To qualify for preferential duties, exporters must meet ROO rules, but these are complex – and strict compliance is essential to avoid costly customs audits. In this article, we outline what companies need to understand about rules of origin – and highlight the key points exporters must manage to avoid failing an audit.

What rules of origin actually do

Rules of origin are fundamental to international trade because they gatekeep access to Free Trade Agreements (FTAs). ROOs determine the economic nationality of a product, i.e., where a good is truly considered “from” for tariff purposes.

Rules of origin are the laws, regulations and administrative guidelines that governments use to determine an imported product’s country of origin, not always an easy matter when the raw materials, manufacturing, processing or assembly of a product can be provided in several different countries.

For example, simply shipping a product from, say, Canada to the EU, does not automatically grant it preferential treatment under the Canada European Union Comprehensive Economic and Trade Agreement (CETA).

If the product uses inputs from outside the FTA zone, it must undergo substantial transformation in the exporting country to be deemed “originating” in that country.

Exporters must meet the strict, product-specific criteria laid out in each FTA, in order for the product to qualify as “originating” and become eligible for reduced or zero tariffs.

Two main types of rules of origin

Rules of origin are generally categorized into two distinct types, each serving a different purpose in international trade: preferential and non-preferential.

Preferential ROO

These are the rules that matter most to exporters seeking a competitive edge. Preferential ROO are applied exclusively within the framework of FTAs, such as USMCA (formerly NAFTA), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), or the Regional Comprehensive Economic Partnership (RCEP).

Meeting these rules is how a product qualifies as “originating” under the terms of the agreement, which in turn grants it preferential tariff treatment. In practice, it means that importers pay either a reduced or a zero-duty rate.

Non-Preferential ROO

Non-preferential ROO determine a product’s origin for general commercial purposes and are applied unilaterally by a country (or by multilateral organizations like the WTO) in cases where no FTA benefits are being claimed.

These rules do not usually grant any special tariff advantages, but countries still impose these rules for various administrative and trade remedy reasons, for example:

• Trade statistics: Accurate recording of import and export data.
• Country-of-origin labelling: Determining the “Made In…” label required on goods.
• Trade remedies: Applying specific measures like anti-dumping or countervailing duties against goods determined to originate from a specific country.
• Government procurement: Determining the eligibility of a product for public tenders.

While both rule types are legally required, for the specific goal of maximizing profit and offering cost savings to your buyers through lower import duties, preferential ROO are the primary focus for any company using an FTA.

How to figure out the rule for your product

Determining origin starts with classification. Every product in global trade is assigned a specific harmonized system (HS) code by the World Customs Organization (WCO).

The World Customs Organization says that,

“At the heart of international trade, the harmonized system is an essential tool for harmonizing and facilitating the movement of goods around the globe.”

The HS code is the anchor for all trade rules. Once you have the correct HS codes for your exported product, you can look it up in the relevant FTAs’ annex or schedule, which will detail the product-specific rule (PSR) you need to meet. These rules fall roughly into four categories:

Wholly Obtained (WO)

This is the most straightforward rule. Here, goods must be entirely sourced or produced within the territory of one FTA member country. None of the materials used to produce the goods can be non-originating. Wholly obtained goods automatically qualify as originating.

Clear examples include minerals extracted from the ground, live animals born and raised, or fish caught by vessels registered and flagged to that country.

Change in Tariff Classification (CTC)

CTC rules are the most common method for manufactured goods that use imported components. The core principle is that non-originating inputs must undergo sufficient production or processing within the exporting country.

In other words, the finished product is classified under a different HS code than the inputs. There is a minimum shift in classification required for this rule to apply. Depending on the rule, the required “shift” can be at a high level – implying a change in the applicable chapter of the HS code.

Some rules allow more granular changes in how to find HS code, for example, a change in subheading. It depends on the specifics of the free trade agreement.

Regional Value Content (RVC)

The RVC rule dictates that a certain minimum percentage of the final product’s value must originate from within the FTA region.

According to Export Development Canada,

“The imported components must undergo significant transformation during manufacturing to be considered as originating from the trade agreement countries.”

This rule is often used for products where a tariff shift alone is not considered a sufficient transformation. Think about really complex assemblies, such as a car or industrial machinery.

The FTA will specify the calculation method to be used, but the common ones are the transaction value method, which looks at the selling price of the product, and the net cost method, excluding costs such as marketing and royalties.

Specific Process Rules

For a limited set of international business contracts, origin is determined by requiring the completion of a specific, non-tariff-based manufacturing or chemical process.

This rule is often applied to industries like textiles, chemicals, and refined metals (steel), where the process itself is the measure of substantial transformation, regardless of the resulting HS code.

Key points exporters must manage

ROO compliance requires diligence across multiple parts of your supply chain and record-keeping system, including:

• HS code accuracy: Incorrect classification is the most common and costly mistake, as using the wrong HS code immediately leads to an inaccurate ROO determination. This can result in your buyer being denied the preferential tariff.
• Understanding the applicable rule: Different FTAs have different rules, so a product that qualifies as originating under CETA may not qualify under USMCA due to varying RVC thresholds or CTC requirements.
• Tracking inputs: For any product not wholly obtained, you must trace the origin and processing of your components. That includes where inputs are from, the relative value of each input, and its transformation status.
• Maintaining documentation: Exporters are required to keep records to back up every origin declaration, including bill of materials and supplier declarations. Cost breakdowns and production records are also critical.
• Issuing the certificate of origin: The required format depends on the FTA and can vary from self-certification (USMCA, CPTPP, and CETA) to government-authorized certificates, particularly in the case of older regional agreements.
• Importer responsibilities: The importer is the party legally responsible for claiming the preferential tariff rate and ultimately liable for any inaccuracies. Importers must retain the origin documentation provided by the exporter.

Note that under certain FTAs (like RCEP), the importer is permitted to issue the origin declaration themselves, placing the compliance burden directly on them.

Common pitfalls

Navigating rules of origin is complex, with even experienced exporters making mistakes. Common pitfalls include:

• Assuming “Made In X” means “Originating in X”: The country where a product is made is not the same as its origin according to trade rules. Something can be made in one country, but fail to qualify as originating in that country according to an FTA.
• Trusting supplier classifications: Exporters often assume the materials provided by their suppliers meet the origin criteria – but should instead verify via a formal supplier declaration or certification.
• Ignoring the De Minimis rule: The de minimis rule is a tolerance that allows a small percentage of non-originating inputs to be used without affecting the origin status, provided the product otherwise meets its ROO.
• Origin when suppliers change: A change in your supply chain, even switching suppliers within the same country, can alter the origin status of your materials.

It’s also worth noting that when a regional value content rule applies, errors in calculation, including the wrong valuation method or non-allowable costs, can invalidate the entire origin claim.

ROO knowledge is core to the correct trade declaration

Ultimately, understanding and mastering the rules of origin is just non-negotiable. Strict compliance ensures your product is correctly documented, which protects your company during customs audits.

Achieving assured originating status directly translates to financial benefits by allowing your product to access lower tariffs (often zero duties) under FTAs, which immediately helps with competitive pricing in new markets.

It’s a win-win, but the rules are complex. Close adherence is an absolute must.

The post Rules of Origin: What You Need to Know appeared first on Trade Ready.

What 2019 global trade trends should you be looking out for? Here’s a preview of what could be dominating the headlines and your work conversations throughout the next 12 months.

1. Will the new USMCA be ratified?

After over two years of anti-NAFTA rhetoric from President Trump and many rounds of negotiations, a replacement deal to govern North American trade, the US-Mexico-Canada Agreement (USMCA) was finally signed by the leaders of Canada, the U.S. and Mexico on November 30, 2018.

Before coming into effect, however, the deal must be ratified by the legislatures of all three countries. This step could be particularly challenging in the U.S., where a newly elected Democratic Congress may object to some aspects of the deal or simply be unwilling to give Trump a victory on the issue.

While the general sentiment is hopeful for a full ratification in 2019, a significant roadblock in any of the three countries could leave the issue open-ended for at least several more months.

