Includes information on average tariff rates and types that U.S. firms should be aware of when exporting to the market.
Last Published: 12/14/2018
Although Canada eliminated tariffs on all industrial and most agricultural products imported from the United States under the terms of NAFTA, tariffs and tariff-rate quotas (TRQs) remain in place on dairy and poultry tariff lines. Canada announced the elimination of MFN tariffs on baby clothing and athletic equipment (valued at C$76 million annually) in its 2013 federal budget. Canada proposed to permanently eliminate tariffs on mobile offshore drilling units in its 2014 federal budget.

Restrictions on U.S. Seeds Exports
For many major field crops, Canada’s Seeds Act generally prohibits the sale or advertising for sale in Canada, or import into Canada, of seeds of a variety that is not registered. The purpose of variety registration is to provide government oversight to ensure that health and safety requirements are met and that information related to the identity of the variety is available to regulators in order to prevent fraud. However, there are concerns that the variety registration system is slow and cumbersome. The United States is consulting with Canada on steps to modernize and streamline Canada’s variety registration system. 

Cheese Compositional Standards
Canada’s regulations on compositional standards for cheese limit the amount of dry milk protein concentrate (MPC) that can be used in cheese making, reducing the demand for U.S. dry MPCs. The United States continues to monitor the situation with these regulations for any changes that could have a further adverse impact on U.S. dairy product exports.

Import Policies

Agricultural Supply Management
Canada uses supply-management systems to regulate its dairy, chicken, turkey, and egg industries. Canada’s supply-management regime involves production quotas, producer marketing boards to regulate price and supply, and tariff-rate quotas (TRQs) for imports. Canada’s supply-management regime severely limits the ability of U.S. producers to increase exports to Canada above TRQ levels and inflates the prices Canadians pay for dairy and poultry products. Under the current system, U.S. imports above quota levels are subject to prohibitively high tariffs (e.g., 245 percent for cheese and 298 percent for butter).

The United States remains concerned about potential Canadian actions that would further limit U.S. exports to the Canadian dairy market. For example, the United States continues to monitor closely any tariff reclassifications of dairy products to ensure that U.S. market access is not negatively affected.

Special Milk Classes

Canada provides milk components at discounted prices to domestic processors under the Special Milk Class Permit Program (SMCPP). These prices are “discounted” in the sense that they are lower than Canadian support prices and reflect U.S. or world prices. The SMCPP is designed to help Canadian processed products compete against imports in Canada and in foreign markets. Effective May 1, 2016, the Canadian Milk Supply Management Committee (CMSMC) modified an existing national milk class, Class 4(m), to extend discount pricing to a wider range of Canadian dairy ingredients, including liquid dairy ingredients (an action taken by CMSMC as an agency of Canada’s government). An agreement reached between Canadian dairy farmers and processors in July 2016 included a new national milk class (Class 7) that extends discount pricing to an even wider range of Canadian dairy ingredients. Provincial milk marketing boards (agencies of Canada’s governments) began implementing Class 7 in February 2017. Both Class 7 and the modification to Class 4(m) are aimed at undercutting the price and displacing current sales of U.S. dairy ingredients.
The United States has raised its serious concerns with Class 7 and the modification to Class 4(m) (and Class 6—see below) with Canada bilaterally and at the WTO Committee on Agriculture, and is examining these milk classes closely.

Ontario Milk Class 6

Ontario introduced a provincial Ingredient Strategy and implemented a new milk class on April 1, 2016, (Class 6) that provides Ontario processors skim milk solids at discounted prices, aiming to undercut the price and displace current sales of U.S. dairy ingredients.

Restrictions on U.S. Grain Exports

A number of grain sector policies limit the ability of U.S. wheat and barley exporters to receive a premium grade (a grade that indicates use for milling purposes as opposed to grain for feed use) in Canada, including the provisions of the Canada Grain Act and Seeds Act.

Under the Canada Grain Act, the inspection certificate for grain grown outside Canada, including U.S. grain, can only state the country of origin for that grain and not issue a grade. Also, the Canada Grain Act directs the Canadian Grain Commission to “establish grades and grade names for any kind of western grain and eastern grain and establish the specifications for those grades” by regulation. The explicit division between “eastern grain” and “western grain,” are defined in the Canada Grain Act as “grain grown in the [Eastern or Western] Division,” defined geographically within Canada, further underscores that grading is only available to Canadian grains. Under the Canada Grain Act, only grain of varieties registered under Canada’s Seeds Act may receive a grade higher than the lowest grade allowable in each class.

