NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA)
Presented by:
SERGIO R. KARAS, B.A., LL.B.
KARAS & ASSOCIATES
BARRISTERS & SOLICITORS
212 King Street West, Suite 410
Toronto, Ontario M5H 1K5
Canada
Tel: (416) 506-1800
Fax: (416) 599-5582
email: karas@karas.ca
http://www.karas.ca
INTERNATIONAL BAR ASSOCIATION
MIGRATION & NATIONALITY COMMITTEE
LONDON - MARCH 9 & 10, 1998
INDEX
I. Introduction
II. Business Persons Covered by NAFTA
III. Business Visitors
a. Requirements
b. Business Activities
c. After-Sales Service
d. Specialized Knowledge
e. Requirements that Apply to Equipment, Machinery or Computer Software
f. Documentation
IV. Professionals
a. Requirements
b. Employment
c. Documentation
V. Intra-Company Transferee
a. Requirements
b. Documentation
VI. Traders
a. Requirements
b. What is Substantial Trade?
c. Employees
d. Documentation
VII. Investors
a. Requirements
b. Nature of the Investment
c. Employees
d. Documentation
VIII. Conclusion
I. INTRODUCTION
The purpose of the North American Free Trade Agreement (NAFTA) is to facilitate trade between the United States, Mexico and Canada and gradually abolish trade barriers. The Agreement opens the markets of the three countries and ensures that future legislation will not create barriers to doing business between the signatories.
NAFTA contains special provisions concerning immigration between the three signatory countries. Chapter 16 of NAFTA, entitled "Temporary Entry for Business Persons" provides the mechanisms to facilitate the movement of business persons between the three countries.
Chapter 16 eases, on a reciprocal basis, the temporary entry of citizens of the United States, Canada and Mexico, in specific areas of business activity detailed in the Agreement. However, it must be noted that NAFTA does not replace existing general legislation concerning immigration matters in any of the three countries.
NAFTA grants preferential treatment to certain business persons and professionals who are citizens of any of the three countries and require temporary entry for a purpose recognized by this treaty.
A trilateral Temporary Entry Working Group, which includes representatives from all three countries, has been formed to oversee the implementation and administration of Chapter 16 of the NAFTA.
The Working Group is also responsible for developing measures to facilitate temporary entry of business persons on a reciprocal basis.
NAFTA provides an exemption from the normal requirements concerning employment authorizations, set out in the Immigration Regulations made pursuant to the Immigration Act . The Regulations, in section 18(1) require that:
18(1) Subject to subsections 19(1) to (2.2), no person, other than a Canadian citizen or permanent resident, shall engage or continue in employment in Canada without a valid and subsisting employment authorization.
The exception is provided by section 19(1)(w) as follows:
19(1) Subsection 18(1) does not apply to a person who seeks to come into Canada for the purpose of engaging in employment or a person in Canada who seeks to engage or continue in employment.
… (w) as a person who, pursuant to paragraphs 1 to 5 under Annex 1603.A of the Agreement, as defined in subsection 2(1) of the North American Free Trade Agreement Implementation Act, is exempted from the requirements to obtain an employment authorization.
A further exception is provided by section 20(5)(b) of the Regulations. In general terms, the requirements for the issuance of an Employment Authorization are set out in section 20(1) of the Regulations, which states as follows:
20(1) An immigration officer shall not issue an employment authorization for a person if,
a) in his opinion, employment of the person in Canada will adversely affect employment opportunities for Canadian citizens or permanent residents in Canada or
b) the issue of the employment authorization will affect
(i) the settlement of any labour dispute that is in progress at the place or intended place of employment, or
(ii) the employment of any person who is involved in such a dispute.
However, pursuant to section 20(5) of the Regulations persons allowed into Canada pursuant to international agreements are exempt as follows:
20(5) Notwithstanding paragraph (1)(a) and subsections (3) and (4), an immigration officer may issue an employment authorization to
…
b) a person coming to or in Canada to engage in employment pursuant to
(i) an international agreement between Canada and one or more foreign countries or an arrangement entered into with one or more foreign countries by the Government of Canada or by or on behalf of one of the provinces, other than an arrangement concerning seasonal workers.
