Canada’s government has been on a tear of late in negotiating bilateral and regional international trade and investment deals.
In the past two years alone, Canada has signed or concluded four free trade agreements (FTAs) and 14 foreign investment protection agreements (FIPAs), while multilateral negotiations at the World Trade Organization (WTO) have ground to a halt (save for a recent trade facilitation deal). Canada currently is negotiating or in exploratory discussions for another 16 FTAs and 10 FIPAs—among them, agreements with the European Union, China, India, South Korea and Japan, as well as negotiations for the massive Trans-Pacific Partnership.
These are new-generation trade deals. Rather than focusing on traditional goals—such as reducing customs duties and other trade-distorting practices at the border—they address more subtle trade barriers beyond the border, such as cumbersome technical regulations, insufficient protection of intellectual property rights, and unfair terms and conditions in government procurement. They also seek to reduce barriers to trade in the services sector (including the cross-border movement of people) and to protect foreign investment against discrimination, expropriation and unfair treatment.
It’s all part of what our federal government claims is the “most ambitious trade expansion plan in Canada’s history.” Whether or not these deals meet such lofty expectations remains to be seen—but Canadian firms should not ignore these developments. In fact, any business with export aspirations should factor these developments into its decision-making process and long-term strategy.
Here are three reasons why you should keep on top of the government’s trade-related wheelings and dealings:
1. Trade deals reduce barriers for SMEs
The negotiation of new FTAs or FIPAs, or the expansion of existing treaties, reduces trade barriers and creates new geographical and product market opportunities for exporters. Although the U.S. remains our most important target market by far and will always play a significant role in our export profile, new opportunities in other markets in the EU, China and other high-growth developing countries hold significant promise for Canadian firms seeking to diversify. In negotiating these deals, the Canadian government is following the old “if you build it, they will come” strategy.
2. Trade deals give you ammunition
These agreements provide effective tools to deal with everyday market access or competitive issues facing your company. These deals impose binding obligations on Canada and its trading partners. When government action impedes international market access, favours competitors at your expense or results in the expropriation or loss of your operations in a foreign jurisdiction, FTA or FIPA dispute-settlement mechanisms can provide a remedy.
Enforcement of FTA commitments usually is on a government-to-government basis. This means that in order to challenge a foreign measure that’s harming your company, you would approach the Department of Foreign Affairs, Trade and Development Canada (DFATD) to take up your cause. In the case of a problematic Canadian measure, you would approach the other FTA party government.
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However, FIPAs also provide an investor-state mechanism that allows you to directly sue a foreign government that violates its investment-protection obligations. This occurs before an independent arbitral tribunal whose judgments will be recognized and enforced through the domestic legislation of most countries. Although this mechanism does not require governments to remove the offending measure, they are required to pay monetary damages to successful claimants and are unlikely to continue to impose offending measures and thus incur further liability.
3. Trade deals aren’t always good news for everyone
Contrary to the tone of overly positive government press releases, these treaties are not always a bed of roses for all Canadian companies. These deals usually are reciprocal, which means that in order to get market access, Canada has to give up something. You need to be aware of—and plan for—the potential negative impact of these agreements on your business. A high Canadian tariff, for instance, or a favourable technical requirement that has protected your domestic market from foreign competition can be immediately removed as a result of Canada negotiating an FTA or complying with an unfavourable FIPA ruling.
Canadian importers also get caught in the crossfire in a trade dispute when Canada retaliates against a country that has failed to comply with the directions of an FTA or WTO panel. An ongoing example of this is Canada’s proposal to impose a 100% surtax on various products imported from the U.S. because of the U.S.’s refusal to remove its country-of-origin labelling requirements on meat products sold at retail, a measure that Canada had successfully challenged before the WTO. Companies with no involvement in that dispute or even in the agri-food sector could be hit with significant cost increases on their imported materials and components if Canada follows through on its proposal. That’s just one example of the unintended consequences of a trade deal; these things aren’t always shiny, happy news for everyone.
Education is your friend in export-related matters, and the good news is that there are many things you can do—even with limited resources—to monitor trade agreements more diligently:
- Get up to date on Canada’s existing FTAs and FIPAs and the state of current negotiations.
- Follow trade policy reviews conducted under these agreements—the WTO’s Trade Policy Review Mechanism, for instance, provides a regular overview of potential trade barriers among all WTO members.
- Make your views known. The Canadian government is open to hearing from companies that have an interest or view on an FTA or FIPA under negotiation, or on proposed retaliatory measures, either through formal consultations or otherwise. Click here to find out how to make your voice heard.
- Pursue FTA or FIPA enforcement. When facing harmful or discriminatory government measures, trade action under FTAs or FIPAs—or even just the threat of doing so—can lead to the withdrawal of the offending measure. Reporting the barrier to DFATD, alerting the relevant FTA partner or demonstrating a basis for a FIPA claim against the government can yield effective results.
As trade and investment deals continue to proliferate, Canadian companies should have mechanisms in place to ensure that these developments are reflected in their strategic decision-making process and their business-planning systems.
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John Boscariol is a partner and Leader of the International Trade and Investment Law Group at McCarthy TÃ©trault LLP and advises on enforcement and compliance matters related to cross-border trade and investment regulation, including international trade and investment agreements, anti-corruption, export and technology transfer controls, and economic sanctions measures. He is Chair of the American Bar Association Section of International Law’s Public Law Division and Co-Chair of the Canadian Association of Importers and Exporters’ Export Committee.