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Exporting to the United States - Before you head South

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For updated information on the new Canada-United States-Mexico Agreement (CUSMA) and it’s benefits, refer to CUSMA and small and medium-sized enterprises.

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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

II. Investment

III. Tourism

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:

For more information, you can visit Foreign Affairs, Trade and Development Canada’s Canada-United States Relations website at http://international.gc.ca/world-monde/united_states-etats_unis/relations.aspx?lang=eng. 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 http://international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/fta-ale/index.aspx?lang=eng

1.4. Understanding the U.S. market

California’s GSP is close to the GDP of France, and Texas’ GSP is approximately equal to the GDP of Canada.

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:

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:

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:

1.7. Information sources for the U.S. market

1.7.1. Government resources

1.7.2. Private-sector resources

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