The temporary entry provisions of Chapter 16 are restricted to citizens of the United States, Mexico and Canada. In the case of the United States, citizens of the District of Columbia and Puerto Rico are covered by NAFTA, but citizens of Guam, the Northern Mariana Islands, American Samoa, and the United States Virgin Islands are excluded from NAFTA. Permanent residents of the United States and Mexico are not covered, and they continue to be governed by the general provisions concerning temporary entry for foreign workers found in the Immigration Act and Immigration Regulations.
II. BUSINESS PERSONS COVERED BY NAFTA
Business Persons included in Chapter 16 of the NAFTA are grouped under four major categories:
à Business Visitors engage in international business activities related to Research and Design; Growth, Manufacture and Production; Marketing; Sales; Distribution; After-Sales Service; and General Service. These activities are organized to reflect the components of a business cycle. They are admitted for business purposes under section 19 (1)(w) of the Regulations and can carry out their activities without the need for an employment authorization.
à Professionals are business persons who enter to provide pre-arranged professional services - either as salaried employees of a Canadian enterprise, through a contract between the business person and a Canadian employer, or through a contract between the American or Mexican employer of the business person and a Canadian enterprise. Appendix 1603.D.1 of NAFTA lists more than sixty occupations covered by the Agreement. Professionals must enter to provide services in the field for which they are qualified. They are not subject to job validation but require employment authorizations.
à Intra-Company Transferees are employed by an American or Mexican enterprise in a managerial or executive capacity, or in one which involves specialized knowledge, and are being transferred to the Canadian enterprise, parent, branch, subsidiary, or affiliate, to provide services in the same capacity. They are exempt from the job validation process but require employment authorizations.
à Traders and Investors carry out substantial trade in goods or services between the United States or Mexico and Canada or have committed, or are in the process of committing, a substantial amount of capital in Canada. Traders and Investors must be employed in a supervisory or executive capacity or one that involves essential skills. They are not subject to the validation process but require employment authorizations.
III. BUSINESS VISITORS
Business Visitors are business persons who plan to carry on business activity related to research and design, growth, manufacturing and production, marketing, sales and distribution, after-sales service and general service. Their temporary entry is granted pursuant to section 19(1)(w) of the Regulations.
a. Requirements:
The requirements that apply to Business Visitors are:
þ American or Mexican citizenship;
þ business activities as described in Appendix 1603.A.1;
þ activities that are international in scope;
þ no intent to enter the Canadian labour market;
þ the primary source of remuneration remains outside Canada; and
þ compliance with existing immigration requirements for temporary entry.
b. Business Activities:
The business activities covered by Appendix 1603.A.1 are of a commercial nature and reflect the components of the business cycle, as follows:
· research and design;
· growth; manufacture and production;
· marketing;
· sales;
· distribution;
· after-sales service
· general service
c. After-Sales Service
Applicants applying under the "after-sales service" sub-category of Business Visitors must comply with a number of additional requirements, including:
· the purpose of entry to Canada is to install, repair, service or supervise, or train workers to perform services;
· the equipment or machinery (including computer software) is commercial or industrial (not household or personal);
· the equipment or machinery or computer software was manufactured and purchased outside of Canada;
· the work is done pursuant to an original sales contract and any warranty or service agreement incidental to the sale;
· the work is carried out during the validity of the warranty or service agreement or any extensions of same;
· the work requires specialized knowledge, and excludes hands-on building or construction work.
After-Sales Services include the installation, repair or periodic servicing of commercial or industrial equipment or machinery, or computer software. "Installation" includes only setting-up and testing the commercial or industrial equipment, machinery, or software, but it does not include operating it for production.
