CETA New Opportunities for Canada & Belgium Trade & Investment Seminar Presented by Bob Sacco, GTA Trade & Customs Leader October 30, 2015
Agenda Trade & Customs What s new Free Trade Agreements Comprehensive Economic Trade Agreement CETA Changes to EU Regulations Summary of Key Issues Q&A 2
Canadian Free Trade Agreements (FTAs)
Free Trade Agreements Currently in Force or Concluded In force North American Free Trade Agreement (NAFTA) Brought into force: January 1, 1994 Israel January 1, 1997 Chile July 5, 1997 Costa Rica November 1, 2002 European Free Trade Association (Iceland, Liechtenstein, Norway, Switzerland) July 1, 2009 Peru August 1, 2009 Colombia August 15, 2011 Jordan October 1, 2012 Panama April 1, 2013 Honduras October 1, 2014 Korea January 1, 2015 Concluded (but not in force) Canada European Union (CETA): Proposed target date January 1, 2016 4
Free Trade Agreements Under Negotiation or Modernization Ongoing negotiations India Caribbean Community (CARICOM) Central America Four (CA4) Dominican Republic Israel Free Trade Agreement Modernization Japan Morocco Singapore Trans-Pacific Partnership Negotiations Ukraine Costa Rica Free Trade Agreement Modernization 5
Comprehensive Economic Trade Agreement CETA On October 18, 2013 the European Union and Canada signed an agreement in principle on the Comprehensive Economic Trade Agreement CETA The deal will make Canada the only G8 country to have preferential access to the world's two largest markets, the EU and the United States, home to a total of 800 million people. The CETA includes the 28 member European Union Larger than NAFTA Canada Talks between the two sides launched in May 2009. Agreement could come into effect sometime in 2016, after EU governments, the European Parliament and Canada's 10 provinces give their blessing. 6
CETA Agreement in Principle - High Level Summary Some areas of the agreement still need fine-tuning, Most contentious points have been settled. The agreement has been drafted, run past lawyers and translated into 22 languages for the 28 EU countries to examine Eliminating duties When the agreement enters into force eliminate tariffs on more than 99% of all tariff lines. Bilateral trade may increase by an estimated 20 per cent, add a $12 billion boost to the Canadian economy and create 80,000 new jobs. The agreement in principle also provides for working groups to look at non-tariff barriers regulations on health and sanitation, for example that interfere with trade. 7
CETA Agreement in Principle - High Level Summary The CETA is estimated to generate $17 trillion in annual economic activity. Total EU Exports to Canada are estimated to rise by 24.3% or 17 billion euros It is expected that 50% of the deal gains are related to trade in services (i.e. transportation, finance etc.,) 25% of profit is estimated to come from tariff reductions 25% of profits would be reached by dismantling non-tariff barriers and increased regulatory cooperation. Enhanced transparency and legal certainty for economic operators on both sides of the Atlantic. Canadian automakers will be able to export 100,000 cars a year, 12 times their limit now. 8
Highlights from the Agreement Include: Canada will recognize a list of EU car standards and will examine the recognition of further standards. This will make it much easier to export cars to Canada. Full access to EU markets for Canadian fresh and frozen fruit and vegetables, or processed foods. Full access to EU markets for Canadian wheat, oats, barley, rye and canola oil. Full access to EU markets for Canadian dairy farmers, with both sides excluding poultry and egg sectors. No more tariffs for many seafood products, including cooked and peeled shrimp, live lobster, frozen lobster and frozen scallops. No more tariffs on metals and mineral products, including iron and steel. Canada will allow 29,000 tonnes of tariff-free cheese from the EU, up from 13,000 tonnes. 9
Highlights from the Agreement Include, con t The government is considering compensation for Canadian dairy farmers if they lose money because of the agreement. Canadian beef producers will be able to sell an additional 50,000 tonnes of beef the current quota is 15,000 tonnes. Canadian pork producers will be able to export 75,000 tonnes, a substantial increase to their current 6,000 tonne quota. The government is also talking to the provinces and territories about compensation if the provision to extend drug patents by two years increases their costs. It s not clear what the cost will be to the government of losing all the revenue it earns off tariffs on European products for example, a six-per cent tariff on luxury vehicles. No more tariffs on European wine and spirits entering Canada. 10
CETA Agreement in Principle - High Level Summary Exclusions for public health care, public education, social services and culture. Preserved the right of regional governments to prefer local service providers. An important provision in the deal ties Canada s fortunes to those of other countries negotiating trade deals: If any country negotiates a better deal, those provisions will apply to Canada automatically (Services only) Investments will still be subject to the net benefit test, which allows cabinet to review takeovers above a certain value. Raised to $1.5 Billion from $1 Billion Negotiators also built in incentive for automakers to invest in Canada: tarifffree access for cars that are 50 per cent Canadian-built, on top of the 100,000 quota (20%). 11
Non-tariff Barriers (NTBs) The chapter on technical barriers to trade (TBT) contains provisions that will improve transparency and foster closer contacts between the EU and Canada in the field of technical regulations. Both sides also agree to further strengthen links between the relevant standard setting bodies. A separate protocol will improve the recognition of conformity assessment between the parties. By reducing the cost of complying with technical regulations, standards and conformity assessment procedures (including marking and labelling provisions) CETA will facilitate trade and benefit industry generally. According to estimates, this could amount to GDP gains of up to 2.9 billion a year for the EU. 12
Trade in Services Trade in services around half of the overall GDP gains for the EU are expected to come from liberalizing trade in services. CETA will bring new opportunities for European companies by creating access the Canadian market in key sectors such as financial services, telecommunications, energy and maritime transport. The GDP gains for the EU could amount to up to 5.8 billion per year, once the agreement is fully implemented. SPS CETA consolidates the existing EU-Canada Veterinary Agreement and creates a more predictable environment for EU exporters of plants and plant products. 13
