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Canadian businesses not seizing on CETA as much as Europeans, need a culture shift, say analysts

By Neil Moss      

The feds hope small- and medium-sized businesses take advantage of new export opportunities, but transportation costs may deter many.

International Trade Diversification Minister Jim Carr says the government's plan to increase overseas exports by 50 per cent by 2025 is rooted in the 'art of the possible.' The Hill Times photograph by Andrew Meade
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The European Union’s ambassador to Canada says though it’s been more than a year and a half since the two sides’ trade deal largely came into effect, EU companies have been more aggressive exploring new opportunities in Canada than Canadian companies have in Europe.

While the Canadian government has touted such deals in its desire to diversify Canadian trade, experts say a trade deal can only go so far, and there needs to be a culture shift to get Canadian businesses to think beyond the United States, Canada’s largest trading partner.

In the first year since the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU was 98 per cent provisionally implemented in September 2017, there was an increase of 4.5 per cent in bilateral trade. EU exports to Canada have risen nine to 10 per cent, Peteris Ustubs told reporters on April 12, but Canadian exports have been largely flat. Twelve of 28 EU countries have ratified the deal, but all must do so for the sweeping deal to be fully permanently in force.

“I think Canadian enterprises should discover more [about] Europe,” he said. “And diversifying its exports all across [the] European Union and [making] sure that CETA is used by all sizes of enterprises,” whether they’re big business or small- and medium-sized enterprises (SMEs).

But it’s up for debate if SMEs will ever look to Europe in large numbers, say trade analysts.

“l believe the government is doing as much as government can do. At the end of the day, it’s up to the businesses to be able to step up and take the risk and invest the time and the money and the blood, sweat, and tears to go into new markets,” said Adam Taylor, president of Export Action Global. “Governments can only do so much.”

SMEs make up of the vast majority of Canada’s private sector with more than 90 per cent of the workforce, and 95 per cent of net job creation, according to the Canadian Chamber of Commerce. Approximately 25 per cent of Canada’s exports are from small- and medium-sized businesses, but the great majority are sent to the United States.

In the 2018 fall economic statement, the government set a goal to increase overseas exports by 50 per cent by 2025 as part of its Export Diversification Strategy. The strategy allotted $1.1-billion for improvements in trade infrastructure, as well as resources for exports, including $184-million for the Trade Commissioner Service.

EU Ambassador Peteris Ustubs says EU companies have been more aggressive than their Canadian counterparts in exploring new export opportunities. The Hill Times file photograph

Mr. Taylor—who was a former senior adviser to then-international trade minister Ed Fast during the CETA negotiations—said it is the “ultimate Canadian challenge” to convince Canadian businesses to look away from the American export market.

During the CETA negotiations, Mr. Fast launched the Global Markets Action Plan that targeted SMEs to look beyond the American market, as statistics pointed that if the number of small- and medium-sized businesses that looked at emerging markets doubled, tens and thousands of jobs would be created, Mr. Taylor said.

“[It’s] a real true culture shift or transformative move to look beyond the U.S. market and look to markets where you just don’t have a natural … easy geographical place to go,” he said, “and that’s a real challenge.”

International Trade Diversification Minister Jim Carr (Winnipeg South Centre, Man.) told The Hill Times CETA is “progressing well,” citing increases of merchandise exports to the EU of 4.4 per cent and service increases of 6.4 per cent. He also said exports subject to duty to countries under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) have increased by 20 per cent.

Mr. Carr noted the goal to increase overseas export by 50 per cent isn’t “pure science,” but it is based in the “art of the possible.”

He added that is in the national interest of both the government and exporters to diversify and expand their trading markets.

Conservative MP Randy Hoback (Prince Albert, Sask.) said it’s tough for Canada to compete on the global trade market due to high taxes, which will prevent Canada from reaching its increased export goal.

Carlo Dade, director of the trade and investment centre at the Canada West Foundation, said it’s up to individual companies to decide if it makes sense for them.

“Time and time again, [Canadian companies] will not look beyond the U.S., and that’s just an intransigence at that level that is incredible hard to move,” Mr. Dade said, adding that success from the trade diversification strategy is not going to be a massive shift, but “a modest bump” in companies looking at other markets.

Mr. Dade said he is optimistic as some companies have been thinking about the EU market, and out of those he expects a “handful” to make the move towards the new market opportunities.

“At least for the first time, they’re asking questions,” he said.

