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Canadian 2021 Federal Spring Budget And Its Trade Implications

April 21, 2021

The Canadian government has released its first federal budget in more than two years, as it aims to pull Canada through the COVID-19 pandemic and repair economic ruptures.

The budget focuses on three core areas:

  • Ongoing Pandemic Support 
  • Job Growth and Business Recovery 
  • Green Transition, Green Jobs, Social Infrastructure 

Here are a few key areas that are of notable interest to the trade industry.

Improving Duty and Tax Collection on Imported Goods

Budget 2021 proposes changes to the Customs Act to improve duty and tax collection. These changes would ensure that goods are valued in a fair and consistent manner by all importers. This would level the playing field between domestic and foreign businesses and generate an estimated $150 million in additional annual duty revenues. The changes would also modernize and digitize the duty and tax payment process for commercial importers, so as to minimize administrative burden.

Strengthening Canada’s Trade Remedy System

Budget 2021 announces the government’s intention to launch public consultations on measures to strengthen Canada’s trade remedy system and to improve access for workers and small and medium-sized enterprises. This may result in proposed amendments to the Special Import Measures Act and the Canadian International Trade Tribunal Act.

Administration of Trade Controls

Budget 2021 proposes to provide $38.2 million over five years, starting in 2021–22, and $7.9 million per year ongoing, to Global Affairs Canada, as additional resourcing to support Canada’s trade controls regime.

Better Supports for Exporters

Budget 2021 announces the government’s intention to work with Export Development Canada to enhance supports to small and medium-sized exporters and to strengthen human rights considerations in export supports. The government may propose amendments to the Export Development Act.

Border Carbon Adjustments

The government intends to launch a consultation process on border carbon adjustments in the coming weeks. This consultation process will begin in the summer with targeted discussions, including with provinces and territories, importers, and exporters—especially those who deal in emissions-intensive goods. The broader public will be engaged this fall. Throughout this process, the government intends to continue its international engagement with like-minded partners.

Application of GST/HST to Ecommerce (non resident importers, fulfillment centres) 

The government proposed that distribution platform operators be required to register under the normal GST/HST rules and to collect and remit GST/HST in respect of sales of goods shipped from a fulfillment warehouse or another place in Canada, when those sales are made by non-registered vendors through distribution platforms. Non-resident vendors that make sales on their own (i.e., not made through a distribution platform) would also be required to register under the normal GST/HST rules and to collect and remit GST/HST in respect of sales of goods shipped from a fulfillment warehouse or another place in Canada. 

Excise Tax Collection on Tobacco and Vaping Products

Budget 2021 announces the federal government’s intention to introduce a “new taxation framework” to impose excise duties on vaping products that would start in 2022 if the budget is passed.

Industry Reactions

Several Canadian industries have shared their reaction to Budget 2021.

Wine Growers of BC have called the budget a “monumental investment”, since the federal government has proposed to spend $101 million over two years, starting in 2022, to help wineries adapt to ongoing and emerging challenges. Specifically, Wine Growers British Columbia supports the request from Wine Growers Canada that the government implement the Wine Grower Quality Enhancement Program.

The Dairy Processors Association of Canada welcomes measures announced in the 2021 Federal Budget to support dairy processors impacted by recent trade agreements as a step in the right direction. Compensation measures totalling $292 million for two agreements, CETA and CPTPP, will support processors under supply management as the industries transition to the new market realities created by the agreements.

The Canadian Steel Producers Association is thankful to the government for its efforts in the fight against COVID-19, while also acknowledging that “CSPA members are ready to work on the priorities outlined in today’s budget to strengthen Canada’s resiliency and to build a greener and more innovative economy. While we produce some of the greenest steel in the world, we need partnerships and financial support to achieve our goal of net zero emissions by 2050. Today’s announcement of additional funding to the Net Zero Accelerator, together with new tax measures to support the adoption of innovative technologies such as carbon capture utilization/storage and hydrogen, will provide a strong foundation for this transformational agenda.”

Defence contractors are wary of the government’s resurrection of the so-called “economic harm” warning, which threatens to penalize companies that try to do economic harm to Canada.

Three years ago, the government laid down a marker that became known informally in procurement circles as the “Boeing clause.” Under the sub-headline of “Ensuring Procurement Partners Respect Canada’s Economic Interests,” the policy was reanimated and restated in Monday’s fiscal plan, much to observers’ surprise.

“In December 2017, the government announced that the evaluation of bids for the competition to replace Canada’s fighter aircraft would include an assessment of bidders’ impact on Canada’s economic interests, and that any bidder that had harmed Canada’s economic interests would be disadvantaged,” said the budget. Budget 2021 confirms the government will apply this policy to major military and Coast Guard procurements going forward.” 

We will continue to provide updates as to how the 2021 Federal budget will impact trade and our valued clients and partners.

You can view the full budget on the Government of Canada’s website.

(Sources: CSCB, Castanet, Financial Post, CTV News, DPAC, CBC News)