How free trade agreements can boost the presence of Canadian agri-food products in the global market



Brendan McDougall and Sylvanus Kwaku Afesorgbor | The Hill Times

Canadian agriculture is increasingly dependent on foreign markets to drive demand growth. Agriculture continues to be a highly protected sector in international trade. Free Trade Agreements (FTAs) aim to reduce these barriers through bilateral and multilateral negotiations giving Canadian agri-food exporters preferential trade access.

These FTAs, however, do have a differential impact in promoting agri-food. Some FTAs foster innovation, business development and trade in new products. Other FTAs are more beneficial to existing exporters, helping them lower their trade costs, extract more profit and ship more volume. These differences in preferential trade access have important ramifications for diversification and future trade development of Canadian agri-food exports.

The University of Guelph’s Department of Food, Agriculture and Resource Economics has an ongoing project estimating the effectiveness of Canada’s FTAs in stimulating agri-food trade. Instead of looking at aggregate trade, the project disaggregates trade into intensive margins (trade in previously traded goods) and extensive margins (trade in newly traded goods). FTAs are designed to reduce trade costs and offer preferential access.

Reduced variable trade costs tend to benefit the intensive margin (tariffs and tariff rate quotas) while reduction in fixed trade costs (regulatory measures, sanitary and phyto-sanitary (SPS) measures and labelling requirements) tend to benefit the extensive margin. Exporting firms must comply with these costs regardless of how many units are shipped, making them fixed.

Currently, Canada has fourteen FTAs in force and these FTAs widely differ in how they affect the intensive and extensive margins. Based on our analysis, FTAs with Jordan, Honduras, U.S., and Mexico (NAFTA) have significantly increased trade along the intensive margin. This is driven by preferential tariff rates for Canadian agri-food exports into these markets.

Negative intensive margin effects are seen in agreements with Israel, Chile, Peru, South Korea and the EFTA (European Free Trade Agreement – Norway, Switzerland, Liechtenstein and Iceland).  In these agreements, there was not sufficient reduction in variable costs (such as tariffs) giving no preference to Canadian agri-food products. 

Although Canada may have increased its exports into these markets, it has not increased them as much as other nations, despite the presence of an FTA. For example, Canada’s tariff rates for Bovine Carcasses (HS code 02011000) experience the same tariffs entering Israel, Peru and Norway as all other WTO member nations. Canada has no competitive tariff advantage compared to the other 164 member nations in the WTO.

South Korea has given Canada preferential rates against other WTO nations but not against other large agri-food exporters. For example, in 2017 the same Bovine carcasses discussed above faced a 29.3 per cent tariff when exported from Canada compared to a 26.6% tariff when exported from Australia and a 21.3 per cent tariff from the USA.


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