Now that Canada and the EU have overcome last-minute hurdles and signed the Comprehensive Economic and Trade Agreement (CETA), it’s likely we’ll see an immediate uptick in the number of Canadian companies going to Europe, says Stephen Wilhelm, Export Development Canada’s regional vice-president for Europe, the Middle East and Africa.
The agreement will still need approval from the European Parliament and the EU member states need to ratify the agreement in accordance with their respective domestic treaty ratification procedures. That said, the majority of CETA can be provisionally applied once the European Council and the European Parliament approve it. Given that, while the agreement will not likely fall into force until early 2017, Wilhelm still expects to see increased activity in preparation for these events.
“And we’ll be looking for ways in which we can support those companies, whether it’s with trade-receivable insurance, or whether it’s with working capital, or political risk insurance, if they’re looking to invest in Europe to take advantage of CETA,” Wilhelm said. “We’ll also be looking at European companies looking to invest in Canada as a place from which to export to the U.S. or Mexico to take advantage of NAFTA. We expect the number of such inquiries to increase as a result of CETA.”
For their part, Canadian companies that already have bases of operation in the EU may experience increased competition from other Canadian companies that previously have had to contend with tariffs, Wilhelm said. “CETA will also bring some additional clarity in terms of investment protection and dispute resolution provisions. It’s certainly meant to foster a more investment-friendly environment.”
Of course, for companies that have been exporting goods to Europe that were subject to tariffs, CETA will mean their prices now become more competitive, so it’s definitely a good thing for them.
“The other side of that coin is that it may also mean increased competition from European players in Canada,” Wilhelm said. “For Canadian companies that were not exporting, they are likely to face increased competition in Canada from European players. This should really serve as a wakeup call to start looking at other markets if they’re going to face increased competition at home.”
One message Wilhelm has been delivering from his EDC office in London is that Canadians shouldn’t just view the EU as a destination market. “They should also view the EU as a conduit to other markets, particularly emerging markets, and try to really focus on entering EU supply chains, which is arguably a much lower-risk export journey than going to an emerging market directly by themselves,” Wilhelm said. “If they can enter a supply chain, for example, with a global player like Siemens, which is then, in turn, selling those goods to Africa, that is a much lower-risk export journey to an emerging market than if the Canadian company did that directly, by themselves.”
Wilhelm said the penetration rate of European companies in Africa, the Middle East and Central Europe is much higher than for Canadian companies. “So you can almost ride their coattails by riding their supply chains,” he said.
Speaking from EDC’s new office in London, Wilhelm said those concerned about Brexit need not worry, at least in the short term. For Canadian companies that have invested in the U.K., it’s business as usual, he said. For those considering the U.K. but who haven’t made the move yet, it might be an idea to wait to see how Brexit shakes out.
“The reality is that it’s difficult to make investment decisions in a climate of uncertainty,” he said. “That being said, what we’re starting to hear, and we’re likely hear more of, is that there are U.K.-based companies that are, at this point, looking at other markets than the EU.”
Wilhelm said he thinks that’s an opportunity for Canadian companies to partner with these types of U.K. companies to help them grow internationally. “I think there will be some niche opportunities for Canadian companies to take advantage of during this time of uncertainty over the next two to three years,” he said.
With the British pound weaker, U.K. exports also become more competitive and they’ll see this as a window of opportunity to diversify their export base.
But, he added, for the next two years at least, the U.K. will be part of CETA and Canadians should operate on that premise.