation, and JDS Uniphase, the advanced technology sector in Ottawa generates almost US $14 billion in annual sales. Toronto is especially strong in software and related technologies, including e-commerce. There are more than 3,000 information technology firms in the Greater Toronto Area alone, with annual revenues of US $24 billion dollars.

While Toronto is the center of the province's commercial activity, the neighboring cities of Mississauga, Markham, and Oakville also offer opportunities to U.S. companies. Of the 4,000 U.S. companies registered in the province, almost 700 U.S. companies have operations in Mississauga alone, the sixth largest city in Canada. That number includes 57 “Fortune 100” U.S. companies that have their Canadian headquarters there. In addition to being Canada's commercial and industrial heartland, Ontario produces more than 200 agricultural commodities, a diversity unmatched in most parts of the world. Ontario is a world leader in food technology research and development as well. The province also accounts for 30 percent of Canada's mineral mining and 20 percent of its forestry products.

Opportunities for new power generation units based on gas, nuclear, wind and solar energy will come on stream as Ontario’s Integrated Power System Plan (IPSP) is implemented in the fall of 2007. As announced by the Ontario Government on November 14, 2006, coal-fired generating plants will remain in operation until 2014, and likely beyond as plans are afoot to possibly look at new technologies to lower/eliminate coal emitting pollutants and gasification in the future. Major chambers of commerce are the Toronto Board of Trade and the Greater Ottawa Chamber of Commerce. The American Chamber of Commerce has four chapters in Canada with its head office in Toronto.

The Prairie Provinces -- Manitoba, Saskatchewan, and Alberta -- have rich natural resources that have long provided a strong economy. They account for four-fifths of Canada’s agricultural land and over two-thirds of its total mineral production, including over ninety percent of its fossil fuels. As these primary industries’ contribution to GDP has fallen almost steadily for four decades, the Prairies have steadily diversified their economic base with manufacturing and services. In 2005 combined GDP was approximately US $258 billion.

The Prairie Provinces will continue to thrive in 2007. Alberta’s economy is firing on all cylinders due to the oil and gas sector, real GDP growth will ease from a torrid seven per cent this year to five per cent in 2007. Manitoba will enjoy solid growth of 3.3 per cent in 2007 due to stellar performances in construction, mining and agriculture. Saskatchewan’s prospects depend on agriculture, mining and oil and gas. High oil, gas and uranium prices have spurred strong exploration activity and real GDP growth is expected to be 2.5 per cent in 2007.

Today, the region's economy, led by Alberta, outpaces the nation, and the three provinces have the lowest unemployment rates in the country. The region's economy is driven in large measure by the energy sector, and has led to a dramatic expansion in the region's trade with the United States. In the last four years, for example, Prairie exports to, and imports from, the United States have risen by over by 60 percent and 25 percent, respectively.

Driven by strong exports, the food-processing sector has grown steadily and remains the Prairies' largest manufacturing industry. However, all manufacturing sectors, in particular machinery and transport equipment, are recording solid growth and represent excellent markets for US intermediate component, production, and capital equipment suppliers. Service sectors are also blossoming, particularly in the logistics and transportation sectors.

Canada is the largest single source of imported hydrocarbons for the United States. Currently, most of Canadian energy exports originate in Alberta, home to the corporate headquarters of the country's oil and gas industry. Steadily rising U.S. demand for natural gas has led to a proliferation of new pipeline projects and large expansions in exploration, drilling, and other production activity. Surging oil prices have accelerated major long-term projects for developing Alberta's huge resources of oil tar sands. This expanded activity has greatly increased export and merger opportunities for US firms, which today boast 40 percent industry ownership. Construction expenditures in Alberta, led in large measure by the energy sector, and aided by the province's rapid population growth, are double the national average: the Calgary/Edmonton corridor recently was found to have the highest per capita income in all of North America.

Over the past few years, numerous U.S. firms have selected an agent or distributor located in the Prairies to handle their product lines or services here. Regional distributors can better cover this broad expanse of territory than can representatives from the East. Also, inter-provincial trade barriers and significant transportation costs make it easier for U.S. firms located in states directly south of the border to export northward into this region, than for firms based in eastern Canada to distribute U.S.-origin products westward to the Prairies.

