A new free trade agreement between Canada and the European Union, the CETA, or Comprehensive Economic and Trade Agreement, was signed in Brussels on Oct. 18 by Prime Minister Stephen Harper and EU President Jose Manual Barroso.
Following ratification of the deal, Canadian exporters could benefit from free access to EU markets if the deal succeeds in removing 98 per cent of EU tariffs on a wide range of Canadian products, including agricultural, seafood, metals and mineral products.
The deal would also allow Canadian automakers to export more cars and Canadian farmers to export more beef, pork and bison.
It’s expected the deal would also provide full elimination of duties on all non-agricultural goods, with 99 per cent of industrial goods duty free immediately (100 per cent after seven years), including forestry, chemical and plastic products that will be duty free on Day 1.
About 95.5 per cent of fish and seafood products will be duty free immediately (100 per cent after seven years), including live lobster, frozen lobster and frozen shrimp, 94 per cent of agricultural tariffs will be eliminated, with tariffs immediately eliminated from items including maple syrup, fresh and frozen fruits, cherries, fresh apples and cat and dog food.
Canadian beef producers will be able to sell 50,000 tonnes of beef; pork producers will be able to sell 81,000 tonnes of pork, and there will also be duty free, quota free access to the EU dairy market.
But after an internal EU analysis looking at the agreement, some analysts said that European Union exporters would save more than $670 million annually in duty payments compared with about $225 million annually for Canada’s, because the gap on tariff elimination is that Europe currently exports more to Canada than the reverse, meaning EU exporters currently pay more duties
Canada’s International Trade Minister Ed Fast said the federal government would more than make up for the lost $670 million in tariff revenues.
“We expect that the gains on the economy will more than outstrip the tariff losses. At the end of the day, this will be a net fiscal benefit to Canada,” he said.
Girish Nair, Market Manager, Intermodal International , with CN, who specializes in cold supply chain for foodstuffs and agroproduce, said that government policy supporting Canada’s role in the global food chain can only improve the situation for stakeholders.
“What’s happening today is we’re one of the top five producers for beef and pork globally. The way things are moving forward we’re seeing that Canada is playing a major role globally in the food supply chain,” he said.
In January 2012, Canadian beef access to South Korea markets was increased (to beef cattle aged up to 30 months), the Japanese market saw access increase from 20 months to under 30 months, and additional plants have been given clearance for export to China up to February 2014.
“The market is now potentially in the region of $110 million. As a result Canada is a very attractive economy for producers coming and investing. US investors are also coming in to expand some agro-food facilities.With the state of the economy the last couple of years the only way forward is through a comprehensive trade agreement with Europe with its population of over 500 million.We are already accessing this market through exports of horse meat, amounting to roughly 13,400 tonnes in 2011. If this market opens up we’re looking at a far bigger chunk in terms of horse meat and beef,” said Nair.
“Canadian exports to the EU faced tariffs as high as 14 per cent. Now we expect these to be eliminated completely,” said Nair.
The CETA agreement must still be fully ratified by governments on all sides (Canadian provinces and all EU member states), then will go through a further legal examination and translation into 20 languages.
Two years is a conservative estimate for this process, said Laura Dawson, a trade expert with the The Fraser Institute think tank. Dawson said the completion of negotiations for the CETA is a major economic milestone for Canada, which could produce gains of up to $12 billion a year.
“In terms of strategic benefits, by completing an agreement with the EU before the United States, Canada has first-mover advantage. It is likely that the U.S.-EU agreement will utilize the Canadian agreement as a template so Canada can have some assurance that the U.S.-EU negotiations will not stray too far from our interests,” Dawson said in an editorial for Troy Media.
“Access to the EU’s $2.7 trillion government procurement market is a huge plus for Canada. (Think of buses, trains, engineering and construction services.) Yes, Canada, will have to give up some of its local preferences in exchange but many European companies are already considered “locals” in government procurement terms because they have a Canadian branch office. Canada’s smaller companies tend not to have the capacity to locate overseas and must compete from afar. Access to the EU procurement market will open a new universe of opportunities for our companies,” she said.
The negotiation of a little-talked-about side agreement called a Strategic Partnership Agreement (SPA) could also delay the CETA deal.
The SPA includes commitments on peace and security, protecting human rights and sustainable development that have never been included in any of our trade agreements with other countries, Dawson commented.
