The third article in our four-part series on the importance of free trade agreements (FTAs) takes a look at the nuts and bolts of FTAs and FIPAs (foreign investment promotion and protection agreements). In this article:
Canada is a trading nation and relies on two types of international trade agreements, free trade agreements (FTAs) and foreign investment promotion and protection agreements (FIPAs), to make it easier for Canadian companies to conduct business in markets around the globe.
The difference between FTAs and FIPAs is structural in nature. FTAs focus on lowering or removing tariff barriers that restrict trade between two countries. FIPAs are more economic in nature, with the aim of promoting foreign investment in a particular country and ensure a stable environment for the flow of investment.
Free trade agreements have the basic goal of eliminating tariffs on goods made in one country and sold in the other, so companies are on equal footing. However, they may address non-tariff barriers including quotes, product standards, labour mobility and intellectual property.
Canadian companies often wonder if an FTA can help them in a particular market. That depends on whether the market actually suits the needs of a particular company. Determining that relies on research to see if it that potential market is a good fit. Often, doing your homework can unveil some unexpected potential for exports and investments.
Canada currently has a total of 13 FTAs, but none are as important as NAFTA, which includes Canada, the US and Mexico. In a nutshell, 72.6% of Canada’s total exports, valued at $453.7 million, were destined to the US market in 2016. Canada was also the top market for 32 of the 50 American states.
In terms of Mexico, NAFTA is responsible for increasing bilateral trade by an average of 10% annually since it came into force in 1994.
Currently, NAFTA is under renegotiation with no set deadline, however it’s expected that negotiations will be complete in the early part of 2018.
More recently, Canada signed the Canada-EU Comprehensive Economic and Trade Agreement (CETA) which came into effect in September of this year. The country’s biggest trade agreement since NAFTA, CETA will give Canadian exporters access to a market of approximately 500 million people. It’s labelled as comprehensive because it covers many areas including removal of tariffs, investment flows and movement of people and services.
With the United Kingdom’s departure from the EU in 2019, it won’t be part of CETA, however politicians in both countries have recognized the importance of bilateral trade between Canada and the UK, and are looking at possible options, including mirroring many provisions of CETA in a Canada-UK agreement.
Canada has other bilateral trade agreements in force with other countries, including South Korea, Colombia, Chile, Costa Rica, Israel, Honduras, Jordan, Panama, the European Free Trade Association (EFTA) as well as the Ukraine.
Unlike FTAs, FIPAs don’t deal with trade of goods or services. Rather, they focus on investment with an aim to establish consistent treatment for investors in both countries to protect against political risks and currency controls.
Canada also currently has 37 FIPA agreements in place with countries around the globe. The nuts and bolts of each particular agreement may vary, but each normally addresses the equal treatment of both domestic and international investors; the sectors that may be excluded from the particular agreement (telecommunications or financial services); transfer of funds out of the country in addition to taxation measures and dispute resolution mechanisms.
The presence of a FIPA is an important tool for exporters when looking to invest in another country. If a FIPA is in force, the Canadian company will enjoy equal rights as a locally owned firm and cannot be penalized for being an international firm. As a result, investing in a country with a FIPA may provide more substantial benefits than trying to do business with a country that does not have one.
With the main goal of reducing punitive tariffs on imported goods and services, doing business in country that has an agreement with Canada can provide benefits.
For Calgary’s dTechs, Canada’s FTA with Colombia is translating into new opportunities.
CEO Roger Morrison had a skewed impression of the country until he decided to participate in a trade mission four years ago.
“At first glance, I was reticent to expand into Colombia, having all the same preconceived misconceptions from its recent history regarding corruption and drug violence,” he told EDC in May 2017. “Going down there I found a much different country. I found a very friendly people and very friendly business environment and discovered the Canadian government and the Colombian government have a free trade agreement.”
Since then, the Canadian software company has had great success exporting its technology in the Colombian electricity market. dTechs is the creator of the epmSuite, an electrical management software that enables electric utilities to wirelessly monitor technical and non-technical energy losses across their distribution systems. Using accurate voltage sensors coupled with a robust software platform, the company addresses the last-mile gap in grid monitoring.
“We found a very strong need for our technology in Colombia,” added Morrison. “Hence, we decided to enter the Colombian market, and since that time, I have been to the country probably upwards of 20 times.”
