Small business and the U.S.-Canada Free Trade Agreement: a natural match

Business America, Jan 30, 1989 by Sheryl J. Swed

Canada is frequently the nation of preference when small business owners first export. A longtime friend to the United States, Canada appeals to small business owners who value a dependable and secure trading environment. And now this key trading relationship is being fully institutionalized by the U.S.Canada Free Trade Agreement (FTA).

The most valuable legacy of the FTA is predictability. The critical impact of the Agreement is its ability to institutionalize the procedures, policies, and processes governing the largest bilateral trading relationship in the world.

We are a nation firmly rooted in our historical institutions. These institutions are the Gibraltar of our democracy and the foundation of our foreign policy, of which international trade is a part. The U.S.-Canada Free Trade Agreement strengthens some of our existing institutions and creates new bilateral institutions to meet the demands of this important trading relationship.

Many small business owners are cognizant of the most well-publicized aspect of the Agreement: that it provides for the elimination of all tariffs between the two nations within the next ten years. Although much of our exports to Canada are already duty-free, Canadian tariffs on many products produced by small businesses are high, often ranging from 10-25 percent, especially on consumer products. These tariffs are highly protective. Their elimination will make U.S. products more competitive and will greatly expand export opportunities for small businesses.

"National Treatment"

Also noteworthy for small businesses is that the two nations have agreed to provide each other with "national treatment" in direct investment and services. New minimum equity requirements by nationals is no longer permitted, and "national treatment" applies to the establishment, acquisition, operation, and sale of businesses. While many Canadian investment restrictions are grandfathered, restrictions that impact small businesses are generally eliminated, with the exception of "cultural industries." By 1992, Canada will no longer review acquisitions by U.S. investors involving Canadian assets below $150 million (Canadian).

The FTA also helps small businesses actively pursue one of Canada's largest consumers-the federal government. The FTA sets the threshold at which U.S. suppliers are allowed to compete for Canadian federal government purchases at $25,000. This threshold 'is especially valuable to firms too small to take advantage of the GATT Government Procurement Code, which covers procurements only at and above $171,000. (See separate article on government procurement).

Implementation of the FTA requires the modification and institutionalization of many existing federal regulations. To the delight of many small businessmen and women, for example, the Agreement will allow business visitors even greater freedom to travel back and forth across the U.S.-Canada border.

Remember: every action has its equal and opposite reaction. I urge small businesses to consider all aspects of this Agreement, both positive and negative. Reduced tariffs mean new opportunities for export, but they also mean new competitors from Canada. Competition will inevitably become keener.

A Myriad of New Rules

There are a myriad of new rules governing border crossing procedures, rules-of-origin requirements and other customs procedures, product standards, and government procurement. Small business owners-even those currently selling in Canada-should become as aware as possible about new or slightly modified rules resulting from the Agreement. Do not wait until you are at the border crossing to become informed.

Contact the U.S. Small Business Administration district office nearest you for information about FTArelated seminars co-sponsored by private sector organizations and by federal and state agencies.

The SBA Office of International Trade is proud to announce here, in Business America, that it is cosponsoring, with AT&T, a springtime series of FTAspecific conferences in honor of the Free Trade Agreement. Our goal is to provide sites where small business owners from both nations can meet and learn more about each other's markets. We will be publishing an accompanying U.S.-Canada trade resource guide targeted to assist small businesses. For more information about these events, contact your local U.S. Small Business Administration district office, or the SBA Office of International Trade at (202) 653-7794.

The Small Business Administration encourages small business exporters to become acquainted with the benefits of the FTA. We are ready and eager to provide informational, educational, and organizational assistance and support to you.