The many trade support services can confuse and scare small businesses as there can be 10 to 12 agencies, and Mr. Dade said business owners are unsure which one is meant for them.

Corinne Pohlmann, senior vice-president of national affairs and partnerships at Canadian Federation of Independent Business (CFIB), which represents SMEs, said the federal Trade Commissioner Service (TCS) can be helpful if a business is in one of the sectors the government has targeted for export growth.

Ms. Pohlmann added that many small businesses don’t know about the TCS.

“They don’t know they exist and they don’t know what they do,” she said, adding she has spoken to a couple of small business owners who didn’t think the TCS would deal with them as they are too small.

Around one-quarter of CFIB members export, and the “vast majority” export to the United States, she said, while only about five per cent ship to Europe. Ms. Pohlmann said one of the biggest barriers to greater exports is transportation costs, which will always make the United States an attractive export market.

“Most” of the trade promotion funding allocated by the government was aimed at SMEs, Mr. Carr told The Hill Times.

Businesses want ‘lion’s share’ of focus to support Canada-U.S. trade, says NDP MP Ramsey

NDP MP Tracey Ramsey (Essex, Ont.), her party’s international trade critic, said she has heard a common complaint from businesses that there is inadequate support systems to help them export.

“I would like to see more people in the Trade Commissioner Service to be able to help SMEs,” she said.

Canadian businesses that have spoken to NDP MP Tracey Ramsey have told her that they want the ‘lion’s share’ of Canada’s trade agenda to be focused on improving Canada-U.S. trade, she said. The Hill Times photograph by Andrew Meade

Ms. Ramsey said many of the services, like the TCS, as well as the Business Development Bank of Canada (BDC) and Export Development Canada (EDC), are set up to serve large companies.

As vice-chair of the House International Trade Committee, Ms. Ramsey said she has heard from SMEs and big companies that they want the “lion’s share” of Canada’s trade agenda to be focused on improving Canada-U.S. trade.

“The other deals are … things very far down the road potentially in the future, whereas our trade with the United States is very tangible and real to them,” she added.

The United States-Mexico-Canada Agreement (USMCA), replacing NAFTA, has been signed, but has yet to be ratified as U.S. Democrats in the House of Representatives have raised concerns over labour and environmental provisions.

Jason Langrish, executive director of the Canada Europe Roundtable for Business, said trade trouble with the United States doesn’t directly correlate with a company’s desire to diversify.

He said trade disputes have to get pretty bad before companies look to other markets, and for many Canadian companies their position with the U.S. hasn’t reached that level. Mr. Langrish added that some companies may be looking at the EU and not seeing the type of “home runs” they have gotten through exporting to the United States, and without that opportunity, companies have been hesitant to invest the energy into penetrating a new market.

There has also been a level of risk aversion for Canadian companies, Mr. Langrish said, as they look at the trade uncertainty due to Brexit in the United Kingdom, Canada’s largest European trading partner.

Colin Robertson, a former diplomat and trade negotiator on the Canada-U.S. Free Trade Agreement, said it will take a while before a noticeable increase in Canadian exports to the EU, requiring hard work that will take time. Mr. Robertson said it usually takes two or three years before results of any trade deal are seen.

“I think [it’s] true of all governments, whether it’s Conservative, Liberal, and NDP … [they] sometimes get taken up with rhetoric and forget about the absolute real hard work that has to go into actually turning an opportunity into profit,” the former Canadian consul general in Los Angeles said.

Aside from the overall export numbers associated with CETA, there are signs of “really strong growth,” said Brian Kingston, vice-president of international and fiscal policy at the Business Council of Canada. He said sectors that had tariffs cut by one per cent or more by the deal experienced 21 per cent growth in 2018.

Both Mr. Kingston and Mark Agnew, senior director of international policy at Canadian Chamber of Commerce, said that now is the time for businesses to take advantage of the market access opportunities, as they are in a preferred position compared to American companies, and that likely will end some time in the future.

Prior to the election of U.S. President Donald Trump in 2016, the United States and the EU were in the midst of free trade negotiations, but they were halted by the Trump administration.

“This isn’t a permanent advantage that we have, there is a relatively short window that we should be taking advantage of right now to the max,” Mr. Kingston said.


The Hill Times

Neil Moss

Neil Moss is a reporter at The Hill Times covering federal politics, foreign policy, and defence. 
- nmoss@hilltimes.com

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