Chapter

CANADA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2004
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(Position as of December 31, 2003)
Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: March 25, 1952.
Exchange Arrangement
CurrencyThe currency of Canada is the Canadian dollar.
Exchange rate structureUnitary.
Classification
Independently floatingThe exchange rate of the Canadian dollar is determined on the basis of supply and demand; however, the authorities may intervene in the foreign exchange market to promote orderly movements in the exchange rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward exchange rates are determined freely in the exchange market.
Arrangements for Payments and Receipts
Prescription of currency requirementsNo.
Payments arrangements
Regional arrangementsCanada is a member of the NAFTA.
Administration of controlThere are no exchange controls. The licensing of imports and exports, when required, is handled mostly by the Department of Foreign Affairs and International Trade, but other departments also issue licenses in specialized fields.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Canada maintains certain restrictions on the transfer, remittance, or assignation of money, checks, bank deposits, and other financial instruments held by, on behalf of, or in an account of the government of Serbia and Montenegro.
In accordance with UN sanctionsIn accordance with UN Security Council resolutions, Canada imposes restrictions on financial transactions with Bosnia and Herzegovina and a freeze on disputed property situated in Canada, including the assets of all the successor states of the former Federal Republic of Yugoslavia. Furthermore, a freeze is imposed on the assets of five former Yugoslav government officials indicted by the International Criminal Tribunal for the former Yugoslavia.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on external tradeReexports of gold of U.S. origin to all countries except the United States require a permit. Commercial imports of articles containing minor quantities of gold, such as watches, are unrestricted and do not require a license.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadYes.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsCertain assets connected to the former government of Iraq, Libya, and Serbia and Montenegro are frozen, pursuant to resolutions of the UN Security Council. Although the sanctions against Libya have been suspended by the UN Security Council, Canadian regulations remain in effect. Transactions allowed by ministerial certificates are conducted on a routine basis.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listImport permits are required for the importation of certain agricultural products, certain textile products and clothing, certain endangered species of fauna and flora, natural gas, material and equipment for the production or use of atomic energy, certain military armaments, and certain internationally controlled drugs. In addition, Health Canada does not permit the importation of unregistered drugs. Commercial imports of used motor vehicles (less than 15 years old) have been generally prohibited, except from the United States. The prohibition on imports of used vehicles from Mexico will be phased out by January 1, 2019.
Open general licensesYes.
Licenses with quotasImports of some clothing and certain textile products, usually in the form of bilateral restraint agreements concluded under the MFA, are also subject to quantitative restrictions. In accordance with the provisions of the Uruguay Round Agreement on Textiles and Clothing, Canada’s system of import controls on textiles and clothing is being liberalized in stages over a 10-year period that began on January 1, 1995. As a result of the commitments made under the Uruguay Round Agreement, Canada replaced all agricultural import restrictions with tariff rate quotas to ensure import access levels as negotiated in the Uruguay Round (or under the NAFTA).
Other nontariff measuresMeasures consistent with international trade obligations (e.g., countervailing duties) are in effect. Antidumping duties are imposed, taking into consideration competition policy factors as well as other economic costs.
Import taxes and/or tariffsOn average, import tariff rates are low. The highest tariff rates are applied to over-quota, supply-managed agricultural products.
State import monopolyCertain monopolies exist at the federal level.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
Without quotasThe Export Control List identifies all goods that are controlled in order to implement intergovernmental arrangements, maintain supplies, or ensure security. It includes all items identified in the International Munitions List, the International Dual Use List, and the International Atomic Energy List. In addition, controls are maintained for supply reasons to ensure the orderly export marketing of certain products that are subject to import limitations by other countries; to promote further processing in Canada (e.g., of logs and herring roe); and for nonproliferation purposes (i.e., chemical, biological, and nuclear weapons and their delivery systems). The Area Control List includes a limited number of countries to which all exports are controlled. At present, Myanmar is on the Area Control List. Permits are required for the exportation of listed goods to all countries except, in most cases, the United States, as well as for all goods destined to countries on the Area Control List, unless otherwise exempted.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNo.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instrumentsNo.
Controls on derivatives and other instrumentsNo.
Controls on credit operationsNo.
Controls on direct investment
Inward direct investmentSpecific restrictions exist on inward direct investments in the broadcasting, telecommunications, transportation, financial, fishery, and energy sectors. In addition, under the provision of the Investment Canada Act (ICA), new foreign investments are generally subject to notification requirements but not to review requirements. Except in sensitive sectors, where the non-Canadian investor or vendor is ultimately subject to the legislation of a WTO country other than Canada, only direct acquisitions of control of a Canadian business that has assets equal to or greater than Can$223 million (for 2003) are subject to review. (This amount is adjusted annually to reflect economic growth in Canada.) The acquisition of control of a Canadian enterprise is considered direct investment when it involves the acquisition of control of a corporation conducting business in Canada. It is considered indirect investment when it involves the transfer of control by share acquisition of a non-Canadian corporation that controls a Canadian corporation conducting business in Canada. These provisions were multilateralized as part of Canada’s implementation of the Uruguay Round.
Different thresholds apply in the case of investments made by non-WTO investors and in culturally sensitive sectors. Canada applies a “net benefit” test to determine whether a proposed investment will provide economic benefits domestically. Where the non-Canadian investor and vendor are ultimately subject to the legislation of a non-WTO country, the direct acquisition of control of a Canadian business that has assets greater than Can$5 million or the indirect acquisition of control of a Canadian business with assets greater than Can$50 million (or Can$5 million if 50% or more of the total assets of the business acquired are located in Canada) is subject to review.
The acquisition of a Canadian business involved in cultural industries, financial services, transportation services, or uranium production is subject to a limit of Can$5 million regardless of the nationality of the investor or vendor. Acquisitions in cultural industries may be subject to review, if the government so decides. The complete list of cultural activities is contained in schedule IV of the ICA. Investments that are generally subject to review are allowed if they are likely to be of net benefit to Canada. Cases that are subject to review must be resolved within 75 days, unless the investor agrees to a longer period of time. In practice, most cases are resolved within 45 days.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Sale locally by nonresidentsThere are no controls; however, withholding taxes apply.
Controls on personal capital transactionsNo.
Provisions specific to commercial banks and other credit institutions
Investment regulations
Abroad by banksBanks are generally free to make investments in financial entities, subject to approval. However, certain limitations apply to the type of commercial entities in which they may invest, both domestically and abroad.
In banks by nonresidentsNo controls are placed on the ownership of banks that specifically preclude nonresident ownership. Although the shares of large banks (i.e., those with more than Can$5 million in equity) must remain widely held, new legislation allows fit and proper investors to own up to 20% of voting shares or 30% of any class of nonvoting shares, provided that no single shareholder or group of shareholders controls the bank. Medium-sized banks (i.e., those with between Can$1 billion and Can$5 billion in equity) may have individual shareholdings of up to 65% with a public offering of at least 35% of the voting shares. Residents or nonresidents may set up or acquire a smaller bank, subject to ministerial approval.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 2003
No significant changes occurred in the exchange and trade system.

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