Podcast Transcript - Free trade agreements: What's in them for you?
Canada recently signed a free trade agreement with Peru and we just concluded negotiations on a free trade agreement with Colombia.
These FTAs will not only eliminate or reduce certain tariffs and protect Canadian investment but these agreements include equally important labour cooperation and environment agreements, key requirements for Canadian negotiators. These agreements are a significant step forward in Canada's relations with these South American countries, especially as Canada strengthens its commitment to re-engage the Americas.
But what exactly does this all mean for Canadian business?
I'm Michael Mancini, Editor-in-Chief of CanadExport, the magazine of the Canadian Trade Commissioner Service for entrepreneurs who want to trade, invest and prosper in the global marketplace. Look for our magazine at canadexport.gc.ca.
Peru will eliminate tariffs on 95% of current Canadian exports, with the remaining tariffs to be eliminated over a five- to ten-year period.
The same holds true for the Colombian agreement, which, if ratified, will eliminate or reduce tariffs of 16.6% for agricultural goods and 11.8% for manufactured goods.
Today, you'll hear from a Colombian importer of Canadian agricultural products and a mining exploration firm active in Peru. And you won't want to miss my last interview with an expert who says the time is now for Canadian companies to make their move in the Americas.
But first, here's a Colombian importer of Canadian agricultural products on the impact that tariff elimination will have on Canadian agricultural goods.
Juan Isaza: My name is Juan Isaza. I am a senior partner of Isaza CIGSA S.A. Our company is in the importing business. We import a number of commodities from different countries and we do a great deal of business from Canada. Canada is basically the backbone of our importing operation. We bring a number of agricultural commodities, mainly wheat, for the milling industry in Colombia. We also import pulses such as peas and lentils of which by the way Canada is a great originator. We do fertilizers from Vancouver as well and barley for the beer industry.
I certainly think that this free trade agreement will definitely make Canada more competitive, especially nowadays that these commodities markets are crazy. Even more so than prices on wheat, barley or pulses, the freight market is on fire and those say four or five days extra that you have to ship from Canada will certainly be reduced if Canada is more competitive with this free trade agreement.
By having lower tariffs from Canada, say from a competitive origin such as the U.S. or Argentina, Canadian products will be cheaper here and probably the lower tariffs will compensate the extra freight that we have to pay nowadays. I think this free trade agreement will certainly keep agricultural producers in business, you see. Our millers love the quality of Canadian wheat but if at any given time U.S. wheat for instance or European wheat becomes cheaper, they'll have to take it to keep in business, you see. So by having the benefit of lower tariffs will certainly keep that business running. Especially in lieu of the U.S. trade agreement, if it is signed sometime in the near future, it will help Canadian farmers compete head to head with American farmers.
One of the reasons we were so interested in this particular trade agreement is because the importance of Canada on our operation, you see. If we had to compete with the U.S., the U.S. having a free trade agreement, we would be out of business. Just to give you an idea, the manufacturers began importing barley from Argentina just because there were no tariffs on Argentina barley. I hope that by having Canadian barley with zero tariffs it will definitely increase the amount of barley imported from Canada. So it certainly helps.
That was Juan Isaza of CIGSA S.A. He was in Bogotà.
Now free trade agreements are more than just about eliminating tariffs.
Another key element of these trade agreements is their ability to protect Canadian investment abroad. Earlier I spoke to Murray Lytle, Vice President of Sienna Gold Inc., a junior mining company from Canada operating in Peru.
This is what he had to say about why the Canada-Peru Free Trade Agreement will help his company invest in Peru.
Murray Lytle: Mining exploration companies do nothing but invest. We don't produce typically, therefore there's no income to the company until a large deposit is found and it's converted into a capital asset which produces revenue either through a sale or through development of the asset itself. So investment is very, very important to us.
The ability to invest with confidence that we're not going to be unfairly expropriated or that we'll be restricted from taking any revenues that are generated outside of the country, this is hugely important to us.
So we're very, very comforted by this new term in the free trade agreement if that's where it's to be lodged, giving us confidence that our investment is not going to be nationalized on a whim but there will be mechanisms for recovering and guaranteeing that investment. And also access to international arbitration I think is very important because in a lot of countries, in a lot of developing nations, the judiciary system is not what we would hope it to be and having access to arbitration outside the country, outside both countries is going to be very valuable I believe.
That was Murray Lytle, Vice President of Sienna Gold Inc, speaking to me from Lima.
I also had a chance to talk to Carlo Dade, Executive Director of the Canadian Foundation for the Americas, an independent, non-partisan think tank dedicated to strengthening Canadian relations with Latin America and the Caribbean.
He told me why Canadian companies have a strategic advantage right now when it comes to business opportunities in Colombia and the hemisphere. Here is part of our conversation.
