Free trade agreements are the unsung heroes of exporting. By definition, free trade agreements (or FTAs) are treaties between two or more nations that form free trade areas. What this translates to is the loosening of trade restrictions, reduction in costs, and greater opportunities for exporters.
FTAs typically minimize a wide range of regulatory barriers. In this blog post, we’ll provide an overview of all the ways FTAs make exporting a smoother process.
1. Get preferential access to new markets
Canadian companies can export more easily to over 50 countries around the world that have FTAs with Canada. One of the most coveted FTA benefits is the simplified operational procedures for entering foreign markets. It reduces the unpredictability and compliance issues that are common when exporting to new countries.
2. Save money
FTAs almost always lower the tariffs placed upon foreign products, making exporting abroad less costly.
3. Overcome non-tariff barriers to trade
Not only do FTAs lower or remove tariffs but they can also provide other benefits. These include higher import quotas, shorter border-processing delays, and Intellectual Property (IP) protection which shields exporters from fraud and copycats in their new markets.
4. Increase transparency of foreign markets
Foreign markets can be unpredictable, but FTAs can offer Canadian business owners peace of mind. They may emphasize adherence to responsible business practices and advocate for meeting global standards. For example, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) includes provisions for product standards, professional certification, as well as labour rights and environmental protection.
5. Bid on procurement contracts
Another way FTAs grant Canadian companies a competitive edge is when it comes time to bid on government contracts. Government procurement is when governments and other public bodies buy goods and services. Some FTAs allow all Canadian companies to bid on procurement contracts – CETA is one example of this, unlocking a market worth $2.6 trillion annually. Sometimes, FTAs even encourage investment in the foreign market.
An Example of FTA Benefits in South Korea
Here’s a quick illustrative example to see how free trade agreements benefit Canadian businesses.
On March 11, 2014, the Government of Canada and the Republic of South Korea formally concluded the Canada-Korea Free Trade Agreement (CKFTA). It subsequently entered into force on January 1, 2015.
Let’s look at beef to start – a particularly contentious product for importing into South Korea. It also happens to be Canada’s fifth most important beef export destination.
Pre-CKFTA, fresh or chilled boneless beef (HS Code: 0201.30.00.00) carried a 32% tariff. That means, before your shipment of steak was even allowed to clear customs in South Korea, you’d have to pay a 32% tax on the value of your shipment. This substantial fee made competition with local producers nearly impossible.
CKFTA resulted in a massive reduction in these tariffs. As of 2022, this tariff has been reduced by nearly half – to 18.6%. By 2030, all Canadian beef imports to South Korea will be tariff-free. Countries without an FTA with South Korea are taxed a whopping 40% on beef exports today. This puts Canadian companies at an incredible competitive advantage in the South Korean market.
Upon full implementation, South Korea will have eliminated 98.2% of all tariff lines for Canadian goods.
Including South Korea, Canada has 15 FTAs with 51 different countries – the USA, the European Union, and a number of countries in the Asia-Pacific region.
Fun fact: Canada is the only G7 country with free trade access to the entire G7 & European Union.
Canada’s FTAs cover 61% of the world’s gross domestic product (GDP) and open up markets to 1.5 billion consumers worldwide. You can read more about Canada’s FTAs at Global Affairs Canada’s website here.
A great tool to see what tariffs you may face exporting to specific markets is Canada’s Tariff Finder. Here you can search for your product, identify your HS code (which is the code used to identify and classify traded products), and see which tariffs may apply upon export. You can also use the International Trade Centre’s Market Access Map.
Stay tuned for the rest of our Free Trade Agreement series, where we’ll touch on the benefits and specific considerations of:
- CUSMA – the FTA between Canada and the US
- CETA – the FTA between Canada and the European Union
- CKFTA – the FTA between Canada and South Korea; and
- CPTPP – the FTA between Canada and ten countries in the Asia-Pacific
Get Export Support Today
While FTAs open many doors for exporting to new countries, they can also be difficult to understand. These dense documents filled with legal jargon and complicated language require a lot of research if you are not already familiar with FTAs.
At Export Navigator, our experienced Export Advisors can help save you time and effort in deciphering FTAs. Connect with an advisor today to learn how to take advantage of FTAs for your business, and get answers to your export-related questions.