Persons applying under the After-Sales Service sub-category must possess the level of skill or knowledge necessary to perform the occupation, which must be at least post-secondary education relevant to the area of service, or the possession of a license, certification or other accreditation issued by a competent authority or administrative supervisory body. The person seeking entry must also possess the appropriate training, which is viewed as essential to providing the service; and may include training and supervising others who will actually perform the activities of the machinery, equipment or software.
Certain classes of persons are specifically excluded from the sub-category of After-Sales Service. This includes persons whose activities will constitute "hands-on" building and construction work, where the intention is to provide sales service on equipment which is not considered to require specialized knowledge. This provision is applied regardless of the existence of any agreement or warranty between the seller and the buyer, and is intended to protect the construction industry in Canada. Entry will not be granted when personnel will be performing hands-on building and construction work, which includes installing, maintaining and repairing utilities services; any part of the fabric of any building or structure; or machinery, equipment or construction structures within a building.
Construction and building work also includes activities normally performed by labourers, heat and frost insulators, bricklayers, carpenters and joiners, electrical workers, operating engineers, elevator constructors, sheet metal workers, teamsters, boiler makers, residential, commercial or industrial painters, bridge, structure and ornamental iron workers, plumbers and pipe fitters, roofers, plasterers and cement masons. The definition of building and construction work also includes assembly line, conveyor belt and systems, overhead cranes and other machinery, such as heating, cooling, ventilation or exhaust systems, and duties related to preparation of construction sites or installation of services, such as electricity, gas and water.
d. Specialized Knowledge
The person seeking entry must possess "specialized knowledge," which is considered to be a very high degree of knowledge given only to persons who are already skilled in their occupation have undergone extensive training. In determining whether the person possesses specialized knowledge, the following must be considered:
* the skill and knowledge level necessary to perform the proposed activity in Canada;
* the high level of skill or knowledge the person possesses as indicated by his post-secondary education, degree or certificate;
* any additional training that he has received
e. Requirements that apply to Equipment, Machinery or Computer Software
In order to qualify under the After-Sales Service provisions, the person who is attempting to enter Canada must be engaged in the servicing of equipment, machinery or computer software for use in a commercial or industrial setting. The equipment must have been manufactured outside Canada, and must have been purchased from the manufacturer or distributor located outside of Canada. Computer software purchases must include a licensing agreement. Equipment or machinery leased from an enterprise located outside of Canada is not covered under the NAFTA provisions. Where a sale or lease transaction takes place through a Canadian distributor which may not be equipped to handle the after-sales service, it is possible for the manufacturer located in the United States or Mexico to provide the after-sales service and, therefore, be covered under the this provision. Where lease arrangements are involved, it is the initial cross-border transaction which must have involved the sale. It is also possible for a third party to be covered under After-Sales Service provisions, if clear language exists in an agreement or warranty indicating that a third party located in the United States or Mexico is responsible for performing the installation or servicing any other aspect or warranty.
f. Documentation:
The documentation needed to apply under the category of Business Visitor includes:
Þ proof of American or Mexican citizenship;
Þ documentation to support that the purpose for entry is covered by one of the business activities listed in Appendix 1603.A.1. Usually, this is done with a letter from the American or Mexican employer confirming the particular duties of the person concerned, and specifying the category under which the application is made. The letter must also contain information confirming that the primary source of income will continue to be outside of Canada; that the applicant's main source of business is outside of Canada; that the applicant continues to be employed outside of Canada and will be returning to his employment after the temporary entry period has concluded; and the description of the applicant's business activities in Canada.
Þ In the case of applicants under the After-Sales Service category, they must also provide copies of the original sales slips, warranty or service agreements under which they intend to perform their duties in Canada on behalf of the Mexican or American employer.
Business visitors must apply for authorizations at the Port of Entry and applications cannot be made in advance at a Consulate or Embassy. The visas are granted for short-term stays and extension can be given if the requirements continue to be met.