Calgary high-performance computer cooling specialist, CoolIT Systems learned about some of the hidden costs of doing business free trade agreements eliminate, the hard way.
“Brazil is a very protectionist country and we didn’t realize the import tariff there is 100%,” Chief Operating Officer Randy Coates explained to EDC in January 2017.
The company was excited that it was expanding its global footprint into South America, until a bill arrived in the mail.
“Many countries have tariffs that you are aware of and are in the range of 4%,” Coates said. “But in Brazil, you have to do some of the assembly there or it’s outrageously expensive to sell into.”
“Unfortunately, I’m sure we are not the first company to sell into Brazil only to get a bill for the same total as our shipment from the government and wonder what the heck it’s for. It’s an exporting lesson learned the hard way.”
Click on a country for more information
Canada-Honduras Free Trade Agreement
In force: 2014 Covers market access for goods, cross-border trade in services, investment and government procurement. Key sectors: • Agriculture • Agriculture and agri-food • Professional services • Value-added food processing and manufacturing • Commodity- and resource-based Industries More 2.2.5 Canada-Honduras Free Trade Agreement
Canada-Costa Rica Free Trade Agreement
In force: 2002 Concentrates on trade in goods and does not cover areas such as services, investment and government procurement. Negotiations are underway to eliminate agricultural and industrial tariffs, increase market access and broaden the agreement to other areas. Key sectors: • Construction and infrastructure • Power More 2.2.3 Canada-Costa Rica Free Trade Agreement
Canada-Panama Free Trade Agreement
In force: 2013 Covers market access for goods, cross-border trade in services, telecommunications, investment, financial services and government procurement. Key sectors: • Construction and infrastructure • Mining and metals • Power More 2.2.9 Canada-Panama Free Trade Agreement
Canada-Colombia Free Trade Agreement
In force: 2011 Reduces or eliminates tariffs on most of Canada's current exports to Colombia and ensures equitable treatment for Canadian investment in the country. Key sectors: • Agriculture and agri-food • Construction and infrastructure • Environmental infrastructure and waste water • Mining and metals • Oil and gas More 2.2.2 Canada-Colombia Free Trade Agreement
Canada-Peru Free Trade
Agreement
In force: 2008 Eliminates tariffs on 95% of current Canadian exports to Peru. It is supported by accords on environmental and labour co-operation. Key sectors: • Construction and infrastructure • Environmental infrastructure and waste water • Mining and metals • Oil and gas • Power More 2.2.10 Canada-Peru Free Trade Agreement
Canada-Chile Free Trade Agreement
In force: 1997 Covers both trade in goods and services as well as investments. A 2017 update addresses sanitary and phytosanitary measures, government procurement, technical barriers to trade and investment rules. Key sectors: • Construction and infrastructure • Environmental infrastructure and waste water • Forestry (lumber, pulp and paper) • Mining and metals • Power More 2.2.1 Canada-Chile Free Trade Agreement
Canada-Ukraine Free Trade Agreement
In force: 2017 Eliminates tariffs on a wide range of goods and addresses a range of non-tariff barriers. Key sectors: • Fuels and oils • Agri-food and food products • Machinery • Pharmaceuticals • Scientific and technical instrumentation More 2.2.11 Canada-Ukraine Free Trade Agreement
Canada-Israel Free Trade Agreement
In force: 1997 This is a goods-only agreement with no investor provisions. It eliminates tariffs on all industrial products manufactured in Canada and Israel, and on a selection of agricultural and fisheries products. Key sectors: • Aerospace • Biotechnology • Consumer goods • Environmental infrastructure and waste water • Knowledge-based industries • Medical technology • Oil and gas • Telecommunications More 2.2.6 Canada-Israel Free Trade Agreement
Canada-Jordan Free Trade Agreement
In force: 2012 Governs trade in goods and eliminates tariffs on most Canadian exports to Jordan, including forest products, machinery, construction equipment, and agriculture and agri-food products. There is a separate FIPA to cover investor protections. Key sectors: • Vehicles • Wood products • Scientific and precision instruments • Agricultural products More 2.2.7 Canada-Jordan Free Trade Agreement
