Canada-EU Trade Agreement Beneficial to Small Business

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By Angus Gillespie

Small and medium-sized enterprises (SMEs) are at the heart of Canada’s economy and as such the need to open up international markets through trade agreements is critical for our country’s economic growth, which directly translates into more jobs for Canadians.

As part of Small Business Week, The Canadian Business Journal recently attended a joint partnership event between the federal government and the Ontario provincial government in the promotion of small business nationwide. Federal Minister of International Trade Ed Fast and Ontario Minister of Economic Development Brad Duguid were on hand at Mellow Walk, a safety and comfort shoe factory in Toronto. The ministers detailed an ambitious Canada-European Union trade agreement that will directly benefit small and medium-sized enterprises.

EU Partnership

The EU is Canada’s second-leading trading partner and the world’s largest integrated economy, with more than 500 million consumers and a GDP of more than $17 trillion. The ongoing trade negotiations with the EU represent Canada’s most significant trade initiative since the historic North American Free Trade Agreement, which came to life 25 years ago in 1987.

“Our government’s top priority is job creation and growing the Canadian economy,” Fast told many onlookers, including about 50 workers at Mellow Walk.

“Representing 98 per cent of all firms in Canada and employing nearly half of all working Canadians, small and medium-sized businesses are the backbone of our economy. That is why we are helping SMEs expand and succeed by opening new markets abroad as part of the most ambitious trade expansion plan in Canadian history, which includes a comprehensive trade agreement with the European Union.”

A trade and economic agreement with the European Union is expected to bring a 20 per cent boost in bilateral trade and a $12 billion annual increase to Canada’s economy. That translates to an increase of $1,000 to the average Canadian family’s income, or 80,000 new jobs.

“Small and medium-sized companies are at the heart of our economy, and our government knows that the key to success is access to global markets,” says Duguid. “Opening up markets through trade agreements like the proposed pact with the European Union is crucial for our economic growth and the creation of more jobs and prosperity.”

The manufacturing sector is a key economic driver throughout Canada. In Ontario it accounted for 12.4 per cent of the province’s total GDP in 2011 and employed about 795,000. Workers and businesses that produce various industrial products in Ontario’s manufacturing sector, including chemicals, plastics and tools, would benefit from a Canada-EU trade agreement. In 2011, Ontario’s manufacturing exports totalled nearly $8.2 billion. Current EU trade barriers on Canadian manufactured goods would be reduced by such an agreement, directly benefiting businesses and workers in the sector.

“As Canada seeks to conclude a trade agreement with the European Union, there is great potential for new market opportunities for SMEs,” notes Dan Kelly, president and CEO of the Canadian Federation of Independent Business. “While about half of SMEs engage in international trade, 5 per cent – or 5,000 of our member businesses – currently trade with Europe. By reducing tariffs, costs and other barriers, a trade agreement with the European Union will make it easier for more small businesses to take advantage of opportunities in the EU market.”

According to a 2011 CFIB survey, more than half of all respondents said they planned to increase the amount of their trade with the EU within the next three years, something Minister Fast agrees with wholeheartedly.

“It’s pretty clear that both Canada and the European Union are looking outside of their borders for economic growth,” Fast told CBJ. “Our opportunities for the most part are engaging with new market opportunities around the world. We’ve made excellent progress moving forward with the trade agreement. What often stands in the way is tariff and non-tariff barriers; what a trade agreement will do is eliminate most if not all of those trade barriers.”

Fast went on to say he hopes the federal government can conclude negotiations by the end of this calendar year with both sides bringing a high level of ambition to the table.

“We’re down to that bucket full of tough issues that are remaining and we’re working very hard to try and resolve those over the next several months.”

Chinese Potential

Negotiations have been completed on a foreign investment, promotion and protection agreement between the federal government and China, which is our second largest trading partner and so it’s crucial that Canadian investors look to China as an opportunity to expand their investment portfolio. Fast says the agreement puts in a clear set of rules in which investments are made and a clear set of rules for resolving disputes, which have been known to happen all too often when dealing with the Chinese.

“We’ve also released the results of a complementarity study between Canada and China, which shows some of the areas of our respective economies where we complement each other and perhaps where we can reach into a deeper framework agreement,” Fast remarks. “We haven’t decided to proceed yet because we want to make sure we have due diligence.”

Where Europe is concerned, there has been a four-year economic downturn which has been widely reported on. Because of the dire financial situation that envelops many of those EU nations, many small businesses have been left to wonder whether their situation would be cause for faster or slower movement when it comes to trade opportunities with Canada.

“What I can say is that we have sensed on the EU side that they believe their opportunities for growth in the short to medium term are outside the Eurozone because they’ve got so many structural challenges that their opportunity to grow their economies relies on exporting to new markets around the world,” Fast replies. “In Canada we have a similar view – our significant opportunities are outside Canada, which is why this is an opportune moment in which to expand our trade relationship with the EU and put in place an economic framework agreement that really works for both sides.”

The United States always has been Canada’s primary trading partner and that’s not going to change. But the need to diversify and send our goods to other countries will make us more resilient and less dependent on one close ally.

“I’ve made it clear time and time again that the United States is, and always will be, our largest trading partner,” Fast confirms. “It’s our most trusted trading relationship. That said, some time ago Canadians recognized that we can’t put all of our eggs in one basket; we’re looking to diversify and expand trade opportunities around the world. That’s why we’re not only engaged with the EU; we’re negotiating a trade agreement with India and Japan and have entered into the Trans-Pacific Partnership negotiations and we’re talking to Thailand, our largest trading partner in Southeast Asia.”

Numerous key sectors within our borders would benefit from an ambitious Canada-EU trade agreement. They include:

Agriculture

Products are a significant exporting sector for the province to the EU, with exports worth an average of about $500 million a year between 2009 and 2011.

Additionally, an agreement would lock in permanent duty-free access on key interests, such as oilseeds and pulses.

Eliminating tariff barriers would increase sales of world-class agricultural products in the lucrative EU market of 500 million consumers.

Electronics

Exports to the EU have been averaging $1.3 billion each year between 2009 and 2011. Current EU tariffs on Canadian electronics average 3 per cent, with peaks of 14 per cent. These high tariff barriers would be eliminated under an ambitious Canada-EU trade agreement.

The elimination of these tariff barriers would increase sales in the lucrative EU market.

Chemicals and Plastics

It’s a sector worth an average of $1.1 billion annually between 2009 and 2011. Current EU tariffs on chemicals and plastics average 4.9 per cent. These tariff barriers would be eliminated with an agreement.

Industrial Machinery

Exports have been worth an average of $533 million between 2009 and 2011. Current EU tariffs on industrial machinery average 2.1 per cent with peaks of 8 per cent.

Services

In 2010, the EU’s services import market totalled $1.4 trillion. Current EU trade barriers on Canadian services are citizenship or residency requirements, lack of temporary entry rules, and ownership and investment restrictions.

Investment

Direct investment by Canadian companies in the EU totalled almost $173 billion in 2011, accounting for more than 25 per cent of Canadian direct investment abroad. The same year, direct investment from European companies in Canada totalled almost $161 billion, representing 26 per cent of total foreign investment in this country. Major investment areas include: agriculture; automotive; financial services; renewable energy; transportation; and information and communications technology.

Government Procurement

Workers employed in fields such as engineering,   greater access to the EU’s procurement market, which is worth an estimated $2.4 trillion.  

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