IV. PROFESSIONALS
Citizens of the United States or Mexico, who are professionals identified in Appendix 1603.D.1 of the NAFTA may qualify for temporary entry under the treaty, if they have the necessary qualifications to work in their professions, have pre-arranged employment with a Canadian employer, come to Canada for the purposes of providing professional-level services in the same field of their qualification, and comply with existing immigration requirements for temporary entry.
a. Requirements:
Appendix 16.03.D.1 contains over sixty occupations and is the mechanism by which selected professionals can enter Canada to provide their services. It must be noted that the Appendix is a comprehensive list of occupations and cannot be interpreted. An occupation which does not appear in the list is automatically excluded. However, there is some room to allow for different job titles, which may be within the occupations defined in the Appendix. The Appendix also details Minimum Educational Requirements and Alternative Credentials for each profession. These are the minimum criteria for entry and do not necessarily reflect the educational requirements, accreditation or licensing necessary to practice a profession in Canada. Canadian Immigration authorities will not require the necessary provincial licensing to practice the profession in Canada. To do so would defeat the purpose of the provisions contained in NAFTA concerning professionals.
Professionals can also be admitted as Business Visitors under the General Service provisions of Appendix 1603.A.1, when they are not seeking to enter the labour market but will be performing activities such as soliciting business, consulting, providing services and meeting clients.
b. Employment:
Employment in the Professionals category must be pre-arranged with a Canadian employer, who may be an enterprise or an individual. This includes a relationship of employer-employee, or a contract between a professional and a Canadian enterprise, or a contract between the professional is American or Mexican employer and a Canadian enterprise.
It must also be noted that the Professionals category does not allow self-employment in Canada. A person wishing to be self-employed in Canada should consider making an application under the Trader or Investor category, rather than the Professional category. However, if an American or Mexican citizen is self-employed outside Canada, he is not barred from the Professional category, provided that the services he renders in Canada are pre-arranged with a Canadian employer.
The Canadian employer must be separate from the applicant seeking entry as a Professional. For example, if the Canadian enterprise offering a contract or employment to the applicant is a sole proprietorship operated by him, entry cannot be granted under the Professionals category. Further, if a Canadian employer enterprise is substantially controlled by the applicant, entry under the Professional category will also be refused. In order to determine whether an enterprise is substantially controlled by the applicant, the following factors must be considered:
· whether the applicant has established the business;
· whether the applicant has primary, sole or de facto control of the business;
· whether the applicant is the primary, sole or de facto owner of the business;
· whether the applicant is the primary, sole or de facto recipient of income of the business.
Nevertheless, establishing an office to deliver pre-arranged services to clients does not constitute self-employment. Professionals can apply for NAFTA authorizations at the Port of Entry or make an application at a Canadian visa office before departing for Canada. American and Mexican citizens can also apply for Professional status in Canada, after admission as Visitors. The temporary authorization issued is initially valid for a maximum of one year, but can be extended, provided that the professional continues to meet entry requirements under that category. Although there is no time limit on extensions, applicants must satisfy Immigration officers that their employment continues to be "temporary" and that they are not using the NAFTA entry provisions as a means to circumvent normal immigration procedures.
c. Documentation:
The documentation necessary to apply for a visa under Professional category includes:
Þ proof of American or Mexican citizenship;
Þ confirmation of pre-arranged employment provided by a signed contract with a Canadian enterprise or evidence of an offer of employment from a Canadian employer and acceptance of same, or a letter from the American or Mexican employer on whose behalf the service will be provided to the Canadian enterprise;
Þ documentation identifying the employer in Canada, the profession for which entry is sought, details of their position, including title, duties, duration of employment and arrangements as to payment, and the educational qualifications or alternative credentials required for the position;
Þ evidence that the person has at least the Minimum Education Requirements or Alternative Credentials listed in Appendix 1603.D.1, including copies of degrees, diplomas, professional licenses, accreditation or registration.
V. INTRA-COMPANY TRANSFEREES
Business persons who are employed in a managerial or executive capacity, or in a position which involves specialized knowledge, may be transferred between NAFTA countries to a firm, corporation, affiliate or subsidiary of the American or Mexican enterprise.
