Small and medium-sized enterprises and free trade agreements: The Canadian approach
In recognition of the important role played by small and medium-sized enterprises (SMEs) in Canada’s economy and in trade, Canada’s free trade agreements (FTAs) include provisions to address the specific interests, needs and unique challenges that SMEs may face in doing business in foreign markets.
The Government of Canada is currently applying a two-pronged approach to integrating SMEs into FTAs by:
- advancing a stand-alone chapter on SMEs
- mainstreaming SME issues by including SME-related provisions throughout the agreements
Dedicated SME chapters
While Canada’s previous FTAs have acknowledged the importance of SMEs to the Canadian economy as key suppliers of products and services and as creators of jobs, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (entered into force December 30, 2018) was Canada’s first FTA to include a stand-alone chapter on SMEs. Canada has since concluded 2 additional FTAs that include dedicated SME chapters: the modernized Canada-Israel FTA (entered into force September 1, 2019) and the Canada-United States-Mexico Agreement (CUSMA) (entered into force July 1, 2020).
As well, at its first meeting in September 2018, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) Joint Committee adopted a recommendation on SMEs, which contains similar provisions to a SME chapter. Pursuing a dedicated SME chapter also represents a key priority in Canada’s ongoing FTA negotiations with the Pacific Alliance and Mercosur.
In general, FTAs benefit SMEs by providing preferential access to overseas markets. The inclusion of specific SME provisions in Canada’s agreements, including stand-alone SME chapters, serves to highlight the importance of SMEs to the Canadian economy, promote SMEs’ use of FTAs and acknowledge the unique challenges some SMEs may face in accessing the opportunities created by FTAs.
Objectives of SME chapters in Canada’s free trade agreements
Canada’s SME chapters in FTAs include 4 key objectives:
- Reaffirm the importance of incorporating a SME perspective into economic and trade issues
- Create a free, publicly accessible website containing information on the agreement that is useful to SMEs
- Provide a framework for parties to the agreement to undertake joint activities on issues related to SMEs and trade
Providing a platform for Canada and its FTA partners to engage in bilateral cooperation activities is central to Canada’s approach to its SME chapters. These activities are aimed at improving the capacity and conditions for SMEs to access and fully benefit from the opportunities created by trade and investment. These activities are designed to be as inclusive as possible and include provisions to involve public- and private-sector stakeholders, such as government agencies, businesses and other civil society organizations.
- Establish a dedicated SME committee and other institutional provisions.
The objective of the trade and SME committee, to be composed of officials from each party to the agreement, is to perform accountability, transparency, advisory, coordination and facilitation functions. The committee ensures transparency by reporting on its activities and outcomes achieved. The committee also performs an advisory function by reviewing the operation of the chapter and providing recommendations to the governments on opportunities to further advance SME-related objectives and outcomes throughout the FTA.
Mainstreaming SME provisions throughout a free trade agreement
A dedicated SME chapter is one of many tools used by Canada to promote awareness of and access to the benefits of trade to SMEs. Outside of a dedicated chapter, Canada believes there are other opportunities to advance SME-related provisions throughout a trade agreement by integrating provisions into other chapters. These can include the following:
- Government procurement: The chapter’s market access schedule includes provisions that provide Canada with the flexibility to implement programs that support SMEs, including women-owned businesses and Indigenous businesses, provided these programs are applied in a manner consistent with Canada’s trade obligations. As well, the procedural rules in this chapter support the principles of non-discrimination, transparency and fairness, which facilitate the participation of all suppliers, including SMEs, and support equal access to procurement opportunities in Canada and in foreign procurement markets (e.g. making all tender documentation publicly available and free of charge).
- Origin procedures: There are 2 provisions in several of Canada’s FTAs that simplify processes for SMEs thus saving time and money:
- a provision that allows for the origin declaration used to claim preferential tariff treatment to be a simple statement placed on an invoice
- a provision to allow for the electronic completion and transmission of the origin declaration by the exporter to the importer
- Rules of origin and origin procedures for textiles and apparel: This provision provides a special, facilitative pathway to origin for Indigenous textile and apparel goods to be eligible for duty-free treatment or preferential tariff treatment, which would assist Indigenous SMEs in the textile industry through reduced tariffs.
- Trade facilitation: These provisions recognize that SMEs encounter severe time and money constraints, and thus trade should be made smoother for SMEs so that they can export and import goods more quickly and avoid bureaucratic tie-ups and red tape at the border. Some provisions in FTAs that are especially important for SMEs include:
- publishing online a customs-specific general enquiries line and regularly consulting the trade community on customs procedures
- releasing goods from customs control within a specified time frame so that SMEs get paid sooner
- ensuring that SMEs are afforded rights to a fair, impartial and timely recourse when they disagree with a customs determination
- protecting confidential information from use or disclosure that could prejudice the competitive position of SMEs
- ensuring that customs officers exercise professionalism and integrity when engaging SMEs
- Intellectual property (IP): Canada’s recent FTAs contain comprehensive IP chapters that establish transparent and predictable frameworks for businesses operating in foreign markets, which are particularly important for SMEs. Both the CPTPP and CUSMA also contain provisions on IP-related cooperation, including IP issues relevant to SMEs.
- Investment: These provisions simplify access to Investor-State Dispute Settlement for SMEs to help them benefit from the protections under the chapter, including by reducing the financial burden involved in launching a claim.
- E-commerce and digital trade: These include general provisions, dialogue and cooperation activities encourage parties to use e-commerce as an economic development tool, including facilitating the use of e-commerce by SMEs.
- Good regulatory practices: In the CUSMA, parties agreed to consider the effects of regulation on SMEs, which are especially sensitive to the time and cost burdens created by regulation and red tape related to trade. Parties also committed to assess whether a proposed regulation would have a significant adverse economic effect on SMEs
Canada continues to look at provisions throughout each FTA to determine how they can take into consideration SME issues.
Canada’s current FTAs: Key resources for SMEs
Comprehensive Economic and Trade Agreement
- CETA Joint Committee recommendation on SMEs
- CETA and SMEs: Benefits and other relevant information for SMEs
- Report: 1st Canada-European Union Comprehensive Economic and Trade Agreement (CETA) meeting on SMEs by Teleconference, Ottawa and Brussels, July 5th, 2019
- 2020-2021 Work Plan for CETA SME contact points
- Joint Activity Report to the CETA Joint Committee: “Working together to advance trade and SMEs”
Comprehensive and Progressive Agreement for Trans-Pacific Partnership
Canada-Israel Free Trade Agreement
Canada-United States-Mexico Agreement
World Trade Organization
- WTO: Buenos Aires Declaration on the Establishment of a WTO Informal Work Programme for Micro, Small and Medium Enterprises
- WTO Agreement on Trade Facilitation
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