Summary of Recommendations
- CETA is as complex as it is comprehensive. Canadian SMEs need more specific and relevant information about how CETA works and how CETA directly benefits them – i.e., guides and tools by specific sector or industry.
- While CETA can help SMEs, businesses ultimately need an economic justification to trade abroad. To make the business case for trading in the EU, SMEs require more information about the relevant market opportunities in the EU, ideally on a sector or industry basis. It is suggested that a Canadian study (or series of studies) identifying and quantifying these opportunities – as well as non-tariff barriers to trade – would be an important resource and motivational tool for Canadian SMEs and wider efforts at regulatory cooperation.
- The EU, like any developed market, is highly regulated. While Canadians and European values may be similar, the rules governing the EU Single Market are often very different than those that Canadian SMEs are used to in the North American marketplace. Canadian SMEs must understand and factor in these differences well before entering the EU market. SMEs would benefit from more detailed guides to help them understand EU regulations that are relevant for their product or service.
- While official trade promotion will often focus on success stories of exporters, Canadian SMEs can also learn a great deal from those less successful foreign ventures. As such, more emphasis should be given to presenting more balanced case studies (i.e., lessons learned) on exporting to the EU.
- There is no doubt that the Canadian government is committed to helping SMEs take advantage of CETA and ultimately succeeding in the EU. As part of this commitment, the Canadian government should also actively foster and build private sector institutions that can independently assist SMEs.
- Canadian bilateral chambers of commerce are excellent at helping SMEs develop critical relationships in local export markets. Not every EU member state has a local Canadian chamber of commerce and the ones that exist are not institutionally linked. The Canadian government should endeavour to provide more support to the development and maintenance of bilateral chambers in every EU member state and to encourage greater dialogue, cooperation and CETA related coordination among them.
- The EU is a regulatory powerhouse whose rules will often get exported beyond its Single Market and become global standards. Following EU regulatory developments is therefore critical to the success of anyone doing business in the EU as well as helping to identify opportunities in those regulated areas in and out of the EU. As SMEs cannot be expected to follow these developments on their own, the Canadian government should encourage and support a Canadian commercial advocacy group of existing Canadian private interests with a focus on, and a presence in, the EU. This “Team Canada” approach would leverage the strengths of existing Canadian associations in a way that would complement, but be distinct from, the government by providing a Canadian industry perspective to EU developments. In addition to offering critical market intelligence to Canadian businesses, such a group would help identify wider EU related public procurement opportunities for Canadian businesses, and in particular, SMEs.
Introduction
Canada has long prided itself as being a trading nation. Trade has played a key role in the development of the Canadian nation and is understood to be critical to its economic prosperity. Yet, as Rita Trichur recently reported in the Globe and Mail, Canada is underachieving in terms of its foreign trade. Despite decades of attempts by successive Canadian governments to diversify Canadian trade (and in particular Canadian exports), the United States remains, by far, the largest export market for Canada. Today, 75 per cent of Canadian exports go to the US, the same level as it was three decades ago.
When it comes to Canadian trade diversification, the European Union (EU) is often held out as a logical choice for Canadian businesses. The EU (with its 450 million consumers) is one of the largest and wealthiest markets in the world and Canadian and EU consumers share similar values in terms of product quality and safety, fair labour practices and high environmental standards. Trust in commercial dealings is also supported by the fact that Canadians and Europeans share deep cultural and social bonds.
The conclusion of the Canada EU Comprehensive Economic and Trade Agreement (CETA) represents an important step in the ambition of increasing Canadian trade to the EU. Apart from geographic diversity, CETA also offers the opportunity for trade to be more inclusive by making it more accessible for SMEs. In addition to eliminating virtually all tariffs in goods, CETA aims to promote greater bilateral trade through the reduction of non-tariff barriers to trade including the introduction of procedures aimed at simplifying the clearing of goods through customs, the elimination of duplicate testing of products and an ambitious system of regulatory cooperation. The importance of addressing non-tariff barriers to trade is particularly important for SMEs as such barriers are disproportionately more onerous on smaller businesses.
Despite the benefits that CETA offers SMEs (and the fact that the promotion of CETA to SMEs is a priority for both Canada and the EU), more needs to be done to help Canadian SMEs make the most of the opportunities of CETA. The million dollar (or EUR680,000) question remains, however, how to get SMEs interested in CETA and succeed in exporting to the EU?