The chambers of commerce of Alberta’s major cities of Calgary and Edmonton are among over 100 members of the Alberta Chambers of Commerce. The members of the Manitoba Chambers of Commerce include the community chambers of commerce in the province. The Saskatchewan Chamber of Commerce is separate from the community chambers of commerce in the province.

The province of British Columbia (BC), located on Canada’s scenic West coast, is renowned for its abundant natural resources and multi-ethnic population. However, it is the lesser known attributes that should be of most interest to US exporters: 1) a highly business-oriented provincial government that is radically improving the commercial climate; 2) a large economy with a GDP of over US$142.8 billion in 2005; 3) imports from the US of over US$12 billion in 2005; and 4) a gateway for business development
into the Asia Pacific region.

The current provincial government was re-elected in 2004. It has worked hard to create a more business-friendly environment by introducing a total of 17 tax cuts, including reductions in corporate and capital gains taxes. Important revisions to British Columbia’s labor legislation have also improved flexibility for businesses. The BC Business Corporations Act makes doing business in the province more appealing for foreign companies; for example, the Director residency requirement has been eliminated. The city of Vancouver, a cosmopolitan center with a population of over 2 million inhabitants, won the bid to host the 2010 Winter Olympics and is preparing to host the world. Winning the bid spurred a major boom in infrastructure construction including a US$320 million expansion of the Vancouver Convention and Exhibition Center, which will be home to the international media during the 2010 Winter Olympics. British Columbia’s key industries include: 1) Energy & Mining – in 2005 mineral production (metals, non-metals and coal) reached US$5.34 billion with net income rising to US$1.56 billion in 2005 from US$740 million in 2004. 2) Forestry- in 2005 exports were $17 billion, while in 2005 Forestry & Logging GDP reached US$3.8 billion; 3) Fisheries – in 2005, Fishing, Hunting and Trapping together contributed US$112.5 million to BC’s GDP; 4) Agriculture – in 2005 crop and animal production reached US$1.35 billion and food manufacturing reached US$1.6 billion; 5) in 2005 shipments reached US$40.7 billion, while the manufacturing sector contributed US$17 billion in total to BC’s GDP in 2005.

In addition, a number of other industries also offer export opportunities for US firms: computer software & hardware, telecommunications equipment, aerospace products, life sciences equipment, computer integrated manufacturing components, electronics equipment, biotech equipment, environmental technology parts and components, and management consulting services.

British Columbia’s role as a “Gateway to Asia” continues to grow and develop. The large Asian business community, with especially strong ties in China, Taiwan, and Hong Kong, often serves as agents for governments and businesses in those markets. They source many products and services from the United States.

The Territories: the Yukon, the Northwest Territories, and Nunavut Stretching across the north are the territories of Yukon, Northwest Territories, and Nunavut, occupying roughly one-third of Canada's landmass, but home to only about 100,000 people. Despite this sparse population, however, there are trade opportunities in certain sectors.

Mining and related mineral exploration offer the greatest opportunities in all three territories. The government of the Northwest Territories is encouraging the establishment of a secondary diamond industry (cutting, polishing, and valuation) to complement the main diamond-mining sector. Tourism and related support industries are also growing, as the three regions encourage adventure travel to these remote northern sites.

Special opportunities exist in Nunavut, the newest territory, created on April 1, 1999. This territory is still in the process of setting up its own government and seeks management expertise in establishing systems to administer social services, education, health and other related services. There is also a need for construction and transportation equipment and materials.

Electronic Commerce

Canada’s e-commerce infrastructure is highly developed and closely integrated with that of the United States. This starts with the integrated telephone system, in which Canada shares the “001” country code with the United States, and has area codes that are part of the U.S. system. Broadband Internet access is offered throughout Canada using much of the same equipment as in the United States.

