CETA: Opportunities for the United Kingdom 1 Discussion Paper The United Kingdom's economy is very open to trade. Exports from the UK to countries outside the EU support over 3.25 million jobs in the UK. In 2015, the UK exported goods and services of a total value of 9 billion to Canada and imported 14 billion. Trade in Goods Canada is the UK's 5 th largest non-eu market for goods exports. In 2015, the UK's goods exports to Canada amounted to 5.3 billion while its imports were 12 billion. CETA provides for significant savings on customs duties by eliminating 99% of all tariff lines, of which 98% will be scrapped at entry into force. The UK will therefore benefit from this tariff liberalisation on virtually all of its exports, in particular: - Machinery and electrical equipment - This sector employs more than an estimated 380,000 people in the UK. UK exports account for 16% of total EU exports to Canada and stood at more than 1.4 billion in 2015. These face low average tariffs but certain products face tariff peaks of 9%. Apart from significant savings on customs duties, CETA allows British companies to do away with costs of double testing thanks to the provisions on recognition of conformity assessment certificates in sectors such as machinery, electrical goods and electronic equipment. These sectors will also benefit from CETA's provisions on public procurement and movement of professionals (see sections hereafter). - Motor vehicles and parts - The UK is the 2 nd largest motor vehicles exporter to Canada among EU Member States. The sector employs more than 800,000 people in the UK. UK exports account for 15% of all EU motor vehicles exports to Canada and stood at more than 700 million in 2015. These face tariffs of up to 9.5%. - Pharmaceuticals - In 2015 the British pharmaceutical industry's exports to Canada were worth 360 million. The industry faces very low tariffs but will particularly benefit from CETA's intellectual property provisions (see section hereafter). Furthermore, the protocol on mutual recognition of Good Manufacturing Practices (GMP) will facilitate trade in this sector, by providing for the acceptance of GMP compliance certificates issued by one Party's authorities by the other Party. 1 This factsheet illustrates some potential opportunities created by CETA. The types of information may differ from one Member State to another, depending on the available data and relevance for the Member State concerned. All trade data is sourced from Eurostat for the year 2015 unless otherwise specified. Where available, all sectoral employment data is sourced from the national statistical service of the Member State in question and in some cases other public data sources have been used. 1
- Optical instruments and medical instruments - British exports to Canada were valued at 219 million in 2015. The Canadian tariffs are up to 8.5% for these goods. - Chemicals British exports of these products amounted to nearly 130 million in 2015. Tariffs are in general low with a peak of 6.5%. - Textiles and apparel - This sector employs around 79,000 people in the UK. The UK is also the 2 nd largest wearing apparel exporter and the 3 rd largest textiles exporter among EU Member States to Canada. UK wearing apparel and textile exports account for 15% and 13% of total EU exports of such products to Canada, at 70 million and 30 million respectively. Wearing apparel and textile exports face an average tariff of 16% with a peak of 18% for a large number of product categories. Agricultural and Food Products CETA also offers important opportunities for UK farmers and the agri-food industry. Canada agreed to eliminate duties for 90.9% of all its agricultural tariff lines upon the entry into force of CETA. The UK is the 3 rd largest processed foods exporter among EU Member States accounting for 15% of all EU processed foods exports to Canada. In absolute terms, UK processed foods exports to Canada stood at 360 million in 2015. These included: - Confectionery products made of chocolate: UK exports to Canada in this sector were worth 33 million in 2015, and face tariffs of around 6%. - Confectionery products made of sugar: UK exports to Canada in this sector were worth 21 million in 2015, and face tariffs of around 10%. - Cheese: UK cheese exports to Canada were worth 10 million in 2015. EU cheese exports to Canada are limited by the EU's portion of an existing WTO duty free quota; outside this quota, exports would face prohibitive tariffs of on average 227% which would make them uncompetitive. CETA offers two new annual import quotas, or permanent TRQs, for EU cheese: 16,800 tons of high-quality cheese (16,000 tons in CETA, and 800 tons that will be added to the EU portion of the existing WTO quota thanks to CETA), and 1,700 tons of industrial cheese. These quantities will be phased in progressively over a period of 5 years. - Gin and whisky: UK exports to Canada in the spirits sector were worth 129 million in 2015 (the majority of which is whisky). Gin faces specific tariffs of 4.92 cents per litre of pure alcohol, but whisky is tariff-free. For spirits such as gin and whisky, tariff elimination is complemented by the removal of other relevant trade barriers, including several 'behind the border' barriers that significantly hampered the EU capacity to penetrate the Canadian market. For instance, 2
