On February 15, 2017, the European Parliament in Strasbourg approved the Comprehensive Economic and Trade Agreement (“CETA”) between Canada and the European Union (“EU”). CETA was signed by Canada and the EU in October 2016. The EU national parliaments must now approve CETA before it can take full effect; however, it is expected that the phase-in of the vast majority of its benefits will begin within weeks. (*1) Canada’s Senate must still ratify CETA (through Bill C-30). The provinces must then bring some of their laws into compliance, as necessary.
The Canadian government is promoting CETA as a deal that will provide a “competitive advantage for all Canadians” by boosting trade, creating jobs and allowing growth for small to medium sized Canadian companies by reducing barriers to trade. (*2) However, the deal has been met by strong opposition in both Canada and EU member states.
Once in force, CETA will reduce or eliminate 98% of tariffs on products imported to Canada from the EU and vice-versa, with the remaining 2% to be eliminated over 3-7 years. (*3) CETA also contains provisions governing other trade issues such as the ability of EU companies to bid on Canadian government procurement contracts and vice-versa, intellectual property rights, dispute resolution, maritime transportation and labour mobility. Here are some highlights of the deal:
Market Access for Goods
This section includes a commitment by Canada and the EU to lower or eliminate tariffs and to not apply restrictions or prohibitions (for example, regulatory or technical restraints) on the import or export of goods, and to treat imported products no less favourably than similar goods produced domestically. This applies to all sectors of the economy. As stated above, the day that CETA comes into force, 98% of Canada and the EU’s tariff lines will be duty free for originating goods traded between the two parties with the remainder being phased out over time. For example, duties on motor vehicle parts will be eliminated immediately, while those for trucks will be eliminated over 3 years. (*4)
There are also tariff rate quotas (TRQs) applied in certain cases. For example, frozen cod fillets are not one of the products where tariffs will be immediately eliminated; however a TRQ applies to 1000 tonnes of cod annually which can be imported duty free and any amounts in excess of the TRQ will be subject to the existing tariff until it is phased out over 7 years.(*5)
Of note, goods of a party that are sent to the other party for repair or alteration can re-enter on a duty-free basis after the repair is completed. However, for ships, boats and floating structures that re-enter Canada, the value of the repair or alteration to these goods is subject to customs duties as per Canada’s tariff schedule. (*6)
Rules of Origin
As stated above, the elimination of duties only applies to goods originating in Canada or the EU. Accordingly, CETA establishes procedures for determining whether a product satisfies this requirement by having undergone sufficient production in either Canada or the EU to be deemed originating. CETA requires that only the value of specific, key non-originating components be considered thereby minimizing the number of materials that must be tracked for origin purposes. (*7)
For example, for automobiles, CETA requires that they have 50% originating content in order to qualify for preferential treatment. This percentage will be raised to 55% after 7 years. CETA also has a TRQ in place allowing for up to 100 000 autos per year containing up to 70% of their value to be of non-Canadian components to be exported on a preferential EU tariff. (*8)
A certification of origin (origin declaration) must be completed by the exporter to enable the importer to claim preferential tariff treatment under CETA. This can take the form of a simple statement on an invoice indicating that the goods meet the rule of origin. The exporter, or importer, as applicable, upon request, must provide the declaration to either party’s customs officials. Importers, exporters and producers must maintain records that support the origin status of the product. (*9)
Sanitary Measures
CETA allows each party to maintain their right to take measures necessary to protect against risks to food safety, animal or plant life or health. However, it requires these measures to be science-based, transparent, and applied only to the extent necessary for protection, so as not to create an unjustifiable trade restriction. (*10)
CETA also recognizes distinct regional conditions in cases of pest or disease outbreak in Canada and the EU. Accordingly, import restrictions can be limited to the region affected rather than the entire territory of the exporting party. (*11)
Customs
Effective and efficient border measures expediting the movement of foods wile maintaining national safety and security are goals of CETA with respect to customs. Parties will be required to electronically publish all regulations, policies and requirements with respect to imports, exports and customs to allow easy access and transparency. CETA also allows goods to be released at the first point of arrival and importers may remove goods from the control of customs before the payment of duties and taxes. However, customs will retain the right to demand that the importer provide a guarantee of final payment either through a deposit or a surety. CETA includes a commitment by the parties to coordinate their different agencies to concentrate all import and export data and document requirements in a single location. (*12)
