Export. New Opportunities in Canada

A few months ago, the Canada – Ukraine Free Trade Agreement (CUFTA) entered into force, which effectively opens Canada’s huge market to a great number of Ukrainian companies. Ninety eight percent of customs duties for Ukrainian goods have been eliminated. The region’s needs are significant and diverse. Let’s discuss how to enter the Canadian market and what are the market needs?

Trade volumes with Canada fall far short of their potential capacity: this year, exports of Ukrainian goods to Canada amounted to approximately 0.5% of total Ukrainian exports. Meanwhile, Ukraine imported 7 times as much of Canadian goods, although in actual figures it is just as negligible.

Ukrainian apparel manufacturers (-17.2% of customs duties) and footwear manufacturers (-9.7%), as well as Ukrainian farmers (-4.5% of customs duties for vegetables and fruits) will benefit the most from the customs duties elimination. Moreover, the Agreement opens Canadian public procurement market (its volume is $ 12 billion) on the same terms as for local companies, and specific sections of the Agreement protect e-commerce and intellectual property.

According to the Ministry of Economic Development and Trade of Ukraine, implementation of the Agreement will facilitate a fivefold increase in the turnover of goods between Ukraine and Canada. ‘Each export case is unique. Should you find a partner in Canada, which has allocated quotas, then you will be able to export your goods not having to pay import duties. I would rather not overemphasized priority products, because this may discourage some exporters of so-called ‘non-priority’ products. The Canadian market is very diverse: buyers’ needs in one province may differ significantly from those in other provinces. Therefore, consumers’ needs in each and every province should be studied in detail. It’s quite possible that priority products in different regions may vary.’ – says Oleksandra Brovko, CUTIS Senior Trade and Investment Policy Expert.

However, it should be understood that the Agreement includes certain exceptions for a range of products that can be exported without customs duties only within Canadian quotas (e.g. customs duties for poultry, dairy products, eggs and egg products, cheeses and sugar, when exported in quantities exceeding the quotas, may reach 150-300%). So, as we may see, the list of exceptions largely includes processed agricultural products, which are Ukrainian export priority.

‘Maple’ needs

The structure of Ukrainian exports to Canada is mainly comprised of ferrous metals and their products, fats and oils of vegetable or animal origin, oilseeds and oleaginous fruits, machinery, apparatus and mechanical devices, wood and wooden products, milk and dairy products, eggs and honey. The Canada – Ukraine Trade and Investment Support Project (CUTIS) has identified the following sectors of Ukrainian SMEs as priority ones for further export to Canada.

1. ІТ-services.
2. Apparel.
3. Footwear.
4. Furniture.
5. Chocolate and confectionery.

Moreover, some experts believe that frozen fruits and berries, juices, peppers, cabbage, soybeans, legumes, corn, mineral water, ceramic tiles and sports equipment may also be in a high demand.

However, there are also other assessments of the Canadian demand. According to analysts of the Allbiz International Center of Internet Commerce, requests received from Canadian counterparts had completely changed their focus and structure over the first six months of 2017 compared to the same period of 2016. The Top-3 list included orders submitted to breeding nurseries that breed various types of dogs, orders for tobacco for pipes and hookahs, as well as classic cigarettes.

It is notable that in 2016 orders that prevailed on the Allbiz were those from medium-size businesses for gift and souvenir products, ice hockey equipment for various educational institutions and sports facilities, industrial containers, safe boxes, as well as products made of flexible and tempered steel sheets.

Standards First and Foremost

To be exported to Canada some Ukrainian products should undergo compliance assessment. ‘For instance, some manufactured goods (clothes dryers, washing machines, dishwashers, freezers, electric cookers) are subject to mandatory certification. Meanwhile, apparel and footwear do not require certification (except special workwear, which should comply with established technical regulations). In any case, before entering the Canadian market, one needs to study regulatory requirements for a particular product (quality and safety requirements, standards and technical regulations, etc.)’- says Oleksandra Brovko.

CUFTA regulates certain issues, which ensure the mutual access of goods to the markets of both countries. This had to be done in view of different requirements on product quality and safety, labeling and certification. CUFTA has also addressed the rules for identifying and confirming the country of origin. All products should be fully manufactured or sufficiently processed or recycled in accordance with the prescribed rules of origin. As for sanitary and phytosanitary regulations, the countries shall apply the appropriate WTO regulations. Compliance with countries’ obligations in accordance with provisions of the WTO Agreement on Technical Barriers to Trade has been upheld.

Entering the Market

Entering the Canadian market should follow a number of standard procedures, including studying the level, structure and nature of demand for a particular product, assessment of competition, identifying product distribution channels, etc.  Moreover, one should also understand the Canadian business mindset.

«Canadians take their time to carefully study their future partner. They need time to test their partner by matching words to deeds. That is to reach a certain level of trust. Ukrainian businessmen need to promptly and adequately respond to queries and address all these little issues that may arise before a real business relationship is established. Canadians are cautious when choosing a partner – they are interested in the transparency of business, compliance of manufacturing with the environmental norms, energy saving procedures and corporate social responsibility. Canadians value accuracy, when they negotiate they do so to reach an agreement and make a decision and not simply to ‘discuss an issue’ – says Dmytro Kozonak, entrepreneur, member of the Canadian Ukrainian Chamber of Commerce.

The best way to enter the Canadian market for different products may be different. ‘Some foodstuff manufacturers were able to quickly establish business relations with the Canadian importers having only visited a single trade exhibition, without any preliminary contacts. For apparel and gourmet foods manufacturers, an agency scheme works well, in which it would be good to involve a member of the Ukrainian diaspora. For the В2В segment, an appropriate scheme would be to work through importers, distributors and small retailers. With large retailers it may prove difficult to start the relationship from scratch, if an enterprise has no basic voluntary certification (e.g. ISO). Distributors are open for niche products designed for specific ethnic groups’, – says Oleksandra Brovko.

At the start, it would be better to enter the Canadian market through a local partner company. The fact that the Canadian importer takes responsibility for the compliance with all the requirements to the product will make it considerably easier to enter the market. Canadian distributors who work with the supermarkets and small shops usually have their own warehouses in all provinces. Distributors often work on both the Canadian and US markets, which may be helpful for expanding the geographical scope of sales.

Ukrainian exporters may also use the services of CUTIS project and Export Promotion Office – a consultative body under the Ministry of Economic Development, which may help raise awareness as regards the Canadian market, obtain Canadian market analytics and export consulting services as well as assistance in promoting Ukrainian goods and services in Canada and developing cooperation with the Canadian businesses.

The Ukrainian diaspora in Canada, which numbers about 1.3 million people, is also helpful for doing business there. Overall, Canada is a country of migrants, and consumers’ tastes are quite diverse, which creates good opportunities for selling goods to various ethnic groups of buyers. Everything associated with Ukraine is perceived very well.

Useful links for those who would like to enter the Canadian market

    1. Full text of the Agreement (CUFTA)
    2. Requirements for food products
    3. Automated system on requirements for food product exporters
    4. Dairy products requirements
    5. Product labeling requirements
    6. Export requirements for agricultural products
    7. State agencies, whose permissions may be required for the export of goods 
    8. Export and Import Permits Act (regulates the issuance of export permits, specifies the level of tariff quotas)
    9. State agency controlling compliance with the rules of food import (Canadian Food Inspection Agency)
    10. Canadian customs (Canada Border Services Agency) 
    11. Export requirements
    12. Export quotas

Source: Aval Bank