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05/09/2017

Duty-free trade between Europe and Canada on its way

CETA: Europe and Canada in a free-trade relationship

The European Parliament has signed off on the free trade agreement between the EU and Canada. This means the trade section of the agreement is now already provisionally applicable. What does this mean for companies in Germany with regard to new sales and supply markets?

Everyone is still dazed by the new American president and his first administrative acts. The fact that future trade relations with the USA are marred by uncertainty at the moment could apparently impact favourably on CETA  - the European Union’s free trade agreement with Canada. After all, the view is that flourishing overseas trade will stand all EU member states in good stead during these times of uncertainty. It was with this in mind that the European Parliament approved the trade agreement with a clear majority in mid-February. This means sections of the the agreement are now already provisionally applicable. However, until the agreement can come into force fully, approximately 40 national and sometimes regional parliaments have yet to agree. This process can take several years and this consent is by no means certain yet.

From the German economy, the feedback with regard to the agreement has been largely positive. “Trade with Canada offers a great deal of potential for German companies”, of that Ulrich Lison from Stuttgart-based customs software provider AEB is sure. “Based on GDP, Canada is the tenth greatest national economy in the world, yet it occupies only 35th place in the ranking of the most important export countries for the German economy and in fact only 37th place when it comes to imports.” German companies should therefore explore the market opportunities on offer for their products there and whether Canada could be more attractive for them as a purchasing market, says Lison. “Lower tariffs and the dismantling of other trade barriers - e.g. through the mutual recognition of declarations of conformity- should be factored into this analysis”, says the customs professional.

Exemption from duties
In actual fact CETA is gradually removing roughly 99 per cent of existing customs tariffs on both sides. In order to benefit from this easing of customs, German companies must enlist as Registered Exporters (REX). “Up until December 31st, 2017 companies with Authorised Exporter permit can even issue declarations of origin as a transitional measure, thereby benefiting from the exemption from duties
or tariff cuts”, explains foreign trade expert Lison. The benefits under CETA are contingent on the origin of goods being Canada and/or the European Union, as the case may be. “The correct calculation of the preferential origin of goods and fulfilment of the obligations of proof require expert knowledge and involve a not insubstantial administrative outlay”, attests Lison, referring to the information leaflet published recently by customs authorities on the matter.

Purchasing market
In addition to its many commodities, Canada also possesses rare earth stocks, as well as rich timber resources. Likewise, so strongly developed are its agriculture and agricultural production that not just the world-famous maple syrup, but also produce such as meat, fish and seafood, not to mention to fruit and berries are cheaply available there. “German purchasing departments can benefit from greater supplier competition and more favourable purchasing and procurement terms”, says Jens Hornstein, Managing Director at Düsseldorf-based corporate consultancy firm Kerkhoff Consulting. The supply chain management specialist wants to encourage buyers to turn their attentions to Canada’s procurement market. “The country certainly offers key advantages over other global markets: English as the national language and a reliable political and economic structure for example”, he says. After all, the typical procurement risks such as, e.g., delivery and transit time, exchange rate risks, environmental protection obligations, differing manufacturing standards and occupational safety requirements exist everywhere, continues Hornstein. “So, ultimately, for purchasing departments it is not a decision against CETA or Canada, but rather the task of discussing the advantages and
disadvantages of a global supply chain professionally”, he says.

German SMEs take a more sober view of the facts. “Essentially, we will benefit from reduced import duties for our goods into Canada, but better procurement opportunities can hardly be expected”, says Dr Bernd Rößler, company spokesman for August Storck KG, which produces sweet treats such as Werther’s Originals and Toffifee. The mood at chainsaw manufacturer Stihl is similarly reserved: “An initial analysis has shown that the free trade agreement will only have moderate implications for us”, says Dr Georg Miehler, distribution logistician from the globally-renowned Swabian-based company. “Many tariffs were already at zero per cent before the agreement came into force. The reduction will therefore only impact on a relatively small range of goods.” He goes on to say that the company will still enlist as a Registered Exporter in spite of this. Greater opportunities are hoped for at Stihl with regard to the continuing standardisation of technical standards and approvals.

Logistics services

The large country in North America may also be considered as an additional sales market for logistics services. Dr Ilja Nothnagel, foreign trade expert at the German Chamber of Industry and Commerce (DIHK), is convinced of the potential here: “CETA will enable German companies market access to some key Canadian sectors for the time.”

He makes particular reference to maritime transportation services and refers to figures from the EU Commission, according to which the bilateral trade volume between the EU and Canada could see a 23 per cent increase under CETA. “The logistics sector can benefit from this primarily in maritime and air transport thanks to increased trade including supplier shipments, but also on the whole”, predicts the DIHK specialist.

Criticism
The European-Canadian trade agreement attracted a lot of criticism during the perennial negotiation phase. One key argument against the CETA concerns the privileged treatment of large international corporations, illustrated for example by the comments of major Canadian aircraft manufacturer Bombardier: “we believe that the agreement will provide optimum framework conditions for our activities in Canada and Europe”. The corporation is represented with countless production sites across Europe. CETA opponents take the view that the agreement in fact threatens employee rights and puts environmental and consumer protection as well as European agriculture at risk. Agribusinesses known for their use of genetic engineering could for example benefit here. There is also dispute as to the arbitration courts before which investors could files suits against countries for failed investments. Critics fear that these non-governmental committees could undermine national laws. The investment protection chapter of the agreement however will not become effective immediately, but only after the agreement enters fully into force. Companies seeking to invest should bear in mind that this may not be the case for a few years yet.

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