Trade ties expected to grow

WHILE several Canadian companies are already active in Slovakia it is expected that the free trade agreement between Canada and the European Union would bring, gradually, some added benefits to Slovakia.

WHILE several Canadian companies are already active in Slovakia it is expected that the free trade agreement between Canada and the European Union would bring, gradually, some added benefits to Slovakia.

“Canada’s economic engagement with Slovakia is significant and there is room for ongoing improvement in bilateral trade in goods and services,” Canadian Chargé d’Affaires in Slovakia, Kathy Bunka, told The Slovak Spectator.

This relationship will grow with the entry into force of the Comprehensive Economic and Trade Agreement (CETA), the first trade agreement the European Union has concluded with a G7 partner.

The Canadian Embassy pointed out a 2008 Canada-EU joint study showing that the EU could expect a 20 percent boost in bilateral trade and a €11.6 billion annual increase to the EU economy.
Negotiations on the CETA text were completed on August 5, 2014 and on September 26 Canadian Prime Minister Stephen Harper met with EU leaders to formally conclude the end of CETA negotiations. The final negotiated text is available on the internet. Now a legal review of the text is underway and once this is completed and the text is translated into 22 additional languages, Canada and the EU will proceed with their respective processes for ratification and implementation of the agreement.

“The finalization of negotiations sends a strong signal to exporters and investors of both economies that Canada and the EU are open for business, and that the opportunities created by this historic agreement will soon become available,” Bunka stated.

From the economic point of view, liberalisation of foreign trade brings an increase in bilateral trade and thus also acceleration of economic growth, Zdenko Štefanides, chief analyst at VÚB Banka, told The Slovak Spectator.

“By lifting barriers in mutual trade the countries can specialise in sectors in which they have a relative competitive advantage,” said Štefanides, adding that as a consequence both countries are generally better off.

In this respect he stated that in economic jargon international trade is not a zero-sum game. He added that there are sectors that the free trade agreement might harm because currently they are protected by tariffs and other barriers without which they would not stand up to the international competition. But higher growth in sectors that would obtain access to a bigger market thanks to this agreement will exceed these losses and therefore the economies of both Canada and Slovakia would gain from liberalisation of trade.

Štefanides expects that Slovakia would begin to benefit from CETA gradually as individual barriers would be slowly removed.

“If I understand this well, in the sector of cars and car components a transition period of seven years will be applied before full liberalisation,” Štefanides said. “With respect to the fact that currently these products make up roughly three quarters of Slovakia’s exports to Canada, then it is obvious that it will take some years until Slovakia will fully benefit from the agreement.”

Štefanides added that after implementation of CETA more competition may come and there could be a drop in demand in some sectors that have been protected by tariffs and non-tariff barriers, noting that agriculture is an especially protected sector in the EU as well as in Slovakia.

Slovak-Canadian trade

Currently Canada is Slovakia’s 31st largest merchandise trading partner with bilateral trade reaching €239.7 million in 2013. Slovakia’s exports to Canada in 2013 were €150.7 million. Over the past decade, Canada’s exports to Slovakia have grown at an average annual rate of about 11.6 percent, a rate more than double Canada’s export growth rate to the EU in general, according to the Canadian Embassy.

Based on data from the Slovak Statistics Office, Slovakia reported a positive trade balance with Canada in 2012 as well as in 2013 when its exports to Canada amounted to €138.4 million and €150.7 million, respectively. Imports increased from €52.6 million in 2012 to €95.8 million in 2013.

Canadian investments

The Slovak Investment and Trade Development Agency (SARIO) has not reported any recent inflow of foreign direct investments from Canada to Slovakia as it monitors only investments via parent companies directly based in Canada, but based on enquiries over the last five years it is possible to see a growing interest by Canadian companies in Slovakia. SARIO also expects that CETA will increase interest of Canadian investors in the EU and thus also in Slovakia, Richard Dírer of SARIO told The Slovak Spectator.

Since the launch of SARIO in 2002 five completed projects have come from Canada, all in the automotive, machine engineering and mining industries. These investments have amounted to €43 million and currently employ 270 people. Right now SARIO is working on one investment project from Canada with the potential to create 150 jobs in Slovakia.

When presenting the investment environment of Slovakia, SARIO cooperates with the commerce departments at the Slovak Embassy as well as Slovak consulates in Canada as well as with the Canadian Embassy to Slovakia, Dírer told The Slovak Spectator. He recalled that SARIO representatives met with Lia Hiltz, a representative of the Canadian Ministry of Economy responsible for political affairs in the region of central Europe, Germany and Austria, at the beginning of 2014 in Bratislava. Last year SARIO also hosted the Commercial Club, a meeting of representatives of economic sections of embassies to Slovakia organised by the Office of the Embassy of Canada in Bratislava and SARIO. The agency’s representatives also attended an official visit by Canadian Foreign Affairs Minister John Baird in Slovakia on the occasion of the announcement of the expansion of the Canadian company Martinrea. Representatives of SARIO have also met with the new Canadian Ambassador to Slovakia, Mark Bailey, and the new Slovak Ambassador to Canada, Andrej Droba.

Investment statistics are notoriously inaccurate and unreliable due to the many different ways that companies currently operate, according to the Canadian Embassy. Nevertheless, the embassy says it can identify investments that total about €500-€600 million within a one hour drive of Bratislava.

Canadian companies in Slovakia are active in the automotive industry (Magna Slovteca, Martinrea Slovakia Fluid Systems and Windsor Machine & Stamping), real estate (Colliers International), food production (McCain Foods Limited), IT (CGI Slovakia), construction (IKO Slovakia) and others.

Canadian investment continues to grow, particularly in the auto parts sector. A new investor who arrived in eastern Slovakia in 2014 means that there are now five Canadian auto parts manufacturing plants in Slovakia, according to the Canadian Embassy.

“In addition we see indirect investment, for example in 2012 the Montreal-based ICT company CGI Group Inc. acquired UK-based Logica which has operations in Slovakia with over 100 employees,” Bunka said.

Plans are underway to create a Canadian Council of the American Chamber of Commerce – an organization that, in coordination with the embassy, will support Canadian companies and Canadian investment in Slovakia. The goal is to bring economic cooperation between Canada and Slovakia to a higher level.

The Canadian Embassy often hears from Canadian investors at the beginning of their search for a manufacturing operation or hub in Central or Eastern Europe. Many new investors start by looking at all the Visegrad countries – Poland, Hungary, and the Czech and Slovak Republics. They learn very quickly that SARIO in Slovakia provides a great deal of support, that the Slovak government offers generous incentive plans, and that there is a well-educated, highly skilled workforce.

“I have spoken with a number of Canadian investors who tell a similar tale: they knew very little about Slovakia at the beginning of their search but grew more interested in Slovakia as they learned more about the country and its investment climate,” Bunka said.

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