Temporary Movement People Temporary movement of company personnel to support trade in services and investment, CETA will make it easier for firms to move staff temporarily between the EU and Canada. This will make it easier for European companies to run their operations in Canada. Certain categories of professionals will also have easier access to temporarily supply services such as consultancy in a variety of sectors like engineering, accounting or architecture, simplifying the fulfillment of after-sales maintenance and monitoring commitments. Mutual recognition of qualifications the agreement provides a framework for a future mutual recognition of qualifications in professions such as architects, engineers, and accountants. At the moment, the lack of coherent requirements for professionals remains a critical barrier, especially for providing cross-border services. Under this framework, the relevant professional organizations or authorities in the EU and Canada now have the possibility to further jointly work out the technical details of a mutual recognition and bring these under CETA. 14
Public Procurement Public procurement CETA covers new ground as it is the first time that all sub-federal levels of government in Canada have committed themselves to bilaterally opening their procurement markets. An EU-Canada Joint Study (2008), found that the overall value of contracts awarded by the federal government was estimated at C$ 15 to 19 billion per year. The value of contracts at other levels of government is considered to largely exceed these numbers. For example, in 2011 procurements by Canadian municipalities was estimated at C$ 112 billion or almost 7% of Canadian GDP. Canada will also create a single electronic procurement website that combines information on all tenders and access to public procurement at all levels of government. This will make it much easier for European suppliers to compete in the Canadian procurement market. 15
Intellectual Property Rights Intellectual Property Rights (IPR) CETA will create more of a level playing field between Canada and the EU. The agreement should in particular lead to developments in the Canadian IPR system regarding pharmaceuticals. The chapter also includes provisions amongst others on trademarks, designs and copyrights, and overall it reflects high standards for IPR protection. 16
Geographical Indications Geographical Indications CETA recognizes the special status and offers protection on the Canadian market to a list of numerous European agricultural products from a specific geographical origin, so-called Geographical Indications (GIs). Examples are Grana Padano, Roquefort, Elia Kalamatas Olives or Aceto balsamico di Modena. The Agreement also provides for the possibility to add other products' names to the list in the future. In addition, thanks to the agreement, some prominent EU GIs such as Prosciutto di Parma and Prosciutto di San Daniele will finally be authorized to use their name when sold in Canada, which was not the case for more than 20 years. 17
Dispute Settlement Mechanism Dispute settlement mechanism CETA provides for an efficient and streamlined horizontal mechanism covering most areas of the agreement. The system is intended as a last resort should the parties fail to resolve disagreements relating to the interpretation and implementation of the Agreement s provisions by other means. It proceeds along a fixed set of procedures and time-frames. Should parties fail to reach an agreement through formal consultations, they can request the establishment of an arbitration panel, made up of independent legal experts. Mediation a mechanism for mediation is also available on a voluntary basis to tackle measures that adversely affect trade and investment between the Parties. 18
Insights in new EU Customs and VAT Law Proposed Changes
The European Union Customs Code? NEW EU customs legislation in Union Customs Code (UCC) UCC requires adoption of UCC implementing provisions (Implementing and Delegated Acts = drafts) Major modernization of EU Customs legislation dating back to 1992 UCC applicable in 28 EU Member States UCC places a big emphasis on the use of IT and technology New It systems needed to support the implementation are expected to be available by 2020 UCC enters into force as per May 1, 2016 20
Customs Valuation - Abolishment EU First Sale For Export Based on the draft UCC legislation it is highly likely (>99% chance) that the EU First Sale For Export (EU FSFE) concept will be abolished per the implementation date of the new legislation. The relevant current draft text of the UCC reads as follows: the transaction value of the goods shall be determined at the time of acceptance of the customs declaration on the basis of the sale occurring immediately before the goods are brought into the customs territory of the Union. For EU importing companies the abolishment of the EU FSFE could mean that the customs value of the imported merchandise must be based on the retail transaction price of the in case the merchandise is already sold to e.g. EU Third Party Distributors prior to the physical arrival of the merchandise into the EU. Transitional measure: sunset clause for existing EU FSFE until December 31, 2017. Alternatives should be considered for mitigating import duty impact. 21
Customs Valuation Royalty Dutiability Another major change in the new EU customs legislation is the dutiability of royalties related to imported merchandise. Under the current EU customs regulations, there are various ways to avoid the dutiability of royalty charges. In the current draft text of the new legislation, the European Commission aims to include all royalty payments that can be linked to the imported merchandise into the customs value (such as trademarks, designs, etc.). The relevant current draft text of the UCC reads as follows: Royalties and licence fees are considered to be paid as a condition of sale for the imported goods when any of the following conditions is met: (c) the goods cannot be sold to, or purchased by the buyer without payment of the royalties or license fees to a licensor. Free sourcing exemption for TM royalty no longer applicable. De facto all royalties become dutiable as license agreements tend to require a licensee to pay a royalty in relation to the purchased merchandise (whether or not calculated over their resale revenue). Alternatives should be considered for mitigating import duty impact. 22
Summary of Key Issues
Summary of Key Issues FTAs can help businesses be successful in new export markets however it also opens the door to more competition in the Canadian market place. Companies should review the key issues and opportunities: Prepare to take advantage of Free Trade Agreements: Import goods from the countries with Free Trade Agreements on a dutyfree or reduced basis May use Canada to produce goods for export to the European Union under the proposed CETA May use Canada to produce goods for export to Asia Pacific Region under the proposed TPP 24
Thank you Bob Sacco T: (416) 777 3693 E: bobsacco@kpmg.ca