the cost-of-service-differential fee imposed by the Provincial Liquor Boards on imported wines and spirits will be applied based on volume and not value, and calculated in a more transparent manner, lowering the cost for EU producers to sell their products in Canada. Other important outcomes are (i) a freezing of the number of Canadian off site private outlets, which are the small alternative to the monopoly of the Provincial Liquor Boards and which are only open to Canadian producers, (ii) Provisions addressing the out-ofprovince activities of certain liquor boards which lead to unfair competition in the Canadian territory and in third countries, (iii) the abolition of Canadian requirements to blend imported bulk spirits with local spirits before bottling (that requirement prevented GI labelling). Furthermore, the incorporation of the 2004 EU-Canada Wines and Spirits Agreement also provides stronger legal guarantees, as these provisions will be now made subject to horizontal disciplines, notably dispute settlement. The Agreement also provides a forum for further discussions in the future on any other issue of concern for the EU and Canada related to Wines and Spirits. Therefore names of specific British products such as Scotch Whisky and Plymouth Gin will continue to enjoy full protection. We expect that the combined effect of these measures will be to further increase the EU market share of the Canadian wine and spirit sector. The EU also opens its market to Canadian agricultural products, in order to offer more choice to the consumer, but liberalisation for sensitive products is limited to duty free quotas for some products such as beef and pork. Above agreed quotas for sensitive products, the EU's high tariffs for these products continue to apply. Certain sensitive products like poultry and eggs have been excluded from any tariff liberalisation. Furthermore, the EU remains able to use its traditional tools in order to protect the European farmers, including the entry price system for fruits and vegetables which prevents imports from undercutting EU seasonal produce. This is of particular relevance for British fruit and vegetable producers. Furthermore, all Canadian exports will need to comply with the EU's food safety standards, including its legislation on GMOs and on the use of hormones and antibiotics in food production, and provide proof of such compliance wherever this is required by EU legislation. Trade in Services Canada was the UK's 5th largest non-eu market for services exports in 2015. In 2015, the UK's services exports to Canada were at 4.2 billion whereas imports from Canada amounted to 2.5 billion. The UK's main services exports to Canada include transport, tourism, financial, assurance and other professional services (such as R&D and consulting). CETA will improve and secure British companies access to the Canadian services market. For example in the professional services sector, Canada has removed a number of limitations on citizenship and residency conditions for lawyers, accountants, architects and engineers to practice in Canada. CETA also brings legal certainty for EU services exporters: 3
Canada has locked in its current level of openness towards EU companies, for example in financial services, telecoms and postal and courier services. CETA also offers new market access in key areas. In particular, Canada takes market access commitments on dredging, on repositioning of empty containers and some opening of feedering activities on the route Halifax-Montreal, which was limited to national operators under previous agreements. Some of these could also be relevant to the UK's maritime sector. Movement of Professionals CETA includes provisions to facilitate the movement of professionals and the recognition of qualifications. These are major issues for companies who provide services (for example for after sales services for exported machines or ICT software), but also for companies that manufacture complex products that require after sales services (installation or maintenance of machinery). Provisions to facilitate movement of people can be particularly beneficial for SMEs, as they may not be able to ensure the presence of permanent staff on the ground to directly supply the service. CETA establishes legal certainty and