U.S. wheat and barley can be sold without a grade directly to interested Canadian purchasers at prices based on contract specifications. However, contract-based sales are a relatively small proportion of all sales in Canada. Most sales occur through the bulk handling system in grain elevators. Canadian grain elevators offer economic efficiencies by collecting and storing grain from many small-volume growers, giving them the ability to fulfill larger contracts and to demand higher prices for that ability.

The barriers to assigning U.S. grain a premium grade encourages both a price discounting of high-quality U.S. grain appropriate for milling use and de facto segregation at the Canadian elevator.
The United States will continue to press the Canadian government to move forward swiftly with legislative and any other necessary changes that would enable grain grown outside Canada to receive a premium grade and changes to its varietal registration system.

Personal Duty Exemption

Canada’s personal duty exemption for residents who bring back goods from short trips outside of its borders is less generous than the United States personal duty exemption. Canadians who spend more than 24 hours outside of Canada can bring back C$200 worth of goods duty free, or C$800 for trips over 48 hours. Canada provides no duty exemption for returning residents who have been out of Canada for fewer than 24 hours. U.S. retailers have raised concerns about the effect of this policy on purchases by Canadians on short trips to the United States.
 
De Minimis Threshold

De minimis refers to the maximum threshold below which no duty or tax is charged on imported items. U.S. companies shipping to Canada should be aware that Canada’s de minimis threshold remains at C$20, which is the lowest among industrialized nations. By comparison, in March 2016, the United States raised its de minimis threshold from $200 to $800. Some stakeholders, particularly shipping companies and online retailers, maintain that Canada’s low de minimis threshold creates an unnecessary trade barrier.

Wine, Beer, and Spirits

Canadians face high provincial taxes on personal imports of U.S. wines and spirits upon their return to Canada from the United States. This inhibits Canadians from purchasing U.S. alcoholic beverages while in the United States.

Most Canadian provinces restrict the sale of wine, beer, and spirits through province-run liquor control boards, which are the sole authorized sellers of wine, beer, and spirits in those provinces. Market access barriers in those provinces greatly hamper exports of U.S. wine, beer, and spirits to Canada. These barriers include cost-of-service mark-ups, restrictions on listings (products that the liquor board will sell), reference prices (either maximum prices the liquor board is willing to pay or prices below which imported products may not be sold), labeling requirements, discounting policies (requirements that suppliers offer rebates or reduce their prices to meet sales targets), and distribution policies.

British Columbia

In January 2017, the United States requested WTO dispute settlement consultations on British Columbia measures regarding the sale of wine in grocery stores. These measures allow only British Columbia wines to be sold on grocery store shelves, while imported wine in grocery stores can only be sold in a “store within a store” under controlled access with separate case registers, discriminating against the sale of U.S. wine in grocery stores. These regulations appear to breach Canada’s WTO commitments and have adversely impacted U.S. wine producers.

Ontario

Previously, grocery stores in Ontario were not permitted to sell wine. Under Regulation 232/16, issued in June 2016, grocery stores are permitted to sell wine under certain conditions, including ones related to the size of the winery producing the wine, the size of wineries affiliated with the producing winery, the country where the grapes were grown, and whether a wine meets the definition of a “quality assurance wine.” Working with U.S. industry, the United States is analyzing these conditions for sale in grocery stores as well as other developments in Ontario to help ensure U.S. wines are not disadvantaged.

Quebec

Quebec’s new measure raises concerns that it may discriminate against imported wines. The measure may advantage Quebec craft wine producers by allowing them to bypass the liquor board, Société des alcools du Québec (SAQ), and therefore also the liquor board mark-ups, to sell directly to grocery stores.