Carlo Dade: The problem is we really haven't seen Canadian companies taking full advantage. It's a little off our radar screen. As multicultural as we are, I'd argue that we're really not as international in terms of business and being able to go abroad. So there are opportunities that are there that we've missed.
In the case of Colombia, we're going to actually have a strategic window of opportunity. The United States has yet to sign a free trade agreement with Colombia. Now, what's really fascinating about the Colombia situation is that in effect you have a free trade agreement between the U.S. and Colombia but only from the Colombian side. Colombian companies have the ability to invest in the United States with preferential agreements, the Andean trade preferences. U.S. companies don't have reciprocal preferences in Colombia which is why they're fighting over a free trade agreement.
If Canada signs our agreement with Colombia we'll have opportunities in Colombia that are not present for U.S. companies. So especially in agriculture and mining we'll have a window of opportunity in Colombia that'll be really important to seize upon.
Michael Mancini: How big will this window be? Do we know?
Carlo Dade: I think it's going to take the U.S. probably at least another year to get their free trade agreement with Colombia signed, and again in that time, trade from Colombia to the U.S. is more or less signed. The Colombians of course prefer an agreement so that they could have more certainty in terms of making investments in industry and plant (ph) to sell to the U.S. But from our perspective we should have a good solid year. We also enjoy a better reputation in the region vis-a-vis corporate social responsibility which is something else that's enshrined in the agreement with Peru.
So in terms of competitive advantage, the appearance that we are better on CSR is reinforced with the Peru agreement, it probably will be written into the Colombia agreement and that really gives us a heads-up on our other major competitor in the region, Spain. It's the one trump card we have over Spain right now which is a country with whom we compete quite a bit and quite a bit on an equal level in the hemisphere.
Michael Mancini: I want to go back to an interesting point you made earlier and that is about how Canadian companies aren't international enough. What role will these free trade agreements play in waking up opportunities in the hemisphere to Canadian companies?
Carlo Dade: Well, you know, business finds opportunities where it will. So the role in government in leading companies to opportunities I would argue has always been overestimated. If there are possibilities to make money, companies will find them. What the free trade agreements do is a greater level of comfort that really should help companies feel more secure about going abroad and going into the region. It should also bring attention to opportunities that exist in these countries. Programs such as this where we're talking about the hemisphere and articles in the paper should make companies think a little more. But there are quite a few companies that are engaged, but there are more opportunities for more companies and hopefully programs like this will be able to help with that.
And corporate social responsibility (CSR) is going to play a huge role. The hard business analysis has to be there. So we can't overstate the role of CSR in trumping the hard business analysis. But where it does make sense to invest, social license, the willingness of communities to accept investment, the view that communities and regulatory bodies have towards foreign investment is differentiated to a large degree by reputations that companies and countries have. This agreement, by enshrining it in law and having something tangible that we can point to will go to help shift the public view of what we're doing.
Michael Mancini: M'hm. Interesting. Going forward now, specifically looking at Colombia and Peru, what do you see as the big challenges that Canadian companies will be facing even with free trade agreements in place?
Carlo Dade: Well, for a lot of companies it's capacity, knowledge of the region, knowledge of culture, language, business culture, how they work in these countries. There are opportunities. Some Canadian companies are down there and they're figuring it out but, you know, for instance Spain of course has language and cultural connections which help and hurt them. The colonial legacy is an impediment. But the United States has huge advantages in terms of language and culture. So these are things that we don't have that we have to find ways to compensate for. Some Canadian companies have done well with this but for others it's going to be a bit of a learning curve.
Michael Mancini: If you had words of advice for Canadian companies at this point, what would you say as they consider this region?
Carlo Dade: I'd say take a long hard look. There are great opportunities. There are plenty of opportunities, there are strong institutions, strong governments and strong economies. Latin America largely has the economic fundamentals down. Governments get it, they've learned from their mistakes of the nineties. So economic governance is good, political governance is good, and there are some great opportunities in the region.
Michael Mancini: Well, Carlo Dade, thank you very much for taking this time today.
Carlo Dade: Okay. Thank you. It was a pleasure.
That was Carlo Dade, Executive Director of the Canadian Foundation for the Americas. He was in Ottawa.
Well, that's all for this podcast edition of CanadExport.
Now one great way Canadian companies can take advantage of that critical window of opportunity, as Carlo Dade mentioned, is to contact the Canadian Trade Commissioner Service in Colombia and Peru. So go to tradecommissioner.gc.ca to get in touch with our trade commissioners who are ready to connect you to opportunities in the Americas and around the world.
The Trade Commissioner Service is Canada's most comprehensive network of international trade professionals who can offer expert advice, problem-solving skills and a global network of contacts.
Also, don't forget to subscribe to CanadExport, our free twice-monthly magazine.
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I'm Michael Mancini, signing off for now.
To download our other episodes, just go to www.canadexport.gc.ca or go to iTunes and use the searchword “CanadExport.”
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