Information flows freely across the border, and without difficulty. Data flows are virtually uninhibited. For example, the primary message-processing center for the Blackberry system is located in Ontario, with the messages destined for U.S. destinations passing through Canada on their path. However, U.S. companies including medical equipment manufacturers should be aware that they may need to comply with Canada’s federal data privacy laws, including the Privacy Act and the Personal Information Protection and Electronic Documents Act (PIPEDA), as well as provincial privacy laws, all which can affect their business. In the WTO context, Canada has consistently supported the U.S. initiative for duty-free cyberspace. The Canadian Radio-television and Telecommunications Commission announced in 1999 that it would not attempt to regulate the Internet, a decision that is subject to review after five years (i.e., in 2004) but that review has not yet begun. In 2004, the CRTC decided that telephone communication over the internet (VoIP) should be subject to the same regulatory regime as conventional telephone systems, although no regulations have yet been proposed.
Canada’s Personal Information Protection and Electronic Documents Act, which took effect on January 1, 2001, requires persons or firms that collect personal information during the course of commercial activities to inform the subject of all purposes to which the data may be put and to obtain informed consent for its use.

For Internet transactions, there is often no reason to set up separate websites. Many companies have integrated their websites. Others have links, and maintain a .ca domain separate from their .com site. This is done primarily for marketing purposes. U.S. companies selling to Canadian business and consumer customers over the Internet should have procedures in place to meet Canadian customs requirements and look at ways to reduce expenses and inconvenience to their Canadian customers that crossborder shipping can entail.

Trade Promotion & Advertising

Like in the United States, the Internet is a prime means of business-to-business advertising. Canada’s national newspapers and regional business newspapers in both English and French are also a means of reaching business customers. Industry-specific trade publications, including trade association journals and newspapers and other magazines sent to their members or to specific audiences without charge, also typically carry a large amount of advertising and serve almost every major industry sector in Canada. The U.S. Commercial Service in Canada can help U.S. companies place advertisements in targeted industry publications under one or more of the U.S. Commercial Service Canada’s customized fee-paid programs. U.S. Commercial Service clients are also featured on the U.S. Commercial Service Canada website. U.S. exporters to Canada can also promote their products and services to Canadian customers and other business partners at both Canadian and U.S. trade shows. U.S.C.S. Canada also works with Canadian trade fair organizers throughout the country to organize U.S. Pavilions in trade shows. The Canadian Government has a listing of Canadian trade shows, which they promote for export purposes just as the U.S. Commercial Service promotes U.S. trade shows under the International Buyers Program.

Television advertising accounts for the largest percentage of net advertising revenues, followed by advertising in magazines and newspapers. Over 600 advertising agencies operate throughout Canada and a number of these are subsidiaries of US companies. Canadian advertising rates are generally comparable with those in the United States. Although a majority of Canadians speak English, the French-speaking areas, concentrated in Quebec province, should be considered a distinct market. Quebec is well served by French-language press, radio and television. Advertising directed toward this market should be specifically tailored to Quebec’s distinct cultural identity, consumer tastes, preferences and styles.

According to the circulation statistics of the Canadian Newspaper Association, there are currently more than 100 daily newspapers in Canada, of which approximately 90 percent are published in English and the remainder in French. Canada’s two daily national newspapers with substantial business sections are The Globe and Mail, published in Toronto and part of the Bell Globemedia conglomerate which includes the Bell Canada telephone company, and The National Post, also published in Toronto and part of the CanWest media conglomerate based in Winnipeg that also includes The Gazette, Montreal’s main English-language newspaper. The Toronto Star is also available throughout the entire country.

More than 89 percent of Canadian households have at least two television sets and approximately 98 percent of Canadians have some form of audio equipment (e.g. radio or CD player). Hundreds of public and commercial firms operate cable television and major broadcasting stations in metropolitan areas, though ownership is fairly limited. According to official statistics, over 11 million Canadians subscribed to cable or satellite television.

The Canadian Broadcasting Corporation (CBC) operates both English- and Frenchlanguage national television and radio networks. Both television networks broadcast on two channels, one with regular programming and one with all-news programming. CBC accepts advertising that must meet its advertising standards. There are two private national television networks: CTV, part of the Bell Globemedia conglomerate, broadcasting on two English-language channels (regular programming and all-news) and Global Television, part of the CanWest conglomerate, broadcasting on one English language channel. There are also 105 independent television stations in Canada. Most of the Canadian cable TV stations carry a wide variety of U.S. television channels, some with U.S. commercials, some with Canadian commercials. Canadian cable TV also carries a number of local TV stations operating in cities near the Canadian border such as Seattle and Burlington that target commercials to their Canadian audiences. Radio advertising is largely local.

