Exporting to the United States - Before you head South

On this page

• 1. Before You Head South
  • 1.1. The Canada-U.S. trade and economic relationship
  • 1.2. Understanding Canada-U.S. relations
  • 1.3. Understanding the North American Free Trade Agreement (NAFTA)
  • 1.4. Understanding the U.S. market
  • 1.5. Market access issues
  • 1.6. Global value chains and the U.S. market
    • 1.6.1. The growth of global value chains
    • 1.6.2. Joining a global value chain
  • 1.7. Information sources for the U.S. market
    • 1.7.1. Government resources
    • 1.7.2. Private-sector resources

1. Before you head South

With a market of over 300 million people, the United States is the world’s largest economy. Its size gives it the power to influence global acceptance of everything from consumer goods to industrial standards and makes it a magnet for exporters all over the planet. Simultaneously, the U.S. is a major supplier of goods and services both to its own domestic markets and to markets around the world.

Because of its vast size and range of needs, the U.S. can be a very good market for Canadian exporters. But the same characteristics that make it attractive can also make it a difficult market because exporters to the U.S. must compete not only with each other but with U.S. domestic suppliers. Moreover, the wide variety of market segments can make it hard for an exporter to focus on the areas where the company can best apply its strengths.

Canadian exporters must also face the challenge of treating the U.S. as a market separate from Canada. Similarities of language, standard of living and attitudes give Canadians a unique advantage over exporters from other countries.

1.1. The Canada-U.S. trade and economic relationship

The United States is Canada’s largest trading partner and is the largest market for Canadian goods. The Canada-U.S. Free Trade Agreement (1989) and the North American Free Trade Agreement (1994) have both been crucial to increasing market opportunities for Canadian exporters in the U.S.

Ultimately, however, it is Canadian exporters — of all sizes and in all industries — that make this relationship as successful as it is. Based on Canada’s balance of payments accounts, which records receipts from exports of goods and services sold abroad and payments for imports of goods and services from abroad, the huge volume of our trade with the U.S. in 2012 is reflected in the following statistics:

I. Trade

• In 2012, the United States remained Canada's largest trading partner, accounting for 70.2% of our total exports (goods and services).
• In 2012, the value of our bilateral trade in goods and services with the United States, representing approximately $ 2 billion a value equivalent to 40.8% of Canada's GDP.
• Moreover, Canada’s two-way trade in goods and services with the United States easily dwarfs our trade with all other countries, comprising approximately two-thirds of the total in 2012.
• With respect to merchandise trade alone, exports to the United States corresponded to 74.5% of Canada's total exports in 2012. China ranked second with 4.3%.
• Moreover, all ten provinces count the United States – by a wide margin - as their number one merchandise export market.

II. Investment

• The same story is true for investment, where the U.S. was the source of 53.7% of the stock of FDI in Canada at the end of 2011, worth over $326.1 billion (the Netherlands was a distant second, with 9.3%).
• Similarly, the U.S. was destination for 40.3% of the stock of Canadian direct investment abroad at the end of 2011 ($276.1 billion), followed by the UK at 12.2%.

III. Tourism

• Likewise, the importance of the U.S. to the Canadian economy is reflected in tourism data. Despite the propensity of U.S. visitors to Canada to take day-trips – given the proximity to Canada – visitors from the U.S. still made up an overwhelming proportion (80%) of the top 15 countries’ overnight visits to Canada in 2010.

1.2. Understanding Canada-U.S. relations

Trade is only part of a larger network of relationships between our two countries. This network changes in response to many complex influences, and exporters need to be aware of how this can affect their activities. To take just a few examples:

• Evolving U.S. concerns about border security have affected border wait times, shipping regulations, reporting requirements and many other export-related issues.
• The Canada-U.S. trade relationship is not static. Political and business strategies change on both sides of the border, and events occur — such as the Buy American Act — that can have drastic effects on Canadian exporters.
• Many Americans are not aware of the political and economic value of the Canada-U.S. relationship, and Canada is consequently not a priority for them.

For more information, you can visit Foreign Affairs, Trade and Development Canada’s Canada-United States Relations website at Canada-United States relations. This site has links to many resources covering various aspects of the bilateral relationship, including visas and immigration, border cooperation and politics, and trade. The site also includes a handy link to a list of Government of Canada offices in the U.S.

1.3. Understanding the North American Free Trade Agreement (NAFTA)

The North American Free Trade Agreement provides comprehensive disciplines for trade in goods and services, investment, intellectual property and dispute settlement. One of its major achievements has been to eliminate the tariffs on most goods originating in the member nations. Another has been to liberalize regulations affecting matters such as investment and cross-border trade in services. These have provided many excellent business opportunities for Canadian exporters and continue to do so.

We will examine NAFTA's impact on Canadian exporters at various places in this guide, particularly in Section 4.1, "The North American Free Trade Agreement." In the meantime, you can find useful information about NAFTA, including the full text of the agreement at North American Free Trade Agreement (NAFTA)

1.4. Understanding the U.S. market

There is actually no single "U.S. market." What you will actually find in the U.S. are markets — lots of them, segmented by race, religion, age, geography, nationality, citizenship status, income bracket, occupation, political persuasion, industry, profession, trade and so on.

