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Exporting to Canada: What You Need to Know
On: October 7, 2020 | By: David Noah | 13 min. read
As our neighbor to the North, Canada is often the first place many U.S. exporters look to share their goods. And for good reason! A shared language, shared culture, and excellent economic relationship with Canada makes doing business there appealing to new and established exporters.
In this article, I’ll look at the history of U.S. trade with Canada; how NAFTA and now the USMCA has altered trade with Canada; the process of exporting to Canada, including documentation and compliance requirements; and the benefits and considerations for U.S. companies looking to break into the Canadian market.
The USMCA and Exporting To Canada
On July 1, 2020, NAFTA was replaced by the United States-Mexico-Canada Agreement (USMCA). This means that companies that utilized the benefits of NAFTA when exporting to Canada must review their products to make sure they qualify under the terms of USMCA; while many products don’t have significant changes, certain key industries in Canada, like agriculture, do have significant changes.
The USMCA modernizes and balances U.S. trade relations with Canada (and Mexico) and reduces incentives to outsource by providing labor and environmental protections, innovative rules of origin, and revised investment provisions. The agreement also brings labor and environment obligations into the core text of the agreement and makes them fully enforceable.
Here are some of the highlights:
- Under USMCA, Canada and Mexico agreed to strong enforcement provisions against counterfeiting and piracy, ensuring protection of trade secrets, and ex officio authority for law enforcement officials to stop suspected in-transit counterfeit goods.
- USMCA contains the strongest disciplines on digital trade of any international trade agreement, including rules to ensure that data can be transferred cross-border and minimizing limits on where data can be stored and processed.
- USMCA increased access for U.S. dairy and poultry farmers to the Canadian market, and will eliminate its discriminatory grading of U.S. wheat and no country of origin statement will be required on Canada’s quality grade certificates.
- USMCA commits to ensuring that British Columbia eliminates discriminatory treatment of U.S.-origin wine in grocery stores and includes new non-discrimination and transparency commitments regarding the sale and distribution of alcoholic beverages.
- An increase in the de minimis rule for exports to Canada (up to $150 CAD) and Mexico ($117 USD) to allow goods up to that value to enter duty free. This is intended to boost small e-commerce orders to those countries. The U.S. de minimis amount is unchanged at $800, although the agreement allows the U.S. to match the de minimis amounts of the other two countries, if it desires.
- In order to stimulate more North American auto production through updated automotive rules of origin, the agreement increases regional value content for passenger vehicles and light trucks from 62.5% to 75%, phased over three years.
Under USMCA, importers are now the party to make the claim to the appropriate customs authority for preferential duty rates under the agreement based on certification that the goods qualify from the producer, exporter or importer. Under NAFTA, the exporter made those claims.
While there is no longer an official certificate of origin form, whichever party is certifying that the goods meet the rules of origin must provide, at minimum, certain data elements as outlined in the agreement to support the claim. That information can be provided on the invoice or on a separate attached document—a certificate of origin. That document can be a hard copy or digital.
Facts and Figures on Trade and Exporting to Canada
Since World War II, the growth of Canadian manufacturing, mining and service sectors “has transformed the nation from a largely rural economy into one primarily industrial and urban.” (CIA World Factbook) As of 2021, Canada was ranked 15th in the world as measured by a Purchasing Power Parity (PPP) basis that adjusts for price differences.
The 1989 Canada-U.S. Free Trade Agreement and the 1994 North American Free Trade Agreement dramatically increased trade and economic integration between the U.S. and Canada. The two countries have “the world’s most comprehensive and highly balanced bilateral trade and investment relationship,” according to the CIA World Factbook.
So what does the Canadian trade relationship with the U.S. look like today? Between the U.S. and Canada in 2017, there was goods and services trade totaling more than $680 billion and two-way investment stocks of nearly $800 billion.
More than 75% of Canada’s exports go to the U.S. each year, and Canada is the United State's largest foreign supplier of energy (including oil, natural gas, and electric power, and a top source of U.S. uranium imports).
The latest available data from the U.S. Commercial Service’s Canada Country Commercial Guide shows that U.S. exports to Canada were $365 billion in 2018, or 15% of total U.S. exports.
Top U.S. Exports to Canada
According to the Office of the U.S. Trade Representative, the top U.S. export categories to Canada in 2019 according to two-digit HS numbers were:
- Vehicles: $52 billion
- Machinery: $45 billion
- Electrical machinery: $25 billion
- Mineral fuels: $19 billion
- Plastics: $13 billion
Canada is the number one export destination for U.S. farm and food products totaling $25 billion dollars in 2021, which represents 15% of total U.S. agricultural exports. In particular, consumer-oriented agricultural products like prepared foods, baked goods, and cereals and pastas represented 70% of the total U.S. ag exports. Most U.S. agricultural products enter Canada duty free under the USMCA with the exception of items like dairy, chicken, turkey and eggs.