“Canada’s existing free trade agreements include side agreements on labour, the environment and even human rights, but these commitments are the sorts of things that Canada does as a matter of course. The SPA is quite different. In an effort to add heft to its foreign policy influence around the world, the EU requires that all trading partners sign the SPA and that failure to comply will result in a suspension of CETA benefits.
While the Canadian government may agree with the principles of the SPA, the scope and implications of the agreement and its restrictions on Canadian sovereignty may be more than this government is willing to swallow,” said Dawson.
EU market access for autos is another important gain. It was uncertain during the negotiations how Canada was going to get export access it could use because there is no such thing as a purely Canadian car. All vehicles produced here have a significant percentage of foreign (mostly American or Mexican) content.
“CETA appears to provide a liberal enough interpretation of origin rules that some 100,000 of Canada’s NAFTA-mobiles will be accepted duty-free every year,” Dawson said.
This will surely be a boost for the automotive industry in Canada. Toyota’s Yaris make of automobile, manufactured in France, transits through the Port of Halifax to markets in eastern Canada, Quebec, and Ontario.
Jean-Roch Hamel, Account Manager, Automotive, for CN, which operates the Autoport facility out of the Port of Halifax, said the advantage of Halifax is its close proximity to the final market compared to the US eastern seaboard ports.
“The second advantage is the availability of rail car supply. We bring in railcars with other vehicles to be unloaded, and our transit time out of Halifax to Quebec, Montreal, Toronto is very good. For lower volume destinations, the advantage is they can co-load on the same railway,” he added.
CN provides value-added services through its Autoport facility.
“For the Yaris, each vehicle gets some work. We add some fuel to the tank, the radio, and the user guide/manual. With some of the other manufacturers we do vehicle prep when the car gets off the boat. Some manufacturers will do a special program on the vehicle, which could go from installing a radio to GPS s
ystems. If someone wants a high end vehicle in a different colour we will also do special paint jobs for them,” he said.
While it’s early days, Hamel said with the CETA free trade agreement “we anticipate some activity on the export side to Europe, and opportunities for some of the manufacturers with plants in Canada to use the Port of Halifax as a gateway to Europe.”
“We have at least one vessel coming from Europe loaded with different European vehicles. These vessels go down the US eastern seaboard and back to Europe almost empty, so there’s the opportunity to reload product out of Halifax going back to Europe,” he added.
Aside from deals such as the CETA, the EU also has plans to change tariffs for developing countries, reducing the number of nations eligible for its Generalised System of Preferences from 177 to 90, which some suggest gives preferential access to the world’s poorest countries while removing high and upper-middle income countries from the trade benefits altogether.
In terms of its customs regime, however, the European Commission has proposed standardizing customs penalties across the European Union, harmonizing offences and recommended fines and fees.
The aim is to create a more level playing field for businesses and a more uniformly managed customs union. Across the 28 states the penalties for customs offences currently vary. Sanctions would be levelled in the case of unpaid duties, a failure to declare goods, falsified or incorrect documents, the unauthorized removal of goods from the customs area, and other offences.
Punishment for minor customs violations, such as inadvertent errors, could be equivalent to one per cent of the value of the goods being shipped.
For the most serious offences, the EC proposes to levy a fine of 30 per cent of the goods’ value.
The commission said these fines would also take into account “the nature and circumstances of the infringement, including the frequency and duration, whether a trusted trader is involved, and the level of tax evasion.”
The EU and the International Road Transport Union, meanwhile, following a third conference together in Vilnius, Lithuania this fall, announced they would continue to focus on amending appropriate weights and dimensions rules to allow aerodynamic efficiency gains and road safety improvements for vehicles and equipment, and to promote efficient connections between modes.
“Countries want to have long-lasting and reliable transport and logistics policy across international borders. Participants should develop more effective and streamlined mechanisms for international road transport and trade facilitation,” said Rimantas Sinkeviius, EU Transport Council President and Minister for Transport, Republic of Lithuania.
“It should be remembered that commercial road transport is the only transport mode which provides door-to-door service and complements all other modes and so I welcome the recognition of the need for even closer partnerships with the road transport sector in order to meet today’s challenges.I can only stress how such close co-operations are necessary to challenge for instance unilateral decisions taken by countries to change their compliance with international agreements, such as the United Nations TIR Convention,” said Janusz Lacny, IRU President.