Exporting to the U.S.—frequently asked questions
The U.S. is by far Canada’s largest export market, and for good reason: our neighbour has the most vibrant economy in the world along with a familiar business culture, language and culture.
Still, Canadian entrepreneurs often come up against difficult issues when they’re exporting to the U.S., especially at the beginning.
Here are answers to some frequently asked questions to help you take advantage of opportunities south of the border.
Market entry plan
To sell in the U.S., your options include using a distributor or agent, acquiring an existing local business, opening a physical presence in the U.S., selling online, selling indirectly through another company, or some combination of these different options. Logistics and distribution have a big impact on your exporting project, so you should begin by creating a carefully researched and planned market entry strategy.
BDC’s free guide Growing in International Markets: A Guide for Entrepreneurs provides a good overview of what needs to be covered to create a market entry plan.
The U.S. is not one market, but a collection of many different markets divided by regions. It may be easiest to pick one state or region, then expand afterwards.
To find out whether there is any U.S. demand for your products or offerings, you can consult both Industry Canada’s Trade Data Online and U.S. Department of Commerce’s State Import Data to see how much export business your sector carried on in the U.S. For more information, the Trade Commissioner Service has free reports about exporting to the U.S.
An exporter is the party who exports commercial goods from Canada. If they live outside Canada, they are non-resident exporters. All exporters, regardless of place of residence, are subject to the same requirements as long as they are exporting from Canada.
A carrier is the person or organization who transports the specified goods across borders for the exporter. Examples are shipping lines, airlines, trucking companies and railways.
As the exporter, you must obtain a business number (BN) account by contacting the Canada Revenue Agency (CRA). You must also make sure all the required permits and documents are submitted to Canada Border Services Agency (CBSA). However, export declarations, documents such as bonds can be completed by a third party such as a customs broker.
Ultimately, the exporter is responsible for the accuracy and timeliness of the documents. You can find a full list of what you have to prepare on the CBSA website.
A customs broker is the person who will help you clear your goods through customs and deliver them to their destination. The broker is typically located in the target market. They stay up to date with the latest customs regulations and procedures, prepare export documentation, and arrange the bonds for your goods.
Using a broker is mandatory for arranging the formal entry of goods into the U.S. You can find a broker on the website of the National Customs Brokers & Forwarders Association of America (NCBFAA). You can also search by your port of entry on website for U.S. Customs and Border Protection. Some logistics companies also perform brokerage as part of their services.
A customs bond is a contract similar to an insurance policy. It is a guarantee to the U.S. government that the exporter will adhere to all the laws and regulations concerning importation, including paying all the duties and fees on the imported goods. For commercial imports worth $2,500 or more, you must have a valid bond. A bond is issued from a surety company, and exporters should be able to buy it through their insurance company or a customs broker. The surety company is liable for the money if the exporters do not perform their obligations.
Customs bonds come in different types and amounts, and exporters often require assistance with the bond application process. A professional customs broker could review the commodities being imported and estimate how much duty you would pay over one year, which would determine the type of bond you need to get.
You can find more information on the U.S. Customs and Border Protection website.
Also referred to as HTS (Harmonized Tariff Schedule Codes), HS Codes are a description and coding system for commodities. You will need to supply this code to U.S. customs authorities so they can determine the duties, taxes and regulations that apply to your products.
In Canada, HS codes have eight digits: the first six come from an international system, and the last two are added for Canadian domestic purposes. HS codes have 10 digits in the U.S. You can look up Canadian and American HS codes on Statistic Canada’s Canadian Export Classification page.
To ease your paperwork and other headaches, make sure the product descriptions on delivery slips are consistent. Clearly indicate the product's origin and Canadian content, and correctly register the product based on HS codes. Also, make sure to fill in the certificate of origin. Remember that your products must comply with American standards and meet the applicable criteria there.
A customs broker can provide you with information on these matters and assist you with the details. You can consult resources offered to exporters by the CBSA for more information.
For entrepreneurs who manage their own packaging, shipping through Canada Post is probably the most practical and cost-effective solutions. Larger companies often hire third-party logistics companies (3PL), thus avoiding the need to own their own warehouses and trucks. However, it’s important to note that 3PL companies are only cost competitive when there are high volumes of product to be shipped.
Product liability insurance for isn’t legally mandated for exporters to the U.S. In practice, however, American buyers may refuse to purchase your exports unless you obtain such coverage, because it helps protect them from litigation if your product is alleged to be faulty.
On the other hand, product liability insurance can be very costly and hard to obtain. Before settling on a final export price, exporters to the U.S. need to determine whether they will need this kind of insurance and, if so, how much it will cost.
You may want to get the advice of a lawyer and/or an insurance professional who are experienced in international trade issues.
There are pros to cons to both decisions: if you plan to keep inventory in the U.S., you need a broker to move goods from Canada to the U.S. Once the goods have been cleared through U.S., the broker is no longer required. While the process could be a hassle, keeping inventory in the U.S. means you will be able to handle returns in the same country.
If you keep your inventory in Canada, cross-border returns could increase the expenses for your customers and complicate the process.
These are similar and overlapping services
- Third-party logistics (3PL): This is the most encompassing of these three. As the name implies, 3PL companies covers most of a company’s logistics needs, which includes warehousing, inventory management, order packing, shipping, order tracking, customer service and returns processing.
- Fulfilment service: These are 3PL companies that, in addition to other services, can also warehouse your inventory and integrate it into its sales systems.
- Freight-forwarders: These are companies that physically move cargo. A freight forwarder will act as a broker organizing the steps, but they will not handle distribution tasks such as picking and packing orders to ship to customers.
Documentation and handling
The answer to this question depends on what product is being shipped. Some products can be exported to the United States almost as easily as they can be shipped within Canada, while the export process for other products may involve all sorts of red tape.