Pricing

As in the United States, product pricing is key to remaining competitive. U.S. companies should research whether their products will be price-competitive in Canada as part of their market entry strategy, keeping in mind the high federal and provincial sales taxes that are charged to both domestic and imported goods. End-user prices of U.S. products and services to Canadian customers can also be substantially affected by exchange rate changes between the U.S. dollar and the Canadian dollar. When the U.S. dollar goes up in value against the Canadian dollar, the U.S. exporter may be forced to raise its prices to the Canadian importer, or by pricing in Canadian dollars, to absorb the increase and keep its price down. When the Canadian dollar goes up against the U.S. dollar, the U.S. exporter can cut its prices, or by pricing in Canadian dollars, retain the extra profit.

Between 2002 and 2005, the Canadian dollar rose 30 percent against the U.S. dollar: in 2002, the Canadian dollar was worth only about 64 cents, while in 2005, it was worth over 83 cents, and in mid-2006, it reached a high of 90 cents. This potentially gives U.S. exporters a big price advantage. In addition, since the U.S. dollar has fallen against the euro, the British pound, and the yen, American companies have similar pricing advantages against imports from Europe and Japan as well.

Sales Service & Customer Support

Canadian companies have a strong awareness of, and preference for, U.S. products and services. Nevertheless, Canadian customers, whether corporate or individual, demand high-quality sales service and after-sale customer support. Corporate clients often expect the U.S. seller to have an agent or distributor whom they can contact immediately should any problems arise. Like their counterparts in the United States, Canadian customers expect fast service and emergency replacement if required. U.S. exports of private commercial services (i.e., excluding military and government) to Canada were $32.5 billion in 2005, and U.S. imports were $22.0 billion. Sales of services in Canada by majority U.S.-owned affiliates were $41.7 billion in 2003 (latest data available), while sales of services in the United States by majority Canada-owned firms were $40.5 billion.

An American company entering Canada should evaluate its system of after-sale service and support in the U.S. market, and replicate that network as closely as possible in the Canadian market. If the market demands a strong network of sales and after-sale service in the United States, it is probable that success in Canada will depend on appointing agents who can provide that service. There are many companies in Canada that can offer that service as an agent or representative, or on a retainer basis. Alternatively, many U.S. companies have found that establishing a toll-free telephone number that services both Canada and the United States is extremely useful in maintaining contact with customers. This gives Canadian customers instant access to US vendors for solving problems, answering questions, or simply providing a higher "comfort level" with a new product.

If possible, sales and service should be handled within Canada. It can be expensive and time-consuming to handle product returns, exchanges, and warranty repairs crossborder due to the customs documentation required.

Protecting Your Intellectual Property

The Canadian Intellectual Property Office website has guides to registration in Canada of patents, trademarks, copyrights, industrial designs and integrated circuit topographies. The most important intellectual property rights are patents, trademarks and copyrights.

The Patent Act and Patent Rules govern patents in Canada. The Act allows for patenting of processes as well as products. Like most of the world, with the exception of the United States, Canada has a "first to file" system. An invention must demonstrate novelty, utility and ingenuity. Patent examination is not automatic; it must be requested separately from the patent application. Patent applications are made public 18 months after their Canadian filing date, or an earlier foreign filing date, if applicable. Provisions exist for payment of maintenance for pending applications and issued patents. Under Article 44 of the Patent Act, the patent term is 20 years from the filing date. An applicant for a patent who does not appear to reside or carry on business at a specified address in Canada shall, on the filing date of the application, appoint as a representative a person or firm residing or carrying on business at a specified address in Canada.

Besides the Paris Convention on the Protection of Industrial Property, which gives priority in time to U.S patent registrants based on their U.S. patent application date, Canada is also signatory of the Patent Cooperation Treaty, which provides for foreign patent protection in Canada for companies of other treaty signatories. From the perspective of the inventor, the treaty standardizes the country's patent practices with those of Canada's principal trading partners and makes it easier for Canadians to acquire foreign patents. Officials from the United States Patent and Trademark Office and the Canadian Intellectual Property Office meet frequently to exchange information and to consider mutually beneficial future joint activities.

