Canada: Good News For Canadian Businesses: International And Internal Trade A Priority In 2014 Budget

On February 11, 2014, Minister of Finance Jim Flaherty tabled Economic Action Plan 2014 (Budget 2014) in the House of Commons. In Budget 2014, the federal government outlined a number of significant trade developments that have occurred over the past year, confirmed tariff relief for offshore oil and gas exploration companies, and introduced several new initiatives to ensure that consumers and businesses are reaping the full benefits of both international and internal trade.

ECONOMIC SANCTIONS

Canada imposes economic sanctions against a number of countries pursuant to the Special Economic Measures Act and the United Nations Act. In Budget 2014, the federal government has acknowledged that the due diligence requirements under Canada's economic sanctions place a significant burden on the private sector. For example, existing sanctions strictly regulate interactions with designated individuals and entities, whose names are contained in 19 separate lists located on five different domestic and international websites. The federal government has committed in Budget 2014 to adopting new administrative measures and, where necessary, enacting legislative and regulatory amendments to improve the effectiveness of Canada's sanctions regime.

TRADE AND INVESTMENT AGREEMENTS

In Budget 2014, the federal government committed to continuing the work it had done in 2013 towards advancing its international trade relationships. In addition to the agreement in principle on the Comprehensive Economic and Trade Agreement with the European Union that was announced in October, the Canada-Panama Free Trade Agreement came into force in April, while an expanded Canada-Chile Free Trade Agreement came into force in September, and the Canada-Honduras Free Trade Agreement was signed in November. 2014 may see the signing of a number of new free trade agreements, as Canada conducted several rounds of negotiations with India and Japan this past year, while also participating in negotiations towards the Trans-Pacific Partnership.

Foreign investment promotion and protection agreements have also kept the federal government busy in 2013 with the Canada-Tanzania agreement coming into force and negotiations being completed on seven additional agreements. In November negotiations began on a foreign investment promotion and protection agreement between Canada and Macedonia, which is expected to be completed in 2014.  

INTERNAL TRADE

While international trade will continue to be a priority for the federal government, Budget 2014 also focuses on the federal government's intent to introduce measures to further develop internal trade within Canada. The measures will mainly improve upon the Agreement on Internal Trade (AIT), in force since 1997 between the federal government and all Canadian provinces, as well as the Northwest Territories and the Yukon. 

January 2014 saw the release of a report by Canada's Public Policy Forum titled Canada's Evolving Internal Market – An Agenda for a More Cohesive Economic Union. The report contains the key findings and recommendations that arose from a conference on the AIT held in June 2013. Responding to the report's recommendation to develop a knowledge base of existing trade barriers, so as to facilitate their removal, the federal government has announced in Budget 2014 that it will establish an Internal Trade Barriers Index, modeled on the Organization for Economic Co-operation and Development's Services Trade Restrictiveness Index.

While the focus on internal trade is on the AIT, the federal government has also announced its full support for sub-national jurisdictions within Canada to enter into agreements that advance internal trade. A specific reference was made to the New West Partnership Trade Agreement between British Columbia, Alberta and Saskatchewan. However, another example of an intra-Canada regional trade agreement referred to by the federal government is the Trade and Cooperation Agreement between Ontario and Québec.

As far as specific initiatives in the area of internal trade, the federal government has reconfirmed its commitment to removing barriers to the movement of goods within Canada by announcing in Budget 2014 that it will be amending the Importation of Intoxicating Liquors Act so that Canadians will be allowed to move between provinces with beer, wine and spirits for their personal use.

CUSTOMS DUTIES RELIEF MEASURES

In an effort to increase the global competitiveness of Canadian energy projects, the federal government has announced in Budget 2014 that it will permanently eliminate the 20 per cent tariff on mobile offshore drilling units that are used in the exploration and development of offshore oil and gas. A remission order to suspend tariffs on mobile offshore drilling units was granted in 2004, but was set to expire on May 4, 2014. The permanent elimination of tariffs on the drilling units is expected to reduce the business costs of offshore exploration and development by C$13 million annually.

Other duties relief measures were also covered by Budget 2014. In particular, a tariff relief pilot project implemented by Economic Action Plan 2013 saw the elimination of tariffs on baby clothing, and certain sports and athletic goods such as ice skates, skis and golf clubs. The project was part of an effort to determine the best way to reduce the price gap between identical goods sold in Canada and the U.S. In Budget 2014, the federal government confirmed that it is monitoring the tariff savings resulting from this program in order to see whether they translate into lower retail prices for consumers, with a final assessment expected by the end of 2014.

BEYOND THE BORDER AND REGULATORY COOPERATION

Canada and the U.S. entered into the Beyond the Border Action Plan (BBAP) in February 2011 in an attempt to develop a coordinated approach to border security that would not hinder cross-border trade in goods and services worth over C$700 billion annually. According to Budget 2014, 2013 saw the following key accomplishments under the BBAP:

  • an increase in enrolment in the NEXUS trusted traveller program;
  • the implementation of Phase I of the truck cargo pre-inspection pilot at Pacific Highway, British Columbia;
  • an increase and harmonization of the threshold value for low-value commercial shipments to C$2,500 for expedited customs clearance;
  • the launch of Phase II of the joint Entry/Exit program at the common land border, making the record of entry into one country the record of exit from the other country for individuals who are not citizens of either Canada or the U.S.; and
  • the release of the first joint Border Infrastructure Investment Plan, intended to outline the approach Canada and the U.S. will take to coordinate physical infrastructure upgrades at small and remote ports of entry.

2013 also saw progress being made by the Regulatory Cooperation Council, tasked with aligning Canadian and U.S. regulatory systems so as to boost North American trade and competitiveness. The council conducted a public consultation from August 24 to November 8 in order to garner the input of stakeholders with respect to the next phase of regulatory cooperation. In Budget 2014, the federal government announced it would be amending the Hazardous Products Act so as to align and synchronize the implementation of common classification and labelling requirements for workplace hazardous chemicals.

COMMENTARY

In Budget 2014, the federal government continues to emphasize that international trade is one of the government's priorities. This is good news for Canadian businesses. The federal government's particular focus on internal trade is also welcome, as improvement in this area is needed to avoid the anomaly of businesses in some cases facing greater barriers to trade within Canada than in export markets. While the Beyond the Border and Regulatory Cooperation initiatives promise benefits to cross-border business in removing barriers to the free flow of goods between the U.S. and Canada, progress has to date been slower than anticipated. It is hoped that Canada and the U.S. will accelerate their efforts in reaching practical solutions for businesses active in each other's markets.

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