Affiliate means,
¨ one of two subsidiaries, both of which are owned and controlled by the same parent or individual; or
¨ one of two legal entities, owned and controlled by the same group of individuals, each individual owning and controlling approximately the same share or proportion of each company.
Branch is an operating division or office of the same organization housed in a different location.
Enterprise is any entity constituted or organized under applicable law, whether or not for profit and whether privately-owned or government-owned, including any corporation, trust, partnership, sole proprietorship, joint venture or other association.
Parent means a firm, corporation or other legal entity which has subsidiaries.
Subsidiary refers to a firm, a corporation, or other legal entity of which a parent owns directly or indirectly:
¨ half or more of the entity and controls the entity; or
¨ 50% of a 50-50 joint venture and has equal control and veto power over the entity; or
¨ less than half of the entity, but in fact controls the entity.
Executive Capacity means a position in which the employee has, primarily the following responsibilities:
¨ directs the management of the organization or a major component or function of the organization;
¨ establishes the goals and policies of the organization, component, or function;
¨ exercises wide latitude in discretionary decision-making; and
¨ receives only general supervision or direction from higher level executives, the board of directors, or stockholders of the organization.
An executive does not generally perform duties necessary in the production of a product or in the delivery of a service. In smaller businesses, the title of the position may not be sufficient to establish that position is managerial or executive. For example, an engineer who incorporates a business and hires a secretary and a draughtsman cannot automatically be considered as holding an executive or managerial position. In order to qualify as a manager or executive as described in the Intra-Company Transferee category, the person must be engaging in managerial or executive duties rather than purely engineering ones.
Managerial Capacity refers to a position in which the employee primarily has the following responsibilities:
¨ manages the organization or department, subdivision, function, or component of the organization;
¨ supervises and controls the work of other supervisory, professional, or managerial employees, or manages an essential function within the organization, or a department or subdivision of the organization;
¨ has the authority to hire and fire or recommend personnel actions (such as promotion and leave authorization); if no other employee is directly supervised, functions at a senior level within the organization hierarchy or with respect to the function managed; and
¨ exercises discretion over the day-to-day operations of the activity or function for which the employee has authority.
A first-line supervisor is not considered to be acting in a managerial capacity unless the employees supervised are professional. A manager does not primarily perform tasks required in production of a product or in the delivery of a service. In smaller businesses, the title of the position may not be sufficient to establish that it is managerial or executive.
Specialized Knowledge refers to knowledge possessed by an individual about the Canadian enterprise's product, service, research, equipment, techniques, management, or other interests and its application in international markets, or an advanced level of knowledge or expertise in the organization's processes and procedures. In determining whether an applicant possesses specialized knowledge, Immigration officials will consider if such knowledge is available in Canada and if it is related to common practices or products. However, neither evidence of successful recruitment efforts nor job validation is required in order to demonstrate that such knowledge is not available in Canada.
a. Requirements:
In order to apply under the category of Intra-Company Transferee, the person must be:
þ American or Mexican citizen;
þ employed by an American or Mexican enterprise, which has a branch, parent, subsidiary or affiliate relationship with a Canadian enterprise;
þ continuos employment, in a similar position, over one year in the immediately preceding three year period;
þ comply with existing Immigration requirements for temporary entry.
An applicant seeking to open a new office on behalf of the American or Mexican enterprise may also qualify under this category, if the enterprise in Canada is expected to support a managerial or executive position or, in the case of specialized knowledge, is expected to be doing business in Canada.
It is prudent to provide details of the ownership and control of the enterprise, the investment committed, the organizational structure, goods and services provided, and any other detail in connection with the relationship between the American or Mexican enterprise and the Canadian operations.