Canada-Korea Free Trade Agreement
In force: 2015 Provides Canadian exporters with preferential access to the world's 11th-largest economy. South Korea is also a gateway to regional and global value chains, which may help Canadian companies compete in the Asia-Pacific area. Key sectors: • Agriculture and agri-food • Vehicles • Environmental infrastructure and waste water • Media and entertainment • Oil and gas • Telecommunications More 2.2.8 Canada-Korea Free Trade Agreement
EFTA
In force: 2009 Member countries: Canada, Norway, Iceland, Liechtenstein, Switzerland The EFTA covers only goods and does not apply to services, investment or intellectual property. Key sectors: • Agri-food and seafood • Industrial products More 2.2.4 Canada-European Free Trade Association (EFTA) Free Trade Agreement
EFTA
Canada-European Free Trade Association free trade agreement In force: 2009 Member countries: Canada, Norway, Iceland, Liechtenstein, Switzerland. The EFTA covers only goods and doesn’t apply to services, investment or intellectual property. Key sectors: • Agri-food and seafood • Industrial products
EFTA
Canada-European Free Trade Association free trade agreement In force: 2009 Member countries: Canada, Norway, Iceland, Liechtenstein, Switzerland. The EFTA covers only goods and doesn’t apply to services, investment or intellectual property. Key sectors: • Agri-food and seafood • Industrial products
EFTA
Canada-European Free Trade Association free trade agreement In force: 2009 Member countries: Canada, Norway, Iceland, Liechtenstein, Switzerland. The EFTA covers only goods and doesn’t apply to services, investment or intellectual property. Key sectors: • Agri-food and seafood • Industrial products
Canada-United States-Mexico Agreement
Status: Signed, awaiting ratification Member countries: Canada, the United States and Mexico Once it’s ratified by the legislative bodies of the three participating countries, CUSMA will replace the North American Free Trade Agreement (NAFTA), which has been in place since 1994. CUSMA will provide a comprehensive set of rules for trade in goods and services, investment, intellectual property and dispute settlement among the three nations. Key facts:
• The U.S. purchased 75.8% of Canada’s total exports in 2017, for a value of $414.5 billion. Canada imported $288.3 billion worth of U.S. merchandise in 2017, representing 51.3% of all imports to this country. • Between 1993 and 2016, exports from Canada into Mexico grew at an average annual rate of 10%. Canada-Mexico trade has increased more than nine-fold since NAFTA came into effect. Read more
CUSMA
Canada-United States-Mexico Agreement Status: Signed, awaiting ratification Member countries: Canada, the United States and Mexico Once it’s ratified by the legislative bodies of the three participating countries, CUSMA will replace the North American Free Trade Agreement (NAFTA), which has been in place since 1994. CUSMA will provide a comprehensive set of rules for trade in goods and services, investment, intellectual property and dispute settlement among the three nations. Key facts:
• The U.S. purchased 75.8% of Canada’s total exports in 2017, for a value of $414.5 billion. Canada imported $288.3 billion worth of U.S. merchandise in 2017, representing 51.3% of all imports to this country. • Between 1993 and 2016, exports from Canada into Mexico grew at an average annual rate of 10%. Canada-Mexico trade has increased more than nine-fold since NAFTA came into effect. Read more
CUSMA
Canada-United States-Mexico Agreement Status: Signed, awaiting ratification Member countries: Canada, the United States and Mexico Once it’s ratified by the legislative bodies of the three participating countries, CUSMA will replace the North American Free Trade Agreement (NAFTA), which has been in place since 1994. CUSMA will provide a comprehensive set of rules for trade in goods and services, investment, intellectual property and dispute settlement among the three nations. Key facts: • The U.S. purchased 75.8% of Canada’s total exports in 2017, for a value of $414.5 billion. Canada imported $288.3 billion worth of U.S. merchandise in 2017, representing 51.3% of all imports to this country. • Between 1993 and 2016, exports from Canada into Mexico grew at an average annual rate of 10%. Canada-Mexico trade has increased more than nine-fold since NAFTA came into effect.
