Canada Announces Final Countermeasures Against the United States

On July 1, 2018, Canada will impose countermeasures in the form of surtaxes against C$16.6 billion in imports of steel, aluminum, and other products from the U.S., representing the value of 2017 Canadian exports affected by the U.S. tariffs on imports of certain steel (25%) and aluminum (10%) products from Canada.

Surtaxes of 25% will apply to certain US steel products. Surtaxes of 10% will apply to certain US aluminum and other products. The lists of affected products can be found here:

https://www.fin.gc.ca/access/tt-it/cacsap-cmpcaa-1-eng.asp 

Tereposky & DeRose advises and represents private sector clients — including industry associations, large corporations, and small and medium-sized businesses — as well as government entities on the full range of issues arising in cross-border trade. Should you have any questions regarding this matter, we are at your disposal.

Jennifer Radford
613.237.9777
jradford@tradeisds.com

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

 

CETA Opportunities for the Canadian Automotive Industry in Uncertain Times

Uncertain Times for the Canadian Auto Sector

On June 1st, the U.S. tariffs under section 232 of the Trade Expansion Act of 1962 were imposed on steel and aluminum products imported into the United States from Canada, Mexico, and the European Union when the exemptions for those countries expired (see “Nothing Goods Happens after Midnight: Canada, Mexico and the EU Hit with Tariffs on Steel and Aluminum”). This prompted Canada, Mexico, and the European Union to announce countermeasures in the form of retaliatory tariffs against a range of U.S. goods, including agricultural products (see “The Morning After: U.S. Allies Taking Retaliatory Measures against Trump’s Tariffs”) and to initiate dispute settlement proceedings at the World Trade Organization. The application of the section 232 tariffs to the United States’ closest allies, neighbours, and trading partners has been highly controversial in the United States, and a bill was introduced on June 21st to lift the tariffs against these countries.

In the meantime, the U.S. administration has directed the Department of Commerce to consider the application of similar tariffs of up to 25 percent on imported motor vehicles and automotive parts. Like the steel and aluminum tariffs, section 232 tariffs on Canadian automotive products would be extremely disruptive to North America’s highly integrated manufacturing industries . While the actual implementation of such tariffs seems unlikely, recent experience suggests that it should be considered a real possibility.

The loss of established supply chain efficiencies throughout North America as a result of the tariffs would drive up U.S. production costs, reducing profitability for manufacturers and/or increasing the consumer prices of new motor vehicles.  Some commentators consider that these measures are being threatened for the purposes of leverage in the troubled North American Free Trade Agreement (NAFTA) negotiations. However, if such tariffs were actually imposed, they would also discourage investment in production facilities and sources of supply outside the United States.

Whether or not the U.S. administration’s objective is to de-globalize and internalize U.S. automotive manufacturing and investment (see e.g., Pete Evans, “Trump pushes Big 3 automakers to build more cars in the U.S.” CBC News, 24th January 2017), this is a foreseeable outcome of the tariffs in the longer term. Consider, for the example, how the uncertainty generated by the negotiations to modernize the NAFTA, including the United States’ demand for a 5-year sunset clause, has already had a chilling effect on U.S. manufacturing investments in Canada and Mexico. This would also be consistent with the U.S. administration’s interventions in late 2016 and early 2017 to prevent Toyota and Ford from investing in production and assembly lines in Mexico.

For Canadian companies, there is currently no alternative to the integrated North American industry or the U.S. market for motor vehicles. In 2017, the total value of Canadian exports of motor vehicles (including gasoline, diesel, hybrid, and electric-powered passenger vehicles under HS tariff subheadings 8703.21 through 8703.80) was valued at almost $60 billion, of which about $57 billion (95 percent) was accounted in exports to the United States.

Nonetheless, manufacturers of finished motor vehicles and automotive parts in Canada will be carefully planning for the worst-case scenario and considering all of the options that might be available to mitigate the harm caused by the tariffs.

It is in this context that the relevant provisions currently in force under the Canada-EU Comprehensive Economic and Trade Agreement (CETA) and the provisions pending under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) are worth considering. In the event that the United States imposes section 232 tariffs on a long-term basis and/or ultimately withdraws from the NAFTA, these regional trade agreements and the opportunities that they provide will become increasingly important.

Canada-EU Trade in Motor Cars under the CETA

In terms of export opportunities for Canadian-origin motor vehicles, the EU is a mature, sophisticated, and well-supplied market, and EU design requirements may represent manufacturing challenges to Canadian production lines set up to assemble North American cars. While Canada’s exports of motor vehicles to the European Union have increased by more than 100 percent in the last few years — growing from $154.7 million (of $56.8 billion) in 2015 to $326.9 million (of $59.8 billion) in 2017 — they remain very modest in comparison to Canada’s NAFTA exports.

However, the base rate of customs duties that previously applied at 10 percent to imports of Canadian cars into the European Union is gradually being eliminated under the CETA, dropping to “free” as of January 1st, 2024. Under this preferential CETA tariff treatment, EU supply chain and export opportunities may become increasingly viable options for manufacturers in Canada.

