1.0 International Trade and Legal Issues
International trade can be described as a combination of activities conducted by either individual, corporate entities, or the government in pursuit to exchange goods and services with other countries internationally or across territories. However, for this trade to be conducted smoothly, states put in place regulatory rules and legal directives that help to control such engagements. These regulations are determined by the type of commodity to control and the nature of procedures followed in the entire business process. Importantly, these rules help the government to either prevent the entry of illegal and counterfeit goods into the respective countries. Most of the counterfeit and illegal goods are mostly traded by unscrupulous individuals. In addition to this, it becomes critical to regulate products with the intention of ensuring that they are subjected to the tax system which is crucial for economic growth. This paper focuses on Canada and the way it imports products. It seeks to choose one of the globally traded products and evaluates how the country regulates the importation of that product from a specific country.
In essence, the paper will discuss the importation of vehicles into Canada. The car industry is of prime importance to the economy of Japan. Japan engages in the manufacturing of wide variety of motor vehicles which are exported to various destinations across the globe. In this discussion, the focus will be directed to discussing the importation of used cars from Japan to Canada. Whereas it sells new vehicles, trading used ones have become one of the most flourishing businesses for Japan. Indeed, the trade for such vehicles is currently done almost across the entire globe with specific emphasis on the countries that do not manufacture autos.
3.0 Country to Import From
In light of this discussion, the country to import the used vehicles from is Japan based on the fact that it is one of the leading manufacturers of automobiles. Essentially, the country has endowed itself with proficient global trading mechanism to ensure the growth and sustainability of this business. Importantly, the manufacturers from Japan have come up with affordable and efficient vehicles hence providing opportunities to people all around the world.
4.0 Legal Acceptability of Used Vehicles in Canada
Importation of used cars to Canada is legally acceptable. However this trade is subjected the regulations that have been put in place as far as the standards of those used vehicles are concerned. The regulations are implemented to not only ensure that the citizens do not buy wrecked vehicles, but also to make sure that the economy does not suffer from inherent inefficiency. For example, importing vehicles that are mechanically inefficient may lead to a scenario where the public use more money of fuel hence affecting the sustainability of the country. However, it is important to note that the restrictions imposed on the importations should not be interpreted as illegalization of the product.
5.0 Significance to the Japanese and Canadian Economy
5.1 To Canada
The used cars are very useful owing to their relatively low costs and substantially good condition at the time of purchase. In this regard, Canadians are able to acquire cheap and essentially efficient vehicles. From a macroeconomic point of view, the importation of the vehicles is integral to the transport system of Canada. The acquisition of personal and public vehicles in the country becomes more affordable. As such, it can be argued rightly that the availability of the used Japanese vehicles present an opportunity for the expansion of the Canadian transportation system. From an economic perspective, the development of a country is reliant to the reliability and effectiveness of its transport system. This, therefore, implies that the importation of these vehicles is of critical importance to the microeconomic and macroeconomic dynamics of the country. This is actually one of the reasons as to why the product was chosen for this discussion besides the fact that it is mostly traded across international boundaries using global dynamics.
5.2 To Japan
Japan is currently the third largest Manufacturer of cars in the world. Evidently, the exportation of used vehicles to various countries across the world has risen rapidly. These vehicles play a very crucial role in the development of its economy. It is one of the most significant sources of income for the Japanese government and investors (Kumar & Yamaoka, 2007). With the aforementioned growth of the market for these used vehicles, such income is actually predicted to rise in the near and distant future. Importantly, the Japanese used cars are widely known for their exceptional finish, durability, and high resale price. Besides the merits associated with the country’s dominance in this industry can be attributed to its effective marketing strategy. It is always at the forefront of informing its existing and prospective buyers about their new products though online websites and social platforms. In such platforms, they are able to have a wider scope and base of disseminating the information. The well-established market for the Japan used cars has been a great source of revenue used by the Government to meet its budgetary obligations, development projects, and operational costs through taxations. Importantly, it has used this as a method of obtaining a favorable balance of payment against other countries.
6.0 Subjections to Restrictions and Regulations
The importation of used cars to Canada from Japan is subject to the importation regulations and restrictions which ought to be followed. The regulations are directed towards different aspects such as the condition of the vehicles, transportation as reception, and payable services among others.
6.1 Age Restriction
All used vehicles imported to Canada must be older than 15 years. Any used vehicles that have been used for a period below fifteen years since the manufacturing date are not eligible for importation as directed by law. In the case of used buses, they must have been manufactured before January 1st of 1971 (Genesove, 1993). This implies that vehicles whose age is above this limit are not regulated at the point of importation. However, the lack of such regulations should not be misunderstood to mean that the vehicle owner will be able to obtain a license for it.
6.2 Roadworthiness Inspection
The inspection for road worthiness is not a requirement for the importation of used cards to Canada. Actually, this has raised critical concerns on the state of safety for the citizens because there is a high possibility of compromising the safety standards
6.3 Shipping Destination Ports
The Canadian regulations have stipulated that all imported cars should land in major ports. In particular, they are dispatched to maritime ports in Vancouver, New Westminster, Halifax, Montreal and Tronto. Dispatching these vehicles to the major points plays a fundamentally vital role in ensuring easy and efficient monitoring of the imports. Understandably, if the imports are not dispatched to areas where they can be monitored efficiently, there would be irregularities in procedure, quality of vehicles, and avoidance of taxes. This implies that the government sets these areas to ensure order and minimize the gaps through which irregularities can happen. Now, apart from the above regulations, cars that have been modified outside the country or altered from their original state other than the maintenance activities or general repair are not authorized for importation to Canada.