This is hardly surprising: given the size and affluence of the United States, the needs and desires of its population are not likely to be the same across the country. Oregonians probably will not have the same preferences for goods as North Carolinians; not all industries will operate in all states; and products are altered for different climatic regions.

To put the size of these markets into better perspective, we can think of each state as a nation, with a Gross State Product (GSP) equivalent to a country’s Gross Domestic Product (GDP). In this framework, California’s GSP is close to the GDP of France, and Texas’ GSP is approximately equal to the GDP of Canada.

But looking at states as a whole, although it helps us understand market size, does not tell the entire story. Sometimes commonalities spread across state borders; conversely, people in one part of a state will sometimes have tastes that are not shared by people elsewhere in the same state.

This variety presents Canadian exporters with a myriad of opportunities. It also implies a need for very careful market research and a well thought-out export strategy that will precisely target the best markets for your company.

1.5. Market access issues

Exporters should be aware of the impediments to trade presented by non-tariff barriers, security issues and "buy American" policies.

Barriers to trade are usually classified as "tariff" or "non-tariff" barriers. A tariff is a tax applied to merchandise imports and, less frequently, to exports. The tax may be levied either on an ad valorem basis (a fixed percentage of the value of an imported product) or on a specific basis (a fixed levy per unit of imported product). Following a final tariff reduction between Canada and Mexico, this took effect on January 1, 2003, virtually all trade in the NAFTA region now flows tariff-free. Issues such as the following, however, remain:

• U.S. anti-terrorism and domestic security measures have raised a number of barriers to the smooth flow of cross-border trade. These measures continue to evolve and may complicate your export business, by, for example, slowing traffic across the border or requiring more documentation and monitoring. We will examine the most important of these measures in Section 9, "The Canada-U.S. Border"
• "Buy American" policies can present access problems to Canadian exporters. As an example, one of the largest markets in the U.S. is the public-sector procurement market. This includes the federal-level General Services Administration (GSA) and Department of Defense (DoD), as well as state procurement agencies. These organizations are mandated to "buy American" whenever possible. We will look more closely at the government procurement market in Section 3.7, "U.S. government procurement."
• Small business set-asides can raise other barriers. A set-aside is a requirement that a specific product or service needed by the U.S. government can be supplied only by small U.S. businesses, regardless of NAFTA provisions. This means that Canadian suppliers can be abruptly shut out of U.S. government markets that they have spent time and money to develop.
• Non-tariff barriers (NTBs) are government measures or policies, other than tariffs, that restrict or distort international trade. As tariffs are lowered or eliminated, by a free trade agreement for example, it becomes more important to address non-tariff measures that can be used to frustrate trade. Examples of NTBs include import quotas, discriminatory government procurement practices and discriminatory measures to protect intellectual property. A further class of non-tariff barrier is that of technical barriers to trade (TBTs), such as government requirements for the unnecessary duplication of tests and certifications for a product.

In spite of these access issues, almost all our exports flow into the U.S. without incident, a remarkable achievement for a trading relationship worth more than a billion dollars a day. Our two countries, however, do have some key differences in economic policy and respond in different ways to world economic conditions. In cases where we have not been able to resolve our differences through consultation, Canada has relied on the WTO and NAFTA dispute settlement procedures.

From the practical point of view, you should find out as early as possible if there are any barriers that will affect your exports. If a barrier does exist, you should determine how it may affect your access to your U.S. market, your pricing of your product or service, and your costs of doing business in the United States.

1.6. Global value chains and the U.S. market

Globalization has caused companies worldwide to divide their products or services into components and to acquire each component under the best competitive condition domestically or internationally. This business model is called a global value chain, and comprises all of the linked activities needed to bring a product or service from conception to consumer.

1.6.1. The growth of global value chains

According to the Office of the Chief Economist of Foreign Affairs, Trade and Development Canada, three major forces are driving the growth of global value chains:

• Declining costs of transportation
  
  As transportation costs fall, companies can move their goods and services over greater distances without losing competitiveness in their target markets. There is consequently less need for a company to be close to its suppliers or consumers, so it can establish its facilities in a location that offers the most competitive advantages.
  
  
• Improved information and communication technologies
  
  More flexible, adaptable and cheaper information and communication technologies (ICT) mean that companies are much less constrained by distance when operating in foreign markets. Advances in ICT have also made it possible to trade in services that depend on the very rapid movement of large volumes of data (such as software development or financial services) or real-time communications (such as online medical diagnosis or teleconferencing).
  
  
• Reduced barriers to trade and investment
  
  The number of bilateral trade and investment treaties has been increasing quickly during the past 20 years; for Canada and its trade with the U.S., NAFTA is the key agreement.