Importantly, the CETA also provides important tools to spearhead and drive the growth of Canadian automotive exports to the European Union, including the highly liberal “origin quota” for motor vehicles set forth in Section D of Annex 5-A of the CETA Origin Protocol, and the product-specific rules of origin that are more advantageous to Canadian manufacturers than those set forth in the current NAFTA.

The CETA Origin Quota – A Turbo-boost for Canadian Auto Exports to the European Union?

The CETA origin quotas allow limited quantities of certain kinds of products to receive preferential tariff treatment if they satisfy “alternative” rules of origin that are much more liberal and relaxed — and therefore easier to satisfy — than the product-specific rules of origin that otherwise apply.

To start with, the ‘standard’ product-specific rules of origin under the CETA require that the value of all non-originating materials used in the production of a motor vehicle must not exceed 50 percent of the transaction value or ex-works price of the finished product. In other words, Canadian and/or EU materials must account for at least 50 percent of the vehicle’s value. This provides significant flexibility to automakers, allowing them to incorporate up to 50 percent of the value from outside the CETA region, which lowers their production costs and increases their competitiveness. It also encourages investors from third countries, e.g., Toyota or Mazda, to invest in Canadian assembly lines to supply both Canadian and EU markets.

Pursuant to footnote 5 in the CETA Origin Protocol, this rule of origin will change in 2024, increasing the minimum value of Canadian/EU “originating” materials to 55 percent and, in turn, reducing the maximum value of non-originating materials to 45 percent. However, both thresholds compare very favourably to the current NAFTA rules of origin, which require a NAFTA regional value content of not less than 62.5 percent. (In the negotiations to modernize the NAFTA, the United States has proposed increasing this threshold to 85 percent, together with a U.S. value content requirement of not less than 50 percent.)

Now we turn to the CETA origin quota, which allows Canadian exporters to receive preferential tariff treatment on up to 100,000 motor vehicles per year under relaxed rules that permit the value of all non-originating materials to be up to 70 percent. This means that Canadian/EU “originating” materials must account for only 30 percent of the value. This special threshold allows Canadian manufacturers to produce finished vehicles under highly competitive conditions. Accordingly, to the extent that manufacturers in Canada are in a position to take advantage of this origin quota, it could support market penetration and accelerate the growth of Canadian-built motor vehicles in EU markets. Notably, this origin quota only benefits Canadian exports to the European Union; there is no equivalent quota for EU motor vehicles shipped to Canada.

The Other Side of the Coin – EU Exports to Canada

Under the CETA, the rate of customs duty on EU-origin motor vehicles imported into Canada is being reduced in eight annual increments. The rate of duty that currently applies is 4.5 percent, and it will eventually become “free” on 1st January 2024. Notwithstanding the applicable customs duties, imports of EU-origin motor vehicles have been significant, and they have grown from $5.4 billion of $32.2 billion in 2015 (16.8 percent) to $6.7 billion of $36.2 billion in 2017 (18.5 percent). The vast majority of these imports have come from Germany. To the extent that imports of U.S. vehicles are affected by Canadian countermeasures, there is room for EU imports to supplement domestic production to satisfy Canadian market demands.

While the customs duty applicable to EU-origin parts, components and accessories was eliminated when the CETA entered into force, dropping to “free” on 21st September 2017, this was not a game-changer for Canadian production plants. This is because “parts, accessories and articles” may be imported into Canada from any country on a duty-free basis “for use in the manufacture of original equipment parts for passenger automobiles, trucks or buses, or for use as original equipment in the manufacture of such vehicles” under the special tariff classification code 9958.00.00. This provision has long allowed manufacturing and assembly plants in Canada to import parts on a duty-free basis regardless of their origin. This special tariff code does not apply, however, to after-market components that are offered by suppliers of maintenance and repair services as lower-cost alternatives to Original Equipment Manufacturer (OEM) replacement parts. Thus, the CETA preferential tariff treatment may provide a 6% benefit to Canadian importers and distributors of such articles, offering a more competitive alternative to after-market parts from other countries.

Conclusions

There is increasing uncertainty going forward for the integrated North American automotive industry and its markets. Long-established supply chain efficiencies rely upon NAFTA commitments that are at risk of being “modernized” with less-favourable terms or lost entirely. In addition, the current U.S. administration appears willing to impose measures, including arbitrary tariffs, that would nullify these commitments and cause severe supply chain disruptions. For manufacturers in Canada, opportunities to begin diversifying supply chains and markets beyond the United States — through the CETA, and possibly also through the forthcoming CPTPP and other regional trade agreements — may provide some small relief. Considering the current U.S. administration’s apparent agenda, such opportunities are certainly worth investigating as part of a larger strategy.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

 

Canada Initiates Anti-dumping Investigations Against Certain 54-inch Gypsum Board from the United States

On June 21, 2018, the Canada Border Services Agency (CBSA) initiated investigations regarding the alleged dumping of certain 54-inch gypsum board from the United States imported into Canada for use or consumption in the provinces of British Columbia, Alberta, Saskatchewan, and Manitoba, as well as the Yukon and Northwest Territories. The complainant alleges that the dumped goods have caused material retardation of the establishment of the domestic industry in Western Canada.

