As committed in Budget 2011, the Government is examining its current foreign trade zone-like policies and programs. As part of this examination, the Government is seeking the views of stakeholders on the international competitiveness, the marketing and the administration of these policies and programs.
Foreign Trade Zones
The term foreign trade zone (FTZ) generally refers to a specific designated location within a country that is eligible for duty and tax exemptions with respect to the purchase or importation of inputs or finished goods. These goods are then processed, assembled or packaged in the FTZ for re-export (in which case taxes and duties do not apply), or for entry into the domestic market (in which case taxes and duties would be deferred until the time of entry). Additional features of FTZs often include advanced infrastructure, flexible customs regulations, and financial incentives.
Budgets 2009 and 2010 featured broad tariff elimination initiatives to make all of Canada a tariff-free zone for manufacturers, a first among G-20 countries. In addition, the Goods and Services Tax/Harmonized Sales Tax (GST/HST) is generally fully recoverable for businesses in commercial activities and does not apply to exports. Canada also has longstanding tax and tariff export-related programs that provide benefits to businesses that are comparable to those found in site-specific FTZs in other countries. These programs are described below.
Duty Deferral Program (DDP)
The DDP, which is administered by the Canada Border Services Agency, relieves customs duties on imported goods. This is Canada’s main FTZ-like program, which has three components: upfront duty relief; drawback or repayment by government of import duties (when the imported goods are re-exported or used in the manufacture of exported goods); and the deferral of duties for up to four years through the Customs Bonded Warehouse Program.
Export Distribution Centre Program (EDCP)
Administered by the Canada Revenue Agency (CRA), the EDCP aims to benefit businesses that import goods and/or acquire goods in Canada, process them to add limited value and then export them. Therefore, the program is of particular value to businesses involved in the processing of goods (e.g. distributing, disassembling and reassembling goods).
Under the program, businesses do not pay GST/HST on imported goods, or on domestic purchases of goods worth $1,000 or more. This improves cash flow as investors do not need to pay the taxes up front, claim an input tax credit on their GST/HST return and then wait for their net tax refund.
The Exporters of Processing Services (EOPS) Program
Administered by the CRA, the EOPS Program removes from participants the obligation to pay GST/HST on imports of goods belonging to non-residents, provided that these goods are subsequently exported. The EOPS Program imposes no limits on the value that can be added to a non-resident’s goods and does not require a minimum level of export sales that must be met in order to maintain eligibility. Thus, participation in the program helps investors increase cash flow and reduce operating expenses.
In recent years, the Government has taken steps to streamline the administration of these programs, notably by contributing to a single-window project at CentrePort Canada. In addition, the Government has proactively marketed Canada’s FTZ-like policies and programs, with related material available on the Invest in Canada website [1.17 Mb].