On October 18, 2013 the Prime Minister of Canada announced that Canada had reached an agreement in principle for a “Comprehensive Economic and Trade Agreement” (CETA) with the European Union. While not yet in force, and expected to take upwards of two years to be translated and ratified by all 28 EU member states and the European Parliament, the Agreement has generated a lot of excitement about the EU – already Canada’s second biggest trading partner behind the US.
What many businesspeople do not realize is that Canada already has a Free Trade Agreement with a group of European countries – The Canada-European Free Trade Association Free Trade Agreement (CEFTA).
Since CEFTA came into effect on January 1, 2009, EU countries are already taking advantage of duty free rates on many goods. Countries like Norway, Switzerland, Iceland, and Liechtenstein now enjoy duty free trade with Canada, as well as the big EU mainstays like France and Germany. CEFTA was Canada’s first free trade agreement with any European nation, and has led to trade in excess of $10 billion annually.
While CEFTA has made it easier for businesses in EFTA member countries to export and import to Canada, like any free trade agreement, it comes with its own administrative requirements and rules. These include specific Rules of Origin (product specific rules clarifying when sufficient production has been undertaken to make a good imported to Canada from the EU a duty free good). It is critical for EU member countries to realize that these rules are required conditions for duty free trade, and that the Canada Border Services Agency (the “CBSA”) has powers to audit and verify the proper application of these rules, and to carry out Trade Verifications in respect of same.
For Canadian businesses wishing to export to the EU, the critical learning point is that these Rules of Origin may differ from those in place under the North American Free Trade Agreement (NAFTA), such that it could well be the case that a good qualifying for duty free treatment under NAFTA might not qualify for duty free treatment under CEFTA, and vice versa.
While CETA and CEFTA also cover different countries, we think that savvy business operators and investors would be wise to look at CEFTA countries as a way to gain valuable experience on how to carry on business in Europe – particularly for those companies who presently only carry on business in Canada and the United States. Diversification is a good thing, and the experience gained in operating in CEFTA countries is sure to serve Canadian businesses well-placed in competing for a share of the broader EU marketplace once CETA comes into force.