2. Brexit is coming

With a March 29, 2019 date set for the UK to officially leave the EU, Theresa May’s government has little time left to gain domestic support for the Brexit deal she has negotiated. While a December vote was postponed due to a lack of support, May has survived a non-confidence vote and re-scheduled the Brexit vote for the week of January 14.

If a deal is not reached by the March 29 deadline, the UK will face a “hard Brexit” with no guidelines determining significant UK-EU issues like the Irish border, migration, travel, and trade. Despite UK government plans for this contingency, a no-deal Brexit could send the British economy spiralling downward with negative implications for the global economy as well.

3. Is your data safe?

As major corporate data breaches become increasingly common headlines, and the value of data seemingly increasing every day, companies face a conundrum: how can they gather the data they need, but also keep it safe?

Adding extra levels of online security and authentication for customers, as well as changing internal processes to improve passwords, store data more securely and eliminate potential security gaps may all need to be added to your 2019 to-dos to ensure a high level of trust between you and your customers, suppliers and partners.

4. Addressing gender inequality to improve economic opportunities

Despite a growing awareness and focus on the importance of women’s entrepreneurship, studies show that many challenges remain. According to a policy research paper published by the World Bank, the “gender gap in business ownership remains high in many economies around the world”, and “the gap in female entrepreneurship is especially apparent in low-income economies, where women are much less likely than men to start a new business.”

New research from PayPal Canada and Barraza and Associates also indicates that in Canada, “on average, women-owned businesses earn $68,000 less than men who run similar businesses.”

As issues like access to venture capital and corporate procurement opportunities continue to face women-run businesses, one area of success is in e-commerce businesses. 50% of new e-commerce businesses started in the last two years in Canada are run by women, compared to just 34% 10 years ago.

5. AI tools becoming increasingly commonplace

AI has several applications in international trade, from analyzing metrics and economic trends or optimizing warehouse and inventory management to linguistic translation and online sales or chat services, not to mention exporting AI tools themselves.

As technology is refined and these tools are more widely understood, questions regarding data security and IP protection are starting to come to the forefront. But for businesses willing to take the leap, AI has the potential to transform some of their business practices and give them a competitive advantage in their industry.

6. The CPTPP comes into effect – how could it affect you?

As of December 30, 2018, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) comes into effect. This trade deal replaced the TPP after President Trump withdrew the U.S. from that agreement in January 2017 but still includes the other eleven countries from that deal: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The agreement removes the vast majority of tariffs and other trade barriers, and enforces new standards for human rights and environmental and labour practices.

Will there be a noticeable increase in trade between businesses in these countries? And with opportunity for new countries to join the deal at a later date, could early successes entice any other countries to take steps towards entering the agreement?

7. The fading appeal of Bitcoin and other cryptocurrencies

A year ago, the potential for Bitcoin or other cryptocurrencies to serve as a transformative tool in global finance seemed high. Bitcoin’s value had never been higher, and increasing numbers of banks and other financial institutions were taking steps into the cryptocurrency arena.

What a difference a year can make.

After a December 2017 high of $20,000, Bitcoin is currently valued around $3,500. Other major cryptocurrencies are also valued at 85-90% below their all-time highs. Public excitement has turned to skepticism in some corners, or concerns about fraud and scams in others.

Even if values increase in 2019, significant changes will be needed to restore trust and support in cryptocurrencies before its wider acceptance in international trade can be re-considered.

8. Accelerated growth of service export industry should continue

Service exports can cover a multitude of areas: international customer service, financial, legal or consulting services, research and development, online services and platforms, and more.

In Euler Hermes’ 2019 forecast, they predict service exports to be the fastest-growing trade economic sector, with an estimated global growth of $365 billion USD, similar to 2018 growth levels.

As service export opportunities continue to grow in the world’s largest economies and emerging economies alike, businesses should look for ways to expand their service offerings through methods like servitization, or service exports directly connected to your existing product exports.

9. Personalizing is key to reach new customers or businesses

With the increasing numbers of ads, emails and content out there competing for attention, more businesses are trying to apply the personal touch in an effort to stand out.

From using increasing amounts of data to target specific ads to personalizing email offers and even web pages around user behaviour and interests, there are more ways than ever to make someone feel like your efforts were created just for them.

On the other side, businesses are increasingly turning back to old practices that had fallen by the wayside. Personal calls, direct mail and printed media like magazines or booklets are returning to the marketing playbook, as what was once cliché is now a novel or unique approach again.

10. Small businesses need employees ready to help grow and expand to new markets

According to a Business Development Bank of Canada (BDC) survey, about 40% of small businesses are unable to find the right employees to grow. EDC also noted fewer Canadian businesses are newly exporting or planning to export to new markets in the near future.

To overcome these challenges, small businesses require employees able to research international markets, assess potential risks, create and implement market entry strategies and manage the international logistics, finance, marketing and sales, and other areas.

Looking for practical, flexible training to take your business into new international markets with confidence? Check the full list of EDC-FITT online courses and workshops to see which options work best for you.

We face an eventful year ahead, full of innovation, political risks, and important new opportunities for business growth.

What trends will you be most interested in throughout 2019?

The post 10 global trade trends we’ll be watching in 2019 appeared first on Trade Ready.

Despite NAFTA’s pivotal role in facilitating over $1 trillion of trade each year between Canada, the United States and Mexico, Trump’s administration has on several occasions called for the end of NAFTA or to have significant portions of it re-negotiated to favour American interests.

Re-negotiations began in early 2017, and since then progress has since been made in some areas. Those involved in discussions remain hopeful, but Trump’s attitude towards the agreement remains a wild card and its continued future is by no means guaranteed.

So what would happen if the United States decided to terminate NAFTA, and how can you prepare to handle the resulting scenarios?

How will tariffs be affected?

The consensus among experts is that if NAFTA is terminated, trade would then be governed by the World Trade Organization (WTO) Most Favoured Nation status tariff rules. They stipulate that if a country implements a lower customs duty rate for a product for one country, it must then do so for all WTO members.

Stephen Walkom of the Toronto Star concluded that under these rules, 41% of Canadian exports to the U.S. would remain tariff-free, with most others receiving only small tariffs. The Financial Post surmised that tariffs under these rules would average 3.5% in the U.S., 4.2% in Canada and 7.1% in Mexico, while RBC Economics Research estimates 4% tariffs would be the average for Canadian exports.

Speculation continues regarding whether the previous Canada-U.S. Free Trade Agreement signed in the late 1980s would come back into effect. Many have concluded it would have to be re-implemented before going into force. In that case, the agreement would likely be re-negotiated as well, facing many of the same hurdles NAFTA currently faces. Trump has expressed a preference for bilateral trade agreements to their multilateral counterparts and focused most of his attention on U.S.-Mexico trade complaints. However, a seamless transition from NAFTA to a bilateral Canada-U.S. agreement remains unlikely at best.

Trade between Canada and Mexico comprises only about $40 billion of the over $1 trillion of trade done between the NATFA countries each year, but also faces the most straightforward solution. Even without NAFTA, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) would eliminate almost all tariffs between Canada and Mexico, both signatories to the agreement. This would then produce an almost identical tariff environment to that which they currently enjoy under NAFTA.

How would Canada and Mexico react?

Canadian officials, including Prime Minister Justin Trudeau, have remained optimistic in their outlook on NAFTA in comments to the media, stating that moving forward with NAFTA in place is their expected result. While they have mentioned that several contingency plans are in place, no specific details have been offered.

Pivots to Europe, the Pacific region covered by the CPTPP and the Chinese market would be expected as part of any contingency plans, should NAFTA fall apart. With the vast majority of Canadian exports still heading to the U.S., however, efforts to help Canadian businesses navigate any new tariffs and negotiate any new trade agreement to replace it would also be a high priority.

Mexico has been more transparent in its planning efforts, in part because of contention over NAFTA’s future in the lead-up to their July 2018 presidential election. Their likely Plan B would be to diversify trade with as many new trade deals as possible. Mexican officials have recently discussed free trade with Brazil, Argentina and the European Free Trade Association (EFTA), consisting of Switzerland, Norway, Iceland and Liechtenstein. Their exports to Brazil, Canada, Japan and the EU all grew in 2017 as well.

