Dear Minister Flaherty:
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- Jessie West
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1 The Honourable James Flaherty Minister of Finance c/o Consultations on Foreign Trade Programming International Trade Policy Division, 14 th Floor East 140 O Connor Street Ottawa, ON K1A 0G5 Tariff-Tarif@fin.gc.ca Dear Minister Flaherty: We are writing to you on behalf of the Manitoba Government in response to your invitation for input on Foreign Trade Zone (FTZ) policies and programs. Strengthening Canada s FTZ framework will better enable Canadian facilities and jurisdictions to take advantage of a proven, globally-successful trade development model. A 2008 study by Deloitte indicated that by 2007 there were more than 2,700 FTZs around the world employing 63 million people. A November 2011 report by InterVISTAS on the feasibility of an FTZ in British Columbia concluded that the economic potential could total $5.1 billion in trade and up to 5,300 person years of employment. Our Government believes that Manitoba is well positioned for enhanced FTZ activities, given our Province s strong transportation, warehousing and distribution base and strategic access to international markets via significant corridors and gateways. Seven percent of Manitoba s GDP can be attributed to transportation and warehousing and 10% of the City of Winnipeg s workforce is employed in transportation and distribution industries. Moreover, strategic corridors such as the Asia-Pacific Gateway, Mid-Continent Trade and Transportation Corridor, and Arctic Gateway converge at Winnipeg. Manitoba provides a business environment that supports value-added manufacturing, the development of international trade and the export of Canadian manufactured goods. The Manufacturing Investment Tax Credit more than offsets any sales tax on capital investments, and sales tax is not exigible on goods which are imported for export. Our capital tax has been eliminated, our tax on fuel is the second lowest in Canada, and international cargo flights are exempt from provincial fuel tax. Research and development and innovation in Manitoba are supported with generous tax credits. Manitoba is an attractive destination for new immigrants from around the world, which enhances the Province s connectivity with other countries. Canada and Manitoba do not impose a personal property tax, inventory tax or gross receipts tax like many jurisdictions in the US. Also, combined federal and provincial corporation income tax rates are thirty three percent lower than the US. Additionally, a
2 Page 2 harmonized federal-provincial income tax system involving a single tax administration and annual return provides a distinctive competitive advantage respecting tax compliance. Clearly, Canada, Manitoba and CentrePort Canada are ideally situated in North America and have the appropriate incentives in place to attract companies interested in FTZ benefits. Nonetheless, we believe that improvements can be made that will make Canadian and Manitoban FTZ opportunities more attractive in a competitive global market. Our comments on FTZ programming and policy build upon several pillars, including: reducing or eliminating limitations on value-added activities; integrating programs to provide single-window access and a common point of contact for firms pursuing FTZs in Canada; allowing companies with a significant Canadian presence to participate in programs that also benefit foreign participants; engaging local stakeholders like CentrePort Canada Inc. to promote and market FTZs domestically and internationally; having federal, provincial and local levels co-operating and co-ordinating to appropriately package FTZ incentives; and ensuring quality infrastructure (i.e. land, space, utilities, logistical services, supporting business services, and security) is available. We are familiar with the federal Duty Deferral Program (DDP) and the Export Distributions Centre Program (EDCP), and acknowledge the significant steps taken by the federal government to eliminate tariffs. The following suggestions are aimed at enhancing current federal programs, correspond to key observations identified by Deloitte in 2008 with respect to successful FTZs, and are consistent with comments we have received from the business community in Manitoba. In many instances, the suggested improvements are consistent with what we understand to be the FTZ environment in the US, possibly our greatest competitor in this area. A frequent comment we hear is that the types of activities allowed under the EDCP are too restrictive. Companies that serve the domestic market to a significant extent are not eligible for the EDCP, even for the part of their business that is based on foreign exports. Companies engaged in more than a modest level of value-added manufacturing activity are not eligible for the program either. In the US, on the other hand, activity in an FTZ is unrestricted and can include all forms of manufacturing and other value-added activity. Both the DDP and EDCP are defined by the companies that are registered under them. However, smaller companies and occasional users may be dissuaded from registering because of the application costs. A zone concept, on the other hand, would allow companies to benefit if an operator such as an inland port region were instead registered under the programs and its certificate allowed all users to operate under the umbrella of the port s registration. This would also represent a step in bringing Canadian FTZs more in line with FTZs in the other seven G8 countries, each of which have a comprehensive FTZ program, compared to Canada s ad hoc FTZ regime.