CUSMA
Canada-United States-Mexico Agreement Status: Signed, awaiting ratification Member countries: Canada, the United States and Mexico Once it’s ratified by the legislative bodies of the three participating countries, CUSMA will replace the North American Free Trade Agreement (NAFTA), which has been in place since 1994. CUSMA will provide a comprehensive set of rules for trade in goods and services, investment, intellectual property and dispute settlement among the three nations. Key facts: • The U.S. purchased 75.8% of Canada’s total exports in 2017, for a value of $414.5 billion. Canada imported $288.3 billion worth of U.S. merchandise in 2017, representing 51.3% of all imports to this country. • Between 1993 and 2016, exports from Canada into Mexico grew at an average annual rate of 10%. Canada-Mexico trade has increased more than nine-fold since NAFTA came into effect.
(The Comprehensive Economic and Trade Agreement) In force: 2017 Member countries: Canada, 28 countries* in the European Union When Canada’s free trade agreement with the EU came into effect, it unlocked the biggest opportunity for Canadian exporters since NAFTA. The agreement creates enormous trade and investment opportunities for both Canada and the member countries of the EU. Key facts: • The EU market, as of 2017, had 28 member states*, 500 million consumers and $22 trillion in annual economic activity. • CETA eliminates 98.4% of tariffs on all non-agricultural Canadian goods entering the EU. This will offer many new growth opportunities for small- and medium-sized Canadian exporters. • New investor rules in CETA will provide greater certainty, stability and protection and will put Canadian businesses on a level playing field with EU businesses. *Britain is slated to leave the EU in 2019. The British parliament has repeatedly voted to reject the exit deal negotiated between the EU and former British prime minister Theresa May. Until an agreement passes, however, Britain will remain a full EU member and CETA’s rules will continue to govern Canada-U.K. trade. Read more
CETA
(The Comprehensive Economic and Trade Agreement) In force: 2017 Member countries: Canada, 28 countries* in the European Union When Canada’s free trade agreement with the EU came into effect, it unlocked the biggest opportunity for Canadian exporters since NAFTA. The agreement creates enormous trade and investment opportunities for both Canada and the member countries of the EU. Key facts: • The EU market, as of 2017, had 28 member states*, 500 million consumers and $22 trillion in annual economic activity. • CETA eliminates 98.4% of tariffs on all non-agricultural Canadian goods entering the EU. This will offer many new growth opportunities for small- and medium-sized Canadian exporters. • New investor rules in CETA will provide greater certainty, stability and protection and will put Canadian businesses on a level playing field with EU businesses. *Britain is slated to leave the EU in 2019. The British parliament has repeatedly voted to reject the exit deal negotiated between the EU and former British prime minister Theresa May. Until an agreement passes, however, Britain will remain a full EU member and CETA’s rules will continue to govern Canada-U.K. trade.
CETA
(The Comprehensive Economic and Trade Agreement) In force: 2017 Member countries: Canada, 28 countries* in the European Union When Canada’s free trade agreement with the EU came into effect, it unlocked the biggest opportunity for Canadian exporters since NAFTA. The agreement creates enormous trade and investment opportunities for both Canada and the member countries of the EU. Key facts: • The EU market, as of 2017, had 28 member states*, 500 million consumers and $22 trillion in annual economic activity. • CETA eliminates 98.4% of tariffs on all non-agricultural Canadian goods entering the EU. This will offer many new growth opportunities for small- and medium-sized Canadian exporters. • New investor rules in CETA will provide greater certainty, stability and protection and will put Canadian businesses on a level playing field with EU businesses. *Britain is slated to leave the EU in 2019. The British parliament has repeatedly voted to reject the exit deal negotiated between the EU and former British prime minister Theresa May. Until an agreement passes, however, Britain will remain a full EU member and CETA’s rules will continue to govern Canada-U.K. trade.
CETA
(The Comprehensive Economic and Trade Agreement) In force: 2017 Member countries: Canada, 28 countries* in the European Union When Canada’s free trade agreement with the EU came into effect, it unlocked the biggest opportunity for Canadian exporters since NAFTA. The agreement creates enormous trade and investment opportunities for both Canada and the member countries of the EU. Key facts: • The EU market, as of 2017, had 28 member states*, 500 million consumers and $22 trillion in annual economic activity. • CETA eliminates 98.4% of tariffs on all non-agricultural Canadian goods entering the EU. This will offer many new growth opportunities for small- and medium-sized Canadian exporters. • New investor rules in CETA will provide greater certainty, stability and protection and will put Canadian businesses on a level playing field with EU businesses. *Britain is slated to leave the EU in 2019. The British parliament has repeatedly voted to reject the exit deal negotiated between the EU and former British prime minister Theresa May. Until an agreement passes, however, Britain will remain a full EU member and CETA’s rules will continue to govern Canada-U.K. trade.
