Free Trade Agreements and You
Understanding Free Trade Agreements can not only help your importations go more smoothly, they can also save you money.
What is Canada’s stance on free trade?
Free Trade Agreements have become a foundation of importation in Canada. As Canada’s total trade is worth approximately two-thirds of its GDP, the nation is typically described as a “trading nation” or “export-oriented economy”. Trade done within countries that are a part of active Free Trade Agreements with Canada account for 75% of that number.
Today, Canada has 13 free trade agreements in force with various countries. By far, Canada’s most beneficial agreement is NAFTA. In fact, the Canadian economy has grown a total of 2.5% more annually than it would have without the agreement being in place.
What is a free trade agreement?
Free Trade Agreements are when two or more nations form an agreement on the terms of trade between the participating parties. Tariffs and/or duties that countries impose (or forgo imposing) on imports and exports are laid out in the agreements.
By their very nature, these agreements have a significant effect on international trade.
Unilateral, bilateral, multilateral trade agreements
Unilateral: This kind of agreement happens when a country decides to impose trade restrictions, without the reciprocation of any other country. This is pretty rare, as this puts the country at a competitive disadvantage.
At times, developed nations use unilateral trade as a method of providing foreign aid. It helps smaller, emerging markets grow, and creates new markets for exporters.
Bilateral: As you may have guessed, this agreement occurs between two countries. This is when the two participating parties agree to loosen restrictions on trade in order to expand business between them.
Tariffs are lowered, and the parties are granted preferential trade status with each other.
Multilateral: The more the merrier is absolutely true in this case. Multilateral agreements are very powerful, covering a large area, and boosting the parties’ competitive advantage on the market.
The drawback? These agreements are incredibly difficult to negotiate, as different countries’ interests may clash. (Think: NAFTA — that is currently under negotiations spurred by shifting US values).
The following is a list of Canada’s active free-trade agreements:
Without a doubt, free trade agreements are integral to the Canadian economy. Today, the Trudeau government faces the challenge of deepening public support for trade agreements as the political climate is shifting toward protectionism.
Free trade agreements (FTAs) are made between nations to ease the flow of goods between them. This is accomplished by reducing fees and duties. Canada is regularly referred to as an open trade country. We have 12 active free trade agreements with the US, Mexico, Israel, South Korea and others. Canada is currently in negotiations with an additional 8 countries..
As a Canadian business that imports and exports goods, you should be taking advantage of any available active agreements that could benefit your business. We’ve put together a few pointers for evaluating FTAs.
Are the items shipped directly from another country?
Firstly, if your goods are shipped through a third country during the shipping process, it may still fall within the FTA requirements. If the importer wishes to claim FTA benefits, they need to prove that the goods were moved “in bond” through another country, and did not enter the market in that country.
Have you complied with rules of origin?
Rules of origin is critical for complying with the regulations of an FTA. If the goods you are importing has contents from a foreign country, you must verify if it still complies with the FTA’s rules of origin. Some goods containing foreign materials may qualify depending on the rules for those tariffs or the regional value content.
Have you verified the goods are applicable to benefits?
It’s a common misconception that FTAs ensure that all imported goods are duty-free. The rate of duty is determined through the specified tariff classification within the agreement. It is important that you are classifying your goods correctly to avoid any delays or penalties when clearing your package.
Have you filled out the required documentation properly?
It is of utmost importance that the supplier has accurate information regarding the goods, in order to ensure your compliance with the requirements of the FTA. For smooth shipping transactions; clear, complete documentation is king.
The bottom line? Free Trade Agreements are not created equal.
Some may benefit you more or less depending on the specifications within the agreement.
To help you navigate through the complex compliance landscape (and avoid the penalties that can come from non-compliance), Community Customs Brokers’s team of professionals can provide answers to these and many other pressing questions related to doing business in Canada as an Importer/Exporter.