3 Page 3 A user that wants to utilize both the EDCP and the DDP must apply separately to the Canada Revenue Agency and Canadian Border Services Agency. A single window/single application form for users would also remove these administrative impediments and likely generate a greater up-take of the programs. Canadian customs regulations require goods to be tracked and documented at every step, from initial import into Canada through to entering the domestic market or being re-exported. This can involve a number of separate steps, each of which may require the use of a customs broker, making this a costly, time-consuming process. Furthermore, any special circumstances with a shipment may require direct customs clearance before proceeding. Though these requirements are not unique to Canada, and in fact are similar to the procedures required in FTZs in other countries, for competitiveness purposes more needs to be done to remove restrictions on companies importing parts or goods in-bond destined for the Canadian market. We also understand DDP and EDCP up-take is limited by a lack of awareness within government, in industry organizations, and particularly by companies concerned primarily with distribution, import/export, and limited value-added activity. Promoting the FTZ programs within and outside government, in conjunction with positive changes (such as those identified elsewhere in this letter), would increase Canada s FTZ awareness at home and around the globe. The current lack of awareness and marketing of Canada s FTZ programs is one of the biggest impediments to the global perception of Canada as an FTZ. As much as Canada s tax competitiveness has become part of governments daily lexicon, the use of the FTZ brand falls far behind, making it difficult to attract interest in Canada. Government foreign trade missions and the activities of CentrePort Canada go a long way toward addressing this shortcoming and we would encourage ongoing support for the continuation of these undertakings. The Government of Canada may also want to continue empowering efforts such as that of CentrePort Canada s government task force. This group has made important efforts towards the improvement of access and marketing of the FTZ programming in Canada. The latter was confirmed by an evaluation conducted by Ference Weicker & Company Ltd. and which was commissioned by the federal government. It was through this group that the first application for a Custom Bonded Warehouse within CentrePort Canada was processed. Particularly in the US, FTZs have been an important feature of successful inland ports. As you may know, Manitoba established Canada s first inland port when it passed The CentrePort Canada Act in October CentrePort Canada was created as a Canadian transportation and logistics centre to facilitate economic development, promote international trade, and to attract investment in value-added industries. The CentrePort Canada footprint includes 20,000 acres and has a unique intersection of major air, truck and railway infrastructure and services. Manitoba is a strong supporter of allowing value-added manufacturing on imports destined for export and the export of Canadian-made products.
4 Page 4 Since that time, the federal government, the Manitoba Government and CentrePort have worked together to provide a single-window task force to simplify and enhance foreign firms access to federal FTZ programs. Federal representatives on the task force include Industry Canada, Foreign Affairs and International Trade, Western Economic Diversification, Transport Canada, the Canada Border Services Agency, the Canada Revenue Agency, and Export Development Canada. Provincial representatives include Local Government, Infrastructure and Transportation, Entrepreneurship, Training and Trade, and Finance. The City of Winnipeg and CentrePort Canada are also each represented on the task force. We strongly support and encourage the ongoing participation of these departments as CentrePort Canada continues to develop into an internationally recognized FTZ inland port. One means of promoting FTZs in Canada is through partnerships, such as the agreements signed between CentrePort Canada and the Chongging-Lianglu Free Trade Zone in China in May 2010; and between CentrePort Canada, Shanghai Invent Logistics & Technology Co., Minsheng International Freight Co. Ltd., CN Worldwide, and Canadian Pacific Logistics Solutions in May These agreements help establish a foundation for making the Asia-Pacific Gateway more attractive for international business and investments. The construction of CentrePort Canada Way in Winnipeg will also facilitate the development of needed infrastructure to ensure improved access to international corridors, and utilize the tri-modal transportation assets (air, trucking and railway) available at CentrePort Canada. We are also pleased with the continued support Manitoba receives from the federal government in its promotion of the ongoing development of Intelligent Transportation Systems (ITS) and the funding that was made available through the Strategic Highway Infrastructure Program for the purchase of a Variable Message Sign at the Pembina-Emerson Port of Entry. Through the use of the ITS architecture Manitoba continues to explore technological solutions in which cargo pre-clearance can be done within the CentrePort Canada footprint to enhance security and continue to expedite the flow of legitimate trade. Within that context, and under the scope of the Beyond the Border Action Plan which committed to Implement additional pre-inspection and preclearance initiatives, Manitoba believes that there are opportunities for the development of secure inland preclearance facilities at CentrePort Canada that can also qualify as an FTZ. Manitoba and CentrePort Canada are striving to develop unique service offerings and would like to be the first FTZ/Secure pre-clearance facility in Canada. We view this amalgamation of FTZ-trade facilitation and clearance services as a natural progression in developing a best-in-class inland port facility. Manitoba appreciates such considerations may be outside of Finance Canada s current consultations scope, but suggests the responsible federal government departments should explore these possible synergies. In other words, FTZs could be uniquely developed and marketed as super trade facilitation and clearance clusters, with an FTZ entity such as CentrePort Canada acting in a broad co-ordinating and synergizing capacity of these trade supporting elements. Thank you for the opportunity to provide input into federal policy and programming regarding FTZs in Canada. We look forward to continued co-operation and co-
5 Page 5 ordination between our two governments and CentrePort Canada as we move forward to secure Canada and Manitoba s place as a centre for international value-added trade, development and investment. Sincerely, Steve Ashton Minister of Infrastructure and Transportation Stan Struthers Minister of Finance Peter Bjornson Minister of Entrepreneurship, Training and Trade c: Deputy Ministers D. Gray
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