The CBSA will issue its preliminary determination regarding the alleged dumping on September 19, 2018.

In January 2017, the Canadian International Trade Tribunal found that the dumping of gypsum board, sheet or panel originating in or exported from the United States of America, imported into Canada for use or consumption in the provinces of British Columbia, Alberta, Saskatchewan, and Manitoba, as well as the Yukon and Northwest Territories has caused injury to the domestic industry. Duties between 94.6% and 324.1% have been imposed on the subject goods since the final determination.

Tereposky & DeRose regularly provides advice on Canadian anti-dumping and countervailing duty matters. Should you have any questions regarding this matter or anti-dumping and countervailing duty issues more generally, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Stephanie Desjardins
613-237-0483
sdesjardins@tradeisds.com

 

Canada and Regional Trade Agreements

Regional trade agreements (“RTAs”) facilitate trade between their signatories. They can be bilateral (between two countries) or plurilateral (between three or more countries), and they encompass all reciprocal trade agreements, including those between countries from different geographic regions. These agreements are often referred to as “Free Trade Agreements” (FTAs).

RTAs have become increasingly complex – and increasingly important – to international trade. They generally set out a range of rights and obligations that provide for non-discriminatory treatment and guaranteed levels of market access for the goods and services traded between the parties. Each RTA is unique, however, and must be analyzed on its own terms. Some RTAs cover the protection and promotion of investments, incorporating the provisions that would otherwise be the subject of separate Bilateral Investment Treaties (“BITs”) or, in Canada’s case, Foreign Investment Promotion and Protection Agreements (“FIPAs”).

Among other things, RTAs may address:

  • Tariff elimination;
  • Tariff rate quotas (TRQs);
  • Rules of origin;
  • Customs procedures to facilitate trade;
  • Trade remedies and emergency actions;
  • Access to government procurement;
  • Technical barriers to trade and sanitary and phytosanitary measures;
  • Investment protection, including access to “Investor-State Dispute Settlement” (“ISDS”);
  • Cross-border trade in services;
  • Work force mobility, including the temporary entry and stay of individuals for business purposes;
  • Protection of intellectual property (IP);
  • Mutual recognition of professional qualifications;
  • Access to specific service sectors, such as banking, telecommunications, and international maritime transportation;
  • Electronic commerce; and
  • Dispute Settlement.

Canada is party to numerous FTAs and is negotiating and conducting exploratory discussions in relation to several more. More information regarding Canada’s FTAs is available online at Global Affairs Canada’s website.

In this context, FTAs are treaties intended to secure better access to foreign markets for businesses by reducing trade barriers. This provides companies with access to more efficient supply chains, reduces their costs of doing business, and creates opportunities for them to expand and grow. The beneficiaries include producers, distributors, services suppliers, and end-use customers.

From Canada’s perspective, the most important of the FTAs are the North American Free Trade Agreement (“NAFTA”) and the Canada-European Union Comprehensive Economic and Trade Agreement (“CETA”). The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”) also represents a very important FTA for Canada, and while it is not yet in force, the legislation to implement this agreement is currently being considered in Canada’s Parliament.

BUILDING ON THE FOUNDATION OF THE WORLD TRADE ORGANIZATION (WTO) AGREEMENTS

Canada’s FTAs enhance Canada’s multilateral rights and obligations under the WTO Agreements. In this sense, the WTO Agreements form the foundation upon which the FTAs are built. Important WTO obligations, such as those under the Agreement on Technical Barriers to Trade and the Agreement on Sanitary and Phytosanitary Measures, are incorporated by reference into Canada’s FTAs. To understand Canada’s FTAs, it is necessary to also understand the WTO rights and obligations that form their foundation.

NAFTA

Since the NAFTA came into effect on January 1, 1994, it has been the single most significant FTA for Canada. As a comprehensive FTA between Canada, the United States and Mexico, it has removed trade barriers and increased investment opportunities between the three countries.

Negotiations to update the NAFTA are currently underway.

CETA

When it was signed, the CETA became Canada’s most significant FTA since the NAFTA. As its name indicates, it is a comprehensive FTA between Canada, the EU, and the 28 EU Member States. The agreement began to be provisionally applied between Canada and the EU on September 21, 2017, meaning that the majority of its provisions are now in force. The CETA’s provisions include, among other benefits:

  • the immediate elimination of most customs duties on EU and Canadian goods to which tariff rates previously applied;
  • guaranteed market access and non-discriminatory treatment for EU firms when they participate in public procurement opportunities at the federal, provincial/territorial, and municipal levels of government in Canada (for contracts above the applicable value thresholds), and equivalent rights for Canadian firms in the European Union;
  • enhanced intellectual property rights, including new protections for certain geographical indications identifying goods originating in specific regions (e.g., “Feta cheese” from Greece); and
  • liberalized rights of mobility and temporary stay for key business personnel and investors, independent professionals, and contractual service suppliers visiting Canada from the European Union and vice versa.

