Seeking CETA’s small-business benefits

Canada-EU deal could generate big business for small B.C. firms

Jonathan Rhone, president and CEO of Axine Water Technologies, with company founder Colleen Legzdins, sees many advantages for clean tech in the  Canada-European Union Comprehensive Economic and Trade Agreement | BIV files 

Expansion into Europe was already “baked into the equation” for Vancouver-based Axine Water Technologies ahead of CETA, Canada’s free trade agreement with the European Union, taking effect this fall.

“The biggest thing that I see in the short term is just access to talent,” said company president and CEO Jonathan Rhone. “Europe is a massive pool of highly educated talent. So this will make it easier to attract both entrepreneurs who can create new technology businesses, as well as employees to help us grow.”

Rhone, who also chairs the BC Cleantech CEO Alliance, has Axine at 25 people and growing. The company’s industrial waste-water treatment products primarily head south of the border to customers in the U.S., but the company is turning its attention across the Atlantic for growth – first for employees, second for new export opportunities.

“The Europeans are arguably a decade ahead of us when it comes to greening their economies,” explained Glen Hodgson, a senior fellow with the Conference Board of Canada.

For small clean-technology companies in British Columbia, that brings opportunities and challenges. The agreement provides an easier path to export to the world’s third-largest importer of clean-tech products – a $148 billion market in 2016, according to the federal government.

It also gives more established European players clearer, largely tariff-free access to Canada.

“In the near term, it may mean that local suppliers have a harder time sort of capturing a market share in a city like Vancouver, but it also means that a Canadian-based company can suddenly sell in Frankfurt or Copenhagen or lots of other markets, which are actually more green, where they actually may have more opportunities immediately,” Hodgson said.

The ability of small companies in any sector to take advantage of CETA, however, relies on understanding the agreement, along with the market it opens up.

A recent survey by the Canadian Federation of Independent Business found 56% of small businesses were unfamiliar with the agreement.

Research by the Conference Board of Canada has also found that while small businesses accounted for 98% of exports to the EU between 1994 and 2008, revenue from those exports amounted to an annual average of just $410,000. And while CETA eliminates nearly all trade tariffs, the EU’s 28-nation diversity creates its own cultural and linguistic barriers to trade.

“In Canada we have been kind of comforted by the fact that we have a big market south of the border and that has been enough for many small businesses,” said Werner Antweiler, an associate professor at the University of British Columbia’s (UBC) Sauder School of Business and a chair in international trade policy.

“As we’re becoming more of a global trading system, I think that small and medium-sized enterprises have to understand that there are opportunities to be had in investing in exporting,” Antweiler said, adding that many European manufacturers are already poised to take advantage of that trend, being on average a bit larger than those in Canada and possessing a stronger culture of global expansion.

To that end, Andrew Morden, president and CEO of energy storage systems company Corvus Energy, sees CETA as an opportunity to shift B.C. and Canadian companies’ thinking.

“For us to be successful here in British Columbia, and even to provide services to the end-users here in British Columbia, we really need to be able to work seamlessly globally,” Morden said.

Corvus, which won Exporter of the Year at the BC Export Awards in 2015, primarily exports to markets in Europe, within and outside of the EU. Some of its work, however, is very much tied to B.C.

For example, the company recently finished a project with Seaspan, but for a Turkish customer. It’s also working with BC Ferries on a project that will ultimately see vessels from a Dutch shipyard sail in B.C. waters.

“We certainly don’t want a Dutch or Turkish shipyard to only be looking to Dutch or Turkish battery suppliers, because of nationalistic feelings,” Morden said. “We want them to be open to the best product at the best price.” He said CETA will help bring the best of B.C. clean tech to market.

That push, however, may come at a cost. According to John Ries, senior associate dean of research and professor at UBC’s Sauder School of Business, evidence suggests that new free trade agreements facilitate a “very substantial margin of increase” in new firms entering the newly accessible market. Large, incumbent firms with the resources to raise existing export investments, however, typically take advantage of such agreements more frequently.

“If you’re small and you don’t have the financial wherewithal to make that investment or knowledge to make that investment, then it’s going to be a deterrent for you,” Ries said.

He offered a “cautionary note” for small businesses on the fence about making that investment.

“Standing pat and not taking advantage of opportunities could put small business behind if European companies are now going to be able to compete more effectively in our marketplace,” he said. “You have to stay aggressive and take advantage of opportunities. Because there are challenges and opportunities, as they say, with regard to a free trade agreement.”

One of the biggest barriers to getting more small businesses to export to Europe hasn’t been eliminated by CETA, according to Antweiler.

In addition to noting the need for greater education around CETA generally, along with the need to correct what he calls a “marketing deficit” when it comes to putting B.C. clean tech on the map specifically, Antweiler argued that Canada needs to work harder to encourage small businesses across sectors to grow.

“If you have a barrier to growing, to turn from a small to medium-size business, that hampers economic growth, and it limits our potential to go and export,” said Antweiler, citing the 17.5-point jump from the federal government’s 10.5% small-business tax rate to its general rate of 28%.

He said looking to new markets takes investment, and whatever gains there are to be had may not justify incurring such a hefty tax bump.

“When you look at the numbers, out of a million or so small or medium-sized enterprises, only about 4% are actively exporting, and only about 1% out of the million is exporting outside of the United States.

“That basically means we have a problem actually getting small enterprises interested in looking at overseas markets.”