Exporting to Canada: The Challenges
Fortunately for exporters interested in exporting to Canada, there are few trade barriers to overcome. According to the International Trade Administration (ITA), challenges include:
- Notably, many exporters forget that Canada is, indeed, a different country that requires specific export procedures. Some exporters forget that our neighbor to the north is, in fact, another country, and fail to follow export compliance regulations.
- U.S. exporters must understand differing provincial regulations, conduct due diligence on market potential and sales channels, comprehend labeling and packaging requirements and certification standards and customs procedures, and, in general, must educate themselves on unique industry matters relevant to selling their goods or services in Canada.
- Increasing competition in several sectors such as cosmetics, vitamins, electronics and home furnishings translates into a need for competitive pricing, provocative and imaginative marketing, and deep discounts for agents and distributors. Exporters should be prepared for Canada Customs documentation, bilingual labeling, and packaging requirements, Canadian federal and provincial sales tax accounting, and, in some cases, should be aware of International Traffic in Arms Regulations (ITAR).
- Bidding for contracts can also be a challenge for U.S. exporters because of the requirements and security clearances. Bidders must be registered in Canada to bid and must fulfill all Canadian requirements to be awarded contracts (mandatory requirements are non-negotiable).
Rules and Regulations in Canada
As previously mentioned, deciphering Canadian rules and regulations for exporting can be frustrating in the least and, at worst, cause issues that force an exporter to stop trade to the country completely.
There are ways to combat these issues when exporting to Canada:
- Work closely with your local U.S. Commercial Service office. They will link you to offices in Canada that will help you establish your presence in Canada and assist you through difficulties you may face.
- Additionally, the U.S. Department of Commerce's Advocacy Center can help you with early stages of your project.
- Find partners who have experience working with Canada. Your freight forwarder and banker should have documented experience working with the country.
Exporting to Canada: The Opportunities
The potential rewards to exporting to Canada likely far outweigh any challenges exporters may face. Exporters should identify and cultivate opportunities while building a strategy to minimize the risks.
The positive impacts of the USMCA mean that Canada may be a better option for exporting than other countries. The USMCA improves market access for U.S. companies in several important ways, specifically through intellectual property rights, digital trade, labor obligations, environmental obligations, and automotive manufacturing.
Canada’s most promising sectors include the following:
- Renewable energy, including hydro, wind, solar, biomass, geothermal and marine energy
- Public-private partnerships for public infrastructure and government projects.
The best thing about exploring the opportunities to export to Canada is knowing you don’t need to go it alone. You can rely on assistance from your in-country allies, including the U.S. Commercial Service office, trade missions, and chambers of commerce.
One of the first places to consider are your local and in-country U.S. Commercial Service offices. The Commercial Service in-country offices offer U.S. exporters business partners in Canada—boots on the ground in the country—and include representation by an agent, distributors or partners who can provide essential local knowledge and contacts that can be critical for your success. You can learn more about in-country offices in our article, Tapping into the U.S. Commercial Service's In-Country Offices.
DECs across the country can help exporters by supporting trade and services that strengthen individual companies, stimulate U.S. economic growth, and create jobs. DEC members also serve as mentors to new exporters and can provide advice to smaller companies.
Sponsored by state and local trade offices as well as commercial service offices, trade missions are a great way to get introduced to and network with contacts. Check into them.
The ITA is an excellent resource to help you combat problems. Staff at the ITA are resident experts in advocating for U.S. businesses of all sizes, customizing their services to help solve your trade dilemmas as efficiently as possible. If you find yourself caught in an unfair international trade situation, the ITA is a valuable resource that can expeditiously help you understand and solve your problems. The ITA makes it easy to report a problem, allowing you to submit your report online.
U.S.-Canada Chambers of Commerce
Chambers of commerce may be a way to help you when exporting to Canada. You can learn more about various chambers in our article, The Chamber of Commerce Role in Exporting.
Export Document Requirements for Canada
When exporting to Canada, documentation and procedures are still critical. According to the ITA, the most important document a U.S. exporter needs when exporting to Canada is the Canada Customs Invoice or a standard commercial invoice that includes all the required information.
Other documents you need to export to Canada will vary depending on your products, but they include:
- Bill of lading
- USMCA Certification of Origin
- Packing List
- Sales contract
- Proforma invoice
- Customs declaration
- Insurance policy
Export Compliance Issues When Exporting To Canada
It’s important to understand the regulations covering exports to Canada. You must be concerned with complying with export regulations no matter where you ship, but, fortunately, understanding regulations is easier to do than, say, if you were exporting to China.