The levels of market access that CETA provides to EU companies, particularly with respect to preferential tariff treatment and sub-central public procurement, are much greater than the levels of access provided under NAFTA.

It is now essential that all EU companies doing or seeking to do business in Canada, and all Canadian companies doing or seeking to do business in the European Union, fully understand the opportunities and benefits that flow from the CETA.

CPTPP

The CPTPP, also sometimes referred to as the “TPP 11”, is a comprehensive FTA that has been concluded between 11 countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam — but is not yet in force. It will enter into force 60 days after the date on which at least six of the signatory countries have completed their domestic implementation procedures and ratified the agreement. To date, the CPTPP has been ratified by Japan, Mexico, and Singapore, and the Government of Canada is well on its way to joining them. The legislation to implement the provisions of the agreement into Canadian law, Bill C-79 (the CPTPP Implementation Act), was introduced in the House of Commons on June 14th, 2018 for passage through Parliament.

When the CPTPP enters into force, it will be the largest FTA in the world. For Canadian businesses, it will provide new and enhanced market access opportunities in the other CPTPP countries, including, most significantly, the Asia-Pacific markets.

Trade in Goods under the CETA: New Market Access and Supply Chain Opportunities for Canadian and EU Businesses

Tereposky & DeRose LLP’s CETA Expertise As the key experts in the European Union’s CETA market access support project (2016/EuropeAid/DH/SER/137-941), the team at Tereposky & DeRose LLP has completed a thorough clause-by-clause legal analysis of CETA implementation. This includes comprehensive assessments of how the CETA provisions create new and enhanced business opportunities for both Canadian and EU enterprises. As part of this process, we have also assessed ongoing challenges and barriers that Canadian and EU businesses are facing under the CETA and considered strategies to address them. We are therefore uniquely qualified to efficiently advise on any matter or issue relating to the CETA.

Trade in Goods under the CETA

The CETA creates new market access and supply chain opportunities for Canadian and EU businesses in a number of ways. These are briefly summarized below.

Progressive elimination of customs duties

It is well known that the CETA eliminates most of the customs duties that previously applied to cross-border trade in Canadian and EU goods. While about 25 percent of product categories could be traded on a duty-free basis before the CETA entered into force, about 98 percent can now be traded duty-free between Canada and the European Union. Meanwhile, the rate of customs duties is being gradually reduced to zero on most of the remaining product categories.

Tariff Rate Quotas (TRQs)

Although duties will remain in place for certain agricultural products in order to protect the domestic industries that produce them, the CETA provides some market access through annual “tariff rate quotas” (TRQs). TRQs permit limited quantities of certain products to be traded duty-free — e.g., EU cheese products imported into Canada or Canadian beef products imported into the European Union — while prohibitively high rates of customs duties are imposed on any shipments outside the quota. Some TRQs are administered on a first-come, first-served basis, while other TRQs are allocated to importers/exporters through an application process. Although it can sometimes be challenging for businesses to secure TRQ allocations, it should be noted that the Government of Canada sets aside certain proportions of the EU cheese TRQs for (i) new entrants, and (ii) small and medium-sized enterprises (SMEs).

Rules of Origin that provide a competitive advantage over other trading partners

Importantly, preferential tariff treatment under the CETA is not provided to products merely because they are exported from a CETA country. To be eligible for duty-free treatment, exported goods must qualify as “originating” in Canada or an EU country according to the applicable rules of origin. The rules of origin under the CETA are generally more liberal — that is, easier to satisfy — than those under other regional free trade agreements like the NAFTA. This may confer a competitive advantage to EU products in the Canadian market or Canadian products in EU markets because they can compete at lower production costs than like goods imported from other countries. The questions of whether and to what extent a

product obtains a competitive advantage under the CETA must be assessed on a case-by-case basis, as the results will depend on the specific circumstances of the product and the applicable rules of origin.

Origin Quotas

In addition, the CETA “origin quotas” are innovative provisions that allow limited quantities of certain kinds of products to receive preferential tariff treatment if they satisfy “alternative” rules of origin that are much more liberal and relaxed — and therefore easier to satisfy — than the product-specific rules of origin discussed above. These “alternative” rules permit higher proportions of input materials from third countries to be used in production, allowing producers to leverage the most efficient sources of supply available in international markets.

The CETA provides origin quotas for processed foods, textiles and apparel products, motor vehicles, fish and seafood products, high-sugar containing products, sugar confectionary and chocolate preparations, and pet food products exported from Canada to the European Union, and origin quotas for textiles and apparel products exported from the European Union to Canada. These origin quotas are set forth in Annex 5-A of the CETA Origin Protocol, and are administered in Canada by the Trade Controls Bureau of Global Affairs Canada.

