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International companies will soon be able to skip paying Canadian taxes and duties, as long as they ship their goods through a new foreign trade zone established by the federal government in Prince George.
The city is the first in B.C. to host the special economic zone, which proponents say will create jobs and spur economic investment, but critics worry it will encourage companies operating in Canada to avoid paying their fair share.
Companies that operate inside the zone can store, process or assemble products for sale in other countries without having to pay regular taxes or duties. For example, goods could be shipped from Asia, assembled inside the foreign trade zone, then sold in the United States without being subject to the regular fees for passing through Canada.
City of Prince George manager of economic development Melissa Barcellos used the example of a shirt manufacturer based out of China as a company that might want to use the zone.
“So it ships all of the components to Prince George, but none of them are actually put together,” she said. “You get the shirt, you get the sleeves, you get the buttons, a zipper. Once those components land in Prince George, they’re re-manufactured here… then distributed internationally,” Barcellos said.
Barcellos said the city’s position as a transportation hub will make it attractive to international companies, particularly those using the Port of Prince Rupert west of the city to connect Asian and North American markets.
Eight other Canadian cities have foreign trade zones: Edmonton and Calgary, Alta., Regina, Sask., Winnipeg, Man., Windsor-Essex and Niagara, Ont., Halifax, N.S. and Cape Breton, N.B.
The special zones have attracted some criticism from the non-profit Council of Canadians, which worries they help establish a “race to the bottom,” in the words of B.C.-Yukon regional organizer Harjap Grewal. “There’s all sorts of areas where we’re trying to find revenue,” he said.
“The concern is we’re going down this lowest common denominator, this race to the bottom in terms of what we’re providing in order to get these companies to operate here.” “You’re telling cities you have to establish these types of zones in order to spur investment.”
Barcellos said the city believes the benefits of attracting new business to the region will outweigh any drawbacks. She also said it would create jobs for people in the community, and open new avenues for local businesses to interact with international companies.
Companies operating inside the foreign trade zone still have to follow local, provincial and federal rules such as environmental and labour regulations.