While there is no specific definition of what constitutes a Foreign Trade Zone (“FTZ”), this terms generally refers to a specific location within a country that is officially designated as eligible for tariff and tax exemptions with respect to the purchase or importation of raw materials, components, or finished goods. These materials and goods can generally be stored, processed or assembled in the FTZ for re-export without having to pay any domestic taxes or duties. If these materials or goods are distributed into the domestic market, duties and taxes will apply, but will generally be deferred until the time of entry into the domestic market.
Over the past few years, the Canadian government has tried to position Canada as a desirable destination for foreign investment. To this end, tariffs have been eliminated on essentially all manufacturing inputs, including machinery, equipment, and other inputs used in the industrial manufacturing sector.
According to the Canadian government, this initiative has made Canada the first country in the G-20 to offer a tariff-free zone for industrial manufacturers. Furthermore, since this a nationwide initiative, the federal government has promoted this tariff elimination as essentially making Canada one large FTZ for firms importing manufacturing inputs.