For companies that trade in goods, the Canada-EU Comprehensive Economic and Trade Agreement (CETA) offers new market access opportunities in Canada and the European Union. By eliminating almost all of the customs duties that previously applied, the CETA has reduced the landed costs of EU goods imported into the Canadian market and Canadian goods exported to EU markets, making them more competitive and profitable than they were before. As these outcomes apply not only to finished products, but also to materials and components, the CETA has also opened up new supply chain possibilities. This creates business opportunities for suppliers while helping manufacturers to diversify their sources of supply and optimize their costs of production.
The preferential tariff treatment under the CETA that allows companies to import goods on a duty-free basis does not automatically apply to all goods that are traded between Canada and the European Union. Rather, businesses must ensure that their products qualify as “originating” in accordance with the rules of origin set forth in the CETA Origin Protocol. Generally, these product-specific rules require originating products to either be “wholly obtained” or to undergo “sufficient production” within CETA countries. For more information on the CETA rules of origin and how they work, see “Exploring New Opportunities for Trade in Goods under the CETA – As Easy as Apple Pie”.
In addition, important procedural requirements must also be met, including (1) declarations of CETA origin provided by exporters, (2) restrictions on how originating goods may be transported between the European Union and Canada, and (3) obligations to maintain supporting documents and customs records. Importers and exporters must ensure that they comply fully with these requirements or they risk losing preferential tariff treatment under the CETA, even if the goods satisfy the product-specific rules of origin. If this happens, customs duties may be applied on a retroactive basis to prior shipments of the affected products, and this can have a devastating financial impact on importers.
As Part 1, this article provides a brief overview of the requirement to provide a CETA declaration of origin. Part 2 (20 September 2018) will discuss the shipping requirements for originating goods. Part 3 (27 September 2018) will address the record-keeping and document production obligations associated with the CETA origin declaration and shipping requirements in Parts 1 and 2.
The CETA Origin Declaration
In order for originating goods to receive preferential tariff treatment under the CETA, the exporter must provide a “declaration of origin”. Unlike the distinct certificate of origin required under the North American Free Trade Agreement (NAFTA), the CETA declaration is a statement that may be provided on an invoice or any other commercial document that identifies the exporter and the covered goods. However, like a NAFTA certificate of origin, a CETA declaration can be set up to apply to multiple shipments of identical originating products for a period of up to 12-months.
Instructions regarding the required text of the declaration are set out in Annex 2 of the Origin Protocol, available online at http://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/text-texte/P1.aspx?lang=eng#2 (Canada) and https://ec.europa.eu/taxation_customs/sites/taxation/files/canada_text_origin_declaration.pdf (European Union). Generally, the text consists of the following core statement, which may need to be supplemented by additional information under certain circumstances:
“The exporter of the products covered by this document declares that, except where otherwise clearly indicated, these products are of Canada/EU preferential origin”.
For EU goods imported into Canada, the Canada Border Services Agency (CBSA) requires that, “in order to claim the preferential tariff treatment accorded under the CETA, importers must have in their possession the Origin Declaration completed by the exporter in the EU country or other CETA beneficiary of export” (see Customs Notice 17-30, “Implementation of the Canada–European Union Comprehensive Economic and Trade Agreement (CETA)”, 14 September 2017, available online at https://www.cbsa-asfc.gc.ca/publications/cn-ad/cn17-30-eng.html). This means that companies importing EU goods into Canada should ensure that they have obtained a copy of the CETA origin declaration from the exporter before the goods arrive at the border.
In most cases, the most straightforward way to ensure that a shipment of originating EU products will receive preferential tariff treatment when it crosses the border into Canada is to arrange for the CETA origin declaration to be provided directly on the commercial invoice(s) associated with the goods. This should simplify administrative processing, and it may also prove helpful in the event of a post-entry audit.
Finally, it should be noted that Canadian law requires both exporters of commercial goods and importers of commercial goods to keep, for a period of six years, all records that relate, among other things, to the origin of the goods. This is consistent with the CETA Origin Protocol, which requires the exporter to keep copies of the origin declaration and all supporting documents proving the originating status of the covered products, but only requires the importer to keep a copy of documentation relating to the importation of the product, including a copy of the origin declaration, when such a requirement is provided for in the applicable domestic laws of the country of import. These record-keeping requirements will be addressed in more detail in Part 3.
Tereposky & DeRose LLP regularly provides advice on how to apply and leverage the provisions of international trade agreements, including the CETA, the NAFTA, and the forthcoming CPTPP. Should you have any questions regarding potential opportunities under these trade agreements or any other trade related issues, we are at your disposal.