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.
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.
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):
- Annex 19-1: central government entities;
- Annex 19-2: sub-central government entities;
- Annex 19-3: all other government entities;
- Annex 19-4: goods;
- Annex 19-5: services, other than construction services;
- Annex 19-6: construction services; and
- Annex 19-7: general notes and additional exclusions.
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: