March 14, 2017, will undoubtedly go down in the history of Canadian-Ukrainian friendly relations, because on that day the Ukrainian parliament has ratified Canada-Ukraine Free Trade Agreement (CUFTA).
Now we are waiting for ratification from the Canadian side, the exchange of the instrument of ratification – and the free trade zone will work in full.
Therefore, in 2017 we will celebrate not only Canada’s 150th anniversary but also the beginning of our free trade with the country.
The team of the Ministry of Economic Development and Trade managed to fix in the Agreement positions that are more favorable for domestic exporters and a broader time frame for abolishing import duties. The agreement will immediately open for Ukrainian exporters duty-free access to 98% of the Canadian market. This applies to both industrial goods and agricultural (except 108 tariff lines, which can be exported without duties within Canada’s global quotas).
Deputy Minister of Economy, Ukraine’s trade representative, Natalia Mykolska noted Ukrainian exporters would get short-term and long-term prospects for entering the Canadian market, and national producers would have incentives to improve the quality and competitiveness of their products.
The time does not wait, and Ukrainian exporters should start exploring the Canadian market and the tastes and preferences of Canadian consumers regarding their goods. So when the agreement enters into force, they can begin exporting the first lots of goods without paying import duty. The Office for Export Promotion under the Ministry of Economic Development might help conquerors of overseas markets to find business partners and necessary information.
Related: Senate of Canada ratifies free trade agreement with Ukraine
Unfortunately, the long-term orientation to the markets of the nearest neighbors generates a lot of fears among Ukrainian exporters about the free trade agreement with Canada.
Many Ukrainian businessmen are convinced that Canada is far away, so transporting would be expensive, and Ukrainian products does not hold water before competitive American goods – accordingly, there is no place for Ukrainian goods in the Canadian market. That is, the tariff and non-tariff barriers are paralleled with the mental ones.
In this article, we will try to analyze how these and other stereotypes are justified.
Stereotype 1: “Canada is far away. Transport costs would make the goods uncompetitive”
CUFTA is the first transatlantic free trade agreement concluded by Ukraine. Although the Canadian market may seem distant, and the delivery of goods to Canada can look expensive and long, technological progress allows you to ignore the long distances in international trade of the 21st century.
Look at the shelves in supermarkets in Ukraine. You will see pears from China, wine from Chile, and these goods are sold at relatively reasonable prices.
Imagine that according to the Sea Distances portal the cargo from Shanghai to Odesa (8379 nautical miles of distance) would be delivered in 35 days, moving at a speed of ten knots per hour. In the case of Chile, time and distance are almost the same. Overcoming so many kilometers is not cheap. In addition, Ukraine still has no free trade with China and Chile. This means that the goods are imported with payment of import duties on the Ukrainian border.
Undoubtedly, transportation costs determine the potential for entering foreign markets, and the cost of delivery affects the variable costs of doing business. Moreover, a long distance can become a challenge if the product spoils rapidly (for example, fresh fruits, and vegetables) or depends on consumer preferences (for example, high fashion collections).
However, at present, logistics and shipping companies offer individual personalized solutions for the delivery of cargo anywhere by air, sea, rail, road transport.
If you plan to export fresh fruits and vegetables to Canada, choose air or sea shipping with temperature control. If your collection is to be shown at the fashion week in Montreal, use fast air travel or even express delivery. If you cannot fill the entire container with your goods, join the group of cargo, which consists of many individual deliveries.
Long sea transport also has the advantage: according to some estimates, an additional kilometer of land transportation will be seven times more expensive than an additional kilometer by sea.
In fact, there is no single solution for all exporters of the issue of the long distance between Canada and Ukraine. Yes, indeed, if the marginality of goods in the Canadian market is low, transportation costs can affect competitiveness.
However, distance is not a problem, because the development of transport technologies offers a variety of options for reducing costs and optimizing the duration of transportation to Canada.
Stereotype 2: “Canada imports everything from the US, Canada has no place for Ukrainian goods”
Common borders and geographical proximity have made Canada and the US the most important trading partners for each other. Canadian consumers are important for US producers, as last year Canada purchased goods and services for $ 337.8 billion from its southern neighbor.