Services Barriers

Telecommunications
Canada maintains a 46.7 percent limit on foreign ownership of certain suppliers of facilities-based telecommunication services (i.e., those with more than 10 percent market share), except for submarine cable operations. This is one of the most restrictive regimes among developed countries. Canada also requires that Canadian citizens comprise at least 80 percent of the membership of boards of directors of facilities-based telecommunication service suppliers. As a consequence of these restrictions on foreign ownership, the role of U.S. firms in the Canadian market as wholly U.S.-owned operators has been limited to that of resellers, dependent on Canadian facilities-based operators for critical services and component parts.
Foreign ownership of transmission facilities is limited to 20 percent direct ownership and 33 percent through a holding company, for an effective limit of 46.7 percent total foreign ownership of certain suppliers of facilities-based telecommunications services (i.e., those that have more than 10 percent market share), except submarine cable operations. Canada has one of the most restrictive regimes among developed countries. Canada also requires that at least 80 percent of the members of the board of directors of facilities-based telecommunications service suppliers be Canadian citizens. Because of restrictions on foreign ownership, the role of U.S. firms in the Canadian market as wholly U.S.-owned operators has been limited to that of resellers, dependent on Canadian facilities-based operators for critical services and component parts.

Canadian Content in Broadcasting
The Canadian Radio-television and Telecommunications Commission (CRTC) imposes quotas that determine both the minimum Canadian programming expenditure (CPE) and the minimum amount of Canadian programming that licensed Canadian broadcasters must carry (Exhibition Quota). Large English language private broadcaster groups have a CPE obligation equal to 30 percent of the group’s gross revenues from their conventional signals, specialty, and pay services.

In March 2015, the CRTC announced that it will eliminate the overall 55 percent daytime Canadian-content quota. Nonetheless, the CRTC is maintaining the Exhibition Quota for primetime at 50 percent from 6 p.m. to 11 p.m. Specialty services and pay television services that are not part of a large English-language private broadcasting group are now subject to a 35 percent requirement throughout the day, with no prime time quota.

For cable television and direct-to-home broadcast services, more than 50 percent of the channels received by subscribers must be Canadian channels. Non-Canadian channels must be pre-approved (“listed”) by the CRTC. Upon an appeal from a Canadian licensee, the CRTC may determine that a non-Canadian channel competes with a Canadian pay or specialty service, in which case the CRTC may either remove the nonCanadian channel from the list (thereby revoking approval to supply the service) or shift the channel into a less competitive location on the channel dial.

The CRTC also requires that 35 percent of popular musical selections broadcast on the radio qualify as “Canadian” under a Canadian government-determined point system.

In September 2015, the CRTC released a new Wholesale Code that governs certain commercial arrangements between broadcasting distribution undertakings, programming undertakings, and exempt digital media undertakings. A proposal in the new Wholesale Code to apply a code of conduct designed for vertically-integrated suppliers in Canada (i.e., suppliers that own infrastructure and programming) to foreign programming suppliers (who by definition cannot be vertically integrated, as foreign suppliers are prohibited from owning video distribution infrastructure in Canada) has raised significant stakeholder concerns. Additionally, stakeholders have expressed concern related to provisions in the Wholesale Code that affect U.S. broadcast signals and services within Canada. The Wholesale Code came into force January 22, 2016.

Investment Barriers
The Investment Canada Act (ICA) has regulated foreign investment in Canada since 1985. Foreign investors must notify the government of Canada prior to the direct or indirect acquisition of an existing Canadian business above a threshold value. Canada amended the ICA in 2009 to raise the threshold for Canada’s “net benefit” review of foreign investment. The threshold currently stands at C$600 million and had been scheduled to increase to C$1 billion in 2019. The government announced November 1, 2016 that the threshold for review will be raised to C$1 billion in 2017, two years sooner than originally planned Innovation, Science and Economic Development Canada is the government’s reviewing authority for most investments, except for those related to cultural industries, which come under the jurisdiction of the Department of Heritage Canada. Foreign acquisition proposals under government review must demonstrate a “net benefit” to Canada to be approved. The Industry Minister may disclose publicly that an investment proposal does not satisfy the net benefit test and publicly explain the reasons for denying the investment, so long as the explanation will not do harm to the Canadian business or the foreign investor.

Under the ICA, the Industry Minister can make investment approval contingent upon meeting certain conditions such as minimum levels of employment and research and development. Since the global economic slowdown in 2009, some foreign investors in Canada have had difficulty meeting these conditions.
Canada administers supplemental guidelines for investment by foreign SOEs.
Those guidelines include a stipulation that future SOE bids to acquire control of a Canadian oil-sands business will be approved on an “exceptional basis only.”

For more information, refer to the United States Trade Representative’s 2017 2017 National Trade Estimate Report on Foreign Trade Barriers, available at https://ustr.gov/sites/default/files/files/reports/2017/NTE/2017%20NTE.pdf

 

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.



Canada Tariff Rate Quotas Import Duties