Some Mexican politicians have also pushed a Plan C to eliminate as many tariffs as possible and become a “Latin Singapore” to encourage more trade with other countries.

Develop your Plan B to thrive in a post-NAFTA environment

According to a recent survey of Canadian businesses, 75% feel the outcome of NAFTA will affect their decision making processes, but 66% have no contingency plan for if it ends.

With this in mind, what steps do you need to take to protect your business from tariffs that could wreck your bottom line, re-orient your supply chain or adjust your sales strategy to better fit the rules without NAFTA in place?

The first step you need to take is to evaluate the full role of NAFTA on your day-to-day operations and finances.

What NAFTA clauses do you use when transporting goods across borders? Do you or your employees/colleagues travel for work across NAFTA borders to offer services or complete sales? How could your customers, clients, suppliers and other businesses you work with be affected? These questions will help you start to understand the full effect on your business, so you can start developing contingency plans.

Once you understand the full scope of its effects, you’ll need to determine what additional costs or other hurdles your company would face in each scenario:  the continuation of NAFTA, trade under the CPTPP or a bilateral Canada-U.S. free trade agreement, trade under the WTO most favoured nation status, or any additional tariffs or regulations that may be implemented. While some businesses may be able to do this themselves, getting help from a customs broker or agent may be a good idea for other businesses to ensure details are factored in and each HS code is classified properly.

Next, you should talk to your suppliers, clients and customers about the potential effects of NAFTA termination on your relationship. If rules of origin changes take place, you may need to change the way your goods are sourced or where they are created to avoid substantial financial penalties.

Finally, you need to develop several plans for each potential scenario, detailing exactly how your business will be affected, what steps you will take to address those changes and how your operational efficiency, supply chains, and finances will respond as a result.

For some businesses, this may be as small as acknowledging a few extra tariffs that will need to be paid, and making minor adjustments to accommodate that in the bottom line. For others, moving business to other countries, making structural changes to their supply chain, or altering partner relationships may be required to maintain a profitable long-term business future.

Whatever the end result, now is the time to start preparing your NAFTA Plan B

Whether trade between Canada, the U.S. and Mexico continues under NAFTA, WTO rules, new trade agreements or something else, the three markets will still be integral for businesses in each country and billions of dollars of trade will cross the borders between them each year.

With so many potential outcomes to the current NAFTA situation, it’s important for the businesses buying and selling across those borders to be prepared for any scenario. While it may seem daunting, taking the proper steps to address each potential issue will save you a lot of time and stress later on.

Once you fully analyze NAFTA’s effects on your business, understand the potential new costs and legal changes that would come into place if the deal is terminated, talk to the businesses you work with and develop new plans, your business will be ready for even the worst case scenario.

The post It’s time to develop your Plan B in case NAFTA is terminated – here’s how appeared first on Trade Ready.

Naturally, at the end of 2017, we began to look at what was in store for the year ahead. 

We published our run-down of the top 10 global trade trends we would be following in 2018, and how supply chain management would change over the next several months.

But, as always, we wanted to hear from the experts on what trends, technology, opportunities and challenges they had their eyes on. In this month’s #TradeElite Twitter chat, we gave our knowledgeable panel the chance to provide some of their best tools and tips for SMEs going into what is sure to be another big year for international business.

Follow the conversation below!

Moderator:

Audrey Ross (@TresAudrey), Logistics and Customs Specialist with Orchard International Inc. based out of Mississauga, ON.

Panelists:

Craig Atkinson, CITP (@CraigAAtkinson) – Consultant,
ITC and a visiting fellow with the World Trade Institute based out of Halifax, NS and Geneva, Switzerland.

Marie-France Paquet (@PaquetMF) – Chief Economist, Global Affairs Canada (GAC) based out of Ottawa, ON

Cathy Morrow Roberson (@cmroberson06) – Founder/Head  Analyst of Logistics Trends and Insights based out of Atlanta, GA

What are your goals for 2018? (Refocus on core customers? Improve Supply Chain? Become more sustainable? Tackle compliance threats?

A1: My main goal in 2018 is to contribute to improving the environment for small businesses (#MSMEs) to engage in #crossborder #ecommerce! Working on #accesstoinformation and #opendata for #trade are the first steps: https://t.co/Bfa4YkcLQg #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

A1: My 2018 goal is to share and update folks on the changing trends in international trade & logistics with a focus on e-commerce, cross-border and emerging markets. #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

A1 My theme for 2018 is #collaboration, I believe that collaboration is the future of business! I will also be focusing on disrupting #supplychain #TradeElite

— Sarah Barnes (@sarahcaroline88) January 11, 2018

A1. We are working hard on showcasing our innovation by submitting products to awards and competitions. #TradeElite

— audrey ross (@tresAudrey) January 11, 2018

A1: Another goal is continuously learn about how #digital #technologies will transform #trade! #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

Geographically, where do you see the biggest opportunities for North American companies in 2018?

A2 : I think Asia-Pacific still presents fantastic opportunities for North American companies. In particular SE Asia. Growing middle class, demand for imports etc. #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

A2: The global outlook is brighter than it has been for some time. Growth is expected to be positive in every major economy in 2018; although, some may see faster growth than others. #TradeElite 1/4

— Marie-France Paquet (@PaquetMF) January 11, 2018

A2: The U.S. will remain among top performers among advanced economies (2.6% growth forecast in 2018). Europe’s growth will be more moderate, led by Germany and Spain (2.6% and 2.2% respectively in 2018). #TradeElite 2/4

— Marie-France Paquet (@PaquetMF) January 11, 2018

A2: France will face an interesting year with president Macron’s ability to push through reforms shaping the outlook for both the year and beyond. #TradeElite 3/4

— Marie-France Paquet (@PaquetMF) January 11, 2018

A2: China is slowing, but still growing at a rapid pace and its given size, adding more to market size than ever before (6.5% growth forecast in 2018). India is expected to be the fastest growing major economy in 2018 (7.4% growth forecast in 2018). #TradeElite 4/4

— Marie-France Paquet (@PaquetMF) January 11, 2018

A2: I think the #EU market will be one to watch in 2018. Tools like the EU @TradeHelpdesk are going to improve #market access. #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

Q2 right here in Canada with the legalization of cannibis! Export market will grow! I am releasing a podcast episode @2BabesTalkSC about this in 2 weeks! #TradeElite

— Sarah Barnes (@sarahcaroline88) January 11, 2018

A2: The #EU and #CETA may be even more important now with the current #NAFTA disruption. #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

It’s definitely reassuring to have the Gov’t of Canada be optimistic. I think it breeds positive thinking and risk-taking on the part of Canadian SME’s. Bye Bye doom & gloom! Hello Global Business wins! #TradeElite https://t.co/iTUOPNxkm4

— audrey ross (@tresAudrey) January 11, 2018

As a follow up, by industry, where are the biggest opportunities for businesses around the world in 2018?

A3: Although not necessarily an industry but supply chain/logistics is very important to international trade – securing air or ocean freight at decent rates, securing capacity and moving goods cross-border as efficiently and quickly as possible. #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

A3 Supply chain will be disrupted in a lot of ways, keep an eye on #blockchain and #crypto currency, #VR is ramping things up and can’t forget about Cannibis becoming a big market #TradeElite

— Sarah Barnes (@sarahcaroline88) January 11, 2018

A3: #Tech (ICT) is going to be an important sector this year. The emergence of #DLT and #blockchain technology are likely to grow the sector and those that benefit from implementation. #TradeElite #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

A3. I think services are still growing. People are either busy, or want more time to enjoy themselves & concierge or assistant services are going to be in demand. #TradeElite

— audrey ross (@tresAudrey) January 11, 2018

#TradeElite Chat @FITTNews
Q3: Opportunities:
~#SubSaharanAfrica: The oil exploration activity attracts players in drilling, refining, transport, finance.
~Energy industry is viable to solar solutions for lighting and heating.
cc: @craigaatkinson , @PaquetMF @GlobalChamber

— Nirere Sadrach (@SadrachNirere) January 11, 2018

What new technologies do you think will have the biggest impact on global trade? (hyperloop, blockchain, AI, etc?)

