Canada Letter of Credit Transactions

What are the key points of consideration as an exporter when working with a letter of credit which is issued in Canada or as an importer when issuing a letter of credit for a Canadian exporter?

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Canada, second largest country in the world in area (after Russia), occupying roughly the northern two-fifths of the continent of North America.(1)

Canada borders with the United States as well as a long maritime boundary with Denmark, at the autonomous island country of Greenland, and a short maritime border with France, at the overseas islands of Saint Pierre and Miquelon.(2)

Canada is one of the leading exporters of agricultural and non-agricultural commodities such as crude and refined petroleum, gold, lumber, aluminum, paper, wheat, colza seeds and oil, dried legumes etc.

Canada is a member of the Asia-Pacific Economic Cooperation (APEC), the North American Free Trade Agreement (NAFTA), and the Trans-Pacific Partnership (TPP).(3)

On this page you can find brief information in regards to Canada economy, key points of its international trade, banks in Canada and letter of credit usage tips specific to Canada.

overview of brazil international trade

Canada Exports at a Glance:

As of 2017 Canada is the 12th biggest exporting country in the world. Canada’s 2017 exports declared as 420 billion US dollars in value.

Breakdown of Canada’s total exports by main commodity groups are: agricultural products %16.2, fuels and mining products %22.3, manufactures %52.5.

The most significant export destinations of Canada are United States of America %76, European Union %7.5, China %4.3, Japan %2.2 and Mexico %1.4.

Top Exported Products of Canada (2017)

Agricultural GoodsNon-Agricultural Goods
Wheat and meslinPetroleum oils, crude
Rape or colza seedsMotor cars for transport of persons
Dried leguminous vegetablesGold
Rape, colza or mustard oilPetroleum oils, other than crude
Swine meat, fresh, chilled, frozenParts for motor vehicles 8701-8075

Canada Imports at a Glance:

Canada is the 12th top importing country as of 2017 statistics. The import trade value of Canada in 2017 declared as USD 441 billion.

As of 2017, Canada’s main imports are: motor cars for transport of persons  (USD 28.6 billion), parts for motor vehicles (USD 20.5 billion), motor vehicles for goods transport (USD 15.8 billion), petroleum oils, crude (12.7 billion), petroleum oils, other than crude (USD 12.2 billion).

Canada’s major import trading partners are the United States of America, China, European Union, Mexico and Japan.

Top Imported Products of Canada (2017)

Agricultural GoodsNon-Agricultural Goods
Wine of fresh grapesMotor cars for transport of persons
Bread, pastry, other bakers' waresParts for motor vehicles 8701-8075
Other food preparationsMotor vehicles for goods transport
CoffeePetroleum oils, crude
Chocolate and other cocoa foodPetroleum oils, other than crude

International trade has been playing a significant role on Canada’s economy.

Canada’s exports reached to 30% of its Gross Domestic Product (GDP) in year 2012 according to IMF. These data show us that Canada is one of the most export oriented nations in the world.

Figure 2 : Canada Export of goods and services (percent of GDP) ( Source : IMF)

Canada Export of goods and services (percent of GDP)

Figure 2 shows Canada’s export of goods and services percent of GDP between 2005-2012. Canada exports / Canada GDP will be as follows for the corresponding years:

2005 : 38,1%
2006 : 36,6%
2007 : 35,2%
2008 : 35,7%
2009 : 29,3%
2010 : 29,8%
2011 : 31,5%
2012 : 30,1%

Canada’s exports had been higher than its imports since the beginning of last global economic crises.

In year 2007 and 2008 Canada had a trade surpluses of 45.594,50 million USD and 43.669,60 million USD, respectively.

In year 2009 and 2010 trade surpluses turned into trade deficits.

In year 2009 and 2010 Canada had a trade deficits of 6.773,40 million USD and 9.703,30 million USD, respectively.

In 2011 Canada exports and imports were almost equal so there was no significant trade surpluses or deficits.

But in year 2012 Canada trade deficit climbed to 12.016,30 million USD.

Figure 3: Canada Trade Balance (million USD)

Canada Trade Balance (million USD)

Banks in Canada

Toronto Dominion Bank: Banque Toronto Dominion, or Toronto-Dominion Bank, was founded in 1955. It is commonly known as TD and it has 11 million clients in over 1,150 branches in Canada alone.

Assets: 862 billion USD SWIFT Code: TDOMCATT

Royal Bank of Canada: The Banque Royale du Canada, or Royal Bank of Canada, was established in 1864 in Halifax. Its corporate headquarters are in Montreal, while the operational head office is in Toronto. It has 1,209 branches in Canada, 439 in six southeast states in the US and 127 in the Caribbean.

Assets: 860 billion USD SWIFT Code: ROYCCAT2

Scotiabank (The Bank of Nova Scotia): Banque de la Nouvelle Ecosse, or the Bank of Nova Scotia, is commonly called the Scotiabank. It was established in 1832 in Halifax after the Legislative Assembly of Nova Scotia incorporated it. In 1900, it moved its headquarters to Toronto. It markets itself as Canada’s international bank because of its acquisitions in the Caribbean, Latin America, Europe and India. It has a presence in 55 countries around the world, serving over 19 million clients.

Assets: 743 billion USD SWIFT Code: NOSCCATT

Bank of Montreal: Banque de Montreal, or Bank of Montreal, is the oldest bank in Canada. It was formed in 1817 in Montreal. It is known as the BMO and it serves seven million clients over its network of 900 branches.

Assets: 538 billion USD SWIFT Code: BOFMCAT2

Canadian Imperial Bank of Commerce: Banque Canadienne Imperiale de Commerce, or Canadian Imperial Bank of Commerce, was formed in 1961 in Toronto. It is commonly known as CIBC. It has a presence not only in Canada, but also in the United States, the United Kingdom, Asia and the Caribbean. In 2012, Bloomberg named the bank as the strongest in North America and the third strongest in the world.

Assets: 353 billion USD SWIFT Code: CIBCUS33

National Bank of Canada: Banque Nationale du Canada, or the National Bank of Canada, was established in 1859 in Montreal. It is the leading bank in the Quebec region and is considered to be one of the strongest banks in the world.

Assets : 156 billion USD SWIFT Code: BNDCCAMM

Letter of Credit Usage Tips Specific to Canada:

Tips to the Importers:

  • Canada has abundant and diversified energy and mineral resources, is world’s fifth largest oil and gas producer, has a very robust banking sector and excellent business climate.
  • Working with Canadian exporters should not possess any significant risk factors for the importers.
  • Canada is exporting huge amounts of commodities, which usually require triangle trade and transferable letters of credit on the payment side.
  • Transferable letters of credit covering commodity trade are one of the most complicated and risk inherited types of letters of credit.
  • Try to establish a simple and well defined letter of credit in order to complete the transaction smoothly.

Tips to the Exporters:

  • Canada has a low political and credit risks, a very robust banking sector and an excellent business climate.
  • As a result accepting a letter of credit issued by a Canadian bank should not inherit mush risks. Following standard letter of credit control procedures and conducting a simple fraud risk examination should be sufficient.

References:

  1. https://www.britannica.com/place/Canada
  2. https://en.wikipedia.org/wiki/Borders_of_Canada
  3. https://globaledge.msu.edu/countries/canada
  4. https://www.wto.org/english/thewto_e/countries_e/canada_e.htm