Trade Compliance

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CETA an “Unknown Quantity” for Majority of Small and Medium-Sized Businesses

Posted October 20, 2017


With provisional implementation of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) last month, most of the key aspects of the country’s second largest free trade pact have already been brought into effect.

CETA’s most immediately notable benefit is the elimination of tariffs. With the exception of a few economically “sensitive” goods and a number of agricultural commodities, almost all qualifying imports from the European Union became duty free as of September 21, 2017. Likewise, the provisional implementation of CETA now allows most Canadian-exported goods to enter into the 28 countries of the EU free of duty.

The ability of small companies in any sector to take advantage of CETA though, relies on understanding the agreement, along with the market it opens up. In this regard, a recent survey by the Canadian Federation of Independent Business found that while almost one in five small and medium-sized businesses are very or somewhat likely to trade with the EU as a result of CETA, more than half of them are completely unfamiliar with the trade agreement.

With this in mind, the CFIB urged the federal government “to engage SMEs and provide them with the tools and resources they need to grow and expand their business with CETA.”

Specifically, the group recommended that resources be provided with “concrete steps on how to engage in trade with the EU.” It also suggested that government should work with the EU and other trade-related entities, “to build tools, such as a centralized website, that provide SMEs with clear and relevant information on what the customs processes are, what documentation they might need, what regulations may impact their specific shipments, with suggestions on how to address them.”

Until that worthy initiative materializes, however, guidance must be derived from more traditional sources. The CBSA last month published Customs Notice 17-30, which sets out important administrative details for Canadian importers before duty-free imports under CETA are processed. This notice should be read in conjunction with the CETA text, as well as the various regulations that the federal and provincial governments have created to bring CETA into effect.

Unlike with NAFTA, Canada and the EU did not adopt a certificate of origin to claim preferential tariff treatment. Instead, each invoice (or other commercial document provided that it describes the originating product in sufficient detail to enable its identification) must include an Origin Declaration for the qualifying goods that is completed by the exporter. The Origin Declaration and the various languages in which it may be completed are contained in Annex 2 of the Protocol on Rules of Origin and Origin Procedures.

Although generally goods must be shipped directly from the EU to Canada in order to claim preferential treatment, the CETA does permit for certain exceptions. Article 14 of the Protocol provides that a product shall be considered originating in the EU or Canada if its undergoes limited forms of further production (such as unloading, reloading and operations necessary to preserve or transport the product) and remains under customs control while outside the territories of Canada or the European Union.

To receive preferential tariff treatment, the goods must meet the Canada-EU CETA rules of origin, which are are set out on the basis of a product’s ten-digit number Harmonized System tariff classification and can generally be divided into one of four categories:

Tariff Shift Rules of Origin
The rule is stated in terms that the HS tariff classification of the manufactured or processed good to be imported into Canada changes from the HS tariff classification of inputs/ingredients imported into the country from which the good is exported.

Regional Value Content Rules
The rule is stated in terms of a percentage of value added in the country of manufacture.

Combined Tariff Shift and Regional Value Content Rules
The rule of origin combines a tariff shift requirement and a regional value content requirement.

Special Rules of Origin
Certain goods are considered to be sensitive (such as agricultural products, textiles, automobiles/arts, medical devices, pharmaceuticals, etc. and have specially negotiated rules of origin.

In terms of origin verification, CETA establishes a process whereby European Union verifies Origin Declarations made by EU exporters and producers and the CBSA verifies those made by Canadian exporters and producers. In Article 29, Canada and EU Members have agreed assist each other, through their customs authorities, in verifying whether products are originating and ensuring the accuracy of claims for preferential tariff treatment.

CBSA has advised in Customs Notice 17-29 that regulations setting out various amendments and new CETA-related procedures concerning issues such as record keeping requirements, advance rulings, refunds, etc., are expected to be passed soon.

Other Helpful CETA Resources:

The Retail Council of Canada in conjunction with Lex Sage law firm has published an extensive Guidebook on CETA to help its members better navigate complexities of the new trade agreement.

Canada’s export credit agency the Export Development Corporation has also followed up a highly informative webinar entitled “CETA, Unlocking the Potential,” with an excellent three-part Q&A series (here, here and here) featuring responses by Dannie Hanson, Vice-President of Sustainability at Cape Breton’s Louisbourg Seafoods; Ailish Campbell, Assistant Deputy Minister at Global Affairs Canada and the country’s Chief Trade Commissioner; and trade lawyer John Boscariol, head of the International Trade & Investment Law Group at McCarthy Tétrault LLP.