A4: I would have to say #blockchain because of the importance of trust for individuals and institutions alike. @IBMBlockchain has been doing interesting things in #trade: https://t.co/VREt1EhLQD #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

A4: Anything that eliminates paper. We are finally moving toward a paperless society!!! Even in freight! Things are done with pictures, PDF’s and #Blockchain #TradeElite

— audrey ross (@tresAudrey) January 11, 2018

Be careful though, not all countries accept electronic documents or electronic signatures #TradeElite https://t.co/KYk8DATn6i

— Sarah Barnes (@sarahcaroline88) January 11, 2018

A4: Hyperloop & Self-Driving Trucks are coming. Transportation can be faster and safer and there is high demand for it. #TradeElite

— audrey ross (@tresAudrey) January 11, 2018

A4: In addition, I also believe #rules #automation will emerge in 2018 and I’m working with @xalgo4trade on an #opensource solution: https://t.co/Bq5sHt4KIK #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

#blockchain is a hot topic for sure, particularly in supply chain. UPS is tested in their customs brokerage group. #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

A4 online marketplaces are really exciting! Self driving cars and trucks are a little scare ? #TradeElite

— Sarah Barnes (@sarahcaroline88) January 11, 2018

2017 was filled with front-page incidents ranging from corruption, to forced / underpaid labour, to harassment, worker safety & the environment. Do you think companies will start taking steps to address these issues? Is “reputation risk” a threat?

Yes! #corporatecitizenship is becoming a bigger topic especially around cyber security as well! #TradeElite

— Sarah Barnes (@sarahcaroline88) January 11, 2018

A5: I believe there is a role for larger businesses to verify the practices (e.g. via standards) of small suppliers, but also help smaller companies (#MSMEs) to achieve compliance. #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

A5: When sourcing from countries, such as what is done in the apparel industry, companies need to identify and ensure ethical supply chain partners. Follow-ups, strong transparent, real-time supply chain is necessary #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

What are steps SME’s can take to illuminate their supply chains and ensure their agents & partners are being transparent and following good business practices?

Q6: Research & regular communications. Also, know who all your suppliers are, not just the Tier 1 suppliers. This is where I believe a digital supply chain plays an important role – allowing for real-time data/info and collaborative efforts for all. #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

A6: Work with #suppliers and #buyers that have achieved and maintain product or process #standards! Use tools like @ITC_sustainable map to see which standards are relevant: https://t.co/FtW9j91YEJ #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

A6: I would say set some ground rules/criteria on how you choose your partners from the offset and do regular check ins or private investigations to ensure their integrity is in check #TradeElite. #Leadbyexample

— Clarecia Christe?? (@ClareciaChriste) January 11, 2018

#TradeElite Chat @FITTNews
A6: There clear business generation guidelines by @ITCnews for both virtual and traditional. There has to be sustainability indicators put in place to determine right suppliers.
cc: @ITCnews @craigaatkinson @cmroberson06 @PaquetMF @GlobalChamber

— Nirere Sadrach (@SadrachNirere) January 11, 2018

In an increasingly cluttered and complex global market, what makes businesses stand out? What helps them to grow quickly?

A7. I still think it’s all about the customer service. Not just saying you have it, but empowering your team to take action to ensure a customer is treated exceptionally. #TradeElite

— audrey ross (@tresAudrey) January 11, 2018

Q7: Personally I think sticking to the basics and doing them well such as customer service is important. #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

A7 content, marketing of their brands, omnichannel strategy, engagement on social media. There are a lot you can do to stand out, even marketing to niche markets #TradeElite

— Sarah Barnes (@sarahcaroline88) January 11, 2018

A7: It comes down to how well a company can serve customers no matter where they are located. Apple and IKEA have done this on a large scale, but small companies can build similar loyalty. #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

What tools and resources are available for businesses who want to tackle the challenges of international trade in 2018? Where is the best place to start?

A8. Obvi, my favourite resource is @FITTNews (I’m a #FITTfan) With educational options, the TradeReady blog and serious connections w people in the biz, it’s a great place to start. #TradeElite

— audrey ross (@tresAudrey) January 11, 2018

Q8: I’m sure @FiTTNews would be a great place to start. #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

A8: Visit the website for the Office of the Chief Economist at: https://t.co/CYCUJP6rE5 and Statistics Canada’s “Canada and the World Statistics Hub”: https://t.co/KIuv8SeGA8 #TradeElite 1/2

— Marie-France Paquet (@PaquetMF) January 11, 2018

A8 use platforms like @eBay to test markets and export, I talk to managing director on episode 2 of @2BabesTalkSC #TradeElite

— Sarah Barnes (@sarahcaroline88) January 11, 2018

A8: The best #trade tool right now might be the joint @ITCnews / @UNCTAD / @WTO #HelpMeTrade helpdesk to ease access to trade information for business: https://t.co/F1JPs8N3Mf #TradeElite

— Craig A. Atkinson (@craigaatkinson) January 11, 2018

A8. In Canada we are lucky to have @ExportDevCanada, @TCS_SDC @bdc_ca at the federal level. We also have Provincial Board of Trades & Local Chambers of Commerce. #TradeElite

— audrey ross (@tresAudrey) January 11, 2018

A8: For US exporters, https://t.co/fCH3kYpW0U #tradeelite

— Cathy Roberson (@cmroberson06) January 11, 2018

Always feel free to reach out to #TradeElite on twitter. I’ve found so many resources simply by getting to know people and tweeting for help.

— audrey ross (@tresAudrey) January 11, 2018

Read the rest of the chat and follow future discussions by following the #TradeElite hashtag. Stay tuned for the next #TradeElite chat, coming up Thursday, February 15 at 2:30-3:30PM ET, and if you haven’t yet, join us on Twitter at @FITTNews.

Do you have any burning questions for the panel that weren’t addressed in the chat? What are your goals for 2018? Leave them in the comments below and let’s keep the conversation going!

The post Global trade outlook 2018: What are the biggest trends, technologies, opportunities and challenges? appeared first on Trade Ready.

What should you look out for or expect in the international business world in 2018? Let’s take a look and see what could be dominating the headlines you read over the next twelve months.

1. The CPTPP

Though President Trump withdrew the U.S. from the TPP in January, the remaining 11 countries are working to resurrect the deal as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This deal, if signed, would eliminate approximately 95% of tariffs on trade between these countries, who have a combined GDP of over $10 trillion USD.

In November, Canada surprised the other 10 countries by declining to sign the agreement, to the surprise of the negotiators and the Canadian international trade community. However, amid efforts to diversify exports beyond the American market, it seems unlikely that Canada will continue to drag its heels on an opportunity to gain preferential access to the Japanese market in particular. Expect any final issues to be resolved and the CPTPP to be signed sometime in 2018.

2. Ongoing, contentious Brexit talks

By December 2017, the UK has completed the first phase of Brexit negotiations with the EU, covering issues such as the Irish border, citizens’ rights and financial settlements. The second phase of negotiations will cover the UK’s transition period after formally leaving the EU in March 2019. Discussions over the long-term relationship between the UK and EU will be included in phase three.

This process was complicated on December 13, when several Conservative British MPs joined the opposition to vote for an amendment requiring British Parliament to debate and vote on any final deal with the EU before it can be approved.

The second phase of Brexit negotiations are planned for 2018, and are expected to present few greater challenges than the first phase. The final phase on the long-term relationship between the UK and EU, however, presents several important questions about economic integration and free trade that Britain’s politicians and citizens have not yet agreed upon.

With two sets of challenging negotiations, and the extra hurdle of parliamentary approval, the odds that talks will drag into the final three months before the UK leaves the EU on March 29, 2019 remain high.

3. Sustainable, cleantech exports

If you’re involved in the clean tech and sustainability sector, 2018 should be a strong year for you. Despite the U.S. withdrawal from the Paris Agreement, global regulations are still trending towards stricter environmental and emissions regulations, requiring businesses to invest in cleaner technology in order to meet those standards. According to EDC President and CEO Benoit Daignault, total global investment in cleantech has now exceeded $1 trillion and will reach $2.5 trillion by 2020.

Canada in particular is placing great emphasis on this industry. The Canadian government promised $1 billion towards clean tech in its 2017 budget for R&D. The Trade Commissioner Service is also hiring 15 new Trade Commissioners to focus specifically on cleantech.

