CETA brings opportunities for Canadian and European Companies
September 21st marks the start of the provisional application of the new Comprehensive Economic Trade Agreement (CETA) between Canada and the EU. Under this new trade agreement, Canada is beginning to look more and more interesting as a place to invest and do business in and to provide access to the North American market.
According to the European Trade Commission, the total trade between the EU and Canada in 2015 was over 63.5 billion Euros, second only to the United States and greater than China, Mexico and the United Kingdom. With CETA, this is expected to increase and that more EU companies will invest in Canada in order to obtain preferential access to the United States and other markets through NAFTA and similarly, non-EU companies will invest in Canada to obtain preferential access to the EU and the United States. As long as a company has a meaningful operation in Canada and meets the rules of origin, it can take advantage of the benefits available under CETA.
There are a number of major benefits under CETA, many immediately available to Companies operating in Canada.
Tariff elimination for trade in goods
Currently only 25 per cent of EU tariffs on Canadian Goods are duty free. With the application of CETA, 98 per cent of EU tariff lines will become duty free for where the rules of origin are met. An additional 1 per cent will be eliminated over the next three, five or seven year periods. The main sectors to benefit from this are agriculture, forest and metal products, fish and seafood, automotive, and the oil and gas sector. In addition, CETA also has established a number or tariff rate quotas for various industries.
Trade in services and labour mobility
CETA allows for temporary entry provisions and allows for easier movement of workers. However, the temporary work rules will not allow permanent access.
Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market with certain restrictions. This is expanded from the previous only two levels of government.
Where products are recognized by their geographical location, this is known as a geographical indicator e.g. Parmigiano Reggiano. The list of agricultural products protected by geographical indicators has been expanded to include 179 originating in Europe.
Customs and trade facilitation
There is an objective to simplify and automate border procedures and include a system for addressing complaints.
The investment review threshold for EU enterprises acquiring control or disposing of a Canadian business has been increased from $600 million to $1.5 billion. EU enterprises controlled by other Nationals under Canada’s other free trade acts will be covered under this increased threshold. Canada still maintains its ability to review major acquisitions and investors are unable to challenge regulatory action. The Government retains the right to regulate in the public interest.
CETA includes a chapter dedicated to regulatory cooperation to ensure good regulatory practice. There is additional protection for patented inventions particularly in the pharmaceutical industry.
What are the rules of origin
Under CETA, it is important that a product’s originating status be clearly defined in order to ensure that the benefits of CETA accrue only to Canada or the EU. As defined, a “product must have undergone sufficient production in either Canada or the EU to be deemed originating for the purposes of the agreement.” The agreement includes an annex listing product specific rules of origin. Hence, a non-EU or Canadian company can set up a manufacturing facility within Canada and still meet the rules of origin and qualify for the benefits under CETA.
Certain products have been given more liberal rules subject to annual limits. This includes certain fish and seafood products, textiles and apparels, passenger vehicles, and certain agricultural products.
Certain areas will be tariff free (either immediate or phased out), but be quota limited. This includes certain agricultural products e.g. Beef and pork. Automotive has been given specific rules of origin with tariffs being immediately eliminated on automotive parts the rules of origin limited to 50 per cent originating content to qualify for the preferential treatment, and 55 per cent after 7 years. In addition, 100,000 automobiles per year containing 70 per cent of value or 80 per cent of cost of non- Canadian components will still qualify for preferential treatment.
Finally, two tariff rate quotas were announced on August 2, 2017 including a 16million kg quota covering cheese of all types and a 1.7kg quota for cheese in food processing both to be broken down half to manufacturers and half to distributors. Because of the outcry from Canadian dairy farmers and processers of this 50/50 allocation between retail and manufacturers, to offset these two programs aimed at helping cheesemakers and dairy farmers were announced. This includes a 5-year $250 million dairy farm investment program and a 4-year $100 million Dairy processing investment fund for capital investment.
Trade agreements are an important accelerator to global exports and as the number of trade agreements has increased so has the volume of exports globally. In addition, with costs of supplies increasing globally, companies will not be as motivated to split their supply chains throughout various countries as they have in the past. Rather, the “global companies that survive will be the ones that invest in the economies of their host countries and take a nationalistic approach when looking to expand to new markets.” Global trade as a proportion of the global economy has been dropping since 2009. At the same time, protectionist measures have been increasing. This is evident with examples like Brexit and the NAFTA renegotiations. In this context, trade agreements like CETA become increasingly important.
With NAFTA currently under renegotiations, it is important to note that access to the U.S. and Mexico markets could disappear should NAFTA be disrupted in anyway. This may seem unlikely, but something to consider.