How does your business benefit from the CETA?

If you wish to discuss any issues or opportunities relating to trade in goods under the CETA, please contact:

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Tereposky & DeRose LLP’s CETA Expertise As the key experts in the European Union’s CETA market access support project (2016/EuropeAid/DH/SER/137-941), the team at Tereposky & DeRose LLP has completed a thorough clause-by-clause legal analysis of CETA implementation. This includes comprehensive assessments of how the CETA provisions create new and enhanced business opportunities for both Canadian and EU enterprises. As part of this process, we have also assessed ongoing challenges and barriers that Canadian and EU businesses are facing under the CETA and considered strategies to address them. We are therefore uniquely qualified to efficiently advise on any matter or issue relating to the CETA.

Trade in Goods under the CETA

The CETA creates new market access and supply chain opportunities for Canadian and EU businesses in a number of ways. These are briefly summarized below.

Progressive elimination of customs duties

It is well known that the CETA eliminates most of the customs duties that previously applied to cross-border trade in Canadian and EU goods. While about 25 percent of product categories could be traded on a duty-free basis before the CETA entered into force, about 98 percent can now be traded duty-free between Canada and the European Union. Meanwhile, the rate of customs duties is being gradually reduced to zero on most of the remaining product categories.

Tariff Rate Quotas (TRQs)

Although duties will remain in place for certain agricultural products in order to protect the domestic industries that produce them, the CETA provides some market access through annual “tariff rate quotas” (TRQs). TRQs permit limited quantities of certain products to be traded duty-free — e.g., EU cheese products imported into Canada or Canadian beef products imported into the European Union — while prohibitively high rates of customs duties are imposed on any shipments outside the quota. Some TRQs are administered on a first-come, first-served basis, while other TRQs are allocated to importers/exporters through an application process. Although it can sometimes be challenging for businesses to secure TRQ allocations, it should be noted that the Government of Canada sets aside certain proportions of the EU cheese TRQs for (i) new entrants, and (ii) small and medium-sized enterprises (SMEs).

Rules of Origin that provide a competitive advantage over other trading partners

Importantly, preferential tariff treatment under the CETA is not provided to products merely because they are exported from a CETA country. To be eligible for duty-free treatment, exported goods must qualify as “originating” in Canada or an EU country according to the applicable rules of origin. The rules of origin under the CETA are generally more liberal — that is, easier to satisfy — than those under other regional free trade agreements like the NAFTA. This may confer a competitive advantage to EU products in the Canadian market or Canadian products in EU markets because they can compete at lower production costs than like goods imported from other countries. The questions of whether and to what extent a

product obtains a competitive advantage under the CETA must be assessed on a case-by-case basis, as the results will depend on the specific circumstances of the product and the applicable rules of origin.

Origin Quotas

In addition, the CETA “origin quotas” are innovative provisions that allow limited quantities of certain kinds of products to receive preferential tariff treatment if they satisfy “alternative” rules of origin that are much more liberal and relaxed — and therefore easier to satisfy — than the product-specific rules of origin discussed above. These “alternative” rules permit higher proportions of input materials from third countries to be used in production, allowing producers to leverage the most efficient sources of supply available in international markets.

The CETA provides origin quotas for processed foods, textiles and apparel products, motor vehicles, fish and seafood products, high-sugar containing products, sugar confectionary and chocolate preparations, and pet food products exported from Canada to the European Union, and origin quotas for textiles and apparel products exported from the European Union to Canada. These origin quotas are set forth in Annex 5-A of the CETA Origin Protocol, and are administered in Canada by the Trade Controls Bureau of Global Affairs Canada.

How does your business benefit from the CETA?

If you wish to discuss any issues or opportunities relating to trade in goods under the CETA, please contact:

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

The Canada-EU Comprehensive and Economic Trade Agreement (CETA)

Tereposky & DeRose LLP’s CETA Expertise

As the key experts in the European Union’s CETA market access support project (service contract no. 2016/EuropeAid/DH/SER/137-941), the team at Tereposky & DeRose LLP has completed a thorough clause-by-clause legal analysis of CETA implementation. This includes comprehensive assessments of how the CETA provisions create new and enhanced business opportunities for both Canadian and EU enterprises. As part of this process, we have also assessed ongoing challenges and barriers to trade that Canadian and EU businesses are facing and considered strategies to address them. We are therefore uniquely qualified to efficiently advise on any matter or issue relating to the CETA.

Overview of the CETA

The CETA is the regional free trade agreement between Canada and the European Union. It entered into “provisional application” on September 21st, 2017. This means that the majority of its provisions are currently in full force and effect, including those relating to trade in goods and services, government procurement, labour mobility, intellectual property (IP), and other subject matters. The provisions that have not yet entered into force are generally limited to those regarding investment protection and the establishment of an international investor-state dispute settlement (ISDS) tribunal. These provisions must be ratified in each of the EU Member States before they can also enter into force.

