Trade Winds: A Four-Part Series on Shifting Attitudes Toward Trade Agreements
With so much public debate in the United States about the disparate advantages of trade deals, one might think American companies are struggling to find ways to make use of free trade agreements (FTAs).
Not so. In fact, according to a recent research by Livingston International, Canadian businesses find it much more difficult to enter export markets than their U.S. counterparts.
The research shows 23 percent of Canadian businesses find it hard or very hard to enter the export market, versus only 16 percent of U.S. businesses. Moreover, while Canadian and U.S. businesses tend to make use of FTAs at a relatively equal level, U.S. businesses tend to be more diversified in their use of FTAs.
In fact, three times more U.S. businesses than Canadian businesses use three or more FTAs. Furthermore, use of the North American Free Trade agreement (NAFTA) among Canadian businesses is double that of the U.S. (61 percent versus 31 percent respectively).
Canadian businesses are struggling to get into the export market (particularly the one that lives outside the U.S.) for a variety of reasons despite the fact that Canada’s currency puts them at a competitive advantage in many global markets. Why?
The top three reasons cited by Canadian businesses are: the complexity of international trade regulations (16 percent); an uncertainty as to how to get started in global trade (14 percent); and taxes and tariffs being too high (10 percent). The top two reasons are particularly interesting as Canadian businesses enjoy some of the greatest public and private support mechanisms to engage in international trade.
Canada’s public sector has long provided support to businesses interested in export, most notably Export Development Canada (EDC), which provides counsel on everything from key export markets to currency exchange risk to patents and copyrights. EDC also assists businesses looking to go global with support in financing.
Aside from EDC, the Business Development Bank of Canada (BDC) provides venture capital, financing and advisory services for those business looking to explore the U.S. and global markets.
Beyond these institutions, there are a wealth of private-sector support organizations for enterprises looking to go abroad that can provide insight and counsel on everything from international market analysis to the use and compliance of trade agreements, and the effective development of continental or international supply chains.
These resources – both public and private – will become more critical than ever to Canadian businesses looking to take advantage of the recently signed Comprehensive Economic Trade Agreement or CETA—a historic free trade deal recently signed between Canada and the European Union that removes tariffs on 98 percent of industrial goods and opens up the EU’s 28 nations to business with Canada.
When negotiations for the deal began in earnest seven years ago, the goal for Ottawa was simply to find new market opportunities for Canadian business. However, with protectionist sentiment growing in Canada’s traditional go-to trade base of the United States, the opportunity to penetrate European markets may be more than just gravy for ambitious businesses.
The aforementioned support services will be particularly critical for Canada’s small businesses who, unsurprisingly, tend to have greater challenges entering export markets than their medium or large-enterprise counterparts. In fact, more than a quarter of small businesses (26 percent) say they find entering export markets hard or very hard, compared with only 19 percent of the mid-market and big business.
Those numbers are far less pronounced in the U.S. where only 18 percent and 11 percent of small businesses and medium-to-large businesses respectively are struggling to go global, demonstrating a higher appetite south of the 49th parallel to overcome barriers to trade.
Many business organizations within Canada have already reaped the benefits of global trade and have found value in using the support services available to them. However, many of these are rooted in the country’s traditional export sectors of natural resources and manufacturing, leaving a world of untapped potential for the country’s growing services sector.
As that sector evolves along with new forms of manufacturing and technology-related industries, it will be critical for these budding enterprises to take their skills and ideas to the global marketplace. After all, as U.S. President Barack Obama recently declared during a visit to Ottawa, “The world needs more Canada.”
Stéphan Galarneau is the vice-president of inside sales for North America at Livingston International and has been leading the overall management and performance of Livingston International’s small business sales group in Canada since 2011. His team works exclusively with small and medium enterprises and focuses on international trade advisory services. He has more than 25 years of industry experience.