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Canadian International Trade: COVID-19, disruption of supply chains and trade restrictions create short-term challenges, long-term opportunities for Canadian exporters

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As the world continues to grapple with the coronavirus pandemic, Canadian exporters are forced to contend with severe global restrictions aimed at containing the crisis. Many countries are taking measures to ensure that critical supplies are reaching the hands that need them immediately, while others have either tightened their borders to international trade, or have threatened to do so.

To try to contain the spread of the disease, countries have closed ports, imposed travel restrictions and shut down factories, creating a challenging global trade environment and impacting international supply chains. The World Trade Organization says 80 countries and customs territories have introduced export prohibitions as a result of the pandemici.

It’s worth a reminder: trade - for both imports and exports - is a potent and cost-effective tool to ease the devastating effects of COVID-19 and prevent the global economy from collapsing. Nations around the world should therefore be implementing trade policies aimed at protecting lives by improving access to affordable medical supplies and food, in particular.

Many countries around the world are signatories to various free-trade agreements and other trade pacts, which continue to apply even as nations fight COVID-19 domestically.

Nonetheless the pandemic is already delivering devastating economic blows. In its summer 2020 global economic outlook, Export Development Canada predicts the world economy will shrink by 4.3% this yearii.

The EDC notes that advanced economies have been hit the hardest by the pandemic, shrinking collectively by 5.4%. Emerging economies will experience a 3.6% decline, it forecasts.

The most recent trade data compiled by Statistics Canada has found that while trade is picking up, Canada still brought in far more goods than it shipped out in June. The import of goods rose 21.8 per cent in the month to $42.9 billion, but was down 15 per cent from June 2019.

The situation in the United States, Canada’s No. 1 trading partner, has been one of even greater trade disruption. While the U.S. economy began to grow in May and June after taking a monumental hit beginning in March, growth stalled in July as infections spiked in some parts of the countryiii.

In a recent study, the Food and Agriculture Organization of the United Nations issued a call to keep critical food supply chains operating “so people have access to life-sustaining food.”

In her statement to the group, Marie-Claude Bibeau, Canada’s agriculture minister, reaffirmed Canada’s commitment to the continued movement of food products among the G20 countriesiv. Bibeau also encouraged members to be “transparent and mindful of trade rules when adopting domestic measures to address the crisis.”

So what specific measures should Canadian exporters be taking in today’s trade environment?

EDC encourages Canadian companies to undertake careful due diligence when it comes to doing business in heavily affected areas, especially mainland China, Italy, the United States and Spain. The impact of the coronavirus on Canadian international trade and exporters clearly depends on the severity and spread of the virus in the countries where they do business.

That due diligence should include reading local news reports, visiting government websites to understand the severity of COVID-19's impact and determining what relief might be available to foreign businesses, in addition to all of the normal diligence a company should undertake before entering a new foreign market. Understanding trade rules, the country's taxation regime and seeking advice from lawyers, accountants and other advisers about doing business with the country in question is imperative.

Using an export finance expert could also be a huge boon to Canadian exporters right now, especially if they’re pondering how to expand in the post-pandemic world or how to find new markets that pose fewer infectious disease threats in the future. It can help them gain more control over exports, improve cash flow and manage the risks associated with international trade.

“One thing that is unique for us at HSBC is our significant presence in key markets around the world,” says Andrew Skinner, Head of Global Trade and Receivables Finance, HSBC Bank Canada. “We have and know people on the ground in key growth markets, so our clients aren’t forced to deal with people for the first time when entering new markets. Instead we ensure they will be dealing with people who have context to their specific business via the existing relationship with their bankers, which enhances their experience and gives them additional assurance.”

It’s critical that exporters understand the regulatory environment as well as unique cultural, social and economic conditions when exploring new markets -- never more so than right now.

Official efforts are currently being made to keep supply chains flowing. Canada recently signed a joint statement with Australia, New Zealand, South Korea and Singapore to facilitate the cross-border movement of essential goods, limiting disruption of supply chains and maintaining open and connected supply chains throughout the pandemic.v

Those measures include expediting customs procedures; facilitating the timely flow of essential goods, whether it’s by air, sea or land freight; and refraining from imposing export restrictions or implementing unjustified trade disruption and barriers in a manner inconsistent with World Trade Organization rules.

There are also developments among some of the country’s trading partners when it comes to Canadian international trade.

The European Union is now waiving customs duties and the value-added tax (VAT) on the import of medical devices and protective equipmentvi. The EU also loosened border rules to ensure the availability of essential goods and services, facilitated air cargo operations, imposed animal welfare measures to contain risks and implemented public procurement guidance relating to emergency provisions.

Australia is taking matters into its own hands on global trade, recently announcing it’s bypassing the United States by teaming up with the European Union and China to support a new global trade dispute watchdog. The system will replicate the World Trade Organization’s Appellate Body, which the U.S. administration under Donald Trump last year essentially suspended by refusing to allow any new judges to be appointed.

But nonetheless, the skies are far from clear when it comes to global trade at present. The head of the International Monetary Fund recently warned of a possible downward revision of global economic forecasts, and cautioned the U.S. and China against resuming a trade warvii . Krisalina Georgiva said a rekindled China-U.S. tariff showdown could weaken a global economic recovery post-pandemic.

Instead, she made clear, the reignition of world trade will ensure a global recovery. “Otherwise,” she said, “costs go up, incomes go down, and we will be in a less secure world.”

Amid the COVID-19 pandemic and ensuing recession, those are wise words not just for Canadian exporters, but for countries around the world that rely on trade to fuel and bolster their economies.

Contact HSBC to find out how our products and services can help your business be proactive in navigating a challenging trade environment and planning for the future.

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