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With NAFTA in limbo, small businesses have to keep looking for new markets

By Dan Kelly

Published in the Financial Post December 5, 2017


More than two-thirds of Canadian SMEs export, one-third import products or services

When people think about international trade, their minds often turn to the big car manufacturers, pharmaceutical companies or brand-name clothing retailers with suppliers all over the world. Seldom do they think of the small Canadian architect who wins an overseas bid or the mid-size Greek honey supplier who ships several cases of product to Canada every year.

But small and medium-size companies like those make up a growing percentage of international trade numbers, and Canadian SMEs are no exception. In fact, according to fresh CFIB data, more than two-thirds of small Canadian firms imported products or services over the past three years, and one-third exported either products or services. While the U.S. was far and away the largest import and export market for Canadian SMEs, there is growing small business trade with regions oceans away from us.

Given the importance of the American market, it is little wonder that many Canadian SMEs are feeling a bit nervous right now. Depending on the tweet of the week from the U.S. President, it is hard to determine whether NAFTA is coming or going. I believe the Canadian government has done a genuinely good job of building solid working relationships with the U.S. administration – typically a very important element in any trade negotiation. But the lack of clarity on where our southern neighbours will land is certainly an unwelcome situation for Canadian firms.

It is good news, then, that our governments, past and present, have worked hard to develop an expanding roster of preferred trading relationships around the world. The Comprehensive Economic and Trade Agreement (CETA) with the European Union is incredibly well timed, with the majority of its benefits going live just a few months ago. The agreement means that the vast majority of products – in either direction across the ocean – are now tariff-free.

But a trade agreement is only as good as the efforts of local business people to take advantage of the benefits it offers. And this is where we may struggle a bit. When asked about their level of familiarity with CETA, only 21 per cent of Canadian small firms felt they were very or somewhat familiar with the agreement. In fact, the familiarity of our firms that already trade with the EU wasn’t much better.

It should be no surprise that awareness of the agreement in Europe appears to a challenge, too. After all, while Canadians have gained preferred access to more than 500 million consumers, the Canadian market that European SMEs can now access is comparable to, or even smaller than, several individual European member states.

That speaks to the importance of raising awareness of the CETA agreement and its many benefits on both sides of the Atlantic. Over the past year, I’ve had the chance to speak to several audiences of entrepreneurs in Finland, Romania, Lithuania, Greece and Cyprus on CETA and have had a first-hand opportunity to assess the opportunities and challenges for smaller firms. And while this confirmed that awareness of the agreement remains low, interest in partnering with Canadian companies is high. I’ve come away from these meetings very impressed with the Canadian Trade Commissioner service, which provides advice to small business owners looking to develop international markets.

I’m pleased to report that Canada’s trade commissioners, and our government more broadly, are committed to including small business in our international trade agenda. In fact, ensuring trade agreements benefit more than just large multinationals is a part of the progressive agenda for trade we hear Foreign Affairs Minister Chrystia Freeland and Minister of International Trade François-Philippe Champagne regularly discussing. Even amid the NAFTA uncertainties, the governments of Canada, the United States and Mexico were able to agree on the inclusion of a small business chapter in a renewed agreement. This is good news indeed.

And we have to remember that international trade is not only good for Canada when we expand our export markets. Ensuring that importing products and services can be done more easily and at less cost is also a win for Canadian consumers and small firms. And while it is important to admit that making trade easier does put pressure on some firms who have been insulated from international competition, earlier CFIB research showed that for every one small firm harmed by freer trade, there were five that came out ahead.

This week, the prime minister is in China; while trade was on the agenda, on Monday the countries agreed to downgrade from formal to exploratory talks. This follows an earlier trip to Asia during which progress was made on resuscitating the Trans-Pacific Partnership following the United States’ withdrawal. While trade agreements are trickier when they include developing economies with very different wage levels, environmental and labour force regulations, it is important for Canada to be at the table for these discussions. Just like a business often needs to diversify its markets to grow or manage risk, so does a country.

Small businesses are counting on our government to work hard to renew NAFTA and till some new ground in trade agreements elsewhere in the world. But this can’t be done at any cost. For example, the U.S. has suggested it wants Canada to raise the amount a consumer can import free of duties or sales taxes when ordered online. For many, it may sound like a great idea. Wouldn’t it be great to skip paying the duty or GST/HST on that US$150 pair of shoes or skates from an American online retailer? Well, for the Canadian small firm that must pay the duty and charge the sales tax, this imbalance would be a killer. I urge the government to stand strong against any increase in Canada’s de minimis. Free trade must be fair trade.

Canada’s trade dance card is pretty full these days. On balance, the government has done a solid job negotiating some new opportunities around the world while protecting our interests under NAFTA. As for CETA, the job of government is largely done. Now it is up to the business communities to build relationships and harness the benefits of the agreement. Small firms are up to the challenge.

Dan Kelly is president of the Canadian Federation of Independent Business and lead spokesman and advocate for the views of CFIB’s 109,000 small and medium-sized member businesses across Canada.

This story was originally published in the Financial Post.

December 5, 2017

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