Canadian Shipper

Feature

Flying High


After eight years of often tense negotiations, the 1600-page CETA (Comprehensive Economic and Trade Agreement) treaty between Canada and the 28-member European Union officially came into force on September 21. The lingering tag of “provisional implementation” simply indicates that all the market provisions for reducing and eliminating close to 96 per cent of all product tariffs become effective on that date.

The outcome of continuing talks on other outstanding investment and service sector issues and their resolutions will have no impact at all on the trade in goods or customs and duties terms that both sides have ratified.

For most Canadian Shipper readers, it will be “steady as she goes,” says Anders Fisker, president of Mississauga-based FCL Fisker Customs & Logistics. “I  cannot foresee any major changes in the transportation and logistics processes and procedures for Canadian exporters resulting from CETA.

“However, on the customs side, exporters now become responsible for supplying the Rules of Origin (RoO) data to ensure that Canadian products qualify for CETA duty reductions.”

Fisker’s daughter Christina, the firm’s Director of Customs and Compliance adds, “Although this is a new requirement, Canadian government officials have streamlined the process. Exporters can now add this information with just another line on basic commercial invoices rather than obtaining a separate declaration from a third party to confirm the Canadian content level of the exported product to ensure that it qualifies for the reduced or eliminated tariffs.

“Since EU customs officials in member countries may later perform audits to confirm the validity of the Canadian content claim, exporters must ensure they have the proper documentation to support their claims.”

While customs issues have dominated most of the headlines so far, Christian Sivière, a trade expert with Montreal-based Solimpex, thinks exporters and importers should closely examine the numerous potential CETA-related business opportunities and challenges.

“CETA is not just about saving money from eliminating or reducing tariffs. Companies should also re-examine their overall business strategy of dealing with their overseas customers and suppliers,” he says.

“Since the EU is closer to major markets in Central Canada than Asia, EU-sourced products can now move more quickly and with greater agility. As a result, Canadian exporters and importers may want to expand their marketing and sourcing efforts over there.”

According to Bob Sacco, GTA Trade and Customs Practice Leader at KPMG LLP, CETA may also shake up Canada’s domestic markets.

“Some companies may need to reconsider their marketing and pricing models, especially if their competitors can now import and sell EU products at lower prices thanks to reduced duties and paperwork.”

To take full advantage of CETA’s benefits, executives must do their homework says John Boscariol, a Toronto-based partner, at McCarthy Tétrault LLP. “The Canadian business community has not done much planning to deal with CETA’s coming into force. The first question they need to ask is, How does CETA affect our products and do they qualify for preferential entry? Except for products in various sensitive areas, all duties have been removed.”

Similarly, in the other direction, CETA opens up the Canadian market to European goods, the same way NAFTA did for U.S. and Mexican products.

Under CETA, EU bidders will be able to pursue Canadian government procurement deals. That includes for the first time, sub-national markets such as provincial and municipal buyers, which Boscariol estimates is worth $125 billion annually versus $25 billion at the federal level. At the top of the list is public transit equipment, hardware and systems, not to mention infrastructure projects.

Boscariol adds that the new CETA rules state governments can no longer discriminate against foreign product and service suppliers. Before, public-sector contract terms often excluded foreign suppliers outright or imposed tough compliance rules. The expanded pool of eligible suppliers will enable government buyers to increase their choices while saving time and reducing costs through more efficient and competitive procedures. But to take full advantage of CETA, buyers, sellers and government regulators need to become familiar with the new rules of the game.

As well, Canada can leverage its membership in both NAFTA and CETA to serve as a potential trading hub or transshipment point between the two trading blocs. To do so, Canadian firms must meet the relevant rules of origin or Canadian content levels for products moving through our supply chain pipeline to U.S. or EU customers. CETA’s reduced tariffs on automobiles and auto parts and RoO levels are one of the key wins for that sector.