4. India, Brazil, and New Zealand – the rising stars of global trade

If you’re looking for new markets over the next 12 months, Morgan Stanley recommends you take a hard look at India. They argue the country’s increased digitization, new tax laws and younger demographics present a bright future, and predict 7.5% GDP growth in 2018. Morgan Stanley also predicts that India will be the world’s fastest growing economy over the coming decade.

Brazil will also see a quick recession recovery, growing an expected by 3.1% in 2018, according to the Brazilian government.

If you’re more interested in fully developed markets, Forbes ranked New Zealand second on its 2018 Best Countries for Doing Business rankings, citing its 3.6% economic growth in 2017, among other factors. The country also ranked highly in several categories for ease of doing business, including first in IP rights, bureaucracy/red tape levels surrounding business, and Transparency International’s Corruption Perception Index.

5. Meaningful action to reduce oil dependency

As Venezuela continues to suffer through the collapse of its oil-dependent economy, and the U.S. plans to become a net exporter of oil within 10 years, several oil-dependent economies are taking steps to diversify their economies.

In Russia, Putin’s approval levels are dropping as the economy struggles through lower oil revenues. Despite making fiscal changes to reduce the national budget’s dependence on oil revenues, he may push for new measures to improve his chances in the country’s 2018 presidential elections.

Saudi Arabia has plans to sell about 5% of Saudi Aramco, the state-owned oil company, through an IPO in 2018 and expects to generate up to $100 billion for the country’s Vision 2030 program, designed to shift the Saudi economy away from oil dependency towards tech and entertainment services.

Nigeria and Angola, meanwhile, are looking to agriculture to reduce their oil dependency issues. Nigeria, dependent on oil for 70% of government revenues, has launched a new program to increase yam exports to Europe and the U.S., as the country produces 60% of the world’s yams. Angola are instead focused on a broader approach to tap into their agricultural potential, which includes producing more cereals, milk, chicken, cassava, and other products.

6. Banks taking on blockchain

It is practically impossible these days to tune into the business or financial news and not hear a story about the latest blockchain or cryptocurrency development. Blockchain technology, allowing multiple players to have access to a live, unalterable digital ledger, offers game-changing possibilities for international trade finance. In 2018 this buzzworthy fintech is moving beyond Silicon Valley start-ups, into the mainstream world of global financial institutions.

In March, 2017, we reported on how banks were working to bring the advantages of blockchain technology to their corporate clients. In May, the R3 Consortium, made up of of 70 of the world’s biggest financial institutions and created to research and develop blockchain adoption, announced it had secured its largest ever investment. Then in October 2017, seven major banks partnered with R3 and Finastra to develop a blockchain-based marketplace for syndicated loans. On December 6, Amazon joined the blockchain party, announcing a partnership with R3 to allow the Corda platform to be the first distributed ledger technology to operate on the Amazon Web Services Platform.

What will we see in 2018? Swiss global financial company UBS has led an initiative to create a “utility settlement coin” that would represent each major national currency. If this coin is launched, the Corda platform could be adapted to facilitate its use.

IBM is working on launching their own blockchain platform that would allow banks to rapidly clear global payment transactions. There are also several start-ups working on digitizing the bill of lading process.

2018 could be the year some of the blockchain-based payment initiatives move from development to adoption.

7. Adoption of futuristic supply chain technology

Machine learning, automation and robotics, self-driving vehicles, new tracking technology – all of these futuristic supply chain tools will see major developments and implementation in 2018.

The past year was a big one for self-driving vehicles, culminating with the reveal of Tesla’s new fully electric semi, gaining pre-orders from big players such as PepsiCo, UPS and Walmart. Companies invested over $1 billion into self-driving and other trucking technologies in 2017.

Speaking of investing in supply chain technology, over $4 billion was invested in AI by U.S. venture capitalists in the past year. One application that has seen immediate return for companies adopting machine learning capable AI is Multi-Echelon Inventory Optimization (MEIO), which has been shown to reduce inventories by 30% while maintaining or improving customer fill rates.

Robots will also continue to play more of a role in warehouses in 2018. While some are increasingly capable of working independently, replacing human workers on the floor, others are working alongside humans, or being controlled by humans using VR applications. There’s no doubt that the demand for the skills needed to work with robotics will continue to rise in the year ahead.

8. Planning for the possibility of a world without NAFTA

The sixth round of NAFTA talks is set to kick off in Montreal January 23. But as the negotiations near, there doesn’t seem to be a lot of positivity. The first five rounds reportedly saw very little progress, putting even more pressure on this next round.

What’s the problem? The U.S. is seemingly immovable on five issues that pose major problems for the agreement’s other two member countries, Canada and Mexico.

The five issues include:

• Removal of reciprocity in government procurement at the sub-national level
• Changes to the rules of origin in the auto sector
• Elimination of the independent dispute resolution clause
• End of Canadian supply management of the dairy, eggs and poultry industries
• Addition of a “sunset clause” on NAFTA itself

“NAFTA, by itself, will not collapse,” said Mexico’s Economy Minister ldefonso Guajardo in October, but even if Mr. Guajardo is right, it may change drastically from what we have in place today.

If this really does spell the end of NAFTA, the Canadian auto, pulp and paper, chemicals, mining, aerospace and oil and gas industries are likely to be most affected, according to BMO chief economist Douglas Porter.

Even without NAFTA, trade between the three nations is inevitable. Supply chains between Canada and Mexico criss-cross the U.S. How businesses adapt to the realities of a new – or non-existent – NAFTA, is something we’ll be watching closely in 2018.

9. Cyber threats and IP risks

As technology gets more sophisticated and ingrained in our work and personal lives, so too does the threat of cyber security breaches, which in turn compromises our intellectual property. Sixty-four percent of companies surveyed reported some experience of web-based attacks in the past year. Companies of all sizes are targeted and face the risk of cyber threats from simply being connected to the internet. And the costs are large – the average cost of a data breach in Canada is a jaw-dropping $6.03M.

So what types of threats are growing in 2018? Phishing, social engineering attacks, malicious code, botnets, denial of service attacks and ransomeware are all on the rise.

Ransomware in particular is growing in frequency, attacks rose an alarming 50% in 2016. Demonstrative of the damage a ransomeware attack can cause was the aftermath of the WannaCry attack in May 2017. Hundreds of thousands of individuals lost access to their data, compromising intellectual property, private customer information, and disrupting commercial processes.

As a business, it has never been more crucial to include cybersecurity programs directly in your strategy, and engage IT professionals to help cover all aspects of your web-based properties.

10. Demand for global trade skills higher than ever

Despite continuing turmoil and uncertainty on the global political stage, Canadian businesses still hold an optimistic outlook about their export opportunities. According to Export Development Canada’s Fall 2017 Survey, the majority of respondents believe that export sales will increase in 2018, citing new opportunities, growing demand, and expansion into new markets as stimulating factors.

As more businesses of all sizes get involved in international markets, the demand for talent skilled in global trade processes, is also growing.

“We hear from exporters all the time that knowledge is one of the most important tools for building international success,” said EDC Senior VP, Business Development Mairead Lavery.

In 2017, the FITTskills international trade training program underwent a major update, including the addition of 60% new content to reflect the changes we’ve seen in technology, ecommerce, trade agreements and more. In October, FITT also partnered with EDC to expand access to the available resources for businesses of all sizes looking to take advantage of international opportunities.

There’s no doubt that we all face an exciting year ahead, full of innovation, an ever-shifting global political environment, and risks, alongside ample new opportunities for business growth.

What trends will you be watching in 2018?

The post 10 global trade trends we’ll be watching in 2018 appeared first on Trade Ready.

Did you have a computer in your house 25 years ago?

Odds are, the answer to that question is no. In the years since, however, computers have become omnipresent, and our phones are rarely further than a couple of feet away from us. With so many devices connected to the internet, buying and selling goods and services online has transformed from a revolutionary new idea to an unremarkable daily occurrence.

The problem is that NAFTA, the largest regional multilateral free trade agreement, originally negotiated 25 years ago, hasn’t been updated to reflect these modern realities. So what should be done about that, and how will it affect the lives of international trade professionals and consumers?