Employment authorizations issued under this category can have a maximum validity of three years. However, individuals admitted to Canada to open an office or to be employed in a new office are normally issued an initial authorization for a maximum of one year. Extensions can be granted for up to two years, if the person continues to comply with the eligibility requirements of Intra-Company Transferees. It must be noted that the Intra-Company Transferee visa is the only one to have a maximum duration imposed on the total duration of employment. The maximum period of stay for a person employed in an executive or managerial capacity may not exceed seven years. The total period of stay for a person employed in a position requiring specialized knowledge may not exceed five years.
b. Documentation:
The following documentation is required in support of an application made under the Intra-Company Transferee category:
Þ proof of American or Mexican citizenship;
Þ confirmation that the applicant has been employed continuously by the American or Mexican business enterprise for one year within the immediately preceding three year period;
Þ a letter outlining the applicant's current position in an executive or managerial capacity, or involving specialized knowledge and including the applicant's position, title, job description and place in the business enterprise;
Þ an outline of the position in Canada to be occupied by the applicant;
Þ indication of intended duration of stay in Canada;
Þ description of the relationship between the enterprise in Canada and the American or Mexican enterprise;
Þ confirmation that the Canadian employer is "doing business" in Canada. "Doing business" is the regular and systematic provision of goods and/or services on a continuing basis by a parent, branch, subsidiary or affiliate, and it does not contemplate the mere presence of an agent or office;
Þ the applicant's current salary and the salary to be paid for the position in Canada.
VI. TRADERS
An applicant can be granted Trader status if he is a business person who is seeking temporary entry to carry on substantial trade of goods or services principally between Canada, and the United States or Mexico.
a. Requirements:
The requirements that apply to a Trader are as follows:
n American or Mexican citizenship;
n enterprise has American or Mexican nationality;
n activities involve substantial trade in goods or services;
n trade is principally between either United States, Mexico and Canada;
n position is supervisory or executive, or involves essential skills; and
n compliance with existing immigration requirements for temporary entry.
The applicant may be trading on his or her own behalf, or as an agent of a person or organization engaged in trade principally between Canada Mexico, or he may also be an employee of a person or corporation maintaining Trader status in Canada. American or Mexican nationality means that the individual or corporate persons who own at least a 50% interest (directly or by stock) in the entity established in Canada, and must hold American or Mexican citizenship. Joint ventures and partnerships are limited to two parties only. The applicant who is seeking temporary entry must do so to carry on substantial trade in goods or services, principally between United States or Mexico.
b. What is Substantial Trade?
Trade means the exchange, purchase or sale of goods and/or services. Goods are tangible commodities or merchandise having intrinsic value, excluding money, securities, and negotiable instruments. Services are economic activities whose outputs are other than tangible goods. Such activities include, but are not limited to, international banking, insurance, transportation, communications and data processing, advertising, accounting, design and engineering, management consulting and tourism.
Substantial trade is determined by the volume of trade conducted as well as the monetary value of the transactions. Proof of numerous transactions, although each may be small in value, might establish the requisite continuing course of international trade. The applicant's predominant activity in Canada must be international trading. Over 50 percent of the total volume of trade conducted in Canada by the firm's Canadian office must be between Canada and the United States or Mexico.
c. Employees:
When a person is applying under the Trader category but will occupy the position of employee, he must be employed in a capacity that is supervisory or executive or involves essential skills.
Supervisor is a manager primarily responsible for directing, controlling and guiding subordinate employees. Normally, supervisors are not engaged in hands-on activities.
Executive has significant policy authority and is in a primary position in the enterprise.
Essential skills or services are special qualifications that are vital to the effectiveness of the enterprise's Canadian operations. Evidence must be presented of:
· the degree of proven expertise of the applicant in the area of specialization;
· the uniqueness of the special skills;
· the function of the job;
· the period of training required to perform the contemplated duties and;
· the salary that the special expertise can command.
There is an exception to the criterion of essential skills for highly trained technicians. These are persons who are employed by the firm to train or to supervise personnel employed in manufacturing, maintenance and repair functions, and may be granted Trader status even though some manual duties may be performed, provided that the firm cannot obtain the services of qualified Canadian technicians. The emphasis is on "highly trained." For example, a qualified technician coming to Canada to perform warranty repairs on intricate and complex products sold in trade between Canada and the American or Mexico can be granted Trader status if the employing firm establishes that it cannot obtain the services of a qualified Canadian technician.
