With increasing threat of US trade restrictions and tariffs, Canadian SMEs need alternative export strategies to maintain profitability and growth. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU) provides tariff-free or reduced-tariff access to 27 European markets. By leveraging CETA, Canadian businesses can avoid US tariffs, reduce dependency on the US market, and unlock new opportunities in Europe.
This article explores how SMEs can navigate CETA, take advantage of duty-free trade, and successfully expand into the $19 trillion European economy.
1. Why Canadian SMEs Should Look Beyond the US Market
The Tariff Challenge
Over the past few years, the US has imposed tariffs on several key Canadian exports, including:
- 25% tariffs on steel & 10% on aluminum (Section 232 tariffs).
- Duties on softwood lumber, agricultural products, and automotive parts.
- Potential future tariffs due to shifting US trade policies.
With nearly 75% of Canadian exports going to the US, SMEs must diversify their markets to reduce risk and avoid issues related to single source dependency.
The CETA Advantage
CETA eliminates tariffs on 98% of Canadian goods exported to the EU, reducing costs and making Canadian products more competitive. The EU is Canada’s second-largest trading partner, and exports to the EU have grown over 20% since CETA’s implementation in 2017.
2. Why Canadian SMEs Should Look Beyond the US Market
Manufacturing & Industrial Goods
- Steel & Aluminum: While the US imposes tariffs, the EU allows tariff-free imports from Canada.
- Automotive & Aerospace Parts: CETA eliminates 8%-10% tariffs on vehicles and components.
- Machinery & Equipment: Canadian-made tools and heavy equipment enter tariff-free.
Agri-food & Beverages
- Meat & Dairy: Canada now has increased quotas for beef, pork, and cheese exports.5
- Processed Foods & Maple Syrup: The EU market favors high-quality, traceable food products.
- Organic & Sustainable Foods: EU consumers prioritize eco-friendly and organic brands
3. Using Rules of Origin to Qualify for CETA Benefits
To qualify for tariff-free exports under CETA, Canadian products must meet Rules of Origin, meaning they must be:
- Substantially produced in Canada (minimum value-added content).
- Properly documented (Certificate of Origin required).
- Not containing high levels of non-Canadian inputs from non-EU countries.
4. Challenges & How to Overcome Them
While CETA offers major benefits, SMEs should be aware of barriers to EU market entry:
Complex Regulations & Compliance
- The EU has strict product safety, labelling, and environmental standards.
- Solution: Work with Canadian Trade Commissioners for compliance support.
Logistics & Distribution
- Shipping costs to Europe can be higher than to the US.
- Solution: Utilize major EU trade hubs like Rotterdam, Antwerp, and Hamburg for warehousing and distribution.
Currency Fluctuations
- The euro’s volatility can impact pricing
- Solution: Use hedging strategies and price contracts in Canadian dollars or euros to mitigate risk.
5. How to Find EU Buyers & Distributors
For SMEs looking to connect with EU partners, consider these resources:
- Trade Commissioner Services (TCS): Helps connect Canadian businesses with European buyers & distributors.
- Enterprise Europe Network (EEN): Assists in finding business partners & distributors.
- Export Development Canada (EDC): Provides market insights and trade financing solutions.
- Trade Data Online: Allows businesses to analyze EU market trends and demand.
Final Thought:
For Canadian SMEs looking to diversify their exports, CETA provides a strategic advantage to tap into one of the world’s largest trading blocs with greater supply chain resilience and long-term opportunities.