Addressing the SME knowledge gap
- CETA specific information
First, SMEs need more information about what CETA is and how it works for them – that is, how CETA is relevant to their business. At 1,600 pages and 30 chapters ranging from food safety and animal and plant health to mutual recognition of professional qualifications to trade and sustainable development, CETA is as complex as it is comprehensive. Even after 3 and a half years of application, many Canadians are still not familiar with CETA, as revealed by an EKOS Research Associates survey carried out in 2020 on behalf of Global Affairs Canada. The results of this survey showed that 39 per cent of respondents were not very familiar and 28 per cent were not at all familiar with CETA. On this front, the Canadian government (and the EU) have and continue to commit impressive resources and efforts in developing CETA guides and carrying out CETA related informational webinars and conferences. This work is important and must continue.
As CETA is not organized in a sector or industry specific basis, presenting CETA as directly as possible to SMEs is essential. This is particularly true in the case of service exports where SMEs represent a significant share of many services sectors. While CETA liberalizes bilateral trade in services generally, the text contains reservations applied to different services at the EU member state level thus rendering the application of CETA quite challenging for individual businesses. To that end, the Canadian government has indicated that more focus will be on specific and targeted guides and programs which will further assist in helping SMEs navigate the granularity of detail needed to work through CETA. Again, this is a positive and necessary step in the right direction.
- Market intelligence and barriers to trading with the EU
While understanding CETA is important, no business – especially an SME – is going to undertake trade just because of a trade agreement or because their government wants them to. As the saying goes, you can lead a horse to water, but you can’t make it drink! So, even with the advantages offered by CETA and the impressive government resources available to Canadian SMEs (financial and through the work of the Trade Commissioner Services), trade remains a risky and time-consuming business. SMEs therefore need a strong and clear business case for doing so. To this end, Canadian SMEs would benefit from more targeted market intelligence including more precision on the economic opportunities available to their business in the EU.
It is worth recalling that a 2008 Joint Study commissioned by Canada and the European Commission set out the benefits of an economic and trade agreement between Canada and the EU. This study, which solicited private sector views, did much to make the case for CETA negotiations and motivate Canadian businesses, big and small. That study is now 13 years old and it is – as are its assumptions – rather (out)dated. As this author has advocated in the past, a new study (or a series of industry or sector specific studies) should be commissioned. Such a study (or studies) must also take into consideration the current – as well as the anticipated post-COVID realities (namely a greater emphasis on sustainability and digitization in the economy). In this way, it would be an important resource and motivational tool for Canadian SMEs looking to export to the EU.
What made the 2008 Report particularly relevant and effective was the way it addressed regulatory and non-tariff barriers that were impeding trade between Canada and the EU. The study helped craft the content of CETA and its innovative approach to regulatory cooperation. Regulatory cooperation under CETA is key to the long-term success of CETA. In order to ensure that this important work is sustained and relevant, any new study should also make a point in identifying regulatory and other non-tariff barriers to trade with a focus on barriers that are particularly disadvantageous for SMEs. The outcomes of the study will promote greater transparency of regulatory barriers to trade and should help inform the various committees and fora under CETA charged with advancing Canada-EU regulatory cooperation (in particular CETA’s Regulatory Cooperation Forum).
- Information about EU regulatory regimes
Of course, even with preferential access afforded through CETA, Canadian businesses seeking to do business in the EU must still comply with the rules and regulation of the EU and those of its member states (just as EU exporters must comply with the rules of the Canadian marketplace). The EU market, like all developed markets, is highly regulated. Although Canada and the EU share similar values of high standards of safety and quality, the expression of these values in terms of specific EU rules and requirements are often very different to those found in the North American market place. As such, a degree of education – if not product re-assessment, re-design, or service licence or qualification, and all the associated costs – is necessary for companies wanting to trade in the EU. In terms of setting appropriate expectations for Canadian SMEs, this is something that they must appreciate and factor into their export decision-making matrices. While the Canadian government has published resources to assist SMEs navigate EU regulatory waters, these too should be supplemented with more specific guides that get into more detail and otherwise help bridge the knowledge gap (ideally on an industry and sector specific basis).
