On the 15th February 2017, The European Parliament voted in Strasbourg for the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada, concluding the ratification process of this deal at the EU level. The deal was approved by 408 votes to 254, with 33 abstentions.
Key features of CETA include:
- Eliminates most tariffs:On the day that CETA enters into force, it would eliminate 98 percent of all tariffs on goods and services between the EU and Canada.
- Cuts red tape
- Reduces barriers to trade
- Provides access to public contracts at all levels
- Improves access for trade in services
- Improves labour mobility
- Promotes and protects investment
The intention is for the agreement to be “provisionally applied” almost in its entirety after Canada has amended some of its own legislation concerning among others intellectual property, copyright and patent laws. This could take place as early as April of this year, at which time most customs duties between the EU and Canada will be removed.
If a Member State would not ratify the agreement, the European Council would then have to decide if the refusal is “permanent and definitive”. Until this happens the agreement will continue to be applied.
CETA and Brexit
As the UK will still be a member of the EU when the CETA agreement is provisionally implemented, they will be able to enjoy the benefits of tariff free trade while it remains a Member State. However, it is much less certain whether the UK will still be in the EU by the time CETA has been ratified by all Member States, as this may take a number of years. While the position is not entirely clear, it is highly doubtful whether CETA would continue to apply to the UK once it had left the EU.
This uncertainty would make Ireland an attractive alternative for Canadian companies wishing to establish an entry point into the EU market. For Canadian companies who have a UK base, it would make sense to consider establishing a presence in Ireland to ensure continued access to the EU market post-Brexit.
There are a number of advantages that Ireland offers that would be of interest to Canadian investors; English-speaking, young and educated workforce, common law system, competitive corporate tax regime and a strategic geographical location between Canada and mainland Europe.
Interaction with other Trade Agreements
The CETA deal now means that Ireland as part of the EU, has trade agreements in place with two out of the three participating countries of the North American Free Trade Agreement (NAFTA), as a preferential trade agreement has been in place with Mexico since 2000 (2001 for services).
Whilst the Transatlantic Trade and Investment Partnership (TTIP) won’t happen under President Trump’s tenure, forward thinking EU companies may now be able to export EU products to Canada tariff free under CETA and if they undergo sufficient working in Canada they could access the US market tariff free under NAFTA.
Currently, EU exports of some frozen beef products to the Canadian market are dutiable at 26.5%. Some food preparations that contain 50% or more by weight of dairy content are dutiable at 274.5%. Therefore, the barriers to trade can be clearly quantified for prospective exporters to the Canadian market. By removing these tariffs, Canada is opening up its market to suppliers who would have been previously deterred by the high tariffs imposed on their goods.
There is clear proof of the benefits enjoyed by the EU from free trade agreements. As an example, EU exports to South Korea have increased by more than 55% since the EU-Korea trade deal entered into force in 2011. Exports of certain agricultural products increased by 70%, and EU car sales in South Korea tripled over this five-year period. It is estimated that EU companies have saved €2.8 billion in reduced or eliminated customs duties since this agreement was applied. The Korea agreement was also provisionally applied during its ratification process which is still ongoing.
How to take advantage of tariff free trade
For the free trade agreement to apply to your imported or exported goods, they must be deemed to have “preferential origin” status.
In effect, this means that goods must be either;
- manufactured from raw materials or components which have been grown or produced in the beneficiary country or, should that not be the case,
- at least undergo a certain amount of working or processing in the beneficiary country. What constitutes sufficient working or processing depends on the rules applicable to the tariff heading of the product.
Therefore, it is important to be clear on the correct classification of your products. If either the classification or the origin status of your goods are unclear, it is possible to seek confirmation from Revenue by way of a binding origin or binding tariff decision.
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