The economies of the two countries are highly integrated, and this process was accelerated by the bilateral free trade agreement of 1988 and the NAFTA in 1994. In addition, a large percentage of Canada’s bilateral trade with the United States consists of intermediate products that enter the integrated supply chain between the two countries.
As a rule, neighboring countries trade more than geographically remote ones. Bilateral trade between close countries is facilitated by a developed regional logistics network, the similarity of the business environment and bilateral customs cooperation.
Think about Ukraine. Now the largest trading partner of Ukraine is the EU. In 2015, almost 40% of Ukrainian goods and services were exported to the EU. The bilateral trade is growing due to a deep and comprehensive free trade agreement between Ukraine and the EU.
However, free trade with the EU does not prevent the presence of pears from China, wine from Chile and Georgia, and dairy products from Belarus on the Ukrainian market.
In addition to NAFTA, Canada has 10 existing free trade agreements, in particular with Korea, Israel, Jordan, and the European Free Trade Association (EFTA).
Obviously, Canada seeks for free trade, and the diversity of intercontinental free trade agreements demonstrates that Canadian foreign trade is multi-vector.
Ukrainian exporter will face competition with the American one and other foreign manufacturers in the Canadian market. However, this competition will stimulate it to improve its products and offer new values to Canadian consumers.
Stereotype 3: “Ukraine would be able to export its goods to the US through Canada without paying import duties”
The free trade regime between Canada and the US can lead to the idea that due to duty-free access to the Canadian market can enable exporting goods through Canada to the US without paying import duties on the Canadian-American border.
Given that there is no free trade agreement between Ukraine and the United States, goods of Ukrainian origin are subject to customs rates based on the most-favored-nation treatment (except for goods falling under the US general preferences system).
In addition, free trade agreements contain rules of origin that the goods must comply in order to have preferential access to the partner market by agreement. According to CUFTA, goods produced in Ukraine have preferential access to the Canadian market.
Remember that in order to cross the Canadian-American border on preferential terms, the goods must be of Canadian or American origin respectively, since NAFTA is still a free trade agreement, not a customs union.
At the same time, Canada might be a regional hub for export sales, logistics planning, distribution, marketing and working out a strategy for entering other markets.
Stereotype 4: “Canadian consumers buy products which are made in Canada only”
Polls show that consumers in Canada are really inclined to buy Canadian products, since the purchase of “made in Canada” products positively affects the economy of the country, creates jobs, etc. A 2013 study indicates that 45% of Canadians are trying to buy goods produced in Canada.
Nevertheless, two out of three consumers indicate that the main factor in buying goods is still a low price.
Thus, to consider that Canadians only buy “made in Canada” products is a big exaggeration. Supporting your country, when the crisis is still palpable, is a completely justified behavior. The same thing is happening in Ukraine in the last two years.
First, remember that the diaspora of Ukrainians in Canada amounts to more than 1.3 million people. Diaspora can help spread information about the product, establish the first business contacts, and reduce initial costs when entering the Canadian market.
The presence of Canadians of Ukrainian origin makes Canada a very welcoming place for Ukrainian small and medium-sized businesses.
Secondly, remember that Canada is a big country, and consumer preferences can be different in Ottawa, Montreal, and French-speaking Quebec City.
Canada is a very diverse country with a multinational population. In 1971, it became the first country in the world where multiculturalism became part of official state policy. One-fifth of Canadians were born not in Canada. Thus, diversity is the strength of Canada and a good opportunity for Ukrainian exporters to find a new market for their goods.
And finally, Ukrainian companies have something to offer to Canadian consumers. We are able to create, surprise, and create a quality product. Even before the era of free trade with Canada, Ukrainian companies successfully establish business contacts, meet with potential partners, participate in exhibitions, calculate logistics, sign contracts, and deliver goods.
When you have a quality product that meets the requirements of the Canadian market and the consumer preferences of Canadians, then there no distance, and competition is not a hindrance.
Author: Oleksandra Brovko, CUTIS Senior Trade and Investment policy expert
Source: European Pravda