However, this doesn’t mean you can take export compliance lightly. You need to understand what is required of you and what you risk if you don’t do your job in complying with those regulations.
Product Classification for Export Controls
The first step in ensuring export compliance is determining who has jurisdiction over your goods: the U.S. Department of Commerce under the Export Administration Regulations (EAR) or the State Department's Directorate of Defense Trade Controls (DDTC).
If they fall under the jurisdiction of the Commerce Department, which most products do, you must determine if your export requires authorization from the Bureau of Industry and Security (BIS), which is part of the Commerce Department, you need to answer the following questions:
- What is the ECCN of the item?
- Where is it going?
- Who is the end user?
- What is the end use?
To do that, you must know how to determine the correct classification of your item, also known as determining the Export Control Classification Number (ECCN). The ECCN is different than the HTS or Schedule B classification of your goods. We explain these differences in our article, Export Codes: ECCN vs. HS, HTS and Schedule B.
By making sure your product is classified correctly, you’ll be protecting the U.S. from threats abroad and protecting yourself from severe fines, penalties and even jail time.
Export License Determination
There are several reasons the U.S. government prevents certain exports to Canada without an export license. Companies must use the ECCN codes and reasons for control described above to determine whether or not there are any restrictions for exporting their products to specific countries. Once they know why their products are controlled, exporters should refer to the Commerce Country Chart in the EAR to determine if a license is required.
Although a relatively small percentage of all U.S. exports and reexports require a BIS license, virtually all exports and many reexports to embargoed destinations and countries designated as supporting terrorist activities require a license. These countries are Cuba, Iran, North Korea, Sudan and Syria. Part 746 of the EAR describes embargoed destinations and refers to certain additional controls imposed by the Office of Foreign Assets Control (OFAC) of the Treasury Department.
The Shipping Solutions Professional export documentation and compliance software includes an Export Compliance Module that will use the ECCN code for your product(s) and the destination country and tell you if an export license is required. If indicated, you must apply to BIS for an export license through the online Simplified Network Application Process Redesign (SNAP-R) before you can export their products.
There are export license exceptions, like low-value or temporary exports, that allow you to export or reexport, under stated conditions, items subject to the Export Administration Regulations (EAR) that would otherwise require a license. These license exceptions cover items that fall under the jurisdiction of the Department of Commerce and not items that are controlled by the State Department or some other agency.
Surprise! You May Be an Exporter without Even Knowing It! A sometimes overlooked compliance issue for exporting to Canada is deemed exports, or exporting without shipping a product. A deemed export occurs when technology or source code (except encryption and object source code, which is separately addressed in the EAR under 734.2(b)(9)), is released to a foreign national within the United States.
Sharing technology, reviewing blueprints, tours of facilities, and other disclosures of information are considered potential exports under the deemed export rule and should be handled accordingly. You can learn about how to apply this principle here.
Restricted Party Screenings
Restricted party lists (also called denied party lists) are lists of organizations, companies or individuals that various U.S. agencies—and other foreign governments—have identified as parties that one can’t do business with.
There are several reasons why a person or company may be added to a restricted party list. For example, they may be a terrorist organization or affiliated with such an organization, they may have a history of corrupt business practices, or they may otherwise pose a threat to national security.
Restricted party screening (or denied party screening) refers to the process in which a company checks a potential customer or business partner against one or more of the restricted party lists to ensure they are not doing business with a restricted party.
The primary restricted party lists in the United States are published by the Department of Commerce, Department of State, and Department of Treasury. However, several other agencies produce lists as well. These agencies recommend that companies perform restricted party screening periodically and repeatedly throughout the movement of goods in the supply chain.
When exporting to Canada, it’s imperative you check every single restricted party list every time you export.
- Fines for export violations can reach up to $1 million per violation in criminal cases.
- Administrative cases can result in a penalty amounting to the greater of $250,000 or twice the value of the transaction.
- Criminal violators may be sentenced to prison for up to 20 years, and administrative penalties may include denial of export privileges.
Export Documentation and Compliance Software
If you’re an exporter who is considering exporting to Canada, consider this: Shipping Solutions export documentation software can help you quickly create the necessary documents and stay compliant with export regulations. Click here to register for a free online demo of the software.
This article was first published in October 2017 and has been updated to include current information, links and formatting. It is one in a series of articles exploring exporting to specific countries across the globe, including China, India, Japan, Mexico, Brazil, and the United Kingdom.
About the Author: David Noah
David Noah is the founder and president of Shipping Solutions, a software company that develops and sells export documentation and compliance software targeted at U.S. companies that export. David is a frequent speaker on export documentation and compliance issues and has published several articles on the topic.