Canada: Budget 2012: Increasing Economic Activity Through International Trade Measures

The Government of Canada, in its recent federal budget (Budget 2012), announced several significant new priorities and planned measures intended to have an impact on international trade and investment to and from Canada.

Several of these announcements may have an immediate impact on Canadian businesses, while several others will offer an opportunity for businesses to provide their views to the government before its plans are finalized.

In announcing these measures, the government has stated that it will:

  • seek to change the focus of its strategy for negotiating international trade and investment agreements;
  • modify the institutional framework of its trade remedy system;
  • begin several pilot projects with the U.S. under the Action Plan on Perimeter Security and Economic Competitiveness (the Action Plan);
  • modify or eliminate several tariffs; and
  • extend Export Development Corporation financing to Canadian exporters.

Following is a brief summary of these budget initiatives.

Trade Agreements – A New Focus

In Budget 2012, the government announced its interest in actively pursuing new international trade and investment opportunities with large and fast-growing economies. The government highlighted its recent focus on negotiating bilateral and multilateral trade agreements and noted that it will seek to refresh its Global Commerce Strategy. The original Global Commerce Strategy, launched in 2007, was designed to position Canada to profit from changes in the global economy. At that time, the government identified 13 priority markets worldwide which, in the government's view, offered potential for the growth of Canadian economic interests.

Among other things, priority markets are those countries with which Canada will pursue free trade and investment protection agreements and direct the efforts of its Trade Commissioner Service. In Budget 2012, the government announced that it will conduct broad consultations with Canada's business community, including small and medium-sized businesses, in an effort to refocus the strategy.

In particular, the government wants to ensure that Canada is "branded to its greatest advantage" in high-growth priority markets. Though it is not yet clear what steps will ultimately be taken, the government may focus the promotional efforts of its trade commissioners on newly identified markets, or it may pursue trade agreements with the newly identified markets. The new strategy is expected to be completed in 2013.

In the last several years, Canada has concluded free trade agreements and foreign investment promotion and protection agreements with numerous countries. Notably, negotiations for comprehensive trade agreements between Canada and the EU, as well as Canada and India, are ongoing.

Streamlining Canada's Trade Remedy System

The government announced in Budget 2012 that it is in the process of streamlining Canada's trade remedy system by which companies in Canada can seek relief from the impact of imports that have been "dumped" into Canada or where imports have been improperly subsidized. In particular, after conducting technical investigations and hearings, the government may impose import duties on goods found to have been "dumped" into Canada or improperly subsidized by a foreign government.

In Budget 2012, the government has indicated that the proposed changes will be designed to make it easier for Canadian businesses to pursue investigation into such remedies, as well as to reduce bureaucratic rules and costs. In last year's budget, the government indicated that changes would be made to make the trade remedy system more efficient, but provided little detail on the natures of such changes. In Budget 2012, the government has indicated how it will bring about these efficiencies by announcing that it will introduce legislation to consolidate the trade remedy investigative functions under the Canadian International Trade Tribunal (CITT). Currently, trade remedies are jointly administered by the CITT and the Canada Border Services Agency.

Update to Perimeter Security Action Plan – Announcement of Pilot Projects

In December 2011, Canada and the U.S. launched the previously mentioned Action Plan, which provides a practical road map for facilitating more secure and rapid trade and travel across the Canada-U.S. border. Budget 2012 indicates that pilot projects implementing the Action Plan will soon begin at border crossings in Prince Rupert, B.C. and Montréal, Quebec, where "smarter systems" aimed at having goods screened only once will be deployed to reduce redundant multiple inspections of freight and baggage by Canadian and U.S. customs and border security authorities.

Budget 2012 also notes that the government will take additional measures to implement Action Plan commitments and other border improvements over the next two years. Improvements in border efficiency realized via implementation of the Action Plan are expected to result in significant cost savings and economic gains for businesses that transport goods across the Canada-U.S. border.

Announced at the same time as the perimeter Action Plan, Canada and the U.S. also announced an Action Plan on Regulatory Cooperation which is intended to bring about a greater alignment of regulations between the two countries. Though it presents no new plans with respect to implementing this action plan, it is referred to in Budget 2012 as a part of Canada's general efforts to lower barriers to trade and facilitate commerce.

Tariff Relief Benefitting the Energy Industry

Budget 2012, when implemented, will eliminate the 5% most-favoured-nation rate of duty imposed on certain imported oils used in oil and gas refining as well as electricity production. This tariff elimination, implemented through amendments to Canada's Customs Tariff (Customs Tariff), will be effective in respect of goods imported on or after March 30, 2012.

Increases to Duty/Tax-Free Travellers' Exemptions

Budget 2012 also proposes to modify several existing duty exemption provisions in the Customs Tariff. Budget 2012 recommends the existing travellers' exemption of C$50 be increased to C$200 for returning Canadian residents who are out of the country for 24 hours or more. For residents out of the country for 48 hours or more, Budget 2012 proposes that exemption levels be increased from the existing C$400 to C$800 (thereby superseding the current import exemption of C$750 for Canadian travellers who have been abroad for seven days or more).

Budget 2012 maintains the existing lack of duty exemptions for residents returning to Canada after less than 24 hours abroad, and also leaves the personal volume and quantity importation limits on alcohol and tobacco unchanged. To be given effect by amendments to the Customs Tariff, the new exemption levels will apply to travellers returning to Canada on or after June 1, 2012.

Comprehensive Review of Preferential Tariff Regime

Since 1974, Canada has applied a general preferential tariff regime to certain developing countries that trade with Canada predicated on promoting economic diversification and growth in the developing world. Noting that certain developing countries have experienced "significant shifts" in wealth and economic competitiveness since the 1970s, Budget 2012 proposes a comprehensive review of Canada's general preferential tariff regime to ensure that this form of development assistance is appropriately aligned with Canada's development policy objectives.

Continuation of EDC Domestic Financing

Budget 2012 refers to the government's recent extension of Export Development Canada's (EDC) domestic financing powers. The additional powers, allowing EDC to extend credit to Canadian exporters, were extended until March 2013. The government stated that this period will afford it an additional opportunity to assess the EDC's continued role in the domestic market.

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