Diversify your service exports by expanding to the EU

Over the past decade, global service exports grew at a robust annual average rate of 6.5%, outpacing nominal global GDP and merchandise exports. In Canada, service exports followed this trend with an average growth rate of more than 5%. 

While services present significant opportunities if you’re a Canadian exporter, the current global economic environment still poses significant downside risks. These include escalating trade tensions, growing protectionism and the prospect of a global recession. So, in an effort to mitigate their risks, many savvy businesses are expanding their service offerings to new international markets.

A service export is any service provided by a resident in one country to people or companies from another.

The top service exports ranked by size are:

1. Travel services (i.e. tourism)
2. Transportation services 
3. Professional and management consulting services 
4. Technical, trade-related and other business services 
5. Telecommunication and information services

The European Union (EU) has myriad opportunities for expanding service-based businesses. Already the world’s largest services importer—and the second-largest market for Canadian service exports behind the United States—the EU continues to be an attractive market destination for Canadian exporters across a diverse range of sectors. 

Commercial services represent 60% of Canada’s total service exports to the EU since the end of 2017 and are in particularly high demand throughout the EU. A sizeable opportunity for Canadian exporters, this category includes telecommunications services, financial services, maintenance and repair services, professional and management consulting services, and personal, cultural and recreational services. 

Areas that have seen significant growth in recent years include the audio-visual services industry, which has grown rapidly from export sales of $61 million Euros in 2010 to $408 million Euros in 2017, according to Eurostat. The maintenance and repair services sector has also experienced steady growth, with exports doubling since 2012. 

Entering any new export market comes with challenges, including finding new customers, dealing with competition from foreign firms, and recruiting and retaining skilled employees. Thanks to the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), many of these challenges have been mitigated with reduction or removal of significant trade barriers. 

CETA entered into force in September 2017, and as its name suggests, its reach is comprehensive, eliminating or reducing barriers in virtually all sectors of trade between Canada and the EU. Under CETA, 98% of EU tariff lines are now duty-free for Canadian goods. 

Regardless of your sector, if you’re a service exporter, several provisions in this agreement can help you accelerate your entry into the EU market. 

Watch the webinar: CETA - Your introduction to 500 million EU consumers.

Overall, CETA provides Canadian exporters of goods and services with unprecedented market access and gives them equal treatment to their European competition when bidding on EU contracts. This is an enormous advantage if you’re considering exporting your services to any of the EU’s 28 member countries. 

A fundamental principle of the EU, the free movement of labour is a key provision of the agreement. With CETA in place, you can now apply for temporary entry visas for your employees, allowing them to spend time in-market to conduct market research, define market requirements, perusing business development activities, etc. 

Canadian firms can also set up subsidiaries more easily in EU countries under the terms of the agreement, which is a major benefit. By establishing a local presence for your company in the EU, it’ll be much easier to engage directly with your customers, provide them with better customer service, and establish stronger business relationships. The new regulations also streamline transfers between firms, making it simple for you to relocate skilled employees from Canada to the EU to perform their work.

The removal of tariffs on Canadian goods is another major benefit of CETA that paves the way for growth in the exports of merchandise, which can also stimulate growth in exports of services that are often bundled with these products. This is especially true in the case of the high-tech sector, where machines or equipment are shipped with after-sales services (such as design, engineering and or/maintenance) accompanying it.

Another key provision concerns the rules for government procurement. Under CETA, Canadian businesses are now permitted to compete in procurement opportunities at multiple levels of governments of EU member countries. 

It’s worth noting this provision only applies to higher value procurement contracts to offer protection to local and small businesses in the EU. As a result, smaller Canadian firms will likely need to partner with larger firms to take advantage of this part of the agreement.

Beyond making it simpler for Canadian service exporters to do business in the EU, CETA also helps EU-based companies with manufacturing and other operations in Canada. This has the potential to benefit the Canadian economy by bringing investment opportunities and creating jobs, and as the EU and U.S. continue to face trade tensions, this gives EU companies greater access to the U.S. market as a result of the Canada-United States-Mexico Agreement (CUSMA).

• Canada-European Union Comprehensive Economic and Trade Agreement (CETA)
• CETA benefits already visible a year after its entry into force 
• Canada-EU: A larger Serving of Services Exports