The Nitty-Gritty of EU Trade Barriers Before and After CETA
When the Canada-European Union Comprehensive and Economic Trade Agreement (CETA) comes into effect in September, Canadians exporting to Europe will find that some barriers change – and some won’t. This article, the second in a 3-part series, builds on Does Opportunity Await in OECD Nations within the EU? and is followed by Strategies to Overcome Trade Barriers in the EU in part 3.
Below, you will find an overview of:
When the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) comes into force, a number of trade barriers will change for Canadians exporting to Europe, but there are some that won’t.
Tariff barriers—basically duties collected on goods when they arrive at the European border—will be cut or at least reduced, and some non-tariff barriers, such as standards and regulations, will remain although they’ll be easier to overcome. In addition, Canadian companies will have access to some EU government contracts, a significant and unprecedented change.
We consulted trade consultant and expert-for-hire Christian Sivière, of Solimpex, on what Canadians can expect when facing EU trade barriers.
Tariffs are the duties governments impose on imports. On the day it comes into force, 98.4 per cent of all tariffs on non-agricultural goods coming from Canada will be set at zero and 98.8 per cent of non-agricultural goods will be tariff-free after seven years. There are transition periods of between three and seven years on ships, automotive products and some agricultural products.
A European car coming into Canada currently has a six per cent customs duty slapped on it. That amount will be phased out over a period of a few years. Meanwhile, starting on Day 1, tariffs on seafood — now at 20 per cent — will mostly be eliminated.
Ad valorem duties are tariffs you have to pay based on the product you’re exporting. The Latin term means “value”, which is what the duty is based upon. For a limited number of products, such as commodities, you might have what are called “specific duties” which are usually levied based on weights or volumes. Here’s a tool that will help determine tariffs on your particular goods. And here’s one to find the HS code for your product, which you’ll need to use the tariff tool.
Non-tariff barriers are generally considered the technical standards and licensing requirements that specify properties of goods eligible for import. These would be rules, for example, that might specify something must be a certain height, or width. For example, if you’re sending flour, or a processed product that includes flour, to Canada it must be enriched. So you might have to change your cookie recipe for the Canadian market. This will not change for Europeans.
European products, meanwhile, have a “CE mark”, which applies to toys, machinery, electronics, elevators, boats and computers, to name a few. To get into the EU, your product has to conform with CE regulations and must have the CE marking. In Canada, the equivalent would be the CSA standard on appliances.
In addition to CE standards, Europe has EUP, ROHS and REACH standards. Mostly, they apply to chemicals, hazardous substances and energy and will remain in place post-CETA.
Previously, Canadian products had to be tested in European facilities, but the beauty of CETA is that there will be a list of Canadian labs and organizations that can give Canadian products European certification.
Europeans will also be able to get their products certified there for Canadian standards. So while these non-tariff barriers remain, the changes will make things easier — especially for SMEs.
There are other barriers, too. For example, the EU doesn’t allow hormone-fed beef and many Canadian farmers feed their cattle hormones. “If you raise cattle in the West, it’s great to have this opportunity,” Sivière said, “but you have to have two supply chains. You must have the non-hormone-fed cattle completely separated from the regular hormone-fed beef. Some will do it, I’m sure, but it’s not that simple.”
Quotas are limits on the amounts of a product that can be imported by a country, so even if there are no customs duties for a product under CETA, it may be bound by quotas. The current quota on European cheese to Canada will be doubled under CETA, but anything Canada imports after that will be subject to customs duties. Like tariffs, new quotas will be phased in over several years.
Europe has quotas on Canadian products including shrimp, cod, beef and pork.
To export certain goods to Europe, Canadians need a license, which allows government to restrict the import of the product, simply by restricting the number of licenses it released. Those items include food, and goods from the environmental, strategic, energy and automotive sectors.
Customs clearance is uniform across the EU so when your goods arrive in the EU, they go through customs once and then they can move freely to any and all of the EU’s 28 countries.
That said, there is the VAT (value-added tax), which you pay on entry and VAT is different across Europe. Indeed, among the 28 EU countries, some have two or three levels of VAT, so there could be as many as 75 VAT rates across the customs union.
Generally, when you bring goods into Europe, you pay the customs and the VAT right away, but some countries, such as Belgium and the Netherlands, allow you to pay them at month’s end.
Procurement — the ability to bid and win government contracts — will mostly open up on both sides through CETA. The exceptions on the European side are airports and cultural institutions. On the Canadian side, the exceptions are in public transportation contracts in Quebec and Ontario. This applies to contracts of certain values in both countries. For example, contracts over a certain value are open.
Product classifications refer to something called an HS code. In Canada, you can go to customs and ask about your product classification. You can ask for a duty rate and apply to Canada Customs about what you think your HS code should be as the product descriptions are open to interpretation. With CETA, Canadian companies can also apply to the EU to get a ruling on product classification as well as its rules of origin. The catch-all term for this process is “binding tariff information.”
Rules of Origin
Every free trade agreement has rules of origin. If your bottled water comes from the ground in Canada, it’s clearly Canadian but it your product is made from fibre that came from Turkey, and ink from Brazil, even though you made it in Canada, it’s not very Canadian. That said, a product can, in some cases, be considered as originating in Canada following a manufacturing process, even though some raw materials, components and parts may have been imported from outside the region.
In NAFTA, the rule of thumb is that the product must be at least 60 per cent Canadian and in CETA, it’s a little lower, at 50 per cent.
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