The CETA affirms the existing international trade obligations between Canada and the European Union and expands on them, establishing new market access commitments that cover cross-border trade in goods and services, government procurement, temporary entry and stay of individuals for business purposes, IP rights, and foreign direct investment. Some examples of how the CETA creates new market access and supply chain opportunities for producers, processors, exporters, importers, and suppliers of goods and services include:

  • The elimination of customs duties on the vast majority of Canadian and EU products;
  • Rules of origin that are generally more competitive than those under other regional free trade agreements (e.g., the NAFTA), and highly liberal “origin quotas” that provide relaxed rules of origin for limited quantities of certain products such as processed foods, textiles and apparel, and motor vehicles;
  • Unprecedented market access to Canadian government procurement opportunities at the provincial and municipal levels;
  • Long-term certainty for service suppliers with respect to market access and non-discriminatory treatment;
  • Streamlined requirements for the temporary entry and stay of individuals for business purposes, which facilitate the market access opportunities listed above by providing better work force mobility and readily allowing business visitors and key personnel from enterprises, including SMEs, to meet and network with potential partners, investigate market opportunities, enter into agreements, and follow up on their existing business arrangements in Canada.

In addition, the CETA establishes a framework for ongoing discussions and cooperation between the Canadian and EU governments to further enhance trade opportunities for businesses and to address the barriers that frustrate or restrict such opportunities. This includes continuing efforts to develop mutual recognition in a number of regulatory fields, including technical standards for goods, sanitary and phytosanitary measures, and professional qualifications for certain workers.

At the same time, the CETA expressly respects the rights of the EU and Canadian governments to make their own laws, regulations, and policies in the public interest. Further, the CETA provides that EU and Canadian values (e.g., with respect to labour standards, environmental standards, and sustainable development) shall not be compromised for the sake of promoting international trade or investment.

Some of the most important ways in which the CETA creates new market access and supply chain opportunities for Canadian and EU businesses are discussed below.

Trade in Goods

The CETA has eliminated almost all of the customs duties that previously applied to cross-border trade in Canadian and EU goods. Approximately 98 percent of product categories can now be traded on a duty-free basis, compared to about 25 percent prior to the CETA. For most of the remaining product categories, the rates of duty are gradually being reduced, in annual stages, to zero. Although duties will remain in place for certain agricultural products, “tariff rate quotas” (TRQs) will provide some additional market access to these otherwise protected markets.

Considering that the rules of origin under the CETA are generally more liberal than the rules of origin under other regional free trade agreements (e.g., the NAFTA), businesses may discover competitive advantages under the CETA that lead to better market access opportunities and/or more efficient supply chain options. In addition, the innovative “origin quotas” under the CETA can help businesses to establish or increase the market share of their imported brands, providing them with an edge over competing goods imported from other countries.

Read more on new and enhanced market access opportunities for trade in goods under the CETA Trade in Goods.

Government Procurement

The CETA significantly expands the opportunities for EU firms to supply their goods and services to all levels of government in Canada. Importantly, this is Canada’s first international trade agreement that guarantees market access and non-discriminatory treatment in relation to sub-central government procurements. Thus, in provincial and municipal public procurement opportunities throughout Canada, the CETA provides EU suppliers with a competitive advantage over bidders from other countries, including the United States. As of mid-2018, Canada has not provided equivalent market access to any of its other trading partners.

Although Canada’s commitments apply to the procurement activities of most government entities, including Crown corporations and other government-owned corporations or commercial enterprises, there are important exclusions. In order to determine whether the CETA covers or excludes a procurement opportunity in Canada, firms should consult the lists and notes set forth in the following annexes of Canada’s market access schedule to Chapter 19 (links included):

In addition, Canada’s government procurement obligations under the CETA are subject to the value thresholds outlined in the table below. These thresholds are based on “Special Drawing Rights” (SDR), the reserve currency administered by the International Monetary Fund (see https://www.imf.org/external/np/fin/data/rms_five.aspx). The federal government procurement thresholds for the period from 1st January 2018 through 31st December 2019 are published online at https://www.canada.ca/en/treasury-board-secretariat/services/policy-notice/2017-6.html. Similarly, the thresholds applicable to provincial and municipal government procurements for the same two-year period are published online (e.g., in the Province of Ontario) at https://www.doingbusiness.mgs.gov.on.ca/mbs/psb/psb.nsf/0/59b82c27794d17c58525827400642829/$FILE/CFTA-CETA-Thresholds-2018_2019.pdf. Generally, market access and non-discrimination obligations set forth in the CETA cover procurements for supply contracts that meet or exceed these thresholds, subject to the exclusions discussed above.

For firms seeking to identify government procurement opportunities throughout Canada, the Canadian Free Trade Agreement (CFTA) website currently provides an accessible online catalogue of links to federal, provincial, territorial, and municipal public procurement portals at https://www.cfta-alec.ca/doing-business/.