Why is it so important to take NAFTA into the 21^st century?

On November 29, Canada 2020 hosted the NAFTA Goes Digital seminar to discuss these important questions and provide some answers.

The seminar was moderated by Heather Scoffield, Ottawa Bureau Chief for the Canadian Press.

The panelists were:

• Peter Clark, President of Grey, Clark, Shih and Associates and experienced Canadian trade advisor and commentator
• Laura Dawson, Director of the Wilson Center’s Canada Institute in Washington, DC
• Ari Giovenco, Director of Trade and International Policy for the Internet Association in Washington, DC

One of the earliest questions addressed why this digital chapter will be important for so many businesses.

“There’s been a prevailing idea that we can put a bubble around a national economy for goods, to control what goes in or out, and provide incentives or affect prices in other ways,” Dawson argued. “But now, we have a totally different digital economy without that bubble. Until this chapter is completed, we’re trying to apply old rules to a new situation that doesn’t fit them.”

Giovenco then explained that this chapter will affect any business using e-commerce that allows sales beyond domestic borders, whether they’re intentionally going after international customers or not.

“The internet is a borderless medium, so companies can go international without ever intending to do so. Since this is the case, how do you know things are going where they need and that people have the access they want? What are the rules about advertising on social media, monitoring and controlling the flow of data, copyright legislation, or customs and tariffs that can be added to products purchased through e-commerce?”

Dawson explained that most digital issues discussed in the NAFTA talks fall under one of four categories: freedom to move data across borders and prohibiting data localization, technology service provider freedoms, protecting IP (copyright, source codes), and customs facilitation and digital supply chains.

When could we start to see changes come into effect?

The prevailing consensus among the group of experts was that most of the pressing digital issues had already been addressed during the TPP negotiations. While that agreement was never put into effect, the decisions were easily transferable from the original TPP text, with small modifications to reflect the specific NATFA context as well as changes in the digital realm since those negotiations took place in 2012.

“Many of the negotiators on the digital chapter of NAFTA are the same people who had negotiated these issues in the TPP, and can essentially continue the same debate,” explained Giovenco. “There’s a lot of goodwill because everyone realizes how many companies are affected.”

Clark added that liability issues for service providers is the only major issue still without resolution, and that there should be an agreement in the near future.

Dawson countered that there are so many potential liability issues to tackle, from legal to financial and others, which may still prove a challenge for negotiators.

Despite the fact that negotiators of the digital chapter are aligned on most issues, its place within the larger NAFTA framework may delay its implementation. There are also certain topics such as service exports and finances, that need to be updated before aspects of the digital chapter can be finalized.

Who benefits most, and what may change?

One important change that may be coming, according to the panelists, is an increase to Canada’s de minimis threshold, or the value of goods Canadians can bring back into the country without paying duties. While the U.S. de minimis is set at $800, Canada’s is just $20, one of the lowest in the industrialized world.

The U.S. has advocated for Canada to increase their de minimis to at least $200, and studies have shown that Canada currently spends more to enforce this regulation than it reaps in duties.

“Canada will not want to be forced by the U.S. into giving too much,” Dawson explained. “Along with dairy access, de minimis is one area where Canada has not moved so far, but has room to do so.”

Clark agreed, and predicted it would move to somewhere between $200-300 by the end of negotiations. This would facilitate an increase in duty-free online shopping for Canadians from American websites, a popular demand from consumers across the country.

Giovenco offered that finalizing the digital chapter is crucial for many companies and would serve to foster further innovation and technological development.

“About 425,000 jobs and billions of dollars’ worth of business are affected by laws governing safe harbours for IP and copyright. Canada and the U.S. have different laws governing these issues, while Mexico has very few in place, so it’s essential to unify these laws in order to drive innovation and open the three markets to companies.”

While the U.S. or other parties may prove to be short-term winners, there was unanimous agreement that this chapter would be a win for everyone in the long-term, especially service providers and exporters in Canada, the U.S. and Mexico.

One final lingering concern is the way that major global corporations like Google or Netflix may or may not be regulated. Giovenco was most concerned with opening access, while Dawson focused on how to protect user data or prevent such companies from erasing Canadian culture.

It’s safe to say that NAFTA’s digital chapter will have a major impact on North American trade. By enacting a framework that aligns with the 21^st century realities of digital trade, and deals with major issues like liability, digital privacy and IP protection, companies will have a clear path to digital expansion and expanding their businesses across the NAFTA region.

The post NAFTA will soon have new digital trade rules – how will they affect you? appeared first on Trade Ready.

Since the Brexit movement succeeded in the UK, there have been rumblings that the UK could find a new trading niche with NAFTA. That long-shot idea seems more of a possibility as the UK struggles to strike a post-Brexit trade deal with the European Union.

Amid concerns that Britain, the world’s fifth largest economy, could be left without a trade bloc when it’s released from the EU in March 2019, the UK’s administration is reportedly taking a serious look at the ramifications of joining NAFTA.

The UK’s Telegraph reported in mid-October that a UK-NAFTA deal could be in the works. Since then, the idea of a trans-Atlantic trade partnership between the UK and North America has earned both praise and criticism. On one hand, a partnership with NAFTA could ease Britain’s transition away from the EU. On the other hand;

A partnership with NAFTA — its own fate uncertain under the Trump administration — could prove a difficult transition for British companies looking to export to Canada, the United States and Mexico.

The UK and NAFTA: An easy transition?

If there’s one great advantage to the UK finding a post-Brexit home with NAFTA, it would be that the UK would be moving from one large trading bloc to another. While NAFTA reigns as the world’s largest trading bloc, in terms of GDP, the EU isn’t far behind.

The combined GDP of NAFTA member countries are more than $22 trillion, while the combined GDP of the EU member countries is just under $21 trillion. That means the UK, which currently sends half of its imports to EU member countries, could find valuable new trading partners on the other side of the Atlantic.

With NAFTA, British officials also could find trade partners who are eager to form ties with the post-Brexit UK.

While British officials have struggled to advance a new trade deal with the EU — some officials say there’s only a 50% chance a deal will be struck with the EU — politicians in North America have expressed a willingness to accept Britain into the fold.

In the United States, President Donald Trump has long said he would be first to strike a trade deal with the UK after the passing of Brexit. Canadian Prime Minister Justin Trudeau has also expressed his desire to form a free trade deal between Canada and the independent UK.

The difficulties with a UK-NAFTA partnership

Signing Britain on to NAFTA might not prove the quick solution to post-Brexit trade for the UK, however. First and foremost, the future of NAFTA itself is largely uncertain.

Trump campaigned on dissolving the 25-year-old trading bloc as part of his “America First” policies. While he seems to have softened his language on NAFTA — expressing a willingness to rework the deal with Canada and Mexico rather than outright canceling the deal — it remains to be seen what the future will bring for the trade deal. That makes relying on NAFTA as the cornerstone of trading future for the UK could prove perilous.

Joining NAFTA also would bring about serious change for UK-based exporters. While the EU had its own set of strict guidelines, companies would have to adapt to NAFTA standards. That would mean using more products and supplies from NAFTA trading partners and knowing how to fight off potential disputes under NAFTA’s governing policies. It remains to be seen how many UK companies would be willing to adapt and how many would relocate to continue to operate under EU rules.

The future of Britain and NAFTA

The rumors about Britain’s potential joining with NAFTA underscore the uncertainty surrounding trade deals in a post-Brexit world.

With a trade deal between the EU and the UK on the ropes, British officials have declined to comment on a potential joining of NAFTA, other than to say they are exploring all possibilities for free-trade deals.

Meanwhile, those with a stake in international trade are still waiting to see how NAFTA could morph under the Trump administration.

The post Could the UK really join NAFTA? appeared first on Trade Ready.

But before we explore whether Free Trade Agreements (FTAs) are really free, let’s examine what they are. FTAs are treaties that reduce, or ideally eliminate, tariffs and non-tariff barriers, such as quotas or cumbersome customs procedures that cause delays at borders.

Basically, FTA partner countries are able to buy and sell products to each other with reduced or zero duties. Usually, countries “stage”, or slowly reduce, the duty reductions for several years until they reach zero.