Investments
CETA prohibits the parties from imposing quantitative measures that may inhibit the ability of an investor to establish an investment. It specifically focuses on the number of enterprises to carry out an economic activity, the total value of the transactions or assets, the number of operations or the number of individuals employed. (*13)
The deal also requires the parties to provide each other’s investors with treatment that is no less favourable than that granted to their domestic counterparts or third country investors in like situations. Governments cannot unfairly discriminate against foreign investors in the application of their laws. (*14)
There are two Annexes to the deal that contain exclusions to the investment rules. For example, Canada has excluded areas such as social services, cultural industries, rights of socially disadvantaged peoples, aboriginal rights, fishing-related activities, and public utilities. Canada also maintains the ability to review major acquisitions from investors; the threshold is $1.5 billion. (*15)
A dispute resolution mechanism is also created. Parties are encouraged to use their domestic court system first and have up to 10 years to exhaust such remedies before a claim under CETA is barred. Additionally, mediation is encouraged as the time-bar clock is suspended while mediation is ongoing. Before resorting to arbitration under CETA, parties must request a consultation. Finally, Canada and the EU will appoint 15 members to a permanent Tribunal where cases can be heard before a division of the Tribunal, which is made up of a random selection of members. (*16)
Temporary Entry of Natural Persons for Business Purposes
CETA addresses administrative requirements including labour market tests or economic needs tests that impose time delays on business entrants. The requirements differ based on the purpose of entry (e.g. intra-corporate transfer, investor visit, contract service suppliers, independent professionals. CETA also includes the mutual recognition of certain professional qualifications by allows similar professional organizations to enter into mutual recognition agreements to facilitate the entry of professionals, irrespective of their training, citizenship or where they were educated. (*17)
Financial Services
In keeping with the general theme of CETA, the deal requires the parties to treat each other’s financial institutions no less favourably than they treat their own institutions or those of a third country. Exceptions to this are set out in Annex III. There is also a carve out to allow parties to take restrictive measures where reasonably necessary to protect their investors, policy holders and the integrity/stability of the financial system. (*18)
International Maritime Transport Services
CETA establishes that government measures affecting this sector (passenger and cargo and including the direct contracting of suppliers of other transport services) are subject to the investment provisions of the deal and includes an obligation not to maintain discriminatory measures in terms of accessing/using ports as well as their infrastructure. Some highlights of this section include obligations to allow maritime service providers to provide the repositioning of owned or leased empty containers on a non-revenue basis as well as feeder services for international cargo between ports in each other’s territory, a prohibition on cargo-sharing agreements with third countries and an obligation to provide these suppliers with the ability to contract directly with road and rail carriers for door-to-door multimodal transport operations. (*19)
Government Procurements
Finally, CETA allows companies from the other party to bid on government procurement contracts above a certain monetary value. This applies to contracts of a wide range of entities (e.g. central governments, sub-central, municipal, government enterprises, crown corporations). These entities are set out in Annexes to the deal along with the relevant monetary threshold. This allows Canadian suppliers “for the first time, guaranteed and secure access to opportunities to supply their goods and services to EU regional and local governments” and vice versa. Canada has also agreed to supply a single electronic point of access for procurement tenders. (*20)
Jaclyne Reive
Twitter: @jaclyne_reive
Blog: https://jaclynereive.wordpress.com
[Originally published in the Fernandes Hearn LLP Newsletter in February 2017]
Endnotes
(*1) “Against all odds, CETA, Canada’s trade deal with Europe moves forward. Now what?” The Globe and Mail, online: < http://www.theglobeandmail.com/report-on-business/economy/against-all-odds-ceta-moves-forward-now-what/article34031523/>
(*2) “Agreement Overview” Government of Canada, online: <http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/overview-apercu.aspx?lang=eng>
(*3) Ibid.
(*4) “CETA: Chapter Summaries” Government of Canada, online: < http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/chapter_summary-resume_chapitre.aspx?lang=eng>
(*5) Ibid.
(*6) Ibid.
(*7) Ibid.
(*8) Ibid.
(*9) Ibid.
(*10) Ibid.
(*11) Ibid.
(*12) Ibid.
(*13) Ibid.
(*14) Ibid.
(*15) Ibid.
(*16) Ibid.
(*17) Ibid.
(*18) Ibid.
(*19) Ibid.
(*20) Ibid.
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