- More learning from case studies in exporting to the EU
Perhaps more controversially would be for greater emphasis on case studies of Canadian exporters and how they succeeded or failed in their efforts to export to the EU. When promoting trade, there is always a desire to focus on the success stories. While such stories are indeed inspirational and should be celebrated, the lessons of less successful attempts are no less enlightening and, as any MBA student will attest, will often be more illuminating for a business when devising an export strategy. If the goal is to help Canadian SMEs learn about CETA and ultimately succeed in exporting to the EU, it is essential that they have as much information as possible and that this information be relevant and balanced.
Building Institutional Support
Apart from the knowledge gap, Canadian SMEs would benefit from a greater degree of institutional support in understanding CETA and otherwise succeeding in exporting to the EU. While the Canadian government has demonstrated a clear commitment in making CETA a success for Canadian exporters, it is vital that it works with businesses and industry groups, including Canadian business associations in Canada and chambers of commerce abroad. This is important to ensure that the informational output is fit for the needs of Canadian SMEs (i.e., to help determine what guides and information should be produced) and that the information is disseminated as efficiently and as visibly as possible.
- Supporting and linking Canadian bilateral chambers in the EU
A key success factor in international business is developing relationships in local markets. Canadian chambers of commerce in foreign markets can and do serve as a critical institution in fostering such bilateral relationships. These chambers attract businesses and individuals (including the largely untapped Canadian diaspora) who will naturally have some knowledge and connection with Canada and therefore understand, or are otherwise sensitive to, the issues that Canadian businesses will have when seeking to enter into a particular market.
In the 15 plus years of working with various Canadian chambers in the EU, the experience of the author has been that these organizations are often comprised of dedicated and long serving individuals and act as a depository of critical information and local market experience. In this way, they also help de-risk the process of entering a new market and make it more efficient for SMEs by promoting business models and strategies that work. It is the author’s experience that the best chambers work closely with Canadian government embassies and missions and provide a mutually supporting local ecosystem and otherwise promote what John Stackhouse refers to as “Planet Canada” and make the most of Canadian diaspora, what Canadian Senator Yuen Pau Woo refers to as Canada’s “hidden asset”.
Presently, not every EU member state has the benefit of a local Canadian chamber. This is something that should be remedied. Moreover, each local chamber is independent and autonomous and not organizationally linked (although some chambers have relationship agreements or MOUs, or otherwise make efforts to connect with other bilateral chambers). It is suggested that more can be done by the Canadian government to promote the support, development and interaction of Canadian bilateral chambers in the EU (particularly as they are often based on a membership model that presents challenges in difficult economic times).
By way of suggestion, businesses receiving Canadian government support (financial or otherwise) for doing business in European markets should be encouraged to contribute in some way to a local Canadian chamber in the market(s) they are entering, either by becoming a member of a chamber or serving one as a business mentor in some way. In this way, the Canadian government will be supporting an important resource for Canadians and increasing its return on investment by making the entry into that market that much easier for the next SMEs.
To encourage greater sharing of CETA related information and coordination of CETA related activities, the Canadian government should follow the EU lead by helping establish a platform like the EU Chamber of Commerce in Canada (EUCCAN). EUCCAN is funded by the EU and has as its mission to be the main point of contact for EU businesses in Canada and for EU businesses seeking to enter the Canadian market. At the very least, the Canadian government should host an annual conference of Canadian bilateral chambers in the EU to foster greater interaction and sharing of information and best practices as well as CETA related coordination.
- The establishment of a Canadian commercial infrastructure in the EU
There is another way in which SMEs should be supported in the EU which is often perilously overlooked. While many businesses (in particular SMEs) will look at European trade and investment from a specific regional or member state perspective, they often lose sight of the fact that the EU operates as a single market, the rules of which emanate from its political centre, Brussels. Any EU strategy for businesses must therefore factor in regulatory developments and discussions in Brussels.
When it comes to rules and market regulation, the EU is very dynamic with policy and lawmakers actively considering and crafting policies that affect all aspects of its Single Market. Issues affecting the EU Single Market have many avenues of discussion and debate in its capital and are often at the vanguard of regulatory trends around the world. Given this regulatory capacity – and the EU’s appetite to use it – EU rules and regulations themselves get exported and often become global industry standards, a phenomenon Professor Anu Bradford coined as the “Brussels Effect”. Environmental standards and rules governing privacy and personal data are well known examples of the Brussels Effect while current EU initiatives on climate and sustainability (for example the EU’s anticipated carbon border adjustment mechanism and its wider Green Deal) and its digital transformation strategy (including its proposed rules on the regulation of big tech and artificial intelligence) are already offering a blueprint for a global post-COVID recovery in the EU and beyond.