Tariff Classifications and Applicable Tariff Treatment
7.1 Custom Tariff
The Canada Border Services Agency has classified tariffs in various categories which are based on different regulation frameworks (Caves, 1976). However, the most crucial tariff when it comes to used vehicles is the custom tariff. This tariff is based on the World Customs Organization's (WCO) Harmonized Commodity Description and Coding System. In this regard, people who import products from countries that are not included in the List of Countries incur 35 percent taxation. The taxation can be imposed if the product does not meet the standards stipulated in the custom act despite coming from a country included in the List of Countries. In addition to custom tariff, the country has also applies the Most-Favored-Nation tariff which is referred to as MFN in short form. This tariff is usually based on entitlements provided by the Governor in Council. These entitlements are stipulated and outlines in section 31 of the Custom Act of 1997.
7.2 Applicable Tariff Treatment
These are the benefits which Canada offers to reduce the rate of import duty or provide a duty-free service on all goods brought into the country courtesy of free trade agreements or any other preferential treatments. Some of the tariff treatments include; the Most-Favored Nation Tariff (MFN) which is enjoyed by all members of the World Trade Organization exporting goods to Canada. However, for these imported gods to gain from the applicable tariff treatment, some conditions have to be met.
7.3 Eligibility
The respective goods must meet the manufacturing standards. For this case, the used cars imported from Japan must be of high quality for them to qualify for the lower import duty rate by Canada.
7.4 Possession of Valid documents.
It is mandatory for the importer in Canada to have valid documents to provide information about the origin the vehicle. The documents mostly include a Certificate of Origin which should be signed by the exporter in Japan. Possession and production of this document is mandatory for imported products to be subjected to a duty-free procedure or significant deductions on the amount of duty imposed (Kennan & Riezman, 1990).
Rate of Duty
Import duty is imposed on all used cars imported into Canada from Japan either by a commercial entity or by individuals. The duty is determined based on FOB (Free on Board) method which refers to a methodological formulation used to conduct vehicle valuation and determine duty based on the obtained value. As such, it is clear that the rate of duty applied is exclusively dependent on the value of the uses cars. In principle, the rate of duty in Canada ranges between 0% and 35% with 8.56% being the average and standard rate. Although no import duty is imposed on some products such as antiques and specific electronic goods, the used vehicles are not within these exceptional categories.
Taxes and Fees Imposed on Imported Vehicles
9.1 Exercise Fee
All used vehicles whose weight is above 4,425 pounds incur a taxation payable as an exercise fee of a hundred dollars.
9.2 Goods and Services Tax (GST)
A good percentage of commercial goods and services imported into Canada are exposed to this type of taxation. GST amounts to about five percent of the entire federal tax that is levied on the goods and services sold or bought in the country. In quantity, the taxes range from 5 to 7 percent of the total purchase price of the vehicle (Bird & Gendron, 2009).
9.3 Provincial Sales Taxes.
Provincial Sales tax, which is often referred to as PST, is the third tax that befalls vehicle importers. The rate of this tax varies from one province to the other since different jurisdictions have diverse taxation legislations. The rate normally ranges between 5% and 9.975% depending on the type of car that is imported into the country (Kumar & Yamaoka, 2007).
9.4 Harmonized tax
The harmonized tax is imposed and managed by the Canadian Revenue Agency. It represents a combination of both the general sales tax and provincial sales tax as a result of some provinces such as Nova Scotia, Newfoundland and Prince Edward Island opting to harmonize the provincial and general taxes (Bird & Gendron, 2009).
10.0 Conclusion
International trade has played a significant role in the importation and exportation of a wide variety of goods and services. It has enabled countries to acquire products, such as the used cars and spare parts, at cheaper prices while maintaining quality. For example, the Japanese used vehicles are reliable, durable, and of high quality. They come at affordable prices thus saving a lot of money for countries that would otherwise seek to manufacture at home or buy new ones. However, it is evident that international trade could not be effective and beneficial if no legal restrictions and regulations are imposed on the parties involved. In this regard, therefore, Canada has worked to put regulations and restrictions in place to ensure that the importations made to the country are sustainable and legal.
The country has put age restrictions on all imports of used vehicles. The country only allows the importation of vehicles whose age is above fifteen years. In addition to this, the country does not conduct a roadworthiness analysis of the vehicles above these years. This has raised concerns over government’s commitment to the safety of the Canadians. These guidelines help the government to monitor the movement of goods and services in and out of a country. As such, the authorities are able to prevent the smuggling of illegal and harmful products.
Besides the regulations, the government imposes several taxes on the imported vehicles. The taxes are incurred by the individual, company, or the entity that makes the purchase. One of the major taxes imposed on the used vehicles is the good and service tax. This is a tax that is imposed on all products sold and bought in the country as part of trade. As a result, it raises revenue through import duties and taxes levied on those goods. With such tax incomes, the government can easily finance its budget without many constraints.
References
Bird, R. M., & Gendron, P. P. (2009). Sales taxes in Canada: the GST-HST-QST-RST system. Tax L. Rev., 63, 517.
Caves, R. E. (1976). Economic models of political choice: Canada's tariff structure. Canadian Journal of Economics, 278-300.
Genesove, D. (1993). Adverse selection in the wholesale used car market.Journal of Political Economy, 644-665.
Kennan, J., & Riezman, R. (1990). Optimal tariff equilibria with customs unions. Canadian Journal of Economics, 70-83.
Kumar, S., & Yamaoka, T. (2007). System dynamics study of the Japanese automotive industry closed loop supply chain. Journal of Manufacturing Technology Management, 18(2), 115-138.