FTAs reduce friction in trade and decrease the costs of products for consumers.

They allow businesses to focus on making the products or providing the services that they are good at, and import the products they don’t have a competitive advantage in or are otherwise unable to produce, such as wine from Napa Valley or avocados from Mexico.

Free Trade Agreements can be made between two countries, known as bilateral, such as the Canada-South Korea FTA entered into force January 1, 2015. They can also include three countries (trilateral), such as CUSMA, the Canada, United States, Mexico Agreement.

Finally, FTAs can be multi-lateral, such as the Canada-EU Comprehensive Economic and Trade Agreement (CETA).

Tracing the origins of the modern FTA

The debate about free trade is not new. In fact, in the United States, it dates back to the Civil War. Northern states sought protection for high tariffs on manufactured goods while Southern cotton-producing states supported open trade policies to promote exports.

One of the most cited examples of protectionism in U.S. textbooks is the Smoot-Hawley Act of 1930, which imposed high tariffs on many goods. Credit President Franklin Roosevelt’s Secretary of State, Cordell Hull, for his determination to reverse the high-tariff policies of Smoot-Hawley.

His idea was to negotiate foreign trade agreements, which would reduce U.S. tariffs, but only in exchange for partner nations reducing theirs. U.S. Congress authorized such negotiations in the landmark Reciprocal Trade Agreements Act of 1934, enabling negotiated lower rates of duties to be implemented by Presidential Proclamation.

Things are a little different today. A trade agreement must now be approved by the U.S. Congress after the President completes negotiations.

The real revolution in trade took place after World War II, with the creation of the multilateral General Agreement on Tariffs and Trade, known as the GATT. The idea was to rebuild the post-war economies and to promote growth via global trade.

GATT had several rounds of trade negotiations, including the Kennedy Round (1963-67), the Tokyo Round (1973-79), and Uruguay Round (1986-94). These negotiations led to substantial tariff reductions worldwide, which in turn led to a new global landscape, where trade policies promoting open markets had a big role.

The Uruguay Round of GATT led to the creation of the World Trade Organization (WTO) in 1995. At the time, the vision was that members of the WTO, currently 159 in total, would all agree to eliminate as many tariffs and non-tariff barriers as possible. Each country would be able to sell and purchase goods and services from other WTO members without paying duties or dealing with a lot of red tape.

It didn’t work out as well as members hoped. For various reasons, the WTO could not create a universal agreement on tariff and non-tariff reductions that all its members could abide by. As a result, countries have moved forward to independently negotiate FTAs with other countries.

The WTO did have success earlier this year, when members reached an agreement to eliminate red tape at borders called the Trade Facilitation Agreement (TFA).

The Organization for Economic Cooperation and Development (OECD) estimates that the customs reforms effected by TFA implementation would lower the total trade cost of shipping goods by 10% to 15% depending upon the country. Some estimate implementation of TFA’s measures will boost global trade by $1 trillion and global GDP by nearly 5%.

Who are the biggest winners from free trade?

Despite these benefits, a key concern regarding FTAs is understanding that there are winners and losers. This is a question that had unfortunately not received the attention it deserved – from policy makers, businesses and society –until the recent popular backlash against trade in many developed countries.

The ability to import merchandise and services duty-free benefits consumers, primarily low-middle income families.

This would enable consumers to buy the things they need at lower prices, such as clothes made in Vietnam or Guatemala or flat screen TVs assembled in Mexico, from their local Wal-Mart or Best Buy.

It also benefits companies, who can import raw materials and other required parts at lower costs and pass those savings on to their customers. Modern-day trade is not just about shipping finished products from one country to another. What has emerged since the development of our global trading system is complex global supply or value chains.

FTAs also benefit businesses by reducing the amount of time, money and resources they are required to spend paying tariffs or complying with non-tariff barriers. Agreements also allow countries to produce products, parts or materials for which they have a comparative advantage.

So what has the global trade system done for the world? Amazingly, it has lifted millions of people out of abject poverty.

Throughout Africa, Asia and Latin America, nearly 1.3 billion people have gone from making less than a dollar a day to being self-sufficient.

In fact, some of the countries in these regions are among the fastest growing economies.

This not only reduces the burden on their local governments and aid provided by international institutions, but also creates customers for North American-made products and services.

Every rose has its thorn: the downside of FTAs

So if the average consumer and company benefits from trade, who loses? Sadly, in some cases it has been workers in industries that have taken advantage of lower cost labor overseas. The workers that have been displaced also tend to be concentrated in certain communities, so the pain is even greater.

However, it is now well-recognized that increased productivity and automation have had a hand in these job losses too. Policy makers must be mindful of this; otherwise, they may be incorrectly diagnosing the disease and prescribing the wrong medicine.

Government efforts to protect these workers have fallen short and are often too little, too late. For example, in the United States, Trade Adjustment Assistance, which was created to support displaced workers through training and unemployment compensation, was poorly funded and difficult to receive.

Claimants had to prove they lost their job as a result of trade, rather than automation, which is tough to prove, since many economists believe 70% of job losses are a result of automation rather than trade. But if you’ve been laid off, do you really care if it was because of a robot or a trade deal?

How can we retain the benefits of free trade while minimizing the risks?

Free trade agreements are just that – agreements. They are concessions made between participating countries to foster increased commercial ties and further foreign policy goals.

One of the most compelling arguments in favor of open trade is its role in promoting peace. It’s a basic fact that trading partners are reluctant to fight each other. After the devastation of two world wars, countries worked arduously together to prevent another global catastrophe. They used trade as an efficient and effective mechanism to do so.

Although nothing in life may be truly free, that doesn’t mean FTAs aren’t valuable. If governments and businesses work together to increase the rewards FTAs and multilateral deals offer, while mitigating the risks and protecting against unintended consequences, more people will benefit and the global economy can grow unimpeded.

In this moment in history, it is a good time to revisit the benefits of the global trading system, which has accomplished so much for humanity, and consider how to make its benefits more widespread.

The post Are free trade agreements really free? appeared first on Trade Ready.

In today’s somewhat volatile global trade environment, Canada is enjoying a period of increasingly open trade, as well as political and economic stability. Should you add Canada to your export strategy? Here are five factors to think about as you answer that for your business.

1. Customers have money to spend, and they’re not going anywhere

Canada was ranked 10^th for overall GDP in 2016, placing it amongst the world’s wealthiest countries. Within this top ten, Canada has a higher GDP per capita than seven of them, meaning there is a higher likelihood the average Canadian will have disposable income to purchase new imported goods or services.

Canada also has the highest population growth of any of the G7 countries, so this population of consumers is only going to grow with time. Interestingly, two-thirds of the population growth from the past five years has come through immigration. Therefore Canada is gaining a more diverse population that can potentially support niche markets for international products.

While assessing new markets and export opportunities is never easy, Canada certainly shows promising signs for businesses considering it as their next target.

2. Fewer barriers to doing business

Overall, Canada ranks 22^nd out of 190 in the World Bank’s Ease of Doing Business rankings. It also ranks second worldwide in ease of starting a business, and among the top 10 in getting credit and protecting minority investors.

While ranking 46^th in trading across borders might raise eyebrows, many of the top countries in this category are located in Europe, where several border agreements have been in place for years. Among non-European nations, Canada would rank 10^th in this category.

While Canada doesn’t receive high marks in every category – Canada is 108^th for getting electricity and 112^th for enforcing contracts – overall, entrepreneurs looking at exporting to Canada should have a relatively easy time.

3. New trade agreements mean fewer impediments

Canada has enjoyed free trade with the U.S. since the late 1980s, and been part of the NATFA agreement with the U.S. and Mexico for over 20 years. Recently, new agreements have opened similar opportunities with markets outside of North America.

Most notably, CETA will remove tariffs on 98% of goods and services from EU countries once provisionally implemented in late 2017. This will increase to 99% once the agreement is ratified by each European national government.

Canada also has free trade agreements (FTAs) in place with 12 other countries, including South Korea, Chile, and Israel, and is currently negotiating with several others, such as India and Japan.

