Spotlight on Free Trade
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Free trade agreements (FTAs) can help you to expand your business by providing preferential access, and reducing trade barriers in global markets.
The following Spotlight can help your company stay informed with the right resources to take advantage of free trade agreements in your target market(s). From risk management to non-tariff barriers to intellectual property, this short guide can assist your business in its export endeavours.
Opening New Markets for Canada
The Government of Canada is committed to creating the most favourable conditions for Canadian businesses to compete and succeed internationally. FTAs between Canada and our trading partners create new opportunities for Canadian businesses. Canada’s prosperity hinges on modern trade rules which open markets for our goods, services and investment.
FTAs provide Canadian businesses with preferential access to a wider range of export and international investment opportunities than ever before in both established and emerging markets. As such, it is important to know how these agreements are structured and function in each market in order to determine how your company’s goods or services can benefit from them.
This Spotlight is presented by the Canadian Trade Commissioner Service (TCS) to help you to explore the FTAs that Canada has in place with other trading nations and how your company can take advantage of agreements in these markets. It also highlights the provisions of FTAs that are important to consider for your specific good or service.
Although FTAs give exporters many advantages, each is unique and requires careful consideration. This Spotlight offers resources which allow Canadian exporters to check the tariffs applicable to a specific good in a foreign market – to provide you with the knowledge and confidence necessary to enter markets covered by FTAs.
What is an FTA?
Free Trade Agreements (FTAs) are binding treaties between countries that open markets to businesses by addressing trade barriers, such as tariffs and non-tariff barriers. They create more predictable and transparent conditions for businesses operating in foreign countries.
Many of Canada’s FTAs also go beyond “traditional” trade in goods issues to cover areas such as services, intellectual property (IP), investment, labour and the environment. Although structurally many of Canada’s FTAs appear similar, it is important to note that each FTA is tailored to the specific trading relationship(s) and may involve multiple countries.
The term FTA may seem to imply complete free trade between countries involved in the agreement; however, FTAs do not automatically eliminate all tariffs (which are customs duties imposed on imported goods) and other barriers to trade. For example, some products may be free of tariffs, but others may not be. Tariffs may also be eliminated over a period of time which makes knowing the tariffs that apply to your product in your specific target market(s) essential.
Rules of origin are provisions in FTAs to determine where a good is “originating” (where it is produced).
These rules outline the proportion of production (or of a good’s value) that must collectively occur in Canada and its FTA partner country (or countries) to be deemed “originating”.
Goods which qualify as originating under an FTA are generally eligible for preferential tariff treatment.
To ensure that you identify the correct tariff code for your good, you are encouraged to seek an advance ruling from the importing country on the tariff classification and origin of your good.
Whether it is for tariff classification or origin, an advance ruling is a binding ruling provided by the customs administration of the importing country, prior to the importation of the good. Advance rulings help expedite customs clearance and provide greater certainty and predictability regarding the treatment of a product at the border.
Beyond tariffs, FTAs seldom eliminate all non-tariff barriers as many countries seek to preserve certain flexibilities in FTAs for a variety of reasons, including health and safety.
Additionally, the existence of an FTA should only be one factor to consider in the export process when identifying an appropriate target market for your goods or services. For example, it is important to ensure that there is demand for your good or service in your target market(s) – this involves research and analysis of your market potential, and a solid market entry strategy.
For further information on entering new global markets, or exporting abroad for the first time, you can access the Canadian Trade Commissioner Service’s (TCS’s) Step-by-Step Guide to Exporting. Export Development Canada’s (EDC) guide to Getting the Most from Free Trade Agreements offers a wealth of information and tips on entering FTA markets as well as provides important insight on EDC financing and insurance products. Additionally, if you are selling to a foreign government, the Canadian Commercial Corporation (CCC) website explores how the CCC can help reduce costs, improve market access and ensure contract performance guarantees.
Did you know?
The Canada Tariff Finder is a free online tool that allows Canadian exporters to check the tariffs applicable to a specific good in a given foreign market, with a focus on countries with which Canada has an FTA. The Canada Tariff Finder was developed jointly by the Trade Commissioner Service of Global Affairs Canada in partnership with Business Development Bank of Canada (BDC) and Export Development Canada (EDC).
Benefits of Canada’s FTAs
FTAs can help make the export process easier and can offer advantages for all parties involved:
- Economic Boost – FTAs eliminate tariffs imposed on most Canadian exports by other parties to the agreements, which contributes to Canadian export competitiveness and helps improve living standards for Canadians.
- Competitive Standing Abroad – FTAs can increase your company’s global competitive standing, particularly in a country with which Canada has an FTA. The elimination or reduction of trade barriers can allow your business to operate on the same level as local companies and receive preferential access to the market over your competitors from third countries not covered by an FTA.
- Streamline Business – FTAs can help speed up the exporting process and reduce associated costs. They can increase business mobility, allow for faster processing and procedures, and provide increased access to government contracts in the partner country/countries.
- Global Value Chains – FTAs can help increase the productivity of companies benefitting from an FTA and those involved in global value chains (GVCs). The increased productivity and any cost savings may be passed on and help the overall production chain. For more information on GVCs see Linking in to Global Value Chains: A Guide for SMEs.
