What the Canada-EU free trade agreement might mean for the US

The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) has been the subject of broad discussion in Canada and Europe; however, the U.S. business community has paid scant attention. Like all free trade agreements, there are differences of opinion as to the impact it will have on trade, jobs and security. The real question from this side of the border is what opportunities CETA will create for American businesses.

{mosads}CETA has similar provisions to the North American Free Trade Agreement (NAFTA) when determining if goods can be qualified as CETA goods. There is always confusion about the “made in America” concept, and the same is true under CETA, as the U.S. and Canada use different standards. Under CETA, the standard is that “the products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all law, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.” NAFTA goods, if not solely produced (grown, mined, manufactured) in a NAFTA country, must have been substantially transformed inside a NAFTA country.

The important takeaway is that CETA will open the door to preferential access to Canadian CETA goods in Europe. This applies to those who produce primary goods (e.g., natural resources such as minerals, crops, timber and seafood), as well as value-added processed and manufacturing goods. Tariffs will be virtually eliminated on Canadian primary goods.

We can safely assume that the Transatlantic Trade and Investment Partnership (TTIP) — which will have significant opposition from either a Hillary Clinton (D) or Donald Trump administration (R) and also likely from Congress, irrespective of its partisan makeup, given members’ collective positions on TPP — will not be adopted, unless we see a dramatic flip-flop once in office. Even if TTIP was to be adopted, we would likely have different sets of rules being applied in Canada or in the United States regarding what qualifies as a U.S. or Canadian product under the applicable agreement. Depending upon your industry, it may be more appropriate to take advantage of TTIP or CETA for the sale of your products into the EU.

Essentially, I am suggesting that, at least in the short-term, American companies evaluate the opportunity to produce goods in Canada and export under CETA. This provides an excellent strategic opportunity to expand exports by acquiring a Canadian business (with the weakness of the Canadian currency, this is a very inviting opportunity in any event) or creating a subsidiary in Canada — again, taking advantage of currency exchange to effectively lessen the cost of that investment. The Canadian economy benefits, of course, because those American businesses will create jobs in Canada, employ Canadian citizens and likely use Canadian resources, which will strengthen Canada’s place in the international trade market. A purchaser in the EU will not be concerned with whether or not the seller is a U.S.-owned or controlled enterprise, but will strictly focus upon the fact that the seller is a member of CETA, and therefore entitled to the preferences provided by that agreement.

On a related note, the decline of the Canadian dollar has opened the door to opportunity for our Canadian friends as well. We see many Canadian businesses aggressively pursuing exporting into the United States. This has been ongoing for several hundred years, but today it takes on a somewhat different magnitude, as many small businesses can now see a significant increase in revenue due solely to the weakness of the Canadian dollar. It would also allow them to undercut U.S. suppliers of similar products. Here’s how: If I sell my product in Canada for $1 and I sell that same product in the United States for $1, then when I repatriate my revenue, I am depositing approximately $1.30 in my accounts from the U.S. sale — a nearly 30 percent increase in profit. Similarly, if my U.S. competitor is selling a product for $1, I can reduce my price on that product by 10 percent and still walk away with a significantly increased yield in Canadian dollars.

You might ask why someone in the U.S. would propose an idea that could have a negative impact on U.S. businesses. There is no doubt that there could be a negative impact on some businesses; however, as we all know, in every economic situation there are winners and losers. In this instance, if a Canadian company, for technical reasons related to U.S. Customs Services regulations, creates a corporation in the United States and engages a customs house broker to process its exports to the U.S., engages a warehouseman to ship the goods and the warehouseman engages a trucker, and the corporation also engages a lawyer to create the corporation and an accountant to prepare tax returns, and a bank receives deposits and potentially provides loans, then a significant U.S. economic benefit has been created, including increased employment. The Canadian business has expanded its sales, which likely means increased employment in Canada as well as purchase of goods from other vendors in Canada. This is a common theme in all exporting transactions; nonetheless, there is a unique opportunity created by the current set of circumstances. Obviously, what we hope occurs in the U.S. is that the Canadian exporter has sufficient growth in his or her business to warrant, as the Canadian dollar strengthens, the creation of an assembly or manufacturing plant as an outgrowth of their ability to compete in this marketplace.

Owens is a former member of Congress representing New York’s 21st Congressional District and is a partner in the firm of Stafford, Owens, Piller, Murnane, Kelleher & Trombley, PLLC in Plattsburgh, N.Y.