By David Noah, President, Shipping Solutions

 

As our neighbor to the North, Canada is often the first place many US small to medium sized exporters do and should look to export their goods. And for good reason! A mature economy, shared language, shared culture, and excellent economic relationship with Canada makes doing business there appealing to new and established exporters.

 

Top US Exports to Canada

According to the Office of the US Trade Representative, the top U.S. export categories to Canada in 2019 according to two-digit HS numbers were:

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• Vehicles: $52 billion

• Machinery: $45 billion

• Electrical machinery: $25 billion

• Mineral fuels: $19 billion

• Plastics: $13 billion

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Canada is the number one export destination for US 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 US ag exports. Most US agricultural products enter Canada duty free under the US-Mexico-Canada Agreement (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:

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• 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.

• US 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 US 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).

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Rules and Regulations in Canada

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 US 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 US 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.

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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 US 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:

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• Aerospace

• Agriculture

• Automotive

• Military

• Renewable energy, including hydro, wind, solar, biomass, geothermal and marine energy

• Technology

• Public-private partnerships for public infrastructure and government projects.

 

Export Assistance

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 US Commercial Service office, trade missions, and chambers of commerce, among others.

 

Export Document Requirements for Canada

When exporting to Canada, documentation and procedures are still critical. According to the ITA, the most important document a US 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:

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• Bill of lading

• USMCA Certification of Origin

• Packing List

• Sales contract

• Proforma invoice

• Customs declaration

• Insurance policy

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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.

 

Product Classification for Export Controls

The first step in ensuring export compliance is determining who has jurisdiction over your goods: the US 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:

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• What is the ECCN of the item?

• Where is it going?

• Who is the end user?

• What is the end use?

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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 US from threats abroad and protecting yourself from severe fines, penalties and even jail time.

 

Export License determination

There are several reasons the US 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 US 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.

 

Deemed Exports

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 US 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 regulation.