Are You in Compliance with Canadian Cabotage Laws?

In the transportation industry, the word “cabotage” is used to refer to the transport of goods or passengers between two points in the same country by vehicle, trailer or container (“conveyance”) registered in another country and/or by a foreign driver or crew. Accordingly, there are two categories of cabotage laws: those affecting the equipment used and those affecting the driver. This article discusses the Canadian context. Carriers who are using foreign-owned and registered equipment and foreign drivers should pay particular attention to these laws and consider conducting a review of their current routes to ensure that they are not offside Canadian cabotage laws.

The General Rule and Exceptions

In Canada, generally only Canadian operators (i.e. Canadian citizens or permanent residents of Canada), driving conveyances that are registered, licensed and plated in one of the Canadian provinces or territories are permitted to make point-to-point deliveries of within Canada.

However, subject to compliance with immigration restrictions (which are described in further detail below), there is an exception that allows foreign-based conveyances used in the international commercial transportation of goods or passengers to be temporarily imported into Canada to engage in certain point-to-point deliveries within Canada without payment of duties and taxes. These movements are allowed where: (i) the transportation is incidental to the international traffic of the goods; (ii) the transportation does not occur outside the territorial limits of Canada; and (iii) the conveyance has not entered Canada for the purpose of an in-transit movement through Canada to a point outside Canada. (*1) Only one “incidental move” can be made per international trip to pick up or drop off goods while carrying less than a full truckload of imported goods or goods to be exported.

What constitutes a “foreign-based conveyance or trailer”

“Foreign-based conveyances or trailers” are those that: (i) are owned or leased and imported by a person domiciled in a foreign country; (ii) leave from and return to the foreign country in the normal course of operation; (iii) are controlled from the foreign country; and (iv) are exported within 30 days of the date of importation (subject to certain exceptional circumstances). (*2) A similar definition applies to a “foreign-based container”, but it must be exported within 365 days of the date of importation.

What constitutes transportation “incidental” to the international traffic of goods?

In the context of cabotage, transportation will be considered “incidental” to the international traffic of goods where it occurs during, immediately before or after the conveyance is used for international commercial transportation. Specifically:
(a) the incidental movement must be in the general direction of the delivery point of the international shipment;
(b) if the international movement is an export, the conveyance must have entered Canada empty;
(c) the conveyance must be picking up a load for export after the delivery of the international load; or
(d) the incidental movement must be part of the return movement of the conveyance to its country of origin. (*3)

It is important to note that only minor deviations from the original international route are allowed. (*4) For example, a truck owned and registered in the United States that leaves from Buffalo to deliver a to Mississauga may pick up a domestic load from Mississauga and deliver it to St. Catherine’s on its way back to Buffalo, as this move occurs immediately after an international move and is in the general direction of the international route. In this case, an empty trailer could also be picked up in St. Catherine’s for return to Buffalo.

In-Transit Movements

Incidental domestic moves are not allowed when a foreign-based conveyance is transporting goods from a point outside of Canada in-transit through Canada to another point outside of Canada. Incidental domestic moves are also prohibited when goods are being transported from a point in Canada through a foreign territory to another point in Canada. (*5) For example, a foreign-based conveyance may not take a load from Seattle, Washington, to pick up a domestic load in Vancouver, British Columbia, drop the domestic load off in Prince George, British Columbia, and then travel to Anchorage, Alaska.

Empty Conveyances, Containers and Trailers/Repositioning Moves

An empty foreign-based conveyance can be moved to any location in Canada freely and without restrictions. Where an empty foreign-based conveyance enters Canada to pick up a load for export that has already been scheduled prior to entering Canada, it can be used for an incidental domestic move, as long as the domestic move follows a route that is similar and consistent with the destination where the load intended for export will be picked up. The same rules apply with respect to domestic moves by foreign-based conveyances, which are repositioning from the site of a Canadian delivery to the site of a Canadian point of origin for their next international move. (*6) For example, a foreign-based conveyance may take a load from Buffalo to Woodstock, then an empty trailer or a domestic load from Woodstock to Windsor, where it will pick up an export load from Windsor to Detroit, provided that the final move was scheduled prior to the conveyance entering Canada. Once again, these comments are subject to compliance with the immigration restrictions set out below.


The Canada Border Services Agency (“CBSA”) has an option to perform periodic audits of the records kept by carriers who import conveyances, containers or trailers into Canada. Carriers must keep all invoices, bills, accounts and statements relating to those movements for three years commencing the following January 1. (*7)

There are a variety of penalties that can be applied by the CBSA if a carrier breaches cabotage laws, including detentions, duties, taxes, interest, fines and penalties under the Advanced Monetary Penalty System (AMPS), cancellation of “Free and Secure Trade” (FAST) status and other trusted trader privileges, seizure, ascertained forfeiture, and criminal liability. The CBSA has also set up a Border Watch toll-free line where people can report complaints of alleged violations of the cabotage laws. (*8)

