June 18, 2021
Free trade agreements (FTAs) give British Columbia businesses the opportunity to grow. By granting preferential access to global markets, FTAs reduce barriers to trade such as tariffs, quotas and non-tariff barriers. However, many B.C. companies are still paying higher tariffs on export and import goods and services. Why is this the case?
In 2018, a European Union (EU) study showed that only 49.6 percent of the Canadian goods eligible for preferential tariffs under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) benefited from the tariffs. The utilization rate for Canadian exports to the EU increased to 57 percent in 2020. This means that only slightly more than half of eligible Canadian goods are accessing the benefits of free trade agreements. Low utilization of FTA benefits by Canadian and B.C. companies means that B.C.’s small and medium-sized enterprises (SME) goods and services may be less internationally competitive due to higher costs of exporting.
Trade agreements like CETA give British Columbian businesses of all sizes the first-mover advantage. Canada is one of the only countries to have FTAs with all other countries in the G7 —including the United States, United Kingdom, France, Germany, Italy, and Japan. Many new FTAs have been negotiated and entered into force in recent years. They provide new opportunities and competitive advantages for B.C. businesses, contributing to a strong B.C. economic recovery.
Good question. Maybe with the rise in small e-commerce businesses and trade in services, these entrepreneurs aren’t thinking of themselves as exporters. Perhaps export and import business owners aren’t aware. Still, exporters and importers aren’t benefiting from FTAs because the key FTA benefits are not automatic; businesses must claim them.
B.C. businesses need the information and tools to leverage the opportunities and the competitive advantages in B.C.’s and Canada’s FTAs. To understand, let’s consider what FTA’s do.
By offering a variety of benefits, FTAs make Canadian and B.C. businesses more internationally competitive. All FTAs are different, but generally, they cover trade in goods and services, protect investment and intellectual property, open government procurement, include environment, labour, and inclusive trade.
FTAs build on World Trade Organization (WTO) access. The WTO sets the agreed-upon rules of trade between its 164 member countries, lowers customs tariffs and other trade barriers, opens and keeps open services markets. WTO member countries work through the WTO to arbitrate and settle any trade disputes that might arise. These member countries can build on those WTO commitments by negotiating and entering into separate bilateral, plurilateral or regional FTAs. They can offer each FTA partner better or preferential treatment, especially on tariff rates – this goes beyond the WTO access that the country has provided. In order to gain the maximum benefit exporters and importers need to learn how to use FTAs.
FTAs make it easier for B.C. businesses of all sizes to competitively trade internationally between two or more countries. Once claimed, preferential treatment offers many advantages and benefits to your business.
Tariff reductions or tariff eliminations help keep the cost of your exported good competitive compared to your rivals based in countries that do not have preferential FTA access. Tariff-based preferences also reduce the cost of imports into Canada; for example, if you import materials that you incorporate into another product that you manufacture, and then sell or re-export, FTA’s could save your business money by lowering costs for your input and output. Use the Canada Tariff Finder to find the preferential tariff applied in a market where Canada has FTAs.
Non-tariff barriers are generally things like technical requirements, product testing, and different labelling standards or certification procedures relating to human, animal and plant health that can differ between countries. Going through the same testing in Canada and another market can be frustrating and costs can add up! Fortunately, FTAs have mechanisms for Parties to address these non-tariff barriers.
Rules of origin are rules around the amount of domestic content in a good. It’s very rare for a product to be built with components or made out of materials that are one hundred percent from one country, and not all of such goods might meet the criteria for preferential treatment. Rules of origin set the conditions that a good must satisfy in order to qualify for preferential tariff under an FTA. Different goods have different rules of origin under different FTAs. For example, coffee originating from Columbia can be sufficiently processed (e.g. roasted) in B.C. and qualify for preferential tariff rate under the CETA as a product “made in Canada”. Contact us and we’ll help you find out if your product meets the rules of origin for a specific FTA market.
Facilitated business entry makes it easier for businesspersons to enter another FTA market country to work on a temporary basis, such as an investor or specialized technician working on a piece of proprietary equipment, providing training for a product or service, or an intra-company transferees or a graduate trainee working in a subsidiary or a head office, or investors looking to enter the market to do research or service their investment.
Government procurement and opportunities to bid on foreign government contracts are made accessible through FTAs – and increasingly accessible to SMEs. FTAs broaden government procurement opportunities for B.C. businesses, building on the WTO’s Agreement on Government Procurement and making access to bid on international government procurement opportunities even more open, transparent, and non-discriminatory. FTAs define the government procurement coverage and thresholds. Coverage defines when bid opportunities are open to a specific part of government, for example national and/or local governments opportunities, or perhaps only for specific goods or services In order for the procurement to be covered, the estimated value of the bid should be equal to or greater than the relevant threshold. Thresholds and coverage vary by agreement and give B.C. businesses a competitive advantage over prospective suppliers from other countries.
Dispute resolution is sometimes required in business. The agreed-upon trade rules in FTAs provide B.C. businesses with transparency, predictability, and recourse. They define dispute resolution processes that give agreements teeth.
Are small e-commerce businesses and SME’s with modest export and import business transactions too small to benefit from FTAs? Not at all! Most B.C. companies are small businesses. Canada’s inclusive trade plan aims to make FTA benefits work for all businesses – inclusive trade efforts focus on groups that have been under-represented in international trade (SMEs, women and indigenous-owned businesses).
There are many exciting trade opportunities for British Columbian products and services in Canada and abroad. Regardless of size, businesses in British Columbia can take advantage of the growth opportunities with exporting and importing and benefit from free trade agreements.
The B.C. government encourages export, trade and investment in as many sectors as possible. The Government of British Columbia’s Trade Policy and Negotiations team works to advance interests in trade negotiations and disputes that affect B.C. Check out one of their FREE webinars and on-demand videos about Canada and B.C.’s FTAs or participate in public consultation on future trade agreements or seek advice with addressing a trade barrier.
In cooperation with the Canadian Trade Commissioner Service, B.C.’s domestic and international trade offices are available to assist B.C. businesses. If you would like to grow your business through international trade and investment – and don’t know who to talk to – we can help. Trade & Invest B.C. is your partner in reaching new global markets. We offer services, resources, and expertise to support your export-ready business.
Learn more about how your B.C. business can take advantage of Free Trade Agreements.
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