Under the Trade-marks Act and Trade-marks Regulations, an applicant may base a trademark application on either actual use or intended use of the trademark in Canada. Under Articles 30 and 31 of the Trade-marks Act, and the Paris Convention for the Protection of Industrial Property, a Canadian trademark application may also be based on a registration of the trademark in the applicant's country of origin and use by the applicant or a licensee in that country, in which case a registration can be obtained without proof of prior use in Canada.

Accordingly, if there is any likelihood that a market in Canada will exist for the trademarked product, a U.S. exporter should file an application in Canada as soon as possible. This practice will minimize the possibility that someone else, observing the use abroad, will file in Canada first and preclude registration by the true owner of the mark. A Canadian trademark registration can often be obtained within 12 to 15 months of filing and is granted for a term of 15 years. The registration may be renewed for successive 15-year periods on payment of renewal fees. Amendments introduced in implementation of NAFTA strengthen the ability of the owner of a registered trademark to stop the importation of allegedly infringing goods from abroad. It is now possible to obtain a court order requiring Canadian customs officials to detain such infringing goods pending trial. However, the U.S. Government has encouraged Canada to consider further strengthening enforcement by authorizing customs agents to seize shipments of allegedly infringing goods prior to judicial action.

Canada is a member of the World Intellectual Property Organization (WIPO) and a signatory of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. The two 1996 WIPO Internet treaties (WCT and WPPT) updated international copyright standards for the internet era. Canada has signed the treaties but has not ratified them. In order to ratify the treaties, Canada must amend its copyright act in order to comply. As a NAFTA signatory, Canada also adheres to the Berne Convention for the Protection of Literary and Artistic Works (1971) and the 1952 Universal Copyright Convention (UCC).

Under the Berne Convention, U.S. authors of original works are automatically entitled to the benefits of copyright protection under Canada’s Copyright Act and Copyright Regulations. The general rule is that copyright lasts for the life of the author, the remainder of the calendar year in which the author dies, and for 50 years following the end of the calendar year. Copyright registration can be done online with a credit card and usually takes three weeks. It is not, however, necessary to register a copyright to have protection in Canada, but a registrant receives a certificate of registration to use as evidence that the work is protected by copyright and that the registrant is the owner of the work. In the event of a legal dispute, the registrant does not have to prove ownership; the onus is on the alleged infringer to disprove it.

Canada’s international treaty agreements require that Canada provide national treatment with respect to copyright. This Canada generally provides. However, Canada's Copyright Act has two provisions that follow the principles of reciprocity instead of national treatment, which have yet to be resolved to the satisfaction of the United States.

The first calls for a "neighboring rights" royalty, whereby broadcasters pay royalties to domestic recording artists and producers, as well as to those from countries that are signatories of the Rome Convention. As the United States is not a signatory, U.S. artists do not receive royalties. The second is for a "private copying" levy to be paid by manufacturers and importers of recordable blank cassettes, tapes and compact discs, with the proceeds going to domestic artists and artists from countries that extend the same benefits to Canada. The United States does not have such a levy for cassettes and tapes, only for compact discs. Canada's federal Industry Minister has the authority to grant benefits to countries that are currently precluded, but has yet to make a decision with respect to American artists and producers.

Canada’s Copyright Act has been amended several times to harmonize it with the country’s international intellectual property rights agreements. In early 2003, the Act was amended to specifically exclude the Internet from its compulsory licensing regime, aligning its copyright application of the Internet with that of the other G7 countries. Canada is a member of the World Intellectual Property Organization (WIPO) and adheres to several international agreements, including the Paris Convention for the Protection of Industrial Property (1971), the Berne Convention for the Protection of Literary and Artistic Works (1971), and the 1952 Universal Copyright Convention (UCC). Canada is also a signatory of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (together the WIPO Treaties), which set standards for intellectual property protection in the digital environment. Canada has not yet ratified either treaty, however. Ratification legislation was expected to be introduced into Canada’s Parliament in 2006, and will not pass until 2007 at the earliest.

