29 May 2019

Boosting trade with the EU

For global trade, 2018 was a year of considerable upheaval for many countries around the world – and Canada was no exception, not least with the United States-Mexico-Canada Agreement (USMCA) replacing NAFTA.

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But USMCA is not the only major deal to play a role in reshaping trade for Canada. First conceived as long ago as 2007, the Comprehensive Economic and Trade Agreement (CETA) was designed to cut 98% of tariffs between Canada and the EU – amounting to expected savings of €590 million per year.1

Provisional application of CETA began on 21 September 2017,2 and the treaty has now been ratified by Canada and by a number of individual EU Member States. While tariff cuts are a major feature of the treaty, other key elements likely to benefit Canadian business include:

  • Encouraging investment between the EU and Canada.
  • Improving protections for intellectual property rights.
  • Providing a framework for recognizing professional qualifications in sectors including accountancy and architecture.
  • Streamlining entry and visa procedures.
  • Protecting certain food and drink products (known as ‘geographical indications’) from imitation.3

Sector by sector

The implications of CETA vary across different industries. Some of the sectors already seeing the benefits include:

  • Agri-food. The EU is Canada’s fourth largest export market for agri-food and seafood, accounting for $3.4 billion in exports in 2017. In the past, many of Canada’s agricultural exports to the EU attracted high tariffs – sweetened dried cranberries, for example, were subject to a 17.6% tariff. But following the introduction of CETA, 94% of these exports are now duty free4 – and Global Affairs has reported strong growth in exports of cranberries and maple syrup.5
  • ICT. The EU is the world’s fourth largest importer of ICT (Information and communications technology) products6 and Canada’s second largest ICT export market – so removing all EU tariffs from Canada’s ICT exports gives companies the opportunity to compete effectively with providers in the EU. Television cameras and digital cameras, for example, were previously subject to tariffs of up to 14%7. At the same time, Canadian companies stand to benefit from better access to government procurement opportunities in the EU under CETA.
  • Metals, mining and minerals. The opportunities are also considerable for Canada’s metal and mineral exporters, given that the EU is the world’s largest importer in this sector.8 Following the removal of metal tariffs, figures from Global Affairs show that aluminum exports rose by 206% between Q4 2017 and Q2 2018,9 compared with the previous year. Under CETA, mining service providers can also benefit from temporary entry provisions.
  • Automotive. Around 85% of Canada’s auto production is exported every year10 – and exports to Europe have much to gain under CETA. EU tariffs of up to 4.5% have been removed from auto parts imported from Canada, while tariffs have also been removed from vehicles such as tanks, fire-fighting vehicles and tractors. Tariffs on other vehicles are being phased out gradually by 2024. Figures from Global Affairs show that exports of motor vehicles and parts increased by 96% between Q4 2017 and Q2 2018.11

Results so far

While CETA is not yet fully in force, figures published last year by the Government of Canada showed that the treaty was already beginning to deliver results. Between Q4 2017 and Q2 2018, two-way trade of goods and services was up 6.1% year-on-year to $110.6 billion.12 Much of this was the result of greater goods and services imports from the EU, with Canada importing $63.8 billion – 10.3% more than in the same period before CETA. The ability to import goods at lower prices comes as an advantage for Canadian businesses importing from European suppliers. For Canadian exports, progress has been slower with an 0.7% increase overall.13 That said, Canadian services exports to the EU increased by 4.8%14 to $13.3 billion between Q4 2017 and Q2 2018. Meanwhile, data from Global Affairs indicates that exports to EU countries excluding the UK have risen by 6.9%,15 suggesting that CETA is already playing a role in diversifying Canada’s trading relationships into additional EU markets. And certain goods have seen significant growth – such as aluminum exports, which have grown by 206%.

Harnessing the opportunities

It is likely that more Canadian firms will seek to take advantage of the treaty in the coming years. Indeed, figures from TNS Kantar indicate that 42% of Canadian firms expect that CETA will have a positive effect on their businesses.16

Given the provisions of the treaty, companies across many sectors will be able to compete increasingly effectively with companies from markets which do not benefit from a similar trade agreement with the EU. This will give Canadian businesses the opportunity to export into a greater number of EU countries than in the past. Businesses also have much to gain as a result of new labour mobility provisions and the ability to bid on public procurement contracts.

Daniel Leslie, Senior Vice President, Head of Client Coverage & Deputy Head of Commercial Banking, HSBC Bank Canada, explains the relevance of the deal: “I see it as an extremely important trade agreement for Canada and the European Union. Consistently what we see is companies that do business abroad and internationally grow faster than other companies that maintain a domestic presence.”

With a distinct network in Europe, HSBC is committed to supporting Canadian firms as they seek to harness these opportunities for growth:

  • Operations in 34 markets and physical presence in 19.
  • Network covering 99% of European payment flows and 90% of global trade flows.
  • Partner of choice for 6,500 multinationals in Europe.
  • EEA entities in key locations: HSBC France and HSBC Germany and treasury centers in Ireland and Netherlands.
  • Largest market capitalization of any bank in Europe.
  • Access to 50+ clearing systems in Europe.

To learn more about how HSBC Bank Canada can support your expansion into European or other markets, please speak with your Relationship Manager today.


1 http://trade.ec.europa.eu/doclib/press/index.cfm?id=1907
2 http://ec.europa.eu/trade/policy/in-focus/ceta/index_en.htm
3 http://trade.ec.europa.eu/doclib/press/index.cfm?id=1907
4 http://www.agr.gc.ca/eng/industry-markets-and-trade/international-agri-food-market-intelligence/europe/canada-european-union-comprehensive-economic-and-trade-agreement-ceta-for-agri-food-exporters/ceta-a-competitive-advantage-for-the-canadian-agri-food-industry/?id=1505510292539
5 https://www.cbc.ca/news/politics/ceta-anniversary-imports-exports-1.4823822
6 https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/business-entreprise/sectors-secteurs/ICT-TIC.aspx?lang=eng
7 https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/business-entreprise/sectors-secteurs/ICT-TIC.aspx?lang=eng
8 https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/business-entreprise/sectors-secteurs/MME-EMM.aspx?lang=eng
9 https://www.cbc.ca/news/politics/ceta-anniversary-imports-exports-1.4823822
10 https://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/ceta-aecg/provincial_ON_eng.pdf
11 https://www.cbc.ca/news/politics/ceta-anniversary-imports-exports-1.4823822
12 https://www.international.gc.ca/gac-amc/campaign-campagne/ceta-aecg/year_one-premiere_annee.aspx?lang=eng
13 https://www.international.gc.ca/gac-amc/campaign-campagne/ceta-aecg/year_one-premiere_annee.aspx?lang=eng
14 https://www.international.gc.ca/gac-amc/campaign-campagne/ceta-aecg/year_one-premiere_annee.aspx?lang=eng
15 https://www.cbc.ca/news/politics/ceta-anniversary-imports-exports-1.4823822
16 https://www.business.hsbc.com/-/media/cmb/campaigns/trade-navigator/europe-pdf/canada-report-autumn-2018.pdf

Disclaimers

The information presented is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without first obtaining specific professional advice. While reasonable care has been taken in preparing this document, HSBC does not make any guarantee, representation or warranty (express or implied) as to its accuracy or completeness. The information presented in this document is subject to change without notice.

Certain of the products and services offered by HSBC and its subsidiaries and affiliates are subject to credit adjudication and approval. This document does not constitute an offer to provide the services and products described and the provision of such services and products remains subject to contract.

Issued by HSBC Bank Canada ("HSBC")

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