Canada's New Free Trade Era

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Canada’s New Free Trade Era

Canada is preparing to enter a new era of unprecedented free trade involving countries from the Pacific-Asia region, the Americas and Europe. Stakeholders and various government departments are taking steps ahead of the implementation of the different agreements – those in the industry who haven’t yet started analyzing how they’ll be affected by the agreements should consider starting now.

Steps Towards a New Trade Regime

The Comprehensive Economic and Trade Agreement (CETA) which seeks to promote trade and investment between Canada and member states of the the European Union, is scheduled to come into force in early 2017. With the legal review of the Agreement having just been released in February, it seems like the planned 2017 entering into force is likely going to happen. At the same time, just recently in February 2016, the Government of Canada signed the Trans-Pacific Partnership Agreement in Auckland, New Zealand. Although the signature isn’t yet a firm engagement, it has signalled the beginning of a period of consultation with various levels of stakeholders and the population. The motive behind the TPP is to create a giant free trade zone which would include, but not limited to, Australia, China, Canada, the United States, Malaysia, New Zealand, Peru and quite a few other Pacific nations. These agreements will allow Canada to establish new free trade relationships with 35 countries, while updating and reinforcing existing agreements with the U.S., Chile, Peru and Mexico.

Trade Flows

The coming into force of the new agreements will affect the competitive landscape for agricultural, manufacturing and the service industries across Canada. This means new markets opening up for Canadian businesses wishing to spread their wings beyond our borders. But it also increases the risks for trade flows and business arrangements that are already established due to augmented competition with new players on the field. Understanding the risks ahead of time means identifying elements to which CETA or TPP will apply to or affect and determining how market access for these goods and services may be affected – not only in Canada but abroad.

Tariff elimination tpp

Tariff elimination on goods that apply under CETA or TPP could mean for Canadian industries that import their input materials, the new market access provided for CETA / TPP goods could mean new competition on the Canadian market which would result in more favourable prices and supply terms. But for firms supplying the Canadian market, this would translate in increased competitive pressure leading to decreased purchase prices and volumes. Tariff elimination also mean new competitive opportunities for Canadian exporters gaining access to CETA and TPP markets but it also means increased competition in traditional markets such as the United States.

Here’s an example: a Canadian parts manufacturer who’s focused on supplying the North American market of manufacturer of advanced machinery will see competition rising in the Canadian market from EU and TPP suppliers but he’ll also see increased competition in the U.S. from TPP suppliers. But if the manufacturer in question has the option and resources to market his goods to potential clients in those same markets, he’ll be able to take advantage of new opportunities and markets. Being from Canada, where high quality control standards are the norm, that in itself could bring a competitive edge compared to other players.

Another advantage for Canadian companies (and Canadian subsidiaries of U.S. Companies), is that Canada will be the only G-7 country to have guaranteed preferential market access to two of the world’s largest economies. The United States will soon be catching up when the Trade and Investment Partnership (TTIP) between our neighbours down South and U.S. comes into force.

Questions to Ask Ahead of CETA and TPP

Industry stakeholders will need to ask themselves if the products they produce for export or the international services they provide could benefit from preferential tariffs or expanded market access under TPP and / or CETA? Most importantly, will the agreements affect existing relationships with current clients both domestically and abroad once new suppliers show up? Manufacturers that import input materials, finished goods or use services from abroad will need to ponder about the possibility of sourcing from a more competitive pool. And of course, will shifting trade flows adversely affect lines of supply?

The coming into force of CETA is eminent – the ratification by Canada and the EU Parliament should be happening shortly as predicted by industry analysts. It’s still not too late for stakeholders to ask themselves the questions mentioned above as the process involving the TPP is also moving along quickly and although there remains a bit of wiggle room within the texts, it is widely believed that any changes required will mostly reflect an interpretation that favours Canadian interests. Consultations between governments departments and stakeholders are in full swing and that process remains a key element as industry representatives are the best to share input with government on the practical implications of CETA and TPP.