Canada's Copyright Act contains two provisions under which the country applies reciprocal rather than national treatment. The first provision is for the payment of a neighboring rights royalty to be made by broadcasters to producers and artists. Under Canadian law, those payments are only guaranteed to producers and artists from countries that are signatories of the 1961 Rome Convention. The United States is not a signatory of the Convention, and Canadian authorities have not granted U.S. producers and artists’ national treatment in the distribution of these royalties. The second provision is for the payment of a levy, dubbed the private copy levy, by manufacturers and importers of blank audio recording media to producers and artists from countries that provide an equivalent payment to Canadian artists. The levy covers analog and digital tapes and discs, and was expanded in December 2003 to include MP3 players (although coverage of MP3 players was struck down by a court decision in December 2004). Canada's copyright law stipulates this reciprocity criterion in the distribution of the private copy levy to foreign producers and artists. The United States does not impose a levy on analog tape, but does impose a levy on digital audio recording media and devices, with proceeds being distributed to applicable producers and artists on a non-discriminatory basis, including to Canadians.

The United States regards Canada's reciprocity requirement for both the neighboring rights royalty and the blank media levy as detrimental to U.S. copyright holders. For this reason (and other reasons including Canada’s delay in implementing the WIPO treaties) USTR has placed Canada on its Special 301 "Watch List" for the past four years. Canada is authorized under its statute to grant some or all of the benefits of the two regimes to other countries if it considers that such countries grant or have undertaken to grant substantially equivalent rights to Canadians, but it has not granted these benefits to the United States. A growing coalition of technology and retail companies advocating the elimination of the private copy levy have added the levy to the list of copyright issues that will be examined as a part of the ongoing Parliamentary review of the Copyright Act. U.S. intellectual property owners are concerned about Canada's lax and deteriorating border measures and general enforcement. The lack of ex officio authority for Canadian Customs officers makes it difficult for Customs to seize shipments of counterfeit goods. To perform a civil seizure of a shipment under the Customs Act, the right holder must obtain a court order, which requires detailed information on the shipment. However, Canada’s Criminal Code allows for a public officer in the course of duty to seize any item discovered to be in violation of the law. For example, Customs can detain suspected counterfeit shipments and contact the Royal Canadian Mounted Police (RCMP), which can then proceed with investigation under criminal law.

Pirated and counterfeit goods include software, CDs, shampoo, and toys, which are often openly displayed in Canadian malls, department stores and chain stores. Of particular concern is the growing number of counterfeit electrical products that pose a significant health and safety risk, potentially compromising the reputation of the rights holder.

The price differential between pirated and legitimate goods, especially software, is significant. The majority of the pirated products are high quality, factory produced products from Asia. Aside from pirated software, many stores sell and install circumvention devices, also made in Asia, that allow pirated products to be played in a legitimate console. Once pirated and counterfeit products clear Canadian Customs, enforcement is the responsibility of the RCMP and the local police. The RCMP lacks adequate resources, training, and staff. Because Canadian laws are inadequate to address IPR issues, few prosecutors are willing or trained to take on the few cases that come up. Where an infringement case has gone to trial, the penalties imposed can be too weak to act as a deterrent, and jail time is rarely imposed. Border enforcement concerns were a major factor in keeping Canada on the Special 301 “Watch List” and for conducting an Out-of-Cycle Review in 2006. U.S. anti-piracy analysts have estimated that Canadian IPR protection weaknesses cost the U.S. economy between $100 million and 500 million annually.

In March 2004, Canada’s Federal Court ruled that downloading music from the Internet using peer-to-peer (P2P) software does not constitute copyright infringement. The court denied a motion to compel Internet service providers (ISPs) to disclose the identities of clients who were alleged to be sharing copyrighted music files. The recording industry appealed the decision and although the appeals court upheld the denial of disclosure of client identities, the denial was without prejudice to file a new application, and the appeals judge clearly stated that the 2004 decision was incorrect to state that P2P filesharing is legal. The question of whether P2P file sharing is legal in Canada remains unclear. Canadian ratification of the WIPO treaties would help remedy this problem.

Unauthorized camcording in Canadian movie theaters is a major source of international DVD piracy. The U.S. motion picture industry has traced more than 170 pirated films to camcording in Canada since 2004. Although camcording with intent to distribute is considered a crime in Canada, the act of camcording in a theater is not a criminal offense. Proving intent can be difficult, and Canadian law enforcement officials are often reluctant to pursue illicit camcording. Amending the Criminal Code to make the act of camcording in a theater a criminal offense would help address this problem.

