10 June 2019

Don’t wait for CUSMA: Canadian businesses should sharpen their exporting skills now

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In 2018, the new Canada-United States-Mexico Agreement (CUSMA) dominated news headlines and now, heading for the halfway point of 2019, the deal remains unratified. However, Dan Leslie, senior vice president, head of client coverage & deputy head of commercial banking at HSBC Bank Canada has a message for Canadian businesses: don’t let CUSMA delays sideline your plans when it comes to exporting to the U.S. or elsewhere globally.

“NAFTA is still in place, so there’s no good reason for Canadian businesses to delay their export plans,” says Leslie. “The Democrats now have control of the U.S. Lower House, which may slow the ratification of the deal. While there was arguably no real urgency for Canada to sign the agreement with steel and aluminum tariffs in place, news that the U.S. has agreed to remove those tariffs removes that impediment. However, there’s a narrowing window for the agreement to move through Parliament before the upcoming federal election.”

Leslie notes that the current text of CUSMA remains similar to that of NAFTA, with some potential measures in place to reduce both the costs and burdens associated with moving goods across the Canada/U.S. border. Exceptions include tighter rules of origin on regional content in the auto sector and greater administrative burdens for automobile sector suppliers to gain access to the U.S. market. U.S. legislators may also request some adjustments to environmental and labour provisions.

“However, all things considered, we still see current and future opportunities for Canadian businesses,” he says. “Those opportunities exist across all of the key sectors where we’ve historically seen competitive advantages, whether that’s agri-food, advanced manufacturing, business services or technology-based businesses.”

According to data compiled by HSBC and World Integrated Trade Solutions, the overall importance of U.S/Canada trade has declined in recent years as Canadian businesses seek out more diverse markets, such as Mexico, China, South Korea and Vietnam. The U.S. represented 75 per cent of Canada’s total goods traded (exports plus imports) in 1997. That number declined to 63 per cent overall in 2017 as trade diversified between Canada and the rest of the world.

Although the U.S. remains — and is likely to remain — Canada’s largest trading partner, Canadian companies shouldn’t hesitate to prospect in other markets, or take advantage of other free trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Canada-European Union Comprehensive Economic and Trade Agreement.

“Research conducted by HSBC in partnership with the Conference Board of Canada shows that businesses that expand internationally, whether into the United States or other parts of the world, grow exponentially faster than those who focus only on domestic markets,” Leslie says. “Looking at their strategic positioning, if any business in any industry wants to grow at an above-normal rate they should consider exporting to countries where they have a competitive advantage. It’s something we encourage our clients to consider as we help them to access those markets. Because Canada is signatory to a growing number of free trade agreements, Canadian companies may find that they have a competitive advantage over U.S. companies attempting to access markets where the U.S. isn’t a party to a similar agreement.”

Diversifying trade is important both for individual companies and Canada as a whole as it seeks to ensure that a single market, such as the U.S., doesn’t dominate its economy. But that diversification doesn’t mean that Canadian companies should reduce their trade with the U.S. As a trading nation, Canada has the economic potential and the capacity to grow the size of the trading pie, so that the lucrative U.S. slice represents a smaller percentage of overall trade.

“For Canadian individuals and businesses, it can be very comfortable to do business in the United States, because it’s so close, because we have great border access and because we have many similarities from language to culture,” says Leslie. “Canadian businesses should continue to exploit those natural advantages to enter and succeed in U.S. markets. But they should also make the extra effort to look to additional markets where language and other barriers to entry might be a bit more daunting. Wherever HSBC has offices around the world, we already see Canadian businesses that are very active and thriving in those markets.”

This story was created by Content Works, Postmedia’s commercial content division, on behalf of HSBC Bank Canada.

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