Free trade agreements (FTAs) can help you to expand your business by providing
preferential access, and reducing trade barriers in global markets.
Clarke Ricks School of Business,
Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
June 8, 2022
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.
Definition:
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
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.
oFor 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.
Risk Management
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.
FTA Considerations
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.
oThis 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.
oFTAs 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.