In 2003, the Government of Canada amended the Copyright Act to ensure that Internet retransmitters are ineligible for the compulsory retransmission license until the Canadian Radiotelevision and Telecommunications Commission (CRTC) licenses them as distribution undertakings. Internet "broadcasters" are currently exempt from licensing. In 2003, the CRTC confirmed its intention to leave this exemption unchanged. The Broadcasting Act lists among its objectives, "to safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada." The federal broadcasting regulator, the CRTC, implements this policy. The CRTC requires that for Canadian conventional, over-the-air broadcasters, Canadian programs must make up 60 percent of television broadcast time overall and 50 percent during evening hours (6 p.m. to midnight). It also requires that 35 percent of popular musical selections broadcast on radio should qualify as "Canadian" under a Canadian government-determined point system. For cable television and direct to home (DTH) broadcast services, a preponderance (more than 50 percent) of the channels received by subscribers must be Canadian programming services.

Non-Canadian channels must be pre-approved (“listed”) by the CRTC. For other services, such as specialty television and satellite radio services, the required percentage of Canadian content varies according to the nature of the service.

The CRTC also requires that the English and French television networks operated by the Canadian Broadcasting Corporation (CBC) not show popular foreign feature movies between 7 p.m. and 11 p.m. The only non-Canadian films that may be broadcast during that time must have been released in theaters at least two years previously and not be listed in the top 100 of Variety Magazine's top grossing films for at least the previous ten years.

Under previous CRTC policy, in cases where a Canadian service was licensed in a format competing with that of an authorized non-Canadian service, the CRTC could revoke the license of the non-Canadian service, if the new Canadian applicant so requested. This policy led to one "de-listing" in 1995 and has deterred potential new entrants from entering the Canadian market.

In July 1997, the CRTC announced that it would no longer be "disposed" to take such action. Nonetheless, Canadian licensees may still appeal the listing of a non-Canadian service which is thought to compete with a Canadian pay or specialty service, and the CRTC will consider removing existing non-Canadian services from the list, or shifting them into a less competitive location on the channel dial, if they change format to compete with a Canadian pay or specialty service.

A principal concern of the Canadian Cable Telecommunications Association (CCTA) is the spread of unauthorized use of satellite television services. Industry findings, extrapolated on a national basis, estimated that 520,000 to 700,000 households within cabled areas use unauthorized satellite services. Any survey of the incidence of satellite signal theft outside cabled areas would add to these numbers. This survey, combined with information obtained through Canadian film producers’ investigations and related Internet newsgroups, supports the conclusion that there may be 1 million illegal users of U.S. satellite television systems in Canada, resulting in a significant annual loss to the legitimate satellite television industry. Of this number of illegal users, it is estimated that over 90 percent are involved in the "black market" (i.e., signal theft without any payment to U.S. satellite companies), with the remainder subscribing via "gray market” where the unauthorized user does in fact purchase the signal from a U.S. satellite company for the signal, but only by pretending to be a U.S. resident. Annual losses to the U.S. motion picture industry due to audiovisual piracy in Canada were estimated at $122 million in 2002.

Late in 2003, the Government of Canada (GOC) introduced amendments to the Radiocommunication Act to significantly increase penalties for signal theft and for the sale of unauthorized hardware. This draft legislation expired at the end of the Parliamentary session in November 2003, but was reintroduced in substantially the same form in the past session, which ended in November 2005 with no action. A Quebec court ruled in October 2004 that the Canadian government’s measures to prevent Canadians from subscribing directly to U.S.-origin satellite television services are unconstitutional. The GOC appealed this ruling and a higher court overturned it in April 2005.

Due Diligence

Conducting due diligence in screening prospective business partners in Canada is similar to the procedures used in the United States. While commercial fraud is a tiny part of the $1.3 billion daily U.S.-Canada trade in goods and services, nonetheless some U.S. exporters to Canada have been victimized by unscrupulous buyers. In most cases of fraud, money and goods are never recovered. By implementing a solid credit and collection policy as well as verifying the information submitted by potential business partners, U.S. companies can protect themselves from being victims of fraud and suffering monetary losses. The U.S. Commercial Service in Canada offers guidance on how U.S. companies can avoid fraud, conduct their due diligence with partner background checks and find reputable business partners.