Canada-U.S. Blog Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Canada Announces Canada-EU CETA Cheese Quota Rules

Posted in Agriculture, Canada's Federal Government, Canada-EU CETA, Cross-border deals, Cross-border trade, Customs Law, Imports Restrictions, origin

Retailers, distributors, restaurants, domestic producers and others have been anxiously awaiting the Government of Canada’s announcement on the process for Canada-European Union Comprehensive Economic and Trade Agreement (“Canada-EU CETA”) cheese quota.  The Canada-EU CETA was originally to be provisionally implemented on July 1, 2017 and this start date was delayed due to a disagreement over Canada’s proposed approach to the allocation of the Canada-EU CETA cheese quota. The provisional implementation date is now scheduled to be September 21, 2017 (barring any new obstacles).

On August 1, 2017, the Government of Canada announced the “Opening of the application period for the new [CETA] tariff rate quotas (TRQ) for cheese” and Notice to Importers, SER No. 895 (August 1, 2017) “CETA Cheese Tariff Rate Quota” and Notice to Importers, SER No. 896 (August 1, 2017) “CETA Industrial Cheese Tariff Rate Quota”.  These documents set out Canada’s process to allocate the hard negotiated new/additional EU cheese quota (that is new cheese quota over what is already available). It is not known whether the European Union is happy with the allocation method.  If not, this may be the first dispute under the Canada-EU CETA.

The CETA cheese quota process favours domestic manufacturers (many located in Quebec) and small to medium sized enterprises.  It cannot be said with certainty whether the entire new EU CETA cheese quota will find its way to the eager tummies of Canadians. Before the cheese can arrive, there is a new process for the allocation of the CETA cheese quota to quota holders that must take place. Whether the EU will be upset will depend in large part on how the CETA cheese quota process runs and who gets the allocations on October 2, 2017 and subsequent years.

The Canadian CETA cheese quota rules announced today include:

  1. Imports of cheese into Canada are subject to import controls under the Export and Import Permits Act and Import Control List.
  2. Importers who obtain tariff rate quota will be able to import EU-origin cheese duty-free.  Non-EU-origin cheeses (e.g., Swiss cheese or American cheese) cannot be imported under this process.
  3. Global Affairs Canada will oversee the process to allocate tariff rate quota for EU cheese and the issuance of specific import permits.
  4. Any person who receives tariff rate quota must apply for and obtain a specific import permit for the cheese to be imported. The import permit will require information about the exact quantity of cheese being imported in the shipment.
  5. The Canada-EU CETA contains rules of origin for cheese.  The cheese must originate in the EU (according to the Canada-EU CETA rules of origin) in order to qualify under the EU cheese quota.  Rules of origin are based on H.S. classification numbers.  One of the rules of origin for cheese is:

    “A change from any other chapter, except from dairy preparations of subheading 1901.90 containing more than 10 per cent by dry weight of milk solids, provided that:
    (a) all the material of Chapter 4 used is wholly obtained, and
    (b) the net weight of non-originating sugar used in production does not exceed 20 per cent of the net weight of the product.”

    Check the specific rules of origin for the type of cheese you wish to import.

  6. The new EU cheese tariff rate quotas will normally extend from January 1 to December 31 inclusive. However, since the agreement is being been provisionally applied as of September 21, the quantity available to allocate under each TRQ (that is, (1) High Quality Cheese/Producer/Distributor/Retailer TRQ and (2) Industrial Cheese/Further Producers TRQ) in 2017 will be prorated on the basis of the number of days remaining in the year.
  7. Global Affairs Canada has established a process to apply for CETA cheese quota.
  8. The application deadline for 2017 CETA cheese quota is September 8, 2017. The application form can be found on the Global Affairs website.  A sworn affidavit and a letter from an independent qualified professional must accompany the application. In addition, the applicant must provide a monthly breakdown of their activities in the cheese sector.
  9. The applications must be sent to Global Affairs Canada.
  10. The 2017 CETA cheese quota allocations will be announced on October 2, 2017.
  11. Immediately after the 2017 CETA cheese quota is announced, the allocation process for 2018 CETA cheese quota will commence. The application deadline for 2018 CETA cheese quota is October 2, 2017.
  12. Global Affairs Canada will look at activity in the October 1 to September 30 period each year when deciding to allocate CETA cheese quota.
  13. There are two categories of cheese TRQs: (1) High Quality cheese; and (2) Industrial cheese.
  14. Failure by an applicant to provide any information requested by Global Affairs Canada, or failure to comply with any condition of an allocation or permit issued pursuant to the EIPA, may result in the rejection of the application for an allocation under the CETA cheese TRQ, the reduction or cancellation of an allocation issued pursuant to the EIPA, or the cancellation of associated permits.
  15. High quality cheese covers cheese included in Items 141 to 157 on the Import Control List.
  16. The access quantity for the CETA high quality cheese TRQ will be phased in over five years, in six installments:
2017 745,299 kilograms The amount of 2,667,000 has been prorated for September 21 – December 31
2018 5,333,000 kilograms
2019 8,000,000 kilograms
2020 10,667,000 kilograms
2021 13,333,000 kilograms
2022 and after 16,000,000 kilograms

17. The TRQ allocation method allows for new entrants each year. “New Entrant” means:

“For the first five years following the provisional application of CETA, an eligible applicant who is not an allocation holder under Canada’s cheese TRQ under the World Trade Organization (WTO).

