When Canada finally ratifies its Comprehensive Economic and Trade Agreement (CETA) with the European Union, Canadian exporters will have access to a market that’s notably bigger than that the U.S. market.
The combined GDP of the European Union’s current 28 member states is $18 trillion while the GDP of the U.S. is $16.8 trillion. Population-wise, Europe is also bigger — with 508 million potential consumers versus 319 million in the U.S. And, Canadians can do all this trading in a much smaller geographic area — 4.4 million square kilometres in Europe, versus 9.9 million square kilometres in the U.S.
“I like to make a comparison between Europe and the U.S. because many companies want to go to the U.S. market because they’re comfortable doing business there,” said Christian Sivière, a consultant hired by Invest Ottawa to deliver a presentation titled Free Trade with the European Union: what’s in it for us? “Europe has a market that’s 10 per cent bigger and a population that’s almost twice as big, so we should take an interest in Europe. Also, in the U.S., there are the complexities of 50 states with different tax systems. With only 28 states and a lot of similar rules, exporting to Europe may also be simpler.”
Sivière made the point that CETA is a new generation of free-trade agreement that includes more facets than a straight reduction of tariffs on the trade of goods.
“Older agreements don’t open things up regarding government procurement,” he said. “In CETA, there’s also a desire to work together to harmonize regulations and recognize qualifications and standards.”
Sivière expects the agreement will be ratified when Prime Minister Justin Trudeau goes to Brussels Oct. 27 and 28. If that happens, it’s expected that both parties will choose a date sometime in the following six months for a provisional implementation.
Here are 12 things you need to know to be ready to pounce on Europe when the deal finally goes into effect.
Doing away with duties: Sivière thinks the lowering and elimination of duties is what will be implemented first. “That’s because it’s clearly part of the European Commission’s mandate,” he said. “Customs is the European Commission’s jurisdiction, but foreign investment protection agreements aren’t entirely.” What matters for Canadian companies, he said, is that the 28 countries of the EU have a customs union that means that the processing of documents and all associated costs are unified.
Tariff elimination will be immediate for the most part, but for some products it will be phased in. Items going to 0 per cent immediately include forest products (now 10 per cent on average); chemicals and plastics (now up to six per cent); maple syrup (now eight per cent); fresh and frozen fruits and processed fruits and vegetables; processed foods; pet food; canola oil; pulses and legumes; yeasts; confectionery; seasonings and condiments. There will be a seven-year transitional period for grain and cereals.
There will be a transitional period of three, five and seven years for automobiles and some seafood and agricultural products. For industrial products, 99.3 per cent will be duty-exempt immediately and the balance will be exempt after seven years. Seafood will see 95.5 per cent of tariff items duty-exempt right away and the balance of 4.5 per cent will be exempt after seven years.
Understanding the market: Under the agreement, as soon as Canadian goods arrive in the EU, they can be distributed in all 28 countries. “When rates of duties are completely eliminated or lowered, Canadian exporters will have a huge competitive advantage over other countries,” he said.
Buying more of Europe here: Another advantage is that European products will be cheaper for Canadian consumers. For the well-heeled, Porsches will be six per cent cheaper. European wine, unfortunately, won’t be cheaper because the duty portion of wine prices is very small. The main additional costs on wine and spirits in Canada comes from provincial levies so wine will cost the same, more or less.
Seizing government procurement opportunities: This will allow Canadian companies to bid on government contracts across Europe.
Understanding the Eurozone: The Eurozone is a group of 19 countries that use the same currency, the euro. The other nine EU-member states use their own currencies, at least for the time being. All EU member states are obliged to adopt the euro eventually. All it means is that if you do business with those countries, they’ll appreciate it if you have our prices in euros and it might make sense to have a euro bank account, which you can set up in Canada.
Becoming familiar with the Schengen Area: This agreement has to do with the movement of people. While your goods can move freely across borders, you may get stopped if you’re accompanying them, depending on where you go. Twenty-two of 28 EU member states participate in Schengen, which means you can move freely between them. Four countries — Bulgaria, Croatia, Cyprus and Romania — will eventually join while Ireland and the U.K. are holdouts.
Recognizing professional qualifications and standards: CETA provides for this, so if you’re an engineer and you want to work in Europe, it should be a lot easier. It will also be easier to get European certifications for products. Currently, if you need your products tested, they must be tested in Europe. But once the agreement is ratified, you’ll be able to do it in Canada.
Becoming a DDP supplier: You can be a non-resident exporter to Europe and make yourself more attractive to your customer by being a DDP (delivered duty paid) supplier. This means you arrange all the customs formalities and undertake all the responsibilities and costs to get the goods there.
Hiring a fiscal representative on the ground in Europe: You don’t need to have a physical presence in Europe, but it is wise to hire a fiscal representative that will help you to maintain a stock in Europe and sell it without having permanent bricks and mortar. The value-added tax in Europe can be intimidating as the amounts vary by country, but your fiscal representative will help you register for the VAT and sort out the differences. That person will also figure out the European customs tariffs, help you get an importer number and become an authorized economic operator — a European regime that involves the security of your supply chain and ultimately gives you a preferential status in Europe.
VAT works like the GST: If you collect more than you pay, you pay back some of it to the government. If you pay too much, you get it back.
Being mindful of your intellectual property: Concepts such as copyright, trademark and patent protection can be daunting when you’re heading into a new market, but in Europe, they’re very simple because the system is centralized and works the same way in all EU member states. All you have to do is apply to register your trademark or patent at the European Union’s Intellectual Property Office in Spain.
Make sure you understand the nitty gritty on geographic indicators: In the agreement, the Europeans have secured the right to geographic indicators for about 200 products. So, if, for example, you produce sparkling wine, you can’t call it Champagne. The same rule applies to balsamic vinegar — you can’t call it Balsamico di Modena — Scotch whisky, Roquefort, Feta and Manchego cheeses and Black Forest ham, to name just a few. Instead of calling your product feta, you could call it “feta-style” cheese.