EU provides Canada alternatives amid NAFTA uncertainty

EU provides Canada alternatives amid NAFTA uncertainty

To say there is a certain degree of angst in Canada’s business community with respect to the fate of the North American Free Trade Agreement (NAFTA) would be an understatement. From corporate leaders to small business owners, industry associations and economic observers, those with a stake in Canadian-American trade are waiting with bated breath to learn the outcome of the NAFTA negotiations.

In some cases businesses are likely to put on hold investments in continental supply chains and warehousing until they can have greater certainty that they will see a viable return on those investments under the provisions of a new NAFTA.

While the negotiators themselves continue to publicly state a will to find mutually agreeable ground, one cannot help but notice that Canada is quietly creating an environment for trade diversification. In January, well before the NAFTA negotiations began, the federal government announced exploratory talks for a trade deal with China. More recently, the government has announced its openness to similar talks on free trade with the Association of Southeast Asian Nations (ASEAN), which consists of 10 member countries. This activity adds to the exploratory talks being held with eight Latin American nations, not to mention the Philippines, Thailand and Turkey; as well as already active negotiations with India, Japan, Singapore, Morocco, and nearly the entire Caribbean.

Perhaps most noteworthy is the deal Canada has already struck with the European Union in the form of the Comprehensive Economic & Trade Agreement (CETA), which eliminates 98 percent of tariffs in trade with the European Union. With all the tumult over NAFTA, there is surprisingly little chatter about the fact that CETA will come into effect on September 21, opening up a market of 500 million to Canadian entrepreneurs, many of whom have risk exposure in a potentially less advantageous NAFTA.

With protectionist sentiments hitting palpable levels in the United States as they subside in Europe, Canadian businesses whose fates are inherently tied to their ability to trade with the United States would be well served to explore the opportunities available to them through Europe before NAFTA talks wrap up and before competition within the European Union – which recently agreed to a free-trade framework with Japan – really heats up.

To be sure, trade with Europe will not be as seamless as it is with the United States. Trans-Atlantic shipping requires air- and sea-cargo considerations and lengthier time in transit. Europe’s linguistic and cultural diversity means special considerations may need to be taken into account with respect to branding and packaging, particularly for consumer products. In some cases, linguistic barriers could stymie efforts to establish vendor and/or supplier partnerships. Finally, because certain aspects of the agreement will not come into effect until CETA is fully ratified by all of the EU states’ various legislative bodies, there is a certain level of risk that comes with heavy investment in proprietary Trans-Atlantic supply chains.

Granted, these challenges may seem onerous relative to the ease by which Canadian businesses currently conduct trade with the United States. Yet many entrepreneurs have already overcome these barriers many times over and have found sustained success in Europe well before CETA negotiations even began seven years ago. The EU market is, in fact, larger than the United States and demand for Canadian goods is strong. The elimination of tariffs on most goods means the cost burden of trade is lower and the opportunities greater. This is particularly true for common goods trade, but also trade in services. Also, let us not forget the liberalization of labour laws under CETA that allows for expedited recognition of professional credentials and the accessibility of government procurement contracts that offer highly lucrative opportunities to those who choose to seek them out.

For importers, there are countless opportunities to establish new vendor relationships and identify cost-saving opportunities. The reduction or elimination of tariffs, creates valuable prospects for manufacturers to make strategic capital investments that could enhance their productivity and, in turn, competitiveness.

As mentioned, the provisional nature of CETA presents a certain level of risk for Canadian businesses. With the fate of the agreement in the hands of Europe’s many legislative bodies, there’s the unlikely possibility the agreement could be cancelled or dramatically altered. There is also the possibility of a hard Brexit by the United Kingdom that would remove the advantages of CETA from trade with that market.

Canadian businesses should be prepared to carefully research their prospects in Europe and ensure their supply chains and business models can withstand shifts in regulatory and trade policy. Nevertheless, the prospective benefits of CETA far outweigh any potential risks, particularly in the current climate of insecurity around the fate of NAFTA and the favorability of Canada’s position within it.

While trade with the United States will forever be integral to Canada’s international commerce, CETA and the myriad trade deals Canada is currently pursuing offers an unprecedented opportunity for Canadian businesses to break their dependence on NAFTA and collectively achieve greater balance in Canada’s trade relationship with the world. It may be just in time.

Candace Sider is the vice president of regulatory affairs of North America for Toronto-based trade services firm Livingston International. She currently sits on the Border Customs Consultative Committee (BCCC) and is also the past chair and a current board member of the Canadian Society of Customs Brokers and managing director and treasurer on the board of the International Federation of Customs Brokers Association.