Trade Diversification: Spotlight on Europe

When you walk into a grocery store in almost any country in the world you are undoubtedly reaping the benefits of trade. Whether in the increased selection or the price tag, globalization has certainly impacted the way we consume and do business.

However, trade between two countries leaves both parties vulnerable to each other’s economic shocks, business cycles, political and social trends. In today’s global markets, the correlation between reliance on trade relationships and vulnerability to the risks of protectionism is a topic of concern.  Furthermore, The Canadian Trade Commissioner Service has specifically stated, “With Brexit, the renegotiation of NAFTA, and the trade tensions around the world, the risk of trade protectionism is greater than ever”.

Nonetheless, the United States remains Canada’s largest trading partner as the destination of over 70% of Canadian exports and origin of almost 50% of imports. Talks about trade diversification from the US have been more widespread today than ever before following the uncertainty and economic turbulence that accompanied months of renegotiation for the new NAFTA.

This has led to talks with regions around the world and the creation of agreements outside North America. Canada’s goal is to become the world’s most stable, predictable, innovative and connected market so every Canadian with an ambition to sell their product or service overseas has the capacity and confidence to realize their goals. This leads to the question: Why are we still so reliant on the United States?

Business in The World’s Second Largest Market – What Is CETA?

The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is helping Canada create business opportunities by strengthening economic relations and boosting trade with the world’s largest market after the United States. Prior to CETA only 25% of Canadian goods were relieved from EU tariffs. As of September 21, 2017, this progressive free trade agreement covers virtually all sectors present in Canada and the EU as a whopping 98% of EU tariff lines are now duty-free to Canadian goods and services. With CETA, Canada is one of the few countries in the world to have preferential access to the US and the EU. Still, while European business has been capitalizing on CETA, Canadian companies have been slow to make big moves into the over $16-trillion EU marketplace.

Challenges with CETA

Statistics Canada revealed that after CETA was implemented, Canadian exports to the EU grew just 1% in the first 10 months. Meanwhile, imports from the EU shot up more than 12% in that same time frame. This is because the removal of tariffs is only one of the ways to encourage trade and many non-tariff barriers to Canada–EU trade remain in place.

A major barrier facing Canadian companies is understanding and working with the language and cultural differences within the EU. A government survey conducted earlier this year found that one-third of companies have no interest in exploring new market opportunities and, “Top targets for foreign markets were Australia, New Zealand and the United Kingdom — all English-speaking Commonwealth countries”. Canada finds itself falling back to the familiarity and convenience of the massive market south of the border not only because it is geographically closer but also because it is simply easier on a logistical level to establish supply chains and relations.

In an interview with Bloomberg European Trade Commissioner, Cecilia Malmstrom states “we have a wave of politically quite nationalistic governments and political parties in the European Union. We are trying to overcome (…) feelings that people feel left behind in the economic crisis”.  Anti-globalization nationalism amplifies the many other non-tariff barriers to trade and limits Canadian companies’ ability to establish relations across the pond. 

Navigating diverse sets of foreign rules and regulations can present another challenge to Canadian companies. Building on the language and cultural differences mentioned above, many Canadian institutions are finding it difficult to find information on trade opportunities, or to make contacts and obtain financing for projects. A clear example is with Canada’s priority exports, like beef and pork, which have been stalled by ongoing scientific reviews, as both sides of CETA struggle to recognize each other’s food safety rules.

The Canadian government survey released following the finalization of CETA suggests the vast majority of small and medium-sized exporters, which are positioned to benefit from CETA indeed have no idea what it was. Awareness of the possibilities in Europe through CETA is shockingly low and is a large contributor to the trade balance following the inception of the agreement. When it comes to benefiting from access to global markets, the Europeans simply have more experience seeking out and taking advantage of opportunities to diversify trade.

Tackling These Challenges for a More Effective CETA

Canada needs to increase awareness back home. The vast majority of Canadian exporters are small and medium sized enterprises who need real education about the benefits and the “how-to” in terms of accessing foreign markets. Global Affairs Canada, Export Development Canada, chambers of commerce, federal and provincial government departments are all focused on helping Canadian companies respond to international business opportunities. To truly increase awareness of CETA and its benefits these organizations need to streamline their shared interests and collaborate on a targeted campaign. This would promote the correlation between trade and business competitiveness, the opportunities in Europe and the support systems in place to help Canadian businesses overcome non-tariff barriers such as language, culture, differing rules, and regulations.

The private sector needs to get more involved for Canada to have effective conversations with the EU. One way to foster this communication is through customized private sector led training and discussion with ambassadors, foreign service officers, and trade commissioners on topics related to global businesses and entrepreneurship. This allows the private sector to have their personal interests heard by the government and for those representing Canada abroad to have a better understanding of the non-tariff barriers affecting Canadian business during trade discussions with partner countries.

CETA is a great start to bringing Canada and the EU closer together and helping Canadian trade diversification. Moving forward, awareness, access, and communication – both internally and externally – are key to helping Canadian businesses prosper through diversifying into Europe.


Featured image: CETA (2019), by Tehseen Rana. Courtesy of the Author.

Disclaimer: Any views or opinions expressed in articles are solely those of the authors
and do not necessarily represent the views of the NATO Association of Canada.

Tehseen Rana

About Tehseen Rana

Tehseen Rana is a Research Analyst at NATO Association of Canada. He completed his Honours Bachelor of Business Administration with a specialization in finance and a minor in economics at Wilfrid Laurier University. Alongside his studies in Canada, he was a visiting student at Harvard University, an international exchange student at Burgundy School of Business in Dijon, France and an academic delegate at the United Nations Conference on Trade and Development in Geneva, Switzerland. Tehseen was previously a Research Associate at the Ministry of Economic Development, Job Creation and Trade in the Ontario Government and has experience in private sector finance. Tehseen also recently co-founded a student engagement program for the Ontario Public Service, worked as a deputy elections officer, spoke at a meeting with Canada’s Prime Ministers Youth Council and he is a member of the Budget Working Group for the Toronto Youth Cabinet. Tehseen’s interest is in international trade and investment, specifically how the Canadian government and private sector are affected by and can respond to the international business environment. He can be contacted by email at rana7940@mylaurier.ca.