Trade in Services

While the CETA does not significantly expand market access for trade in services between Canada and the European Union, it does establish the status quo as the minimum baseline of guaranteed market access and non-discriminatory treatment. This provides increased certainty to Canadian and EU services suppliers on a going forward basis. In turn, this certainty will encourage and support the export of EU services to customers in Canada and vice versa. Moreover, there are apparent synergies between the CETA commitments relating to investment and the temporary entry and stay of individuals for business purposes. In the long term, this important foundation will facilitate the growth and development of new opportunities and set the stage for further liberalization of trade in services between Canada and the European Union.

Work Force Mobility and Temporary Entry and Stay for Business Purposes

For EU enterprises doing business in Canada and Canadian firms serving the EU market, the CETA provides for more efficient work force mobility. By streamlining, simplifying, or eliminating work permit application requirements and administrative delays for business people, investors, professionals, and certain workers, this part of the CETA facilitates the market access opportunities created under the other CETA provisions. In turn, it lowers a very real barrier to trade for small and medium-sized enterprises (SMEs) and independent professionals, while reducing costs and improving efficiencies for businesses of all sizes.

For example, the CETA allows short-term business visitors or key personnel from EU enterprises, including SMEs, to meet and network with potential Canadian partners, investigate market opportunities in Canada, engage with business and legal consultants, enter into agreements with vendors or customers, and follow up on established business arrangements to address issues as they arise, manage activities, and expand operations. This could be the difference between a theoretical market access possibility under the CETA, and an actual, practical business opportunity in Canada, enabling efforts to, e.g., establish a joint-venture or partnership that facilitates access to high-value government procurement opportunities in Canadian provinces and territories; marketing the supply of EU services to prospective clients in Canada; securing new customers in Canada for EU-origin goods for which high rates of customs duties have been eliminated under Chapter 2; exploring, negotiating, and establishing new supply chains that maximize the efficiencies provided under the CETA.

How does your business benefit from the CETA?

If you wish to discuss any issues, opportunities or challenges relating to CETA matters, please contact:

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Canadian Legislation Introduced to Implement the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)

On Thursday 14th June 2018, the Honourable François-Philippe Champagne, Canada’s Minister of International Trade, introduced the proposed legislation to implement Canada’s rights and commitments under the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) in the Parliament of Canada. Bill C-79, entitled “An Act to implement the Comprehensive and Progressive Agreement for Trans-Pacific Partnership between Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam”, was published later the same day and is available online for review at http://www.parl.ca/LegisInfo/BillDetails.aspx?Language=E&billId=9970461.

The draft legislation includes proposed amendments to the Customs Act, the Customs Tariff, the Export and Import Permits Act, the Canadian International Trade Tribunal Act, the Investment Canada Act, the Trade-marks Act, the Commercial Arbitration Act, and the Financial Administration Act, and sets forth other provisions necessary to incorporate Canada’s CPTPP obligations into domestic law. The Bill also includes a brief section entitled “Explanatory Notes”, which identifies which statutory provisions are new and sets out the text of existing provisions for the purposes of comparison against the proposed text that will amend them.

The United States withdrew from the Trans-Pacific Partnership (TPP) on January 30th last year, after the agreement had been concluded with the other eleven members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. On January 23rd, the eleven remaining members of the agreement announced the conclusion of their discussions on a revised version of the free trade pact. Re-branded the “Comprehensive and Progressive Trans-Pacific Partnership” (CPTPP), the new deal was signed on March 8 at a ceremony in Santiago, Chile.

Preferential market access under the CPTPP is expected to provide Canadian goods with a competitive advantage over US exports in important consumer and industrial markets in Japan and other CPTPP countries.

Tereposky & DeRose LLP regularly provides advice on the interpretation and application of the provisions of international trade agreements, including the CPTPP, the CETA, and the NAFTA.  Should you have any questions regarding potential opportunities under these trade agreements or any other trade related issues, we are at your disposal.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Italy’s Decision on CETA Ratification – What Does it Really Mean?

On Thursday 14th June, Italy’s new agricultural minister, Minister Gian Marco Centinaio, was reported as saying that the Government of Italy does not intend to ratify the Comprehensive Economic and Trade Agreement (CETA) concluded between Canada and the European Union. In a newspaper interview, he offered the explanation that Canada’s commitments under the CETA do not provide sufficient coverage of Italian products in terms of Designation of Origin or Geographical Indication protections. See, for example: Francesca Landini, “Italy won’t ratify EU free-trade deal with Canada: farm minister”, Reuters (14 June 2018), available online at https://www.reuters.com/article/us-italy-minister-canada-trade/italy-wont-ratify-eu-free-trade-deal-with-canada-farm-minister-idUSKBN1JA0TR.

What would it mean for the CETA if Italy takes the decision not to ratify the Agreement?

The short answer is that this is unlikely to have any significant impact on the status quo. The majority of the CETA has already entered into force (as of 21st September 2017) and currently applies to trade in goods and services between Canada and the European Union (including in the context of government procurement), labour mobility (i.e., temporary entry and stay of individuals for business purposes), intellectual property rights, and other subject matters. These elements of the CETA will remain in force regardless of the decisions taken by individual EU member states concerning ratification.

