On October 23, 2013, Prime Minister Stephen Harper and European Commission President José Manual Barroso signed an agreement-in-principle relating to the Comprehensive Economic and Trade Agreement (“CETA”). This agreement provides for the removal of nearly all customs duties and tariffs charged on goods and services traded between Canada and the European Union.
This agreement is a further step in the slow but steady march towards more open economies. Since the Second World War, most world governments have recognized the failure of general protectionist attitudes and welcomed a more open approach to trade. Canada is no exception. As well as entering into larger multi-party agreements such as the GATT and the WTO, Canada has entered into many specific free trade agreements, beginning with the Canada-US Free Trade Agreement in 1989. The CUSFTA was replaced in 1994 by NAFTA, and since then, Canada has also entered into agreements with Israel, Chile, Costa Rica, Iceland, Liechtenstein, Norway, Switzerland, Peru, Columbia, Jordan, Panama, South Korea and Honduras. But, the European Union – Canada’s second largest trading partner – was still noticeably absent from this preferential trade list before CETA.
The technical summary of the agreement-in-principle released by the Government of Canada contains a substantial amount of information as to which goods and services will have their duties reduced, to what level, and over what timeframe. Spoiler alert – almost all of the tariffs drop to zero eventually (which is what one would expect from a free trade agreement). The summary divides trade into three segments: non-agricultural goods, agricultural goods, and services.
After transition periods of various lengths for various goods (the longest of which are seven years), 100% of Canada’s non-agricultural tariff lines will be duty-free. The exceptions itemized in the technical summary are ships (3 or 7 years), automobiles (3, 5, or 7 years) and various agricultural goods (3, 5, or 7 years). Many rules-of-origin are also changing – for example, automobiles now have a 70% transaction value or 80% net cost test for non-originating materials, and there are hints that U.S.-manufactured auto parts could count as Canadian origin. There are other exceptions which the technical summary does not itemize which will presumably be released once the agreement is fully negotiated – the Government has been very tight-lipped about the actual text of the agreement, leading various parties to create petitions and public pressure for its release.
The tariff elimination of agricultural goods is somewhat more restrictive, whereby only 92% of Canadian tariff lines will be immediately eliminated. The only tariff rate quotas (TRQs) that will permanently remain will be for cheese. Specifically, Canada will still have a TRQ for 16,800 tonnes of cheese and 1,700 tonnes of industrial-use cheese. It’s not immediately obvious whether the consumption of imported “industrial-use cheese” is something that should be encouraged domestically, though as long as it is only 10% of our import quota, it should be relatively benign to our gastronomic sensibilities. In any case, cheese is the only industry (so far) whereby the Government has pledged to provide compensation “should a negative impact be observed.”
With respect to services, the agreement-in-principal contains numerous bulwarks, in that it specifically excludes services relating to various social services, culture, and allows preferential treatment of Aboriginals and minority groups. Beyond these measures, the agreement-in-principal is entirely lacking in details regarding tariffs on services, which will presumably be released when the text of either the agreement-in-principle or the signed final agreement is released. As the trade in services between Canada and the EU is roughly half the dollar value of the trade in goods and Canada is a much higher net-importer on a percentage basis in services, this should result in a substantial benefit to those Canadian service-importers at the expense of their Canadian substitutes.
Additionally, the agreement and its surrounding literature are vague as to when the agreement comes into force. Presumably, this is because the agreement must be ratified by Canada, the European Union, and each of its 28 member states. As with attempting to foster any European-wide consensus, this may prove to be difficult, but only time will tell.