The Comprehensive Economic and Trade Agreement (“CETA”) between the European Union and Canada will further reinforce bilateral economic ties.
Way clear for provisional application
The European Parliament and the Canadian upper and lower houses all voted to green-light CETA. On 16 May 2017, the trade deal was even granted Royal Assent. The way is thus clear for provisional application of the free trade agreement. In practical terms, this means that large parts of the agreement will be legally effective in the near future. While it is technically possible for the provisional application to commence as early as the month of June, a start date in July 2017 seems more likely.
- Tariff elimination: On the date of provisional implementation, 98 percent of Canadian-origin goods will be able to enter the European Union free of tariffs. Currently, only about 25 percent of EU tariff lines on which Canadian goods are exported enter the European Union duty-free. Once CETA is fully implemented, seven years after entering into force, approximately 99 percent of the EU’s tariff lines will be duty-free. Significant opportunities for Canadian businesses are therefore in sight. Canadian goods that face tariffs today – on everything from machinery to maple syrup – will become more competitive in the European Union market.
- Removing technical barriers to trade: Canada and the European Union share a desire to keep customs procedures simple, effective, clear and predictable so as to make the movement of goods cheaper, faster and efficient. CETA will increase regulatory cooperation by easing technical barriers such as labelling, testing, and certification requirements. In particular, small and medium sized enterprises are likely to benefit from CETA commitments on customs and trade facilitation, which are aimed at reducing processing times at the border. CETA also includes a protocol on conformity assessment, which will allow Canadian companies in certain sectors to have their products tested and certified for the European Union market at home in Canada.
- Increasing access to government procurement: CETA will significantly bolster the ability of Canadian companies to compete in the European Union procurement market. CETA will grant opportunities at all levels of government, including the Member State governments, thousands of regional and local government entities and a large array of entities operating in the utilities sector.
- Trade in services: According to the Government of Canada, CETA accords Canadian service suppliers the best market access the European Union has ever granted to any of its partners. Canadian suppliers in most service sectors will be on equal footing with their European counterparts and will receive better treatment than most of their non-EU competitors. Particularly, CETA uses a negative list approach, meaning that all services sectors are covered unless explicitly listed as otherwise. Accordingly, CETA helps Canadian service providers enjoy better predictability and transparency when exporting services to the European Union.
Outlook: Next challenges in sight
As a so-called “mixed” agreement, CETA will only definitively and completely enter into force after it has been ratified by all Member States of the European Union. Given the critical nature of the debate in some Member States – Belgium is but one example – and bearing in mind that about 38 parliaments and several courts have to give their consent to the agreement, the final ratification could also fail.
Address risks and seize opportunities
CETA presents a tremendous growth opportunity for Canada’s business. Plus, given the low prospects for a free trade agreement between the European Union and the United States in the near future, US companies could utilize Canada as a point of entry or “gateway” into the European Union market. Though NAFTA and CETA are two separate free trade agreements with their own regulations, US companies are in a position to take advantage of both. Semi-manufactured US goods could be transported to Canada, where sufficient Canadian content could be added to qualify for preferential treatment according to CETA. Some US companies may even wish to consider shifting part of their manufacturing to Canada to create Canadian-origin products entitled to duty-free entry into the European Union.
Free trade agreements are growing in number, which corresponds to the growing importance of strategic supply chain management. At the same time, the European Commission is keen to emphasize that CETA does not lower or change standards protecting people’s health and safety or the environment. These standards will remain untouched and imports from Canada will have to meet them.