Is it Maple Leaf time?

07 Oct 2016

In the light of the recent tour to Canada by the Duke and Duchess of Cambridge, I asked the question: Canada is one of the UK’s key allies, but do we actually do any business with Canada?

The answer is a resounding ‘yes’. Canada is the 16th largest export market for British goods and, importantly, is a growing market (unlike the EU). Another key point is the diversity of products Canada buys, which range from pharmaceuticals to tractors. According to data from UK Trade & Investment, key markets include transport, infrastructure, oil and gas, mining and defence, and security. There are a number of reasons why UK companies should therefore explore Canada as a potential new market for their goods and services.

First, Canada for the most part is English-speaking and operates a common law legal system as in the UK, making cross-border contracts that much easier. (Quebec is the exception, where a civil law legal system is operated and the main language is French, which can pose a few difficulties for UK companies. For example, French must be the main language on all product packaging, user manuals and promotional material, and businesses with 50 or more employees must register with the Quebec French Language Office and provide evidence to the government that workplace communications are in French.)

Second, in exporting to Canada, UK goods benefit from a number of preferential tariffs thanks to various Commonwealth treaties.

In the months following the UK referendum, sterling fell against the Canadian dollar by over 8%, rendering UK products less expensive in Canada despite any transport costs.

Finally, Canada is considered a good market for road-testing a product before launching in the United States, given the similarity between the two in terms of market conditions. In addition, Canada and the US are connected by the North American Free Trade Agreement, meaning that many companies find it easier to break into the US market via an establishment in Canada than launch from the UK straight to the US.

Naturally, there are some difficulties to overcome. First, it’s wise to make sure that your product, without any formulaic changes, can be sold in Canada. The finished product itself may not be a problem, but if any of its ingredients are on the ‘banned’ list, the product would only be permitted into the country if the formula is changed to reflect Canadian rules and regulations. Marmite, for example, is not permitted; nor is Ovaltine, as it contains too many added vitamins and minerals. The famous Scottish fizzy drink Irn-Bru is another example, as it contains the food colouring Ponceau 4R. The company took the decision to manufacture a special Canadian-law-compliant version of the drink for export to Canada. Of course, not all companies will be able to afford the overheads such a task may entail, so careful research needs to be undertaken at the outset.

Further care should be taken in looking at the structure to be employed to break into the Canadian market. This might include setting up a Canadian company or simply a foreign branch of the UK company in Canada. Whichever structure used will have its own advantages and disadvantages, so comprehensive and specialised legal advice should be sought from the outset to ensure that the best structure for the export strategy is employed. Mistakes at this level can be extremely costly.

Although UK goods receive reduced and preferential tariffs on import into Canada, they are still required to comply with Canadian import regulations. In many cases, companies find it cost-effective to employ the services of a Canadian customs broker. These brokers are licenced by the Canadian government to carry out customs-related activities on behalf of their clients. The Canadian Revenue Authority (CRA) is happy to provide tax advice for foreign companies and non-residents.

Canada is a member of the Commonwealth, hence the beneficial tariff rates available to British goods imported into the country. As with the UK, Canada is also a member of NATO and part of the UKUSA Agreement otherwise known as the Five Eyes alliance. This makes Canada a key security and defence market for the UK, although small and medium-sized companies may find it difficult to operate in the Canadian defence sector due to Industrial and Regional Benefits schemes.

Other difficulties include problems for law firms trying to operate in Canada due to burdensome regulation, while agricultural products may be difficult to market due to protectionist legislation designed to aid the Canadian agricultural industry.

That said, there are around 700 UK companies − including Aviva and Burberry − already operating in Canada. Having emerged from the last recession in a relatively strong position, its economy is growing.

So, given Canada’s ties with the UK not only through the Commonwealth, NATO and Five Eyes, but also through cultural, language and legal links that render access and communication that much easier − and given the extra benefit of being a means of road-testing and accessing the US market − it should certainly be given key consideration by any company looking for new overseas markets.

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