Benefits of CIFTA for SMEs

In Canada, SMEs, representing over 99% of businesses and almost 90% of all private-sector jobs, form the backbone of the Canadian economy. As of December 2020, 99.8% of Canadian businesses were SMEs, who accounted for 43% of the total value of Canadian exported goods.  Free Trade Agreements (FTAs), such as the modernized Canada-Israel Free Trade Agreement (CIFTA), can help SMEs expand their businesses and take advantage of new opportunities in markets abroad.

The modernized CIFTA benefits Canadian and Israeli SMEs. It enhances their ability to participate in and benefit from the opportunities created by the Agreement and international trade by:

• creating advantageous conditions for SMEs by providing new and improved market access for virtually 100% of Canadian exports of agricultural, agri-food and fish and seafood products;
• making trade more predictable, transparent and accessible by offering a single set of high-standard rules for trade with Israel;
• addressing key challenges and barriers to doing business in the global marketplace, such as technical barriers to trade, that disproportionately affect SMEs;
• lowering the costs of participating in international trade including by committing Canada and Israel to refrain from introducing tariff and other barriers to electronic commerce; and
• recognizing the presence of global value chains and the integrated nature of North American production and streamlining the provisions for obtaining preferential tariff treatment.

Canada’s commitment to its partners

The CIFTA Chapter on SMEs is designed to complement commitments throughout the Agreement, notably by fostering cooperation amongst the Parties - Canada and Israel - to increase trade and investment opportunities for SMEs, and ensuring information is available to SMEs on the obligations and functioning of the Agreement including by:

• promoting increased trade and investment opportunities for SMEs, through the exchange of information and best practices, organizing seminars, workshops and other activities, and development of programs to assist SMEs to participate and integrate effectively into global supply chains;
• containing requirements to make information available that is specifically tailored for SMEs’ use, such as information on SME financing programs, and information on obligations in the Agreement that are particularly relevant to SMEs - an issue previously identified by SMEs as a challenge to leveraging the opportunities created by FTAs; and
• establishing a Committee on SMEs to discuss issues of the Agreement that are relevant to SMEs.

Why does this matter?

Allowing access to the Canadian market for imports, and by association SMEs from Israel and around the globe, is important in our increasingly interconnected world. The most well known benefit is to consumers who gain access to a wider variety of products that are not or cannot be produced in Canada (for example citrus fruit such as clementine or mandarins and electrical machinery and equipment such as radar, radio navigational aid and radio remote control apparatuses) and/or are produced at a lower cost. No country is able to rely completely on products from its domestic market to meet its needs but there are additional benefits to importing for businesses.

Imports are essential for exports, especially in complex value chains such as transport and electronics. With the growth of global value chains (GVCs), economies are more interconnected, and they are increasingly specialised in specific activities and stages of value chains rather than in industries. Trade in GVCs involves extensive flows of intermediate goods and services (primary goods, parts and components, and semi-finished products). According to the Organisation for Economic Co-operation and Development (OECD), more than half of the world’s manufacturing imports are intermediate goods, and more than 70% of the world's services imports are intermediate services, such as business services. Exports increasingly include value added products imported from abroad.

These developments have enabled companies to utilize relative costs to build an efficient value chain across firms and locations. Sourcing inputs from low-cost or more efficient producers can mean important cost advantages. Outsourcing production also enables firms to benefit from the lower costs gained by higher levels of production that specialised suppliers can provide. To improve productivity and remain competitive in a world dominated by GVCs, firms require efficient access to imports of intermediate goods and to services.

SMEs play an important role in GVCs and contribute indirectly to the exports of larger firms. SMEs that use more imported goods and services tend to be more productive, and better able to face the costs of exporting. SMEs, including non-exporters, can increase their productivity by drawing on cheaper and more sophisticated imports; such as new technologies in new and cheaper capital products, including through linkages arising from foreign investment and working with multinational enterprises. This can also help to create specialized niches GVCs, where SMEs have comparative advantages and can in turn foster upgrading. This underscores the importance of importing for small firms and strengthening their engagement in GVCs.

Inclusive trade

As part of its Trade Diversification Strategy, Canada is advancing an inclusive approach to trade that seeks to ensure that all segments of society can take advantage of the opportunities that flow from trade and investment. In recognition of the important role played by SMEs in Canada’s economy and in trade, Canada’s 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:

1. advancing a stand-alone chapter on SMEs; and
2. mainstreaming SME issues by including SME-related provisions throughout various chapters of the agreements

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.