The Canada-European Union Comprehensive Economic and Trade Agreement (the “Canada-EU CETA”) creates opportunities for Canadian manufacturers and exporters to sell into the European markets. On the date of provisional implementation, 98% of Canadian-origin goods will be able to enter European Union Members tariff free, compared to just 25 per cent today. We have prepared a chart of the European Union tariff elimination and reduction commitments in Annex 2-A of the Canada-EU CETA,
100% of non-agricultural goods (other than autos and auto parts) exported from Canada to European Union Members become duty free immediately. Most (94% of EU tariff lines on agriculture products) Canadian-origin agricultural goods become duty free immediately upon provisional implementation. This is true for many agricultural products, including everything from maple syrup to apples to cranberries. Some agricultural goods are exempted from tariff elimination, meaning that those limited items will enter the European Union at MFN rates of duty. Other agricultural goods (cheese, dairy, beef, veal, pork, etc.) will be subject to origin quotas and others will be subject to tariff rate quotas. Canadian beef and pork producers will benefit gradually, over a five-year transition period, from greater market access in the EU.
What does “provisional implementation” mean?
“Provisional implementation” means that all or almost all of the market access provisions for goods and services will be implemented as soon as the European Parliament and the Government of Canada have ratified the Canada-EU CETA. The effect of provisional implementation is that the non-controversial provisions (96% of the Canada-EU CETA provisions) go into effect even though there are outstanding issues relating to the investment chapter to resolve. There are EU Members who have concerns about the investor-state dispute mechanism and the competency of the EU Parliament to enter into a free trade agreement (rather than requiring EU Members Parliamentary approval).
To which countries may Canadian exporters sell CETA goods?
Canadian importers may benefit from the Canada-EU CETA duty relief commitments made in respect of imports originating in the 28 European Union countries, which are Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.
What does “Canadian-origin” mean?
In order to benefit from the preferential tariff rates that the EU has agreed to impose on Canadian goods, the goods must originate in Canada according to the rules of origin. “Originate” does not mean the good was shipped from Canada because the EU does not wish U.S. and Chinese goods to benefit from the preferences given under the CETA. Product-specific rules of origin, based on H.S. Classification numbers as at 2015 are set out in Annex 5 of the Protocol on rules of origin and origin procedures. The goods must meet the applicable rule of origin.
What Goods Are Subject to Tariff Rate Quotas?
Canadian Beef, veal and pork will be subject to tariff rate quotas imposed by the European Union. A tariff rate quota is an import mechanism whereby a set amount of a specific product(s) may be imported at a low or zero rate of duty.
What Goods Are Subject to Origin Quotas?
The following categories of goods are subject to origin quotas:
- Agricultural Products – articles containing high sugar (Table A.1 of Annex 5 of the Protocol on rules of origin and origin procedures)
- Agricultural Products – Sugar Confectionery and Chocolate Preparations (Table A.2 of Annex 5 of the Protocol on rules of origin and origin procedures)
- Agricultural Products – Processed Foods (Table A.3 of Annex 5 of the Protocol on rules of origin and origin procedures)
- Agricultural Products – Dog and Cat Food (Table A.4 of Annex 5 of the Protocol on rules of origin and origin procedures)
- Fish and Seafood (Table B.1 of Annex 5 of the Protocol on rules of origin and origin procedures)
- Textiles (Table C.1 of Annex 5 of the Protocol on rules of origin and origin procedures)
- Apparel (Table C.2 of Annex 5 of the Protocol on rules of origin and origin procedures)
- Vehicles (Table D.1 of Annex 5 of the Protocol on rules of origin and origin procedures)
You must review the specific charts to see whether the goods that you wish to export are subject to an origin quota.
What Are Origin Quotas?
This is a new concept for Canadians – origin quotas are not common in our free trade agreements. Origin quotas are good. Some goods contain non-originating materials/inputs. The Origin Quotas allow for some of those goods to enter the EU under the preferential tariff rate regardless of the foreign (e.g., U.S.) content.
An Origin Quota is a mechanism whereby a specified quantity of a specific processed product(s) can qualify as originating under the CETA, even if it contains non-Canadian and non-European Union sourced materials, provided that it has undergone sufficient production based on the alternative, less restrictive rule of origin associated with that Origin Quota. These products are considered originating and are thus eligible for the preferential tariff treatment that a Party provides under CETA.
Under CETA, for specified processed products to meet the CETA rules of origin and be eligible for preferential tariff treatment, the main rules of origin place restrictions or limitations on the use of specific non-originating materials or ingredients, while the alternative rules of origin provide the flexibility to use more non-originating materials or ingredients in the production of that product. Under the alternative rules of origin that apply to the Origin Quotas, producers can use more non-originating materials or ingredients than otherwise permitted under the main rules of origin.
Relying on the Origin Quotas to export preferentially to the European Union, is only necessary for products that do not satisfy the main product-specific CETA rules of origin or do not enter the European Union via a tariff line that is already Most-Favoured Nation (MFN) duty-free.
How Will Origin Quotas Be Managed?
This will be the subject of a subsequent post. We will tell you now that the EU will manage the origin quotas on a first-come first-served basis and shall calculate the quantity of products entered under these origin quotas.
There are many other important questions to ask – hopefully this gets you started asking questions. If you require any assistance, please contact Cyndee Todgham Cherniak at 416-307-4168 or Cyndee@lexsage.com. There are many useful articles posted on the LexSage website.