Canadian-made goods shipped to the EU containing inputs from other nations will be permitted entry as long as exporters declar that the contents were “under their control.” However, CETA regulations place such foreign content data under the accumulation rule under which the Canadian exporter must state that level to meet the new RoO standards.

According to Sacco, even if some of the products contain sub-assemblies from Mexico, a NAFTA member that has also signed a free trade agreement with the EU, Canadian exporters must still declare the level of Mexican content to EU trade authorities. But after exporters become familiar with the new rules, keeping EU officials happy will become simpler.

Says Jack Mahoney President of Mississauga-based Maersk Line Canada, “Some of the verticals where we see the most potential in Canada are agriculture, aircraft and parts, beverages, chemicals, electronics, food, machinery and equipment, motor vehicles and parts, plastics, and rubber.

“An independent Conference Board of Canada study estimates that by 2020 CETA will increase our country’s EU merchandise exports by about C$1.4 billion.”

And yet, international trade rules often go well beyond adjusting tariff levels. Various product groups such as food, pharmaceuticals, military weapons and equipment each have their own standards and regulations. For example, EU concerns over how Canada would implement its new rules regarding cheese imports held up CETA implementation here even after it had received royal assent. Boscariol strongly suggests that Canadian firms look very carefully into how CETA will affect their products moving into and out of the EU.

CETA will also help boost transportation and logistics, efficiency and productivity at Canada’s Atlantic Ocean-facing ports and harbours—St John’s, Saint John, Halifax and Montreal. That’s because the new agreement will permit freighters from EU-flagged carriers to move empty containers between Canadian ports using their own ships and crews. The new rules only apply to EU-registered vessels, not those flying flags of convenience such as Liberia and Panama.

Under current regulations foreign carriers must use Canadian ships and crews for such repositioning. Says Tony Boemi vice-president, Growth and Development at the Port of Montreal, “The new rule enables eligible carriers to save time, money and effort to use their own ships and resources.

“For example, products such as fresh EU seafood and other seasonal goods can be delivered directly to the Port of Montreal for Canadian consumers. However, Atlantic Canada is the main source of our seafood exports to Europe. Thanks to CETA, eligible EU carriers will be able to move their empty containers more conveniently and at lower cost using their own resources to Atlantic Canada ports to be loaded with Canadian seafood products for EU consumers.”

Initially, logistics and transportation executives or customs brokers may need further assistance to get a firmer  grasp of CETA’s complexities. Their first stop should be professionals at various trade-related provincial and federal departments and agencies. These include Export Development Canada (edc.trade/ceta-opportunities-challenges) and Global Affairs Canada, especially its Trade Commissioners Service (tradecommissioner.gc.ca). The latter has offices in almost all 28 EU member countries and often several in the larger, more active markets.

Once executives become comfortable with CETA’s positive challenges, they will have to deal with future uncertainties related to discussions concerning the United Kingdom’s exit from the EU. British Prime Minister Theresa May has already invoked Article 50 which set the clock ticking for her country to leave the European Union by March 2019. But few observers believe that anything so drastic will unfold quickly.

And yet, says Boscariol, “If the UK leaves, despite Canada’s long historical, political and economic ties, our two countries will have to negotiate a new trade agreement since the UK will no longer be part of the European Union.

“If it indeed leaves the EU, CETA terms will no longer govern trade between Canada and the United Kingdom. Trade relations will revert to the earlier, less liberal most-favoured nation system of the World Trade Organization.”

Closer to home, talks aimed at updating NAFTA have already started. Since it was ratified in 1994, NAFTA has greatly expanded trade involving Canada, the U.S. and Mexico. For example, over that period, trade between Canada and U.S. has more than tripled. The two countries’ logistics and transportation systems, practices and networks are now tightly linked. However, since the tough-talking Trump administration has focused its attention on protectionism to boost employment in the U.S. manufacturing sector, future discussions could become testy.

The lessons that Canada’s transportation, logistics and customs practitioners and executives learn from adapting to CETA will come in very handy for dealing with future challenges.