Traders are issued employment authorizations that can have a maximum duration of one year, but can be extended for a duration of two years, provided that they continue to meet the requirements of the category. Applications must be made at a visa office. An Application for Trader/Investor status (IMM5321) must be made, in addition to the application for an Employment Authorization.
d. Documentation:
The following documentation is required in support of an application made under the Trader category:
Þ proof of American or Mexican citizenship;
Þ completed and signed Application for Temporary Entry to Canada (Employment Authorization form IMM1295);
Þ completed and signed Application for Trader/Investor status (form IMM5321);
Þ letter attesting to ownership of the corporation from its secretary or in-house counsel.
VII. INVESTORS
Investor is defined as a business person who is seeking temporary entry to Canada to develop and direct the operations of an enterprise in which they have invested, or are actively in the process of investing, a substantial amount of capital.
a. Requirements:
The criteria that must be met by the American or Mexican citizen includes the following:
n The applicant must be a citizen of the American or Mexico.
n The enterprise or firm to which the applicant is coming has American or Mexican nationality. This is determined by means of control or ownership of at least a 50% interest (directly or by stock) in the entity established in Canada. Joint ventures are limited to two partners. They may also include parent/subsidiary situations, and the nationality of the corporate entity established in Canada must be then considered. The place of incorporation of an enterprise is not an indication of nationality, it is only an indication of ownership and control.
n The applicant who is seeking temporary entry must solely "develop and direct" the operations of the enterprise in which he has invested, or is actively in the process of investing, a substantial amount of capital.
Develop and direct means that the applicant should have a controlling interest in the enterprise. An interest of 50 per cent or less usually means that the applicant does not have control, particularly in smaller enterprises. An equal share of the investment, such as an equal partnership, generally does not give controlling investment in Canadian-based corporations. However, in cases of American and Mexican corporate investment in Canadian-based corporations, the focus should be less on a mathematical formula and more on corporate practice, since control of half or less of the stock sometimes gives effective control. A joint venture may also meet the "develop and direct" requirement, provided that the American or Mexican corporation can demonstrate that it has, in effect, operational control.
b. Nature of the Investment:
Immigration officials will assess the nature of the transaction to determine whether a particular financial arrangement qualifies as an investment. Amongst other things, they will consider:
Investment involves placing funds or other capital assets at risk in the commercial sense in the hope of generating profit or a return on the funds risked. If the funds are not subject to partial or total loss, then it is not an investment which can be used to support Investor status.
If the applicant is in the process of investing, mere intent to invest or prospective investment arrangements without present commitment will not suffice. The applicant must be close to the start of actual business operations, not merely in the stage of signing contracts or investigating suitable locations and property. The investment funds must be irrevocably committed to the business. Whether an investment has been, or will be made, the applicant must demonstrate prior or present possession and control of the funds or other capital assets.
Immigration officials will assess the nature of the transaction to determine whether a particular financial arrangement may be considered an investment for the purposes of Investor status. The following are some factors to consider in making a determination:
Funds - mere possession of uncommitted funds in a bank account would not qualify, whereas, a reasonable amount of cash held in what is clearly a business bank account or similar fund used for routine business operations may be counted as investment funds;
Indebtedness - Mortgage debt or commercial loans secured by the enterprise's assets cannot count toward the investment as there is no requisite element of risk. Loans secured by the applicant's own personal assets, such as a second mortgage on a home, or unsecured loans, such as a loan on the applicant's personal signature, may be included since the applicant risks the funds in the event of business failure;
Lease/Rent Payments - Payments in the form of leases or rents for property or equipment may be calculated toward the investment in an amount limited to the funds devoted to that item in any one month. However, the market value of the leased equipment is not representative of the investment and neither is the annual rental cost (unless it has been paid in advance) as these rents are generally paid from the current earnings of the business;
Goods/Equipment as Investment - The amount spent for purchase of equipment and for inventory on hand may be calculated in the investment total. The value of goods or equipment transferred to Canada is considered an investment provided the applicant can demonstrate that the goods or machinery will be put, or are being put, to use in an ongoing commercial enterprise.
