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Geographically Flexible Foreign Trade Zones in Canada

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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.

Unlike other countries, such as the United States, that focus on location-specific FTZs, Canada’s unique FTZ program allows for geographically flexible duty and tax relief. Since FTZs are not restricted to any particular part of the country, businesses are free to choose any location for a FTZ that best fits their needs. In fact, programs such as the Duty Deferral Program, the Export Distribution Centre Program and Exporters of Processing Services Program essentially make it possible to create an FTZ anywhere in Canada!

On this basis, Canada’s unique FTZ program would appear to benefit both foreign business and investors since it allows them to enjoy the benefits of a traditional FTZ anywhere in Canada. That said, the lack of designated FTZ locations does however have the potential to be confusing to foreign entities that are accustomed to the traditional idea of FTZs being located in specific designated geographic areas.

To help market and familiarize foreign entities with Canada’s unique FTZ program, specialized Foreign Trade Zone Points have been created throughout Canada. These Foreign Trade Zone Points are designated geographical areas where public and private organizations have set up a FTZ Task Force that is coordinated by the regional development agency to ease access to government policies and programs, and thereby promote local and international trade.  

Among other things, these Foreign Trade Zone Points help businesses access information on programs related to the Canadian FTZ program, including the Duties Relief Program, the Drawback Program, the Customs Bonded Warehouses Program, the Export Distribution Centre Program and the Exporters of Processing Services Program.

There are currently nine Foreign Trade Zone Points in Canada:

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