CETA Now In Force: Are You Maximizing the Benefits?

On September 21, 2017, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) comes into force on a provisional basis. If they haven’t already done so, it is now time for Canadian businesses to take steps to ensure that they are prepared to take advantage of the tremendous opportunities presented by the CETA.

HOW TO BENEFIT FROM CETA

Following are ways for Canadian businesses to benefit from the CETA provisions, mainly focusing on goods. However, CETA contains 30 chapters covering various subject matters. It is prudent for each Canadian business to consider how it may uniquely benefit from the CETA provisions that are now in force.

Tariff Elimination

Effective immediately on CETA implementation date, more than 98 per cent of Canadian tariff lines will become duty-free, with all tariff lines on non-agricultural goods being fully eliminated seven years after entry into force. Tariffs on products that will not become duty-free upon implementation will become duty-free over transition periods of four, six, or eight years.

Canadian importers should review CETA to determine whether EU-origin goods imported into Canada qualify for relief from customs duties — whether immediate duty-free treatment upon implementation, or staged duty reduction. Canadian businesses that are not already importing from the EU should consider possible supply chain changes in order to leverage CETA preferential tariff treatment.

In order to be able to claim reduced or “duty-free” treatment on goods traded between Canada and the EU on and after September 21, 2017, the goods must qualify as “originating goods” pursuant to the CETA rules of origin. The goods must meet one of three principal rules: be wholly obtained in a CETA party; be produced exclusively from originating materials; or be produced in whole or in part of imported materials that have undergone sufficient production in a CETA party — measured by shifts in tariff classification and/or other requirements — in accordance with tariff line-specific rules of origin.

For CETA purposes, proof of origin is established by an “origin declaration” rather than a certificate of origin (as is the case with the North American Free Trade Agreement (NAFTA)), which must be signed by the exporter and must be provided either on an invoice or any other commercial document that describes the imported goods in sufficient detail to allow the goods to be identified.  

Canadian importers should contact their EU suppliers to confirm whether the goods imported into Canada qualify for CETA preferential tariff treatment under the relevant specific rules of origin, and arrangements should be made for the suppliers to provide an origin declaration, or a commitment to provide such a declaration on invoices for the goods. Importers may also wish to amend existing supply agreements to require CETA origin certification, and include such a clause in all new supply agreements going forward.

Canadian exporters should also act now to ensure that the Canadian-origin goods they are exporting to the EU qualify for CETA preferential treatment, and should determine whether they are prepared to accept the potential liability involved in issuing a CETA origin declaration.

CETA allows importers who did not have an origin declaration at the time of importation to claim preferential tariff treatment under the agreement within three years of importing the goods, and to apply for a refund on any duty that was paid. This is a significantly longer refund period than that provided under NAFTA, which confines importers to making such a claim within one year of importation.

Tariff Rate Quotas

Canada currently controls the importation of supply managed goods (such as dairy products) by way of “tariff rate quota” (TRQ) allocations to qualifying applicants. TRQ holders are entitled to import supply managed goods at a low duty rate, while non-TRQ holders pay in the range of 245.5 per cent for cheeses. Canada has agreed to increase the amount of cheeses from the EU eligible for importation at the low rates, over a six-year period to 16,800 tonnes of cheese and 1,700 tonnes of industrial-use cheese. The increased allocations for the current year will be assigned to those applicants who filed requests by the deadline of September 8, 2017. Canadian exporters should explore opportunities to take advantage of EU TRQs, which apply to: processed shrimp, frozen cod, common wheat, fresh or chilled beef and veal, frozen or other beef and veal, pork, sweet corn and bison products.

Quota Goods

CETA allows limited quantities of certain specified goods to qualify as originating under less demanding product-specific rules of origin. These origin quotas are detailed in Annex 5-A of the agreement, and apply to certain textiles and apparel imported into Canada from the EU, as well as to the following types of goods exported from Canada to the EU: high-sugar containing products, sugar confectionery and chocolate preparations, processed foods, dog and cat foods, vehicles and certain fish and seafood.

Canadian businesses would do well to carefully consider whether they are in a position to take advantage of any of the available origin quotas, as the quotas represent an opportunity to benefit from CETA’s preferential tariff treatment in respect of goods that contain more than the usual amount of foreign content — for instance, vehicles exported to the EU under the applicable origin quota qualify for duty-free entry with as little as 30 per cent Canadian content, rather than having to meet the 50 per cent content rule required by the rule of origin.

Importers wishing to take advantage of the CETA origin quota for textiles and apparel are required to apply to Global Affairs Canada for an import permit. Depending on the type of goods at issue, exporters wishing to take advantage of the available CETA origin quotas may be required to apply to Global Affairs Canada for quota allocations and export permits.

Government Procurement

CETA expands the opportunities enjoyed by bidders in both the EU and Canada to bid on government procurements by the other party. The rules apply only in certain circumstances, namely: (i) procurements by a “covered entity”, (ii) that are in respect of specified goods, services or construction, which (iii) exceed certain minimum value thresholds.

The threshold for procurement of goods and services at the sub-central government level has been set at 200,000 SDR (SDR is an international reserve asset, created by the International Monetary Fund), or C$366,000, whereas the threshold for the central government level has been set at 130,000 SDR or C$238,000. The threshold for construction services at all levels of government is 5-million SDR or C$9.14-million.

Canadian businesses should explore this unprecedented opportunity to bid on EU procurement contracts by both central and regional government entities, bodies governed by public law (e.g., hospitals, schools, universities), as well as EU utilities.

Comment

The implementation of CETA presents an unprecedented opportunity for Canadian businesses. They are in a unique position of having guaranteed market access to two of the largest economies in the world — the U.S. market under NAFTA and the EU market under CETA. Canadian businesses have a comparative advantage over U.S. companies as the U.S. has no similar bilateral trade agreement with the EU. Canadian businesses should seize the opportunity to develop markets and distribution networks in the EU now that the CETA is in force and there is a tariff advantage over U.S. exporters and importers. Canadian businesses are likely to also be attractive targets for investors, whether from the U.S. or the EU, given Canada’s unique position in being a part of both the NAFTA and CETA free trade areas.

For further information, please contact:

Greg Kanargelidis                      416-863-4306
Zachary Silver                           416-863-2970

or any other member of our International Trade group.