New Canada-EU Free Trade Agreement

A new trade agreement between Canada and the European Union (EU) may be a welcome boost for Canadian companies and their trade partners.  The Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU is making progress, and may even be implemented by late 2015.  Negotiations for the CETA first began in 2008, and it has since then undergone several rounds of negotiations.  CETA will become effective once the governments of the EU countries, the EU Parliament and Canada’s provinces sign the official agreement.  The EU is Canada’s second largest trading partner with its 28 member nations, with the U.S. being Canada’s primary partner in trade.  The Canadian government therefore views the proposed free trade agreement as offering significant benefits in tariff reduction/elimination, easier access to services, as well as preferential immigration treatment.

CETA aims to eliminate tariffs on both sides for all non-agricultural goods.  At the time of implementation, the agreement proposes to have 98% of covered goods converted to duty free.  Almost 100% of non-agricultural goods will immediately be changed to duty free, with approximately 94% of agricultural products becoming duty free.  However, there will be a phased implementation process to reduce or eliminate tariffs for certain goods at three years, five years, and seven years.  Tariffs that will be subject to a phasing out by the EU include some fish and seafood products, grains, and passenger vehicles.  Canada will phase out tariffs for products including some agricultural goods, passenger vehicles and ships.

Similar to other free trade agreements such as NAFTA, or the U.S.-Korea Free Trade Agreement, there will be provisions determining how a product qualifies as “originating” from Canada or an EU member country.  To fall under CETA and its preferential tariff provisions, the product must qualify as originating from a member country according to the rules of origin, which will be specified in the final agreement.

Given that CETA is expected to cover a large array of products, the elimination and reduction of tariffs could greatly impact companies that import and export between the countries signing on to the agreement.  Further, CETA could impact U.S. companies who have affiliates or subsidiaries in CETA member countries, and who trade goods or services between the member countries.  U.S. companies who have qualifying trade under CETA could potentially greatly benefit from the lower duty rates and ease of services, thereby increasing their profit margins.

By Jennifer Horvath,  Attorney