Market Highlight: Canada-European Union: Comprehensive Economic Trade Agreement (CETA)
CETA provides Canada with preferential access to the world’s second largest economy and Canada’s second largest trading partner after the US. CETA includes a number of commitments that can support business-related activities, such as:
- The elimination of tariffs on many Canadian exports in a wide range of sectors;
- Reduction of processing times at the border to make the movement of goods cheaper, faster and more predictable;
- Temporary entry commitments that make it easier for short-term business visitors, investors, intra-corporate transferees and certain professionals to conduct business in the EU;
- Initiatives to address market access issues.
- For example, a protocol on conformity assessment will eventually allow Canadian manufacturers in certain sectors to have their products tested and certified in Canada for sale in the EU.
Save time and money by being aware of the rules and regulations that apply in your target market(s):
- Export and Import Controls (source: Global Affairs Canada)
- Exporting goods from Canada: A Handy Guide (source: Canada Border Services Agency)
- Exporting regulations (source: Canada Business Network)
- Standards Council of Canada
- Playing by the Rules: Compliance in International Trade (source: EDC)
FTAs and Trade in Services
International trade is more than the import and export of goods. Over 18 percent of Canada’s total international trade is in services, including fields such as engineering, architecture, accounting, law, information technology, environmental protection and monitoring, and mining and energy development.
In order to facilitate trade in services and enhance regulatory certainty, transparency, and predictability, Canada typically includes chapters in its FTAs on:
- Cross Border Trade in Services – Sets out the rules regarding the treatment of foreign service suppliers;
- Temporary Entry for Business Persons – Outlines the facilitation and movement of highly-skilled business persons between FTA countries;
- Financial Services – Covers services such as banking, insurance, securities trading, asset management and financial advisory services;
- Electronic Commerce – Helps facilitate the use of e-commerce by consumers and businesses, in recognition of the growing digitalization of trade and its impact on the economy; and
- Telecommunications – Enhances regulatory certainty for telecommunications service suppliers.
It is also important to consider how easy it will be to provide your service(s) in the foreign market and what barriers you may encounter. For example, you need to determine whether the market recognizes and accepts the Canadian qualifications of your service personnel under the FTA. Some countries also may refrain from taking commitments to facilitate access for the delivery of services in sensitive sectors, such as health and public education.
Before entering a market that has an FTA with Canada, make sure to consider the following:
- Market Access for Goods – Explore whether your goods meet the FTA’s rules of origin to determine whether they are eligible for preferential tariff treatment under the FTA, and if you should complete the proof of origin applicable to the FTA.
- Non-Tariff Barriers – Investigate import requirements to ensure your good or service meets relevant health, safety or other regulations in the importing country.
- Government Procurement – Obligations in certain FTAs help to ensure that Canadian suppliers of goods and services are treated in an open, transparent and non-discriminatory manner when competing for government procurement opportunities in their trading partners’ markets.
- Intellectual Property (IP) – FTAs often include standards for the protection and enforcement of IP rights that each FTA party’s national laws must conform to. However, as IP laws tend to be administered and enforced on a national, country-by-country basis, it is important to consider whether you have taken the necessary steps to ensure your IP is adequately protected from theft or misappropriation.
- This may include having applied for protection in your destination market, particularly if your goods will be produced and exported from a foreign marketplace. Additionally, you should complete the necessary due diligence through qualified legal professionals to register your rights or determine whether your IP may infringe that of a competitor, which could create unexpected costs or marketing hurdles.
- FTAs generally ensure trading partners have the legal framework in place to enable IP right-holders to seek protection and enforcement of their rights, but it is still up to individuals and businesses to take advantage of the agreed upon standards.
- Investment – Most of Canada’s FTAs include chapters on investment, which protect Canadian investors from discriminatory or arbitrary treatment in their host country. Before investing abroad, verify whether you will be protected by an FTA’s investment provisions, or whether Canada has a Foreign Investment Promotion and Protection Agreement (FIPA) in force with the country where you are planning to do business. FIPAs contain very similar protections to those of an FTA. This can help you understand your rights as an investor, mitigate risk, and determine your competitive standing prior to market-entry.
What can you do if you believe your business is facing unjustified barriers to trade or investment? Report the issue to your Trade Commissioner in market, providing as many details as possible.
Provisions in specific chapters of an FTA set out what specifically is covered by the obligations of the agreement, including what new access is permitted and how exporters and investors are to be treated in the market.
Technical summaries, usually by chapter, are available on Global Affairs Canada’s website for certain FTA negotiations that have concluded or certain agreements that have entered into force. These technical summaries are an excellent source of information on the key elements of an FTA, presented in a way that is easier to “digest” than the full legal text. For more information, refer to Canadian trade and investment agreements.
Are you export ready?
The Step-by-Step Guide to Exporting will help you to:
- Sell to more customers. Target global buyers online.
- Enter more markets. Leverage the benefits of free trade.
- Save time & avoid risks. Learn the legal aspects of trade.
Download this free guide and gain access to all TCS export publications through MY TCS.
For further information, access these additional resources:
- Opening New Markets: Trade Negotiations and Agreements (source: Global Affairs Canada)
- Tariff Information by Country (source: Global Affairs Canada)
- How to sell to International Markets (source: EDC)
- Principles of the Trading System (source: World Trade Organization)
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