Expand your business horizons with Canada’s free trade agreements
Have you ever tried to sell your goods overseas and found the customs duties prohibitive or the requirements for doing business too convoluted or unpredictable? There are a variety of issues Canadians face when seeking to expand their businesses internationally. One way the Government of Canada helps to reduce and eliminate trade barriers is by negotiating preferential access to world markets through comprehensive free trade agreements (FTAs).
Did you know? Canada is the only G7 country with FTAs with all other G7 countries.
Canada’s network of 14 FTAs covers over 50 foreign markets and 60% of the world’s GDP.
Canada’s FTA coverage as of June 2019
In force: CETA (European Union), Chile, Columbia, Costa Rica, EFTA (Iceland, Liechtenstein, Norway and Switzerland), Honduras, Israel, Jordan, Korea, NAFTA, Panama, Peru, Ukraine
Partially in force: CPTPP
Not yet in force: CUSMA
That means preferential access to approximately 1.5 billion consumers from established markets such as the United States, European Union (EU) and Japan, as well as fast‑growing emerging economies throughout Latin America and Asia. FTAs give Canadian goods, services, investments and businesspersons an advantage over the competitors by driving costs down and providing a more stable, transparent and predictable environment in which business can thrive and reach their full potential.
While FTAs can seem complex, they are designed to make trade more accessible for all Canadian businesses, including small and medium‑sized enterprises (SMEs). Recent FTAs, like the Canada‑Korea FTA (CKFTA), the Canada‑EU Comprehensive Economic and Trade Agreement (CETA) and the Comprehensive and Progressive Agreement for Trans‑Pacific Partnership (CPTPP), were negotiated in a way that makes trade more accessible to SMEs.
Let us look at some examples of how these and other FTAs help Canadian SMEs export their goods and services, invest, or travel to do business abroad.
If you export goods, you may benefit from a tariff advantage under one of Canada’s FTAs, making your good more competitive in an FTA market. Every traded commodity has a specific six‑digit code under the Harmonized System or “HS”. Beyond six digits, tariff codes vary by country. You can use the Canada Tariff Finder, a free online tool, to determine how each FTA partner is likely to classify your good, as well as any applicable preferential tariff rateFootnote 1.
To benefit from a preferential tariff rate your good must also qualify as “originating” under the FTA in question. In an FTA, “rules of origin” determine whether a good is originating. These rules ensure that the benefits of the agreement only go to goods produced in one of the FTA countries. Some rules of origin are simple. For example, goods qualify as originating in Canada if they are “wholly obtained” in Canada, such as wheat harvested from a field in Saskatchewan, or sea cucumbers collected off the coast of Vancouver Island. Other rules of origin (particularly those that allow for inputs sourced from outside the FTA area) are relatively complex. While a freight forwarder or customs broker may provide you with a good understanding of the rule of origin that applies to your good — for a fee — the importing country alone determines whether a good qualifies as originating. If your good is subject to a complex rule of origin, you can request an advance ruling on its origin from the customs authorities of the importing country. An importer, exporter or the producer of a good can request a ruling, provided they have the necessary information on how the good was made.
Remember: preferential tariff rates under FTAs do not apply automatically. They must be claimed.
Once you have determined that your good benefits from a tariff preference and meets the applicable rule of origin, the final step is claiming preference upon importation. The agreement will spell out how and who must certify that the good satisfies the rule of origin. This process can vary somewhat from one FTA to another, but the basic concepts are the same. The exporter or importer will need to provide some form of certification or declaration that includes basic information about the product in question and attests to the fact that it meets the origin rule.
In summary, here are the steps to take to export goods using one of Canada’s FTAs:
- Determine the HS classification of your product.
- See if your product benefits from a preferential tariff using the Canada Tariff Finder.
- Ensure your product satisfies the applicable rule of origin.
- Claim preferential tariff treatment.
Services and investment
For Canadian service providers and investors abroad, Canada’s FTAs also help provide greater access to opportunities in foreign markets while reducing the potential risks they may face by ensuring that Canadian businesses are treated in the same predictable and transparent manner as their domestic competitors as well as those from other countries. Although there are exceptions to the extent to which FTAs provide these guarantees, they are clearly identified in the text of the agreements. In so doing, Canadian service providers or prospective investors interested in one of these FTA markets can better understand the conditions in the market before moving forward with their project.
Temporary entry of business persons
In an increasingly integrated global economy, it is important for businesspersons to be able to cross borders to facilitate trade and investment. Barriers encountered by businesspersons at the border, such as economic needs tests, can negatively affect the ability of Canadian firms to do business. Their removal, through temporary entry provisions, helps Canadian companies expand and thrive by ensuring seamless cross‑border travel or relocation on a temporary basis. These agreements grant access to certain categories of businesspersons, such as business visitors, intra-corporate transferees, highly skilled professionals, and investors.
These are just a few of the ways that Canada’s FTAs can help you succeed abroad. Other ways in which these comprehensive agreements can benefit Canadians is through rules that provide preferential access to government procurement, or commit partners to internationally accepted labour, environment or intellectual property standards.
Understanding how an FTA can help your business compete abroad may seem daunting, especially for SMEs, but there are many resources available to leverage the opportunities they unlock. We strongly encourage you to take advantage of the support programs offered by Canada's Trade Commissioner Service (TCS). The TCS has a presence in 160 cities worldwide, including all markets where Canada has an FTA, who can provide you with advice and local qualified contacts, and discuss potential funding programs to support your international expansion such as CanExport.
CanExport is a key funding program that provides SMEs registered in Canada with up to $50,000 in direct financial assistance to diversify to new markets. The program allows you the flexibility of choosing up to five target markets and from a wide range of export marketing activities. Applications are accepted year‑round, and a decision communicated within 25 business days.
The TCS has also developed pages on CETA’s benefits for SMEs and CPTPP and SMEs that provide a wealth of resources and handy guides to give you a leg up.
While an FTA may not be the “be-all and end-all” that makes you settle on an international market, there is one thing upon which we can all “agree” — FTAs provide options! Contact a trade commissioner to find out which options make the most sense for your business.
Footnote 1 If your tariff code is “MFN duty‑free”, then you can export to that country duty‑free without needing to use an FTA. The MFN (Most favoured nation) rate is the most that an importing country can apply to a good produced in a country with which it does not have an FTA.
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