Current Economic Situation

The Canadian economy is expected to have grown by 0.6% in 2008, after a 2.7% growth in 2007. Despite a comprehensive budget plan to stimulate economic growth, growing weakness in the housing and labour markets has caused stagnation in private consumption and investment. In line with falling industrial production, especially in auto and construction-related fields, unemployment rate increased hit a four-year high of 7.2% in January 2009, causing a further decline in consumer and business confidence. Owing to sluggish consumer demand, as well as the sizeable drop in gasoline prices and lower sales at new car dealers, retail sales were down 7.1% in November 2008 compared with a year earlier.

On the other hand, while inflation slowed in December, the average inflation rate climbed to 2.3% in 2008 from 2.2% in 2007, well above the Bank of Canada's 2% target range. Rising mortgage interest cost and prices for natural gas and various food items such as fresh vegetables and bakery and cereal products, were major contributors to the upward pressure on consumer prices. However, with easing energy prices and slackening global economy, consumer prices are trending down.

Externally, exports have been hit hard by falling steel and oil prices, as well as weakening global demand, especially for cars and car parts, timber and building materials. Looking ahead, the slowdown of the US economy and proliferation of the financial tsunami originated from the US will continue to curb Canada's export growth in 2009. Alongside the economic stimulus measures, the Bank of Canada cut its key interest rate on 20 January 2009 by 50 basis points to a 50-year low of 1.0% to boost the slowing economy. However, the Canadian economy is still forecast to shrink by 1.2% in 2009.

Trade Policy

Canada maintains a liberal trade regime. There are no foreign exchange restrictions, and import licences are only required for a limited number of goods. Imports are generally subject to import duties.

Import licences are required for items regulated under the Export and Import Permits Act. The Act lists various agricultural products (poultry, eggs, and dairy products), a number of textile and clothing items, and certain steel products.

The importation of certain commodities is however tightly controlled. Examples of regulated goods include: food products, drug and medical devices, hazardous products, some offensive weapons and firearms, endangered species and motor vehicles.

Duties are assessed on the transaction value (the price actually paid or payable for the goods), including commission, brokerage, packing, royalties and transportation to the Canada point. Hong Kong and China origin goods are eligible for the preferential tariffs under the Canadian General Preferential Tariff (GPT) Scheme.

A provincial sales tax (PST) is assessed on all imports to British Columbia (7.0% of the duty paid value), Manitoba (7%), Ontario (8%), Prince Edward Island (10%), Quebec (7.5%) and Saskatchewan (5%). Additionally, a broad-based value-added sales tax, known as the goods and services tax (GST), is levied at 5%. In the three Atlantic provinces (Newfoundland, New Brunswick and Nova Scotia), the PST and GST were combined in April 1997 to form a harmonised sales tax (HST) at a standard rate of 15% for all goods and services. In addition, excise taxes are charged on goods such as tobacco, spirits, wine, jewellery (scheduled to expire on 1 March 2009), some heavy automobiles; automobile air conditioners; and gasoline, diesel fuel, aviation gasoline and aviation fuel.

Canada may impose anti-dumping duties on imports considered to be priced less than the "normal" price charged in the exporter's domestic market and caused material injury to the concerned industry in Canada. Furthermore, if a country is found to be unfairly subsidising its exporters, Canada is authorised to impose a countervailing duty equal to the amount of the subsidy expressed as a percentage of the export price of the goods. These duties remain in place for five years and can be renewed for additional terms of five years. Currently, Canada imposes anti-dumping and/or countervailing duties on several imports from the Chinese mainland, including bicycles, carbon steel and stainless steel fasteners, laminated flooring, copper pipe fittings, wood slats, carbon steel welded pipes, seamless carbon and alloy steel oil and gas well casings.

Canada may also invoke China-specific safeguard against imports from China if such imports are being imported in such increased quantities or under such conditions as to be a significant cause of market disruption to domestic producers of like or directly competitive goods in Canada. The first cases was initiated in July 2005 and involved self-standing barbeques for outdoor use from China. In that instance, the Canadian International Trade Tribunal (CITT) allegedly found evidence of market disruption and established a 15% safeguard duty for a period of three years.

Global safeguard is another trade remedy measure available in Canada. For instance, safeguard tariffs were imposed on imports of bicycles in 2005 with the exception of the US, Mexico, Israel and Chile. The safeguard tariff rates are 30% during the first year, 25% during the second year, and 20% during the third year.

After recent high-profile product safety issues, the Canadian government has proposed a new product safety legislation, which, if passed, would help modernise and strengthen product safety laws in Canada. The proposed Canada Consumer Product Safety Act (CCPSA) will prohibit the manufacture, importation, advertisement or sale of consumer products that pose an unreasonable danger to human health or safety. It will also require mandatory reporting by suppliers of serious product-related incidents, including those where injury may have been averted, or defects that could cause serious injury or illness.

Canada requires bilingual labelling (English and French) for most products. Bilingual designation of the generic name on most pre-packaged consumer products is required under the federal Consumer Packaging and Labelling Act. Under this Act, the product identity declaration, net quantity declaration and dealer's name and principle place of business must appear on the package/label of a consumer good sold in Canada.

The agency responsible for inspection of imports, Canada Customs and Revenue Agency, also requires an indication of the country of origin on several classes of imported goods. Goods not properly marked will not be released from Canada Customs until suitably marked. In general, environmental claims that are ambiguous, misleading or irrelevant, or that cannot be substantiated, should not be used.

The North American Free Trade Agreement (NAFTA) signed by Canada, the US and Mexico took effect in January 1994. This agreement sets out the objective to eventually eliminate tariffs on most goods originating in Canada, the US and Mexico over a maximum transition period of 15 years. Under the US-Canada Free Trade Agreement, trade between the two nations became duty-free on 1 January 1998. NAFTA preferential tariffs apply only to goods determined as originating within the NAFTA territory. Apart from NAFTA, Canada also concluded free trade agreements (FTAs) with Israel, Chile and Costa Rica. On 7 June 2007, Canada has clinched an FTA with Norway, Switzerland, Iceland and Liechtenstein – the four countries making up the European Free Trade Association outside the EU. In the meantime, Canada is proactively pursuing other possible FTAs, including the one with South Korea.

Hong Kong's Trade with Canada^

Canada is Hong Kong's 15th largest export market. Hong Kong's total exports to Canada rose by 4% in 2008, after a decline of 2% in 2007. Major export items included telecommunications equipment and parts (shared 13% of the total), articles of apparel, of textile fabrics (12%), toys, games and sporting goods (7%), women's or girls' wear of textile fabrics, not knitted (6%), and footwear (5%).

On the other hand, Canada is Hong Kong's 23rd largest source of imports. Hong Kong's total imports from Canada increased by 4% in 2008, similar to the growth registered in 2007. Leading import items included nickel (shared 15% of the total), meat and edible meat offal (9%), raw furskins (8%), telecommunications equipment and parts (6%), and crustaceans, molluscs and aquatic invertebrates (5%).