CALGARY, Alberta — Too few Canadian manufacturers and retailers tap cash flow advantages through foreign trade zones, but a new government initiative will likely bring more shippers into the fold.
The Canadian government will award $5 million in funding during the next five years to local economic development agencies so they can bring shippers up to speed on the benefits of the FTZ program.
Unlike in the U.S., the national government can’t release the names of program participants to encourage others to join, said Yvon Pellerin, customs and trade adviser at Dilas International, a Calgary-based customs broker. That has made it even harder to boost FTZ usage, which he estimates at roughly 500 users nationwide.
Despite the common name, FTZs in Canada range widely from their U.S. counterparts. First, the Canadian version doesn’t require users to be in an actual zone, whereas U.S users have to have the zone designated around their facility. Until recently, U.S. shippers had to move into a FTZ, instead of being able to bring the zone to them.
The second major difference is in scope of benefits U.S and Canadian FTZ users can access. Companies that ship into FTZs in the U.S. only pay the duty on the final product, instead on each foreign component. Because shippers don’t have to pay U.S. duties on final products shipped abroad, they can use the zones as hubs for domestic and foreign distribution.
Canadian manufacturers don’t reap the same advantage through FTZs because the entire country is a tariff-free zone for manufacturers, Pellerin said. Since 2009, more than 1,500 types of imported manufacturing inputs have been made accessible at a duty free rate to Canadian manufacturers. The implementation of the North American Trade Free Trade Agreement roughly 20 years ago also removed any duties on most consumer goods that are imported from Mexico and the U.S.
“We don’t have as many savings here (in Canada) because we don’t have as many expenses here,” he said.
Manufacturers can improve their cash flow by not paying the 5 percent tax on goods and services until the products enter the manufacturing process. Manufacturers, who in turn collect a 5 percent value-added tax on their sales on behalf of the federal government, can deduct the taxes paid on the imported components from the taxes they collected on the sales of their finished goods.
Similarily, retailers involved in the FTZ program don’t have to pay the VAT until the product leaves the warehouse or distribution center. With the rise of e-commerce, the deliveries are increasingly coming after the sale, helping retailers with their cash flow. If shippers use a customs broker, they can delay the payment of the VAT to 30 days in many cases.
Aside from funding local economic development agencies’ FTZ marketing efforts, the Harper administration last year eliminated the annual registration fee for the Customs Bonded Warehouse program that ranged from $100 to $5,000 per company depending on business activities. The April 1 elimination of the fee for the most popular FTZ program will save companies $400,000 annually total and cut down on their paperwork.
The administration has also reduced FTZ application paperwork and imposed service standard for the review of such applications. Lastly, the government is expanding on a pilot first introduced at the port of Winnipeg in which CentrePort tenants have a single point of contact and service for the FTZ program. “In terms of FTZ potential, Calgary is right up there,” Pellerin said.
"The Calgary Regional Partnership and Calgary Economic Development are looking to create a FTZ strategy for the Calgary market within the economic region based on a current total population of some 1.4 million," said CED Business Development Manager Tom Dixon, who co-chairs the committee.
Calgary's population is expeced to grow to 3.4 million within 50 years, potentially boosting demand for more distribution centers. Dixon said some of the largest shippers in Calgary have expressed interest in tapping FTZ benefits and using membership in the program in their marketing efforts.