As of Year six following the provisional application of CETA, an eligible applicant who is not an allocation holder under Canada’s WTO cheese TRQ or did not receive an allocation of the TRQs established under CETA in the preceding yearA new entrant keeps this status for 3 years.”

18. During the phase-in period from 2017 to 2021, at least 30 percent of the TRQ will be available to new entrants every year. After the end of the phase-in period from 2022 and in subsequent years, at least 10 percent of the TRQ quantity will be available for new entrants. As a result, the new entrants quota for High Quality Cheese is as follows:

 

2017 223,589 kilograms
2018 1,599,000 kilograms
2019 2,400,000 kilograms
2020 3,200,100 kilograms
2021 3,999,900 kilograms
2022 and after 1,600,000 kilograms

 

  1. This means that 70% of the CETA High Quality cheese quota will go to existing cheese quota holders.
  2. CETA High Quality Cheese quota will be allocated between two groups: (1) Cheese manufacturers (an establishment that manufactures cheese in its own provincially-licensed or federally-registered facility. “Small/medium-sized Cheese Manufacturer” means a cheese manufacturer whose annual use of milk for cheese production is 50,000,000 litres or less); and (2) Distributors (an establishment that buys cheese and resells it to other businesses) and retailers (establishment that buys cheese and sells it directly to final consumers).
  3. Global Affairs Canada will allocate CETA High Quality Cheese quota as follows: (1) 50% to cheese manufacturers group; (2) 50% to distributors and retailers group, (3) 30% to small and medium sized enterprises (an eligible applicant whose allocation under its group and pool would amount to less than 20,000 kilograms); and (4) 20% to large distributors and retailers.
  4. The amounts to be allocated are:

 

Cheese Manufacturers Large Distributors and Retailers Small and Medium Distributors and Retailers
2017 372,650 kilograms 149,060 kilograms 223,590 kilograms
2018 2,666,500 kilograms 1,066,600 kilograms 1,599,900 kilograms
2019 4,000,000 kilograms 1,600,000 kilograms 2,400,000 kilograms
2020 5,333,500 kilograms 2,133,400 kilograms 3,200,100 kilograms
2021 6,666,500 kilograms 2,666,600 kilograms 3,999,900 kilograms
2022 and after 8,000,000 kilograms 3,200,000 kilograms 4,800,000 kilograms

22. The High Quality Cheese TRQ will be allocated on a market share basis.  Eligible appliants will receive an allocation proportional to their respective market shares in relation to the total market share calculated under the High Quality Cheese TRQ.

23. Companies applying for CETA High Quality Cheese quota must pick a lane. They must pick either (a) cheese manufacturers or (b) distributors and retailers.

24. Canadian cheese manufacturers will be divided into two pools:

  • A pool for small and medium sized cheese manufacturers; and
  • A pool for large cheese manufacturers.

25. No one can get more than 20% of the eligible quota.

26. Allocations of under 1,000 kilograms will normally not be issued.

 

Industrial Cheeses

27. Industrial cheese is cheese used as an ingredient for further processing (secondary manufacturing).

28. Global Affairs Canada will allocate CETA industrial cheese quota to Further Processors. Further Processors are an establishment that uses cheese as an ingredient in the production of further processed food products, other than cheese, in its own provincially-licensed or federally-registered processing facility. Food service establishments (e.g. restaurants) are not considered to be further processors

29. The access quantity for the CETA industrial cheese TRQ will be phased in over five years, in six installments:

 

2017 79,085 kilograms The amount of 283,000 has been prorated for September 21 – December 31
2018 567,000 kilograms
2019 850,000 kilograms
2020 1,133,000 kilograms
2021 1,417,000 kilograms
2022 and after 1,700,000 kilograms

 

30. The TRQ allocation method allows for new entrants each year. “New Entrant” means:

  • For the first five years following the provisional application of CETA, an eligible applicant who is not an allocation holder under Canada’s cheese TRQ under the World Trade Organization (WTO).
  • As of Year six following the provisional application of CETA, an eligible applicant who is not an allocation holder under Canada’s WTO cheese TRQ or did not receive an allocation of the TRQs established under CETA in the preceding year.

31. A new entrant keeps this status for 3 years.

32. During the phase-in period from 2017 to 2021, at least 30 percent of the TRQ will be available to new entrants every year. After the end of the phase-in period from 2022 and in subsequent years, at least 10 percent of the TRQ quantity will be available for new entrants. As a result, the new entrants quota is as follows:

 

2017 23,725.5 kilograms
2018 170,100 kilograms
2019 255,000 kilograms
2020 339,900 kilograms
2021 425,100 kilograms
2022 and after 170,000 kilograms

 

For more information, please contact Cyndee Todgham Cherniak at 416-307-4168 or at cyndee@lexsage.com. See also “Say Cheese; European Cheese Will Soon Be Available Under Canada-EU CETA”. Alternatively, visit www.lexsage.com.