On January 26, 2008, Canada announced that the Minister of International Trade and the Leaders of the European Free Trade Association (EFTA) Countries (Iceland, Lichtenstein, Norway, and Switzerland) signed a free trade agreement in Davos, Switzerland. Canada had announced the conclusion of the negotiations of the Canada-EFTA Free Trade Agrrement (FTA) (CEFTA) on June 7, 2007. During the last seven months, the FTA was being scrubbed by the parties to the CEFTA.

To view the Department of Foreign Affairs and International Trade news release, please click here. The CEFTA is Canada's fifth free trade agreement (after the North American Free Trade Agreement (NAFTA), Canada-Chile Free Trade Agreement (CCFTA), Canada- Israel Free Trade Agreement, Canada-Costa Rica Free Trade Agreement).

The CEFTA is a different model than Canada's previous free trade agreements. The CEFTA is significantly shorter and less comprehensive than the NAFTA or the CCFTA. It appears at first glance that the CEFTA is even less comprehensive than the Canada-Costa-Rica Free Trade Agreement.

The CEFTA covers:

  • trade in goods (tariff elimination and reduction, prohibition of import and export restrictions)
  • rules of origin (in an Annex)
  • customs measures (in an Annex)
  • technical barriers to trade (follows WTO TBT Agreement and other previous agreements between Canada and EFTA countries)
  • sanitary and phyto-sanitary measures (follows WTO SPS Agreement)
  • temporary entry
  • trade in services (no new commitments – will undertake discussions on further liberalization under the WTO GATS Agreement within three years)
  • competition law and policy
  • antidumping (follows WTO Anti-Dumping Agreement)
  • emergency safeguards
  • government procurement (follows WTO Agreement on Government Procurement)
  • dispute settlement
  • institutional provisions
  • exceptions and safeguards

To view a copy of the text of the CEFTA, please click here.

Two of the most contentious areas of the negotiations were the elimination of reduction schedules for: (1) tariffs on ships, boats and other floating structures; and (2) fishery products. The shipbuilding and fisheries industries are the industries with the greatest overlap between Canada and the EFTA countries.

Article 10 of the CEFTA sets out the general rule that tariffs on imports of most goods into Canada from the EFTA countries (and tariffs on imports from Canada into the EFTA countries) will be eliminated immediately upon the coming into force of the CEFTA. The exceptions to the general rules are set out in Article 10 and Annexes, E, F, G and H.

Annex E sets out the agreement on tariff reductions on ships, boats and floating structures. Most importantly, Annex E provides one-way protection to the Canadian shipbuilding industry which gets immediate full access to the EFTA Countries' markets and maintains certain protection in the Canadian market from imports from the ETFA countries. The phase-out schedule for imports into Canada from the EFTA countries is 15 years for some ships, boats and floating structures and 10 years for certain other ships, boats and floating structures. In the case of the 15 years reduction schedule, the tariffs will be reduced in 13 equal installments starting three years after the CEFTA comes into effect. In the case of the 10 years reduction schedule, the tariffs will be reduced in eight equal installments starting three years after the CEFTA comes into effect. To review Annex E, please click here.

Annex F sets out a short list of goods falling in H.S. Chapters 25-97 that are excluded from coverage of the CEFTA. This is a negative list because all goods in H.S Chapters 25-97 receive the benefit of immediate reciprocal tariff elimination unless the good appears on the Annex F excluded list. To review Annex F, please click here.

Annex G sets out a list of agricultural goods covered by H.S. Chapters 1-24 that benefit from immediate tariff relief. Annex G identifies the immediate reduction to zero percent tariffs on a country by country basis. This is a positive list because if the good is on the list, then the tariffs are immediately eliminated as indicated. If a good is not on the list, then the tariffs are not being eliminated immediately. To review Annex G,please click here.

Annex H sets out a list of fish and marine products that will benefit from immediate tariff relief. This list is a positive list because if the fish or marine product is on the list, the tariffs are eliminated as indicated. If the fish or marine good is not on the list, then the tariffs remain in place. To review Annex H, please click here.

The news release reports Canada's trade with EFTA Countries is significant:

"The EFTA countries are significant economic partners for Canada. Taken together, this group represents Canada's eight largest merchandise export destination. In 2006, two-way merchandise trade was valued at $10.7 billion, while two-way investment reached more than $22 billion."

Canada has not entered into bilateral investment treaties (called Foreign Investment Promotion and Protection Agreements) with any of the EFTA countries. Canada has income tax treaties with Iceland (June 19, 1997), Switzerland (signed May 5, 1997), and Norway (new treaty signed July 12, 2002). Canada does not have an income tax treaty with Lichtenstein.

The United States has not signed a free trade agreement with the EFTA countries. The rules of origin will determine whether goods manufactured at a Canadian manufacturing plant of a U.S. company will qualify for the preferential tariff eliminations and reductions when goods are sent to an EFTA country. There may be important opportunities for U.S. businesses with activities in Canada.

This article first appeared as a blog entry on the tradelawyersblog.com, posted by Cyndee Todgham Cherniak on January 26, 2008.