Canada: CETA and Navigating Competition amidst Regulatory Challenges

The Comprehensive Economic and Trade Agreement (CETA), a trade pact between the European Union (EU) and Canada, came into provisional effect in 2017. CETA aimed to eliminate tariffs on 98% of goods, facilitate investment, and boost trade between two of the world's most developed markets. While the agreement has resulted in increased economic activity and new jobs, it has raised serious concerns among European small and medium-sized enterprises (SMEs). These concerns centre on increased competition, unequal playing fields, and regulatory pressures that disproportionately affect smaller businesses.

CETA was hailed as a landmark trade agreement, particularly due to its broad scope. The removal of tariffs between the EU and Canada has enhanced the flow of goods, services, and investments across the Atlantic. For larger corporations, particularly multinationals, this has meant easier access to Canadian markets and opportunities for expansion. However, the agreement’s impact on European SMEs has been mixed. While the agreement has facilitated trade by reducing barriers, the burden of adjusting to the new regulatory and competitive environment has largely fallen on SMEs, which are less equipped to handle the changes compared to larger companies.

The removal of tariffs under CETA opened the European market to Canadian companies, which in turn increased competition, particularly in sectors such as agriculture and manufacturing. Canadian companies, less bound by stringent European labour and environmental regulations, can often produce goods at lower costs, giving them a competitive edge in the European market. This has caused considerable concern for European SMEs, which are required to adhere to stricter standards that increase production costs. For instance, French farmers and German manufacturers have expressed fears that cheap Canadian imports, especially in sectors such as beef, pork, and industrial goods, will undercut their prices and force them out of the market. European businesses, particularly SMEs, face the difficult task of competing on an uneven playing field, where Canadian companies benefit from fewer regulatory constraints.

One of the most significant challenges facing European SMEs under CETA is the regulatory burden. European companies are required to comply with rigorous environmental and labour standards, which often translate to higher production costs. In contrast, Canadian companies are not subject to the same stringent regulations, providing them with a cost advantage. For many SMEs, especially those in resource-intensive industries such as agriculture and manufacturing, this disparity in regulatory environments has proven to be a major hurdle. The additional costs associated with meeting European standards make it difficult for smaller enterprises to remain competitive.

Furthermore, navigating the complexities of cross-border trade under CETA requires SMEs to invest in compliance with new regulations and certification processes. For businesses that operate with limited financial and human resources, these additional requirements can pose a substantial barrier to trade. The increased administrative workload diverts resources from core business activities, further hindering the growth potential of SMEs.

While CETA has undoubtedly brought benefits to the broader economy, these benefits have not been distributed equally. Large corporations, which already have the infrastructure and resources to navigate international markets, have reaped the most significant rewards. In contrast, SMEs, which form the backbone of the European economy, have struggled to capitalise on the opportunities presented by CETA. The liberalisation of trade under CETA has exacerbated existing inequalities within the EU. Wealthier corporations and regions with stronger economic foundations have seen more gains, while less developed regions and smaller businesses have been left to contend with increased competition and regulatory hurdles.

Beyond addressing the immediate challenges that CETA presents to SMEs, the long-term implications of the agreement should also be considered. CETA introduced the Investment Court System (ICS), which allows corporations to sue governments for laws that negatively impact their profits. This provision raises concerns that governments may hesitate to implement necessary environmental or health regulations out of fear of legal repercussions. For SMEs, this could mean that they face further disadvantages, as larger corporations use the ICS to protect their interests.

In addition, the liberalisation of trade in the agricultural sector has brought Canadian produce—grown under less stringent environmental regulations—into direct competition with European farmers. The impact on European farmers has been profound, with many unable to compete with the lower prices of Canadian imports. Given that farming is a vital industry for many European SMEs, this poses a significant threat to their sustainability.

CETA offers undeniable benefits, such as increased trade and job creation. However, it also presents challenges, particularly for European SMEs. The agreement has exposed smaller businesses to increased competition from Canadian companies, many of which operate under more lenient regulations. To ensure that CETA becomes a tool for mutual growth, rather than a source of economic inequality, the EU must take steps to address the concerns of SMEs. By providing financial support, easing regulatory burdens, and protecting key industries, the EU can help SMEs adapt to the changing trade landscape and ensure that the benefits of CETA are shared more equitably across all sectors of the economy.