CETA: Canada’s Free Trade Agreement with the European Union

Prime Minister Trudeau inked Canada’s Free Trade Agreement (FTA)—known as CETA—with the European Union in Brussels in October 2016

Businessmen Shaking Hands with Canadian Flag

Prime Minister Trudeau inked Canada’s Free Trade Agreement (FTA) with the European Union in Brussels on October 30, 2016. It is often referred to as CETA (Comprehensive Economic and Trade Agreement).

CETA was several years in the making, as negotiations were launched in May 2009. The next steps now are approval by the European Parliament in Strasbourg, followed by ratification by the 28 national parliaments of EU member countries and some regional parliaments as well.

On the Canadian side, the process will be easier and faster: it will just require an Act of Parliament. Why will it be easier in Canada? Because the federal government involved our provinces in the process right from the beginning, so there is a broad federal/provincial consensus on the issue.

Before going into the benefits for Canadian exporters, let’s define the European Union (EU). It’s not the European Free Trade Association (EFTA), made up of four non-EU countries: Liechtenstein, Iceland, Norway and Switzerland. Canada has had an FTA with the EFTA since 2009.
The EU was founded in 1961 by six countries (Belgium, France, Italy, Luxemburg, Germany and Netherlands) and has since grown into the largest trading bloc in the world. It currently has twenty-eight members: Austria, Belgium, Bulgaria, Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

It’s often referred to as the EU28. If and when Brexit happens and the UK leaves, it will then be called the EU27.

Looking at statistics, we can immediately get an idea of the size of the EU market versus our biggest trading partner the US. The EU has a population of 508 million and a GDP of $19.96 trillion, compared to the US population of 319 million and GDP of $16.77 trillion. Clearly, the EU market has great potential for Canadian exporters.

Canada and the EU have agreed to eliminate customs duties (also called tariffs) on imports of most goods originating in the EU and Canada, either immediately when CETA comes into force, or gradually within three, five or seven years. Only some sensitive agricultural products will be excluded from tariff reduction and overall, duties will be eliminated for 98.6 percent of all Canadian tariff lines and 98.7 percent of all EU tariff lines.

Respective product rules and regulations, be they technical, sanitary or phytosanitary, rules for security, consumer protection or the environment, and food safety and labelling requirements, remain untouched by CETA and continue to apply on both sides of the Atlantic.

Industry rules
For industrial products, 100 percent of the tariff lines on industrial products for both sides will be fully eliminated and of these, 99.4 percent will happen immediately, whereas for some automotive products, it will be phased in over three, five or seven years.

For the fishing industry, the EU agreed to eliminate 95.5 percent of its tariffs upon entry into force of CETA and the remaining 4.5 percent within three, five or seven years, with transitional duty-free quotas for shrimps and cod.

For agricultural products, the EU will eliminate 92.2 percent of its agricultural tariffs immediately. After seven years, 93.8 percent of the agricultural tariffs will be eliminated. The remaining sensitive products are either subject to quotas (beef, pork, canned sweetcorn) or excluded from tariff reductions altogether (chicken and turkey meat, eggs and egg products). On the quota front, the most significant ones are mentioned earlier (European cheese and Canadian beef).

Rules of Origin
Regarding rules of origin (RoOs) setting the conditions under which a product qualifies as ‘European’ or ‘Canadian’ and benefits from the tariff preferences of CETA, some compromises had to be found. Both the horizontal and the specific RoOs are generally based on the standard EU rules.

However, for cars, textiles, fish and some agricultural/processed agricultural products where Canadian exporters could have difficulties meeting the rules, derogations for more relaxed RoOs were agreed upon for limited quantities.

For the future, CETA also leaves open the possibility of cumulation of origin with third countries with which both the EU and Canada have a free trade agreement. To facilitate trade, both parties agreed to provide traders with advance rulings relating to origin and tariff classification.

Geographic Indicators (GIs)
A geographic indicator is a distinctive sign used to identify a product as originating in the territory of a particular country, region or locality where its quality, reputation or other characteristic is linked to its geographical origin. This is new to Canada, as this notion does it exist here, but is very important in Europe, where almost 3,000 food products are protected, more than 80 percent of which are registered in Italy, France, Spain, Greece, Portugal and Germany.

Canada has granted GI protection to 145 such European products ranging from Prosciutto di Parma, Feta, Manchego, Scotch Whisky, Roquefort and Munster to Jambon de Bayonne. Some cases will involve “grandfathering” the use of these names by existing producers, coupled with a phase-out period for others.

In other cases, new producers will only be able to sell their products when they are accompanied by indications such as “style”, “type”, “kind” or “imitation”. An exception is Beaufort cheese from France and producers in the proximity of the “Beaufort Range” on Vancouver Island can continue to use the name.

Canada on the other hand, did not request any such GI protection from the Europeans.

Technical Barriers to Trade
Regarding Technical Barriers to Trade, the EU and Canada have agreed to cooperate closely in the field of technical regulations via their standard-setting bodies as well as their testing, certification and accreditation organizations.

There will be mechanisms by which Canadian certification bodies will be allowed to certify products for the EU market according to EU technical regulations and vice-versa. This will reduce the costs of testing and obtaining product certification for exporters, particularly benefitting small and medium size enterprises.

Professional qualifications & procurement
CETA also establishes a framework for the mutual recognition of professional qualifications for regulated professions like architects or lawyers. This will take time. Laws regarding intellectual property rights as well as have been harmonized, and cooperation to fight counterfeited trademarks, pirated copyright goods and counterfeit geographical indication goods will be strengthened.

CETA also opens government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice-versa. CETA goes further than NAFTA, as Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport in Ontario and Québec.

The chapters on sustainable development, the environment, services and investment are more controversial. In fact, they are the ones that faced some last-minute opposition and they may need to be renegotiated before CETA is fully implemented.

Of particular importance is the investment protection and Investor-to-State-Dispute Settlement mechanism. Several hurdles must still be overcome on the European side for CETA to be fully implemented.

But we expect a provisional implementation in early 2017, enabling the immediate reduction of customs duties, as customs issues are fully harmonized within the EU. Full implementation would follow at a later stage, following the conclusion of issues that impact the laws of individual EU countries.