significantly improves mobility for services suppliers because: (i) it facilitates the transfer of key personnel across the Atlantic, (ii) it allows companies to send staff for after sales services (of particular interest for machinery, software and equipment suppliers) and (iii) it creates a framework for the recognition of professional qualifications for regulated sectors like architects and accountants. Investment The stock of FDI from the UK in Canada was worth 23.5 billion in 2015, making the UK the 4 th largest foreign direct investor in Canada globally. UK companies such as HSBC Bank, Amec Foster Wheeler, Carillion and Burberry have set up affiliates in Canada and have significant investments in areas such as manufacturing, aerospace, life sciences, and engineering services. CETA will further facilitate UK investment to Canada, as Canada has agreed to increase substantially the threshold for review of acquisitions of Canadian companies by non-canadians from CAN $354 million ( 247.26 million) to CAN$1.5 billion ( 1.4 billion). Canada, on its side, has interest in the UK in many fields, and Canadian investors declared a stock of 18.2 billion in 2012. The UK is the most important destination of Canadian FDI in the EU (2nd globally). There are a large number of Canadian affiliates located in the UK, with interests in sectors such as engineering and other professional services (Fasken Martineau LLP, SNC Lavalin and Kevin R Twigger & Associates Ltd), aerospace (Magellan), automotive (Magna), ICT (Com Dev International Ltd, Future Electronics Inc. and BlackBerry) and financial services (Sun Life, Bank of Montreal, Scotiabank and Canaccord Financial Inc.). 4
The UK does not have a bilateral investment treaty (BIT) with Canada, a fact that makes the investment protection and the dispute settlement provisions in CETA all the more relevant to British investors in Canada and Canadian investors in the UK. Once CETA enters into force definitively, these provisions will provide British and Canadian investors with greater predictability, transparency, and protection for their investments in Canada and in the UK respectively. Government Procurement With CETA, EU companies will get access to the significant Canadian public procurement market. British companies will have the opportunity to bid to supply goods and services for tenders at all levels of government (whether federal, provincial or municipal). Canada has also agreed to make the tendering process more transparent by publishing all its public tenders (both federal and provincial) on a single procurement website. Canada's government procurement commitments in CETA are the most ambitious Canada has ever granted. Intellectual Property Rights CETA gives British innovations, copyrights and trademarks a similar level of protection in Canada as they enjoy in Europe. In particular, Canada will align its copyright protection to international standards. This is an important outcome as it will protect the intellectual property of the EU's creative industries (artworks, publications, music or software) including its dissemination through new technologies and communication systems such as the internet. The chapter on Intellectual Property Rights, besides provisions on copyright, trademarks and designs, also encompasses intellectual property rights for pharmaceuticals. The agreement includes the possibility of up to two years of additional patent protection to compensate for undue delays in granting the marketing authorisation that reduce the useful life of the patent, a commitment to ensure that all litigants are afforded an effective right of appeal under Canada's patent linkage regime (the link between the marketing authorisation for a generic drug and the patent status of the originator drug), and a commitment to maintain Canada's current practice of offering eight years of data protection. This is critical to the UK's interests, given the importance of pharmaceuticals in the UK's exports to Canada. SMEs British SMEs are very export oriented and make up 90% of the total number of British exporting enterprises. They will be able to take full advantage of CETA. Reduced trade barriers, tariff elimination, simplified customs procedures and more compatible technical requirements lower export related costs. This allows SMEs to better compete with large companies, to sell the same product (or with fewer modifications) into both markets and to participate more in supply chains and e-commerce. Specific provisions reinforce the CETA 5
benefits for small companies, such as the consideration of SME needs in electronic commerce, improved access to information on public procurement tenders and the use of the Investment Court System (ICS). The ICS provisions in CETA allow faster proceedings and reduced costs for SMEs in litigations. 6