The reason for this is that most of the rights and commitments under the CETA fall within the exclusive competence of the European Union. The provisions that cannot enter into force until each of the EU member states ratify the Agreement are generally limited to those dealing with investment protection and the establishment of an international investor-state dispute settlement (ISDS) tribunal under Chapter 8. As the ratification process in each of the member states can take several years, the parts of the CETA that fall exclusively under the European Union’s competence were “provisionally applied” right away — i.e., after ratification by the European Parliament and the Government of Canada — so that businesses could immediately begin taking advantage of the benefits. For more information on these points, see: European Commission, “CETA explained”, available online at http://ec.europa.eu/trade/policy/in-focus/ceta/ceta-explained/ (in particular, under the headings “What is provisional application?”, “Which parts of CETA will the EU provisionally apply?”, and “How will CETA protect investments?”).

Thus, a decision taken by Italy not to ratify the CETA will likely only affect the above-referenced investment provisions.  The free trade provisions that are currently in force are unlikely to be compromised, at least not directly. This does not mean, however, that such a decision is not without meaning or power. The CETA investment chapter is important to the European Union in its efforts to establish a permanent international ISDS “court” similar to the World Trade Organization’s Dispute Settlement Body and to advance a modern ISDS regime that includes greater protection for governments to regulate in the public interest.

Tereposky & DeRose LLP regularly provides advice on the interpretation and application of 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.

Daniel Hohnstein
613.237.9005
dhohnstein@tradeisds.com

 

New Process to Update Normal Values in Anti-Dumping Investigations

On 14 June 2018 the Canada Border Services Agency (CBSA) implemented a new exporter-specific normal value review process that is separate from the traditional country-specific re-investigation process. Normal value reviews are intended to ensure that applied normal values and export prices accurately reflect current market conditions. It is expected that this new process will enable quicker and more frequent normal value updates.

Tereposky & DeRose regularly provides advice on Canadian anti-dumping and countervailing duty matters.  Should you have any questions regarding this matter or anti-dumping and countervailing duty issues more generally, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

The Morning After: U.S. Allies Taking Retaliatory Measures Against Trump’s Tariffs

Yesterday morning, the U.S. Administration announced that the temporary steel and aluminum tariff exemptions granted to Canada, Mexico and the European Union would be discontinued as of midnight last night. The three U.S. allies have each announced a list of retaliatory measures in response to the tariffs.

Mexico quickly responded to the announcement with tariffs of its own on imports of various products originating in the U.S., such as “flat steel (hot and cold foil, including coated and various tubes), lamps, pork legs and shoulders, sausages and food preparations, apples, grapes, blueberries, various cheeses, among others, up to an amount comparable to the level of affectation”, the statement reads.

Earlier in May, the EU said it was preparing to hit $3.34 billion worth of U.S. goods with a 25 percent tariff in reaction to the steel and aluminum tariffs. The EU issued a list of U.S products it would target, including a variety of agricultural products, tobacco, textile, steel and many other items. The EU also filed a challenge to the U.S. tariffs at the World Trade Organization on Friday, and announced it would impose “rebalancing measures”.

Canada has also formally requested “WTO consultations with the United States regarding its imposition of punitive tariffs on imports of steel and aluminium from Canada, and more generally, on the United States’ improper use of national security pretexts for protectionist purposes” said Foreign Affairs Minister Chrystia Freeland on Friday. Minister Freeland confirmed Canada and the EU would work together on their WTO challenge. In addition, Canada is requesting the establishment of a NAFTA Chapter 20 panel, initiating NAFTA’s state-to-state dispute settlement mechanism.

Canada has issued a notice of intent to impose countermeasures action against the United States in the form of surtaxes or similar trade-restrictive countermeasures of up to CAD$16.6 billion in imports of steel, aluminum, and a number of other products. Tariffs of 25 percent and 10 percent will be applied to the products listed in Tables 1 and 2 respectively, which can be found here.

If you are a Canadian importer of the goods affected by the tariffs announced by the Government of Canada, your supply chain may impacted as of July 1st, 2018, when the tariffs will take effect. The tariffs will remain in place until the U.S. eliminates its trade-restrictive measures against Canada. A period of consultation with the Government of Canada has begun and written comments may be provided by Canadians no later than June 15, 2018.

If your business imports any of the products Canada has identified as potentially subject to countermeasures, you may wish to participate in the government consultations. The consultation period is short, so you need to act quickly.

The lawyers at Tereposky & DeRose have extensive experience assisting Canadian businesses with government consultations. If you would like to be involved in the process, we are at your disposal.

Greg Tereposky
613.237.1210
gtereposky@tradeisds.com

Vincent DeRose
613.237.8862
vderose@tradeisds.com

Stephanie Desjardins
613-237-0483
sdesjardins@tradeisds.com