By Paul Moen and John Whitehead
Canada’s relationship with its single largest trading partner, the United States, has, in the course of a very few months, become the focus of significant attention at the most senior levels of government, both in Canada and in the U.S. Anyone who has glanced at a newspaper or caught the evening news lately knows that U.S. President Donald Trump is taking a hard look at the North American Free Trade Agreement (NAFTA). Nobody is quite certain what the U.S. goals are for a revised trade relationship with Canada, or how they will be achieved, but it is clear that revisions seem destined to come and they could well reflect a more protectionist mood in the U.S.
Against the potentially risky NAFTA backdrop, a bold new Canadian trade agreement is just now coming into view. CETA, the Comprehensive and Economic Trade Agreement between Canada and the European Union, has not captured a lot of time in the limelight but it holds the potential to be just as significant as NAFTA. Negotiations on this agreement began in 2009. It has been a long time coming but the legal steps necessary to give force and effect to the agreement are now underway.
The opportunity it affords Canadian firms is enormous — and timely.
The annual GDP of the EU combined market, at just over US$17 trillion, is second only to the U.S. The EU and U.S. each account for about one-quarter of world GDP. The EU is home to 508 million individuals, compared with 325 million in the U.S. Collectively, the EU countries are Canada’s second-largest trading partner. At present, Canada’s goods trade with the EU is about one-seventh that of our trade with the U.S, even with the dampening influences of tariffs and other barriers to Canadian firms’ ability to do business there.
The room for export growth afforded by CETA is tremendous, including for startups and scale-ups, for goods and/or services and services businesses. With the finalization of the Canada-European Union free trade deal, the opportunity for Canadian businesses of all shapes and sizes to get preferential access to major, advanced markets just got a whole lot more exciting, especially given the current uncertainty with our biggest trading partner.
CETA, which is expected to come into force sometime in late spring or summer of this year, will dramatically improve market access for Canadian exporters, large and small. It will slash import tariffs on a wide range of goods, reduce non-tariff barriers in services and other sectors, ease labour mobility, move towards investor protection rights and open up government procurement opportunities in European countries. Canadian businesses should factor these changes into their global expansion plans. In the information and communications technology sector alone, tariffs will be eliminated across an expansive set of categories, and the ability to sell services will likewise crack open new markets for Canadian innovators. Biotech and Cleantech are other top sectors as well.
Trade agreements make it a lot easier for foreign countries to compete with other foreign countries and with domestic producers on a level playing field. They can increase market certainty and reduce regulatory risk for foreign businesses as they refine and focus their business plans, in this case for major European markets in Germany, France and beyond.
Of course, trade is a two-way street. CETA is also going to open up partnering and market entry opportunities for European businesses seeking access to Canadian businesses and consumers. It will also make it easier to attract foreign investment and increased partnering opportunities for each other’s markets, but also for third country or world markets. It is vital that Canadian-based businesses are alive not only to the vast new market that is about to open to us but also to the new competitive forces and opportunities in our domestic market.
Parliamentary approvals are required to put CETA into force. In Canada, the government’s hope is to have bill C-30, the enabling legislation, receive Royal Assent by the end of March. A series of regulatory approvals, which could take up to three months, will follow. Provinces and territories will also need to enact legislative, regulatory and administrative policy changes to give force to CETA. Together, Canada and the EU expect to set a date, likely sometime in the spring or summer, for CETA to come into force.
The federal government has provided an excellent summary of CETA and what is means for several different sectors here.
What is even more important is to tap into services offered by Canada’s Trade Commissioner Service, Export Development Canada and a suite of other services that are specifically targeted at turbo-charging Canada’s small and medium-sized businesses. Indeed, Canada has a new Chief Trade Commissioner who brings both a government and business lens to the job — Ailish Campbell.
Paul Moen is a principal at Earnscliffe Strategy Group and an international trade lawyer. John Whitehead is a principal at Earnscliffe Strategy Group and is a former Assistant Deputy Minister with the Ontario Public Service.