Following such developments is key to business success in the EU Single Market and beyond – including staying competitive in non-EU markets where EU businesses themselves are successful. Yet, keeping up with this steady stream of regulation and rulemaking is an increasingly challenging task and most SMEs will not have the resources, nor can they be expected, to manage this endeavour on their own. SMEs should therefore be able to rely on others to assist. While Canada has an official presence in Brussels (the Canadian Permanent Mission to the EU) that proactively and very capably monitors and assesses EU regulatory developments, this should also be supported and carried out in Brussels by separate Canadian private sector monitoring, as is the case with other non-EU countries, such as the United States and now the United Kingdom.
Canadian businesses already enjoy excellent private sector representation in Canada through various industry and commercial associations that also follow relevant EU regulatory developments. However, most lack the mandate or resources to be more fully engaged in Brussels. Given the time and cost of membership in such associations, it is also unrealistic to expect SMEs to join additional ones abroad. The government of Canada should, however, encourage and support a commercial advocacy structure focused on, and with a presence in, the European capital. Such a group or association would ideally adopt a “Team Canada” approach and be managed by organizations such as the Business Council of Canada, the Canadian Chamber of Commerce, the Canadian Manufacturers and Exporters, the Canadian Agri-Food Trade Alliance and the CFIB as well as other Canadian based associations, all of which are already closer to the ground when it comes to intended Canadian beneficiaries, particularly SMEs. Such an association would of course complement and help inform, but be distinct from, the work of the Canadian government (including the Canadian Mission to the EU, the Trade Commissioner Services and Export Development Canada). It is suggested that its mandate include the coordination of monitoring of EU regulatory developments as they impact Canadian industry and the promotion of Canadian commercial interests in the EU.
Such an association would also provide regular strategic reporting about commercial trends and opportunities for Canadian businesses in the EU. Namely, it would help Canadian businesses, in particular SMEs, to identify and otherwise provide support for procurement opportunities in the EU. Opening the EU’s immense EUR2 trillion annual EU public procurement market to Canadian businesses was a significant achievement under CETA. But taking advantage of public procurement requires market intelligence (not to mention specific EU procurement experience) that most SMEs will not have. An EU based Canadian private sector group would be well placed to assist SMEs in this regard, particularly by leveraging existing Canadian assets to identify Canadian SMEs to take part and support other businesses in larger and long-term government funded projects. In the nearer term, the EUR750 billion post-COVID recovery fund the EU has committed to (known as “Next Generation EU”) is intrinsically linked to the EU’s green and digital transformation priorities, and a strong knowledge and understanding of related EU proposals and objectives will be essential for Canadian SMEs to bid on related projects. Again, a dedicated “Team Canada” infrastructure in Brussels would be well positioned to provide this knowledge and support to SMEs.
Conclusion
While CETA is a powerful tool in the Canadian trade diversification arsenal, more can and should be done to make it accessible for SMEs. That said, a trade tool like CETA, itself is not sufficient. SMEs must make their own business case for exporting to the EU, factoring in issues like economic opportunities as well as market rules and regulations or other barriers to entry. While the Canadian government can continue to do a great deal in bridging the information gap, it cannot and should not assume too much of this work on its own. It must also engage with business groups to build an institutional infrastructure that connects and leverages existing Canadian strengths in and out of Canada. In this way it will ensure greater relevance and amplification of its information. Working with existing Canadian trade organizations and EU based Canadian bilateral chambers would be an effective way to craft and deliver information and achieve its objectives. SMEs in turn would benefit greatly from having this private sector support when accessing the EU market.
Presently, there is no institutional architecture that links the Canadian government to Canadian associations and chambers in Canada and the EU nor the associations and chambers with each other. This is a critical piece that is missing in the Canadian government’s CETA and EU strategy and should be addressed. The Canada EU Trade and Investment Association (CEUTIA), a Brussels based not-for-profit organization, was established to assist in addressing this institutional gap. Its model is to work with the Canadian government and private sector interests in Canada and the EU to promote CETA and wider Canada-EU trade and investment. In this way, CEUTIA is committed to do its part in building organizational bridges and help Canadian SMEs cross the Atlantic and, at the same time, help Canada achieve its goal of trade diversification.