Businesses operating in any country involved in an FTA with Canada should start looking into potential opportunities. Want to see if your country is on the list? You can view a full list of every country Canada is negotiating with, or has signed an agreement with, the status of their relationship, and the type of agreement through the Global Affairs Canada website.

With the signing of the recent Canadian Free Trade Agreement, businesses will also find the number of barriers within Canada reduced. While some obstacles remain, particularly regarding the sale of alcohol, exporters should find greater opportunity to expand across Canada once they’ve entered the market.

4. Beyond Canada-U.S. trade, Canada is a net importer

For better or for worse, Canada’s international trade has been largely defined by its trading relationship with the United States. Canada shares one of the world’s longest borders with the largest economy in the world, and has had a longtime free trade relationship with the U.S. This has resulted in a situation where 75% of Canada’s product exports went to the U.S., and 65% of the products imported into Canada were from the U.S. in 2016.

If you live outside of the U.S., however, there are a few things that should give you hope. While Canada had a net positive trade balance in 2016, it becomes a trade deficit once Canada-U.S. trade is removed from the equation.

This means if you’re a business outside of the United States, Canadian businesses are currently more likely to buy from you than sell to you.

In some industries, opportunities are already wide open for businesses outside the U.S. to export to Canada. According to Steve Tipman, Executive Director of Trade Facilitation Office (TFO) Canada, “two examples where this is especially noticeable are apparel and food. A lot of Canadian clothing is from outside Canada or the U.S., and if you walk into a grocery store, many of the fruits and vegetables are from Mexico, Latin America or elsewhere.”

He also adds that Canadian importers and consumers are also interested in unique, price competitive products from around the world. “In the example of fruits or vegetables, with urbanization happening in many Canadian cities, anything that’s sized a little differently or can be purchased individually by customers instead of in a carton is going to stand out and appeal to that segment of the population.”

Canada-U.S. trade will continue to be important, but Canada’s greater diversity in imports should demonstrate that opportunities are available for companies wanting to export to Canada.

5. Plenty of help available to find potential partners

One of the most important elements of entering any new market is building connections and forming partnerships, alliances, supplier agreements, and other business relationships.

One place companies can start is the Canadian Importers Database, put together by Industry Canada. You can search lists of companies importing goods into Canada by product type, country of origin and Canadian city, to see who’s already importing what and from where.

The Canadian Trade Commissioner Service (TCS) is also a valuable resource for anyone looking to do business in Canada or with Canadian companies. With 161 international offices around the world, Trade Commissioners near you will be able to give you the information and advice you need. They can put you in contact with potential partners and leads and help you evaluate the ones you already have. Trade Commissioners may also know about trade shows or missions relevant to your needs.

As Varun Anthony, CITP|FIBP, a Trade Commissioner in Mumbai, India explains, “The Canadian Trade Commissioner Service is your one stop shop to doing business in Canada. Trade Commissioners across Canada’s global network provide tailor-made services to suit your business requirements so that you can invest in one of the best economies to do business with in the G20 – Canada!”

TFO Canada is another organization to look at for those in emerging markets. “The first thing any SME in a developing country should do is register on our website, www.tfocanada.ca,” Tipman explains. “It’s important to fill out your entire profile, so we can share it with Canadian importers who might be interested in your products. From there, there’s lots of data and resources you can find – sector-specific market information papers, a comprehensive guide on exporting to Canada, and regular webinars on a wide range of trade-related topics are just a few examples.”

With many potential opportunities for businesses around the world, Canada could be an important addition to many businesses’ market entry strategies. Canada offers stability, openness and a large number of potential consumers for your products or services, all important ingredients for any successful export strategy.

The post Top 5 things you need to know to export to Canada appeared first on Trade Ready.

Imagine this situation: You are an exporter driving southwards on your favourite highway and ahead you see red traffic cones and barriers in the way. You are forced to slow down and notice that some of the barriers have the words “NAFTA debate”, “Soft-wood lumber disputes”, “Dairy regulations” and “Other competitors’ products” on them. You instinctively reach for your GPS to recalibrate, but your fellow passengers tell you “keep going, let’s see what happens”.

Don’t just stand around – do something!

Many Canadian exporters are hoping that the current phase of U.S. protectionism will not be too serious and that given time, cooler heads will prevail. However, apart from any potential changes to NAFTA, there are other important changes taking place in world markets that could affect Canadian exports.

For example, foreign government elections could affect our trading partnerships; many world leaders are changing their attitudes towards international relationships (e.g. Brexit); major environmental changes are affecting people throughout the world; electronic hacking is changing global communications, etc. All these changes make it increasingly difficult for Canada to rely on traditional alliances to plan for our trading future.

Instead of a passive “wait and see” attitude, perhaps it is time to look more aggressively for alternative export markets and recalibrate the Canadian exporters’ Global Positioning System towards other directions.

There is a wealth of up-to-date data, detailed reports and real-time market intelligence available through federal and provincial government sources. This practical, current and timely information is collected by hundreds of locally-engaged sector specialists, who have been hired from local industries by almost 260 offices in 150 countries around the world. They have been hired for their experience and contacts in specific business sectors and their job is to search for export opportunities for Canadian businesses.

These talented professionals have a great deal of real-time information on current on-the-ground marketing trends, and intimate knowledge of what specific products are sought by local importers abroad. Unfortunately, this knowledge is often denigrated by “blood-and-guts” exporters who wrongly claim that civil servants know little about the day-to-day realities of exporting.

Taking a practical look at the available options for Canadian exporters

In view of our unsettled exporting future, this writer decided to look for potential export markets which do NOT fall into Canada’s established and traditional markets. The top 28 destinations for Canadian exports, according to Global Affairs Canada, include the U.S., China, UK, Japan, Mexico, South Korea, Germany and India. But this list fails to include many other smaller and lesser-known, but still worthwhile markets like countries in North Africa, Brunei, Thailand, Trinidad and Tobago and others.

At random I chose “Consumer Products” and “Transportation” as export sectors and searched for information on the Trade Commissioners Service (TCS) website. I sought data on the top foreign markets which the trade commissioners abroad reported as the best opportunities for export.

Consumer Products

1. The TCS identified the top potential markets for Canadian consumer products as Bangladesh, Finland and Germany.
2. I picked Finland and searched for Finnish importers. Several company profiles, data on 2017 consumer trade shows taking place in Helsinki, and directions on how to export to Finland and Scandinavia were listed.

Transportation

1. At random I picked Kenya and found a list of 25 importers of transportation-related products with full contact information and the territory they cover.
2. These 25 companies are seeking auto parts, engine parts, automotive electrical equipment, engines, pumps, tractors, electric motors and other equipment.

While the TCS website was encouraging, I decided to take the opposite approach and (again at random) picked Thailand as a target country. I Googled  “Thailand Importers”, which provided a link with 18 names and addresses of importers, distributors and trading houses, all seeking to buy a wide range of foreign products including softwood lumber, woodworking machinery, furniture and garden products. In addition, when I Googled “Thailand Import Agents”, there were listings of commission agents seeking to represent foreign exporters of various products including food, paint, medical devices and chemicals.

A great reputation and hard work will open doors

While the above are mere examples, and many variables would affect successful export contracts (including competitive pricing, transportation costs, import tariffs, etc), successful exporting to new markets is based on the following facts:

1. Our Brand. That all-important first contact with potential international customers is easier because we have the greatest door opener in the world: the Canadian brand. Our reputation immediately opens doors all over the world, giving any Canadian exporter a salesman’s vital “foot in the door”.
2. The 200-20-2 rule: Anyone who has worked in a call centre or made “cold” calls knows these numbers. They work in any business development activity, in any country, and in any product sector. The concept relies on percentages: if you make about 200 calls you will develop approximately 20 new contacts, and they will invariably produce 2 export deals.
3. Knocking on doors. There is an inescapable logic that states that “if you don’t knock on the door, nobody will open it”.

Let’s knock on new doors by recalibrating our exporters’ GPS (after all, it IS global) and look for other destinations for our exports. They may not be as easy and accessible as our traditional U.S. market has been, but with a little effort and imagination Canada does not have to “wait and see” but can take proactive steps to becoming a truly global exporter.

The post Why it’s time to recalibrate Canada’s exporting GPS appeared first on Trade Ready.