Canada signs historic free trade agreement with EU

Canada and the European Union signed a ground-breaking free trade agreement today which promises to give Canadian exporters preferential treatment in the lucrative EU marketplace and a leg up on competitors from around the world.

The Canada-European Union Comprehensive Economic and Trade Agreement (CETA) is the most wide-ranging trade agreement ever concluded by the EU. It eliminates virtually all tariffs on goods flowing between Canada and EU, the world’s second-largest market. It will also facilitate trade by reducing non-tariff barriers, improving labour mobility and opening up the world’s largest government procurement market to Canadian companies.

This is the most ambitious free trade agreement the EU has ever agreed to. Canada is the first country in, meaning Canadian companies have a head-start and get to establish important relationships with the Europeans before others can.

The complexities and lengthy amount of time required to come to the agreement involving the region’s 28 member states led to “a lot of new approaches” compared with more typical “cookie-cutter” trade agreements,  says Steve Verheul, Canada’s Chief Trade Negotiator for the EU.

The goal of the negotiators was “not just to tinker around the margins” but to make “fundamental changes,” he says, from extending the agreement to include exports of services to crafting rules of origin that reflect the realities of today’s production processes.

“We reached a consensus very early on that if this agreement was going to make a difference in terms of our economic relationship, then we had to be very ambitious,” Verheul says, noting that Canada and Europe “have a lot of common history and common values that allowed us to go further than with other trading partners.”

Prior to CETA, only 25 percent of EU tariff lines were duty-free for Canadian goods, and the remaining tariff lines had duties anywhere of up to 25 percent, and more. Each tariff line consists of a numerical code, a description and a tariff rate. Tariff lines are used to classify goods to apply the appropriate tariff rate. The EU uses more than 9,000 tariff lines to classify imported goods. From the first day of CETA’s entry into force 98 percent of EU tariff lines will be duty-free for Canadian goods, rising to 99 percent at the end of a seven-year phase-out period for some goods, says Verheul. He notes that when the North American Free Trade Agreement entered into force in 1994, tariffs were eliminated on just 29 percent of tariff lines.

Among CETA’s provisions, Canadian products in certain sectors—ranging from consumer electronics to major machinery, requiring certification to be sold in Europe—will be able to undergo testing in Canada to EU standards.

Canadian services providers will benefit from the greatest access the EU, the world’s largest importer of services, has ever provided in a trade agreement, as well as the most ambitious commitments on temporary entry the EU has ever granted. Canadian services in areas such as professional, environmental and construction services will have more access to the EU market than those of any other country. Temporary workers such as contract service suppliers and corporate transferees will be allowed entry to the EU, while the region’s $3.3-billion procurement market, the largest in the world, “will be open to Canadian businesses to take full advantage of.”

For Canada’s exporters, CETA will offer an incentive to diversify beyond the U.S. market, and strengthen links to the EU that are “quite a bit underutilized now.” Verheul says. Europe is a very large, very wealthy market; it has more Fortune 500 companies than anywhere else in the world, it’s a key link for global supply chains.” The EU is currently in free trade negotiations with other countries including the U.S., Japan and India, although these talks are far from reaching a conclusion, Verheul points out, adding: “The advantage that we have here is that we’re first. The prospect of the EU completing an agreement with those countries is far away.”

Susan Bincoletto, Canada’s Chief Trade Commissioner, says that when CETA comes into force, “Canada will be one of the few countries in the world to have guaranteed preferential access to the world’s two largest economies—the U.S. and the EU.”  This will give our businesses a leg up over competitors, she notes. “Canadian goods that face tariffs—on everything from machinery to maple syrup—will become more competitive in the EU market, giving Canadian exporters an advantage over other exporters still facing EU tariffs.”

Igor Smirnoff
Igor Smirnoff, Chief Commercial Officer of PressReader
(Photo credit: David Vardanyan)

Companies looking to take advantage of CETA should begin by evaluating their prospects for doing business in the EU market, she advises. A new CETA web page offered by the Canadian Trade Commissioner Service (TCS) “is an excellent place to start,” she says. There are easy-to-understand explanations of key provisions of the agreement. “If you conclude from your initial assessment that you may have business opportunities in the EU, the next step is to contact a trade commissioner at one of our five regional offices in Canada or at any of the 26 missions in the EU offering business services to Canadian clients,” Bincoletto suggests.

Exporters that have market opportunities in the EU or those who are looking to secure or expand them are excited to learn what CETA will offer.

“It’s extremely important for us to have access to the European market and have a level playing field there,” says Igor Smirnoff, Chief Commercial Officer of PressReader, a company in Richmond, B.C., with a digital media platform for newspapers and magazines. About 40 percent of the company’s business is already in Europe, and it hopes to tap into the EU and UK market of 500 million people with PressReader technology, especially in places like public libraries.

Government procurement opportunities will particularly expand under CETA, which “will definitely be a plus for us,” Smirnoff says. “Anything that streamlines trade between Canada and Europe will be positive for PressReader and our business partners. Particularly in the media and technology space, we’re increasingly operating in a borderless world, and CETA will help us to better serve partners in Canada and abroad.”

He says CETA “is a framework of closer cooperation and that’s fantastic,” while the agreement will help Canadian companies that have quality goods and services to sell in the sophisticated EU market become better-known there. “We’re seen as having a superior product, and that works in our favour.”

PressReader has “aggressive growth plans for Europe and we’re very excited about the future. We continue to be very grateful to the Canadian Trade Commissioner Service for their tremendous assistance,” Smirnoff says. “Having people on the ground who know the market and are well-connected is critical.”

Clément Thiébault, a trade commissioner in Paris who promotes Canadian companies in the information and communication technologies (ICT) sector in France, says that CETA affects ICT companies such as PressReader in a number of different ways. For example, the CETA e-commerce provisions include a permanent moratorium on customs duties, fees and charges for digital products.

There are many other aspects of the agreement that will help companies such as PressReader develop business in Europe, Thiébault says, including the fact that it will facilitate applications for public calls for tender. “Canadian companies will be treated no differently than those that are EU-based,” he says. “Of course having a direct presence or representation in the market will always help, but a good part of that invisible barrier to trade will be reduced.”

The mobility of staff in firms such as PressReader will be “much enhanced,” he points out. “This will facilitate employee moves between Canada and the EU, as well as for temporary assignments to work for a client in the EU, for example,” he explains, which is particularly an issue for companies involved in IT services.

Bincoletto says that trade commissioners throughout the EU can provide market intelligence and insight, and uncover opportunities for companies in any of the EU’s 28 member-state markets. “Our business contacts include potential customers, distributors, sources of finance or investment, technology partners and intermediaries,” she adds. “These are connections that will save companies time and money, as well as reduce risk.”

Verheul says that for Canadian companies, CETA will improve the process of trading with the EU. For example, automation will “make the border itself less of a barrier.” He says the goal is to provide companies with information to assess how they can effectively compete in the EU for new market opportunities “based on the preferences and advantages they will have under this agreement.”

As the agreement is implemented, there will be “a greater focus on the Canada-EU relationship than ever before,” Verheul predicts. “Just the attention that this raises will stimulate interest and activity between the two markets.”

Learn more about CETA today.

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