There is no minimum dollar figure established for meeting the requirement of "substantial" investment. Substantially is normally determined by using a "proportional test" in which the amount invested is weighed against the total value of the particular enterprise in question; or the amount normally considered necessary to establish a viable enterprise of the nature contemplated. Letters from chambers of commerce or statistics from trade associations may be reliable for this purpose. Only the amount already invested or irrevocably committed for investment can be considered in determining substantiality.
The investment must be significantly proportional to the total investment. The total investment is the cost of an established business or money needed to establish a business. In businesses requiring smaller amounts of total investment, the investor must contribute a very high percentage of the total investment, whereas in businesses of larger total investment, the percentage of the investment may be much less.
The enterprise must be a real and active commercial undertaking which operates to produce some service or commodity for profit. It cannot be a paper organization or a speculative investment. For instance, passive investment in developed or undeveloped real estate or stocks does not qualify.
The objective of Investor status is to promote productive investment in Canada. Therefore, an applicant is not entitled to this status if the investment, even when substantial, will return only enough income to provide a living for the applicant and family. If the applicant has substantial income from other sources and does not rely on the investment enterprise to provide a living, the investment may be one of risk and not only marginal.
c. Employees:
Where the applicant is an employee, special rules apply. To bring an employee to Canada under Investor status, the nationality requirements must be met. The prospective employer in Canada must be a citizen of the United States or Mexico who is maintaining Investor status in Canada; or if the prospective employer is a corporation or other business organization, the majority ownership must be held by citizens of the United States or Mexico who, if not residing in the United States or Mexico, are maintaining Investor status in Canada.
A citizen of the United States or Mexico who is a permanent resident in Canada does not qualify to bring an employee into Canada under the Investor status. Shares of a corporation or other business organization owned by a citizen of the United States or Mexico who is a permanent resident of Canada cannot be considered in determining majority ownership to qualify the company for bringing in an employee as an Investor.
Employees must also satisfy Immigration officials that they fulfill certain requirements. Essentially, they must be engaged in a supervisory or executive capacity, or possess skills essential to the firm's operations in Canada.
There are two exceptions to the application of the factors concerning essential skills, where Investor status may be granted to an employee not possessing essential skills when he or she is needed for the start-up of the new enterprise, under certain circumstances, and in the case of highly trained technicians, who will be brought in to Canada to train or supervise other employees.
Employment Authorizations are issued to an Investor at the time of entry normally for one year, although they can be extended for up to two years provided that the Investor continues to meet the requirements of the category.
d. Documentation:
The documentation required in support of the application includes:
Þ Proof of American or Mexican citizenship.
Þ Completed and signed Application for Temporary to Entry to Canada (Employment Authorization IMM1295).
Þ Completed and signed Application for Trader/Investor (IMM5321.
Þ Proof that the enterprise to which the applicant is coming has American or Mexican nationality.
Þ Evidence that the applicant intends and is able to invest in the enterprise.
Þ Letters from Chambers of Commerce or statistics from trade associations evidencing that the intended amount of investment is reasonable.
Þ Evidence indicating that the enterprise will expand local employment possibilities.
Þ Proof that the applicant's primary function will not be that of a skilled or unskilled labourer.
Þ Evidence of the enterprise's total value (e.g. purchase price or valuation).
VIII. CONCLUSION
NAFTA reflects the already existing preferential trading relationship between American and Canada, and has been expanded to include Mexico. Future expansion is possible, and Canada has already negotiated a treaty with Chile, the Canada-Chile Free Trade Agreement (CCFTA), with a view of incorporating Chile into NAFTA. If that happens, CCFTA will be suspended and NAFTA will be modified accordingly to accommodate the new technical requirements.
NAFTA has been instrumental in promoting and accelerating the economic integration of North American economies.