(The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) In force: 2018 Member countries: Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The CPTPP will give Canadian exporters improved market access to important Asian markets such as Malaysia, Vietnam and Japan, the world’s third largest economy. Canada’s participation in CPTPP also means that we’re currently the only G7 nation with a free trade agreement with all other G7 members. The agreement is expected to boost Canada's GDP by $4.2 billion. Key facts: • Once it comes fully into force with all nations ratifying it, CPTPP will be one of the largest free trade agreements in the world. CPTPP will rival CETA in terms of the total size of the opportunity for Canadian exporters. The agreement represents almost 500 million people with a combined GDP of $13.5 trillion, or 13.5% of global GDP. • Gains from tariff elimination and improved market access for Canadian agriculture in the CPTPP are especially significant in the markets of Japan, Malaysia and Vietnam. In these markets, Canada has faced high tariffs and had no preferential access. The average agricultural tariffs that Canada faces in these countries are 17.3% in Japan, 17% in Vietnam and 10.9% in Malaysia. Read more
CPTPP
(The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) In force: 2018 Member countries: Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The CPTPP will give Canadian exporters improved market access to important Asian markets such as Malaysia, Vietnam and Japan, the world’s third largest economy. Canada’s participation in CPTPP also means that we’re currently the only G7 nation with a free trade agreement with all other G7 members. The agreement is expected to boost Canada’s GDP by $4.2 billion. Key facts: • Once it comes fully into force with all nations ratifying it, CPTPP will be one of the largest free trade agreements in the world. CPTPP will rival CETA in terms of the total size of the opportunity for Canadian exporters. The agreement represents almost 500 million people with a combined GDP of $13.5 trillion, or 13.5% of global GDP. • Gains from tariff elimination and improved market access for Canadian agriculture in the CPTPP are especially significant in the markets of Japan, Malaysia and Vietnam. In these markets, Canada has faced high tariffs and had no preferential access. The average agricultural tariffs that Canada faces in these countries are 17.3% in Japan, 17% in Vietnam and 10.9% in Malaysia.
CPTPP
(The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) In force: 2018 Member countries: Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The CPTPP will give Canadian exporters improved market access to important Asian markets such as Malaysia, Vietnam and Japan, the world’s third largest economy. Canada’s participation in CPTPP also means that we’re currently the only G7 nation with a free trade agreement with all other G7 members. The agreement is expected to boost Canada’s GDP by $4.2 billion. Key facts: • Once it comes fully into force with all nations ratifying it, CPTPP will be one of the largest free trade agreements in the world. CPTPP will rival CETA in terms of the total size of the opportunity for Canadian exporters. The agreement represents almost 500 million people with a combined GDP of $13.5 trillion, or 13.5% of global GDP. • Gains from tariff elimination and improved market access for Canadian agriculture in the CPTPP are especially significant in the markets of Japan, Malaysia and Vietnam. In these markets, Canada has faced high tariffs and had no preferential access. The average agricultural tariffs that Canada faces in these countries are 17.3% in Japan, 17% in Vietnam and 10.9% in Malaysia.
CPTPP
(The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) In force: 2018 Member countries: Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The CPTPP will give Canadian exporters improved market access to important Asian markets such as Malaysia, Vietnam and Japan, the world’s third largest economy. Canada’s participation in CPTPP also means that we’re currently the only G7 nation with a free trade agreement with all other G7 members. The agreement is expected to boost Canada’s GDP by $4.2 billion. Key facts: • Once it comes fully into force with all nations ratifying it, CPTPP will be one of the largest free trade agreements in the world. CPTPP will rival CETA in terms of the total size of the opportunity for Canadian exporters. The agreement represents almost 500 million people with a combined GDP of $13.5 trillion, or 13.5% of global GDP. • Gains from tariff elimination and improved market access for Canadian agriculture in the CPTPP are especially significant in the markets of Japan, Malaysia and Vietnam. In these markets, Canada has faced high tariffs and had no preferential access. The average agricultural tariffs that Canada faces in these countries are 17.3% in Japan, 17% in Vietnam and 10.9% in Malaysia.