1.6.2. Joining a global value chain

If you are exporting to the U.S. or are interested in doing so, how can you take advantage of these new and expanding global value chains? There are several options, including these:

• Provide an intermediate input for a U.S. company
  
  If your product can be sold as an intermediate input for a U.S company that is already part of a global value chain, you could link into that chain by becoming a supplier to the U.S. firm. This approach closely approximates the traditional model of production and exporting. Its advantage is that you are linked to the chain through the relatively familiar U.S. market, rather than a more distant one like that of China or India. For SMEs, especially for those with niche technologies or specializations, new opportunities are emerging to sell to U.S.-based multinationals or their suppliers, especially as these firms outsource activities that were previously carried out internally.
  
  
• Start your own global value chain
  
  If your company manufactures finished products, perhaps you can acquire your intermediate inputs from the U.S. and use these to produce your goods in Canada (or in a third country, for that matter). If your product is an intermediate input that you ship abroad, the same strategy can apply.
  
  
• Use investment in the U.S. to connect to a global value chain
  
  By investing in the United States, you can gain immediate access to the enormous U.S market and the global value chains that are linked to it. There is a broad spectrum of investment approaches, ranging from the passive to the active.
  
  You might, for example, opt for a passive strategy and become part of a global value chain simply by investing in a U.S. company, while taking little or no part in its operations. Alternatively, you might take a more active approach and purchase a U.S firm or set up a joint venture or partnership with one; this would allow you to take advantage of the other firm's assets and experience, thus increasing your competitiveness and giving you better control of your U.S.-based production and distribution networks. This approach can be very costeffective if you obtain existing production and distribution capabilities though the investment and do not need to build them from the ground up.
  
  At the most active end of the spectrum, you could become a full participant in the U.S. market by establishing a wholly owned subsidiary there. This investment strategy presents a range of advantages that can help you not only benefit from U.S.-linked global value chains, but also drive their activities and development.
  
  Perhaps the most important of these advantages is that you are not dependent on a partner, so you control the direction your subsidiary will take. You also have direct contact with your end users, which is good for developing new products and for building solid customer relationships. Your company and its role in the value chain are likely to become better known, since your identity is not obscured by the presence of a partner. Finally, your U.S.-based staff answers only to you, and all data related to your U.S. operation is at your sole disposal.

1.7. Information sources for the U.S. market

1.7.1. Government resources

• The Canadian Trade Commissioner Service (TCS) is Canada’s most comprehensive network of international trade professionals and provides services to Canadian businesses that have researched and selected their target markets abroad. The TCS can help you with your export initiatives by preparing your company for international markets, assessing your market potential and providing qualified contacts and support to solve problems. Trade Commissioners are available whenever and wherever your company needs them, in more than 150 cities worldwide and in offices across Canada. For more information, refer to Trade Commissioner Service.

• The Agri-Food Trade Service provided by Agriculture and Agri-Food Canada provides centralized access to market information, trade counselling and export support activities. Refer to http://www.agr.gc.ca/eng/industry-markets-and-trade/agri-food-trade-services-for-exporters/?id=1432136045585.

• The Canada Business Network is a government information service for businesses and entrepreneurs in Canada. It is intended as a single entry point for information about federal, provincial and territorial government services, programs and regulatory requirements. Refer to https://www.canada.ca/en/services/business.html or call 1-888-576-4444.

• The Canada-United States Relations website provides links to many resources covering various aspects of the bilateral relationship, including visas, immigration, border cooperation, politics and trade. Refer to Canada-United States relations.

• The Canadian Commercial Corporation (CCC) provides international contracting services to Canadian exporters selling to foreign governments, as well as special market access to Canadian companies targeting U.S. government procurement markets. Refer to www.ccc.ca.

• Export Development Canada (EDC) offers innovative commercial solutions to help Canadian exporters and investors expand their international business. EDC’s knowledge and partnerships are used by 6,400 Canadian companies and their global customers in up to 200 markets worldwide each year. Refer to www.edc.ca.

• The Department of Foreign Affairs, Trade and Development (DFATD) provides information related to foreign affairs, foreign policy, international trade and more. Refer to Global Affairs Canada.

• Industry Canada provides general and specific information of use to exporters, including market reports and the Trade Data Online research tool. Refer to https://www.canada.ca/en/services/entreprises/commerce.html.

• Statistics Canada is Canada’s central statistical agency. It produces statistics and statistical reports on Canada’s population, resources, economy, society and culture. Refer to www.statcan.gc.ca.

• The U.S. Bureau of Economic Analysis is also part of the U.S. Bureau of Commerce and provides statistics and analyses of U.S. economic performance. Refer to www.bea.gov.

• The U.S. Census Bureau provides coverage of the statistical data collected in the U.S. Census, including detailed demographic data. Refer to www.census.gov.

1.7.2. Private-sector resources

• Chain Store Guide: www.csgis.com

• Consumer USA: www.euromonitor.com/USA

• EuropaWorld Plus: www.europaworld.com

• Manufacturers' Agents National Association Directory: www.manaonline.org

• ThomasNet (a platform for sourcing components): www.thomasnet.com