Generally, products that might damage health (such as pharmaceuticals and foods) or security (such as explosives and radioactive isotopes) are more likely to require permits or licences. Similarly, products that are the subject of trade disputes, U.S. protectionist measures or quota systems are going to be harder to move. Stay up to date with the most recent trade news in case your products are affected.
The Canada Border Services Agency is a good resource. They also offer a Step-by-Step Guide to Exporting Commercial Goods from Canada which provides helpful information on documentation for exporters.
Canadian businesses have two options when importing into the U.S.: informal entry and formal entry.
Informal entry can be applied to goods valued under US$2,500. It requires either the exporter to accompany the goods, or the co-signee to pick them up at the port of entry. Postal deliveries are allowed under informal entry, so goods warehoused in Canada can be shipped across the border.
Formal entry is applied to goods valued over US$2,500 and unaccompanied goods. It requires a customs broker as well as a different type of bond. If you decide to use a 3PL company, they would likely offer a brokerage service as part of their services. Keep in mind that the final calculation of duties and fees for formal entry differs from informal entry.
To make sure that your business meets the labelling and documentation requirements for exporting to the U.S., consult the rules of the relevant agency. These include:
- Federal Trade Commission (http://www.ftc.gov/) has labelling requirements for goods that are consumed, such as candles, as well as textiles, clothing, wool, fur and leather.
- Food and Drug Administration (https://www.fda.gov/) has rules for labelling of food for human and animal consumption, dietary supplements, cosmetics, drugs, medical devices and radiation-emitting devices. Small businesses may be eligible for less strict requirements.
- Department of Agriculture (www.fsis.usda.gov) has rules for retailed meat and poultry products and organic food.
- Bureau of Alcohol, Tobacco and Firearms (www.atf.gov) regulates alcoholic beverage labelling.
- Customs and Border Protection (www.cbp.gov) has country-of-origin labelling requirements for imported items.
- Environmental Protection Agency (www.epa.gov) requires labelling of items containing certain chemicals or that are used as pesticides, fungicides, rodenticides or anti-microbial agents.
- Consumer Products Safety Commission (www.cpsc.gov) requires labels on various hazardous items and flammable products.
- Occupational Health and Safety Administration (www.osha.gov), which is part of the Department of Labor, has rules for labelling and information sheets on hazardous products.
According to the Trade Commissioner Service, there are three main channels for selling online:
- selling on a retailer’s website: this is like dealing with a traditional retail company. To sell through their website, you must apply to become one of the retailer’s vendors.
- selling on a marketplace platform: examples include Amazon, eBay, and Walmart Marketplace. Often these marketplaces would charge you a posting fee for your products or take a cut of profits. You get more control over pricing and placement of your products than you would through a traditional retailer, but you would also receive less help for inventory tracking, marketing, etc.
- selling on your own website: you get complete control over your pricing and brand, but on the flip side, your products would not be included in a retailer’s or marketplaces’ product discovery tools. You will have the responsibility of directing customers to your website.
You can also do some combination of the above. Sellers often use a variety of channels to reach as many shoppers as possible. For example, you can sell through a retailer while also maintaining your own website.
No, by default your company does not have to be incorporated in the U.S. to do e-commerce there. However, certain vendors or partners may require you to do so. If they do, remember that in the U.S., incorporation is done at the state level, not federal, and consulting an attorney to help you do so may be best for your business.
If your prices are set in U.S. dollars but your expenses are set in Canadian dollars, there could be an exchange rate risk. It’s recommended to pick a payment processor based in the United States that accepts U.S. dollars.
- Payment gateway: this is the digital point-of-sale terminal. A payment gateway takes customers’ credit and debit card information then passes the payment onto the payment processor.
- Payment processor: this connects the payment gateway with the merchant account.
- Merchant account: a merchant account is your bank account that you use to accept payments. This is sometimes called “merchant IDs” (MIDs)
These three are sometimes bundled together. A company like PayPal is both a payment gateway and a payment processor, while other companies have created platforms that combine all three.
Many exporters refrain from active management of their foreign exchange, even though they understand that exchange rate fluctuations can affect their earnings. Often, they argue that such currency hedging lies outside their firm's field of expertise.
However, there is a case for managing foreign exchange risks. There are various tools and techniques available for mitigating these risks, including:
- foreign exchange forwards
- currency futures
- currency options
In practice, you will find that Canadian chartered banks and other regulated foreign currency dealers are familiar with the most common strategies for managing foreign exchange risk and are well-equipped to offer both advice and the hedging tools. EDC also offers products and services to help manage foreign exchange risk.
There is, of course, a cost to using these tools. But they can help you reduce your exposure to foreign exchange losses.
If you are worried about websites and marketplaces offering knock-off versions of your product, or concerned with people infringing on your intellectual property (IP), then you can register for a trademark. Trademarks are legal registered symbols or expression that protect brands’ reputations. To get one, Canadian companies must hire an attorney in the U.S. to file an application with the United States Patent and Trademark Office.
For knock-off products, you can also hire third-party trademark and brand-monitoring services to monitor marketplaces and websites for copyright infringements.
For content piracy, if you notice that content generated by your company, such as photographs and text, are being taken without your permission and used on a website, then you can file a Digital Millennium Copyright Act (DMCA) Takedown Notice. To file a DMCA notice, you must find out the website’s Internet service provider and contact their DMCA agent. It may also be helpful to contact an attorney in the United States who specializes in this topic.
There are several considerations regarding intellectual property (IP) in the United States. The Trade Commissioner Service has created a web page on practical IP considerations for Canadian small and medium-sized enterprises interested in learning more about best practices, contracts, patents, trademarks and available resources.