Drivers & Immigration Law

It is important not to assume that compliance with customs laws regarding equipment means that cabotage will be allowed under immigration law with respect to truck drivers. Canada’s Immigration and Refugee Protection Regulations (the “Regulations”), provide that a foreign national can work in Canada without a work permit if he or she is:

(i) employed by a foreign company;
(ii) aboard a means of transportation that is foreign-owned and not registered in Canada; and
(iii) engaged primarily in international transportation. (*9)

When conducting inspections at the Canadian border, CBSA officers consult operational bulletins and manuals (collectively, the “IRCC Guidelines”) for guidance on how to interpret and apply the Regulations.  The IRCC Guidelines outline various factors that the officers should consider to assist them in deciding whether to grant someone entry into Canada, including the following advice for consideration, when deciding whether to grant US truck drivers entry into Canada:

“Foreign truck drivers who are employed by Canadian trucking companies to pick up goods in Canada for delivery to the U.S., and who are operating Canadian owned and registered vehicles, cannot receive consideration under R186(s), since both the company and vehicle are Canadian. Nor can independent foreign truckers working under contract to Canadian trucking companies receive consideration under R186(s), since they are being employed by a Canadian company.” (*10)

Accordingly, any non-Canadian truck drivers who do not meet the exemption under the Regulations will need a work permit to enter the country to complete any cross-border carriage and incidental moves. However, before a foreign truck driver can apply for a work permit, Employment and Social Development Canada must conduct a Labour Market Impact Assessment (“LMIA”). If this federal agency concludes that no Canadian workers are available to perform the job, it may issue a positive LMIA (or confirmation letter) to the carrier, authorizing the driver to apply for a work permit. The application for a work permit must be accompanied by a job offer, the contract of employment and a copy of the LMIA.

Of interest, the Canadian Trucking Alliance wrote in 2012 to the Canadian Minister of Citizenship and Immigration on this topic because of the unintended regulatory consequences that have occurred as a result of the application of the regulations. (*11) The CTA stated that:

The specific problem arises when a Canadian owned and registered truck attempts to enter the country with a U.S. citizen driver. A literal reading of s. 186(s) would suggest that such a move is forbidden, since the driver in this situation is required to be employed by a foreign company and driving foreign equipment. […] the regulation can actually have serious negative consequences (which I believe are unintended) for Canadian businesses. This typically arises when a Canadian carrier either has a subsidiary in the United States, or has a US operation with US employees, who are paid out of the United States. […] situations do arise where one of these [American] drivers is required to move a Canadian-registered vehicle into Canada. The carrier recently ran into a situation where a driver on such a move was told by a Canadian official at the border that what he was doing was illegal, and not to do it again. A literal reading of s. 186(s) would suggest that the officer at the border was acting correctly.

However, this has now created a situation where the carrier must stop the Canada bound truck on the US side of the border; send a Canadian driver into the US to pick up the truck and make the delivery in Sarnia; and then return the truck back across the border empty to the United States, to the waiting US driver. Surely this makes no sense from an efficiency standpoint. And given that the US driver is paid and operates from a US base, and would not be involved in any way in domestic Canadian moves (i.e., cabotage) if he were to make such a cross-border move, one must question what threat would be posed to the Canadian labour market if he were allowed to cross into Canada.

The CTA’s comments are all the more relevant today, given the shortage of drivers in North America; however, we have yet to see a change to the Regulations on this point and it continues to be an issue today.

Steps to Consider for Foreign Carriers

If you are a foreign carrier engaged in cross-border transportation to and from Canada, as a starting point, you should review the following to determine whether you are in compliance with Canada’s cabotage laws, both in terms of your equipment and your drivers:

– are your drivers Canadian or American citizens?
– do American drivers hold dual citizenship or work permits?
– was the company that employs the drivers formed in Canada or the United States?
– in which jurisdiction are the vehicles used for cross-border moves registered and plated?
– was the company that is the registered owner or lessee of the vehicles formed in Canada or the United States?
– where are the pick-up and drop off points located in both Canada and the United States for the international movements?
– where are the pick-up and drop off points located in Canada for the domestic movements?
– are trailers and containers loaded or empty during each point of the movement?
– when was the export movement scheduled if the equipment has entered Canada empty?

Depending upon the answers to these questions, foreign carriers may need to make adjustments to their current business structures to ensure that their operations are in compliance with Canadian cabotage laws.

Jaclyne Reive

Twitter: @jaclyne_reive

(*1) Customs Tariff Schedule (Canada), Chapter 98.
(*2) CBSA Memorandum D3-1-5; Tariff Items 9801.10.10.
(*3) CBSA Memorandum D3-1-5.
(*4) Ibid.
(*5) Ibid.
(*6) Ibid.
(*7) Ibid., and supra, at 1.
(*8) Supra, at 3.
(*9) Immigration and Refugee Protection Regulations, SOR/2002-227, s 186(s).
(*10) IRCC Guidelines, s 5.20.
(*11) Letter dated June 15, 2012 from the Canadian Trucking Alliance to the Honourable Jason Kenney, P.C., M.P., Minister of Citizenship and Immigration.

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