Amid increased protectionism in the global economy, in February the European Parliament passed a new trade deal that strengthened commercial relationships between the bloc and one of the world’s wealthiest nations. The EU and Canada signed the Comprehensive Economic and Trade Agreement (CETA) in October 2016, with the aim to boost business opportunities on both sides by reducing barriers.
The deal is the first bilateral accord the EU has ever struck with a major economic power, and arguably the most ambitious ever negotiated. It was provisionally applied on September 21, once the parliaments of all EU members ratified the agreement according to their domestic constitutional requirements.
CETA reduces tariff and non-tariff barriers, but also addresses many aspects related to the export of goods and services, as well as the creation of a stable trade environment for both European and Canadian companies.
According to the European Commission’s forecast, CETA will increase trade between the parties by 25 percent. Moreover, the agreement is expected to make an additional contribution of €12bn ($14.3bn) to European GDP.
Although tariffs will be scrapped gradually over a seven-year period, it won’t be long before the impact of CETA starts to show. The measure has already begun to be applied in many sectors. In agriculture, however, there will be exceptions.
An additional benefit of CETA is that it promotes regulatory cooperation and provides protection for specific areas. In fact, it covers more than 140 protected geographic designations, 40 of which are in France alone.
The deal presents a big opportunity to Europe considering Canada’s fast-paced growth. In the second quarter, led by the biggest jump in household spending since the financial crisis of 2008, the country’s GDP climbed by 4.5 percent, beating forecasts.
In this context, and with a modest economic expansion at home, the European agriculture sector will see nearly 91 percent of the agricultural and food products it exports to Canada exempt from duties.
The CETA deal presents a big opportunity to Europe considering Canada’s fast-paced growth
Furthermore, CETA protects European products that are considered sensitive, such as beef, pork and corn, by imposing tariff quotas. In return, dairy products that will be exported from Europe will have to respect certain quotas. Meanwhile, CETA will not open markets such as poultry and eggs.
The treaty will also safeguard traditional European exports against imitation products, although in some cases products may continue to coexist in Canada. For example, the French cheese Brie de Meaux will be protected, whereas Canadian cheese makers may continue to produce Brie.
Furthermore, regulations will include other quality measures, namely the prevention of hormone-fed beef being imported into the EU.
Within the European bloc, France is the leading exporter of processed food to Canada, accounting for 24 percent of total exports from the EU. In 2015, French exports of processed food to Canada totalled €554m ($647m).
The agreement’s framework will give the country more opportunities to place products on the other side of the Atlantic, fuelling the $7.3bn bilateral trade, according to official figures for 2016.
In the basket of French-processed agricultural products exported, wines and spirits have a large share. Until now, tariffs and non-tariff barriers have made it difficult for these sectors to penetrate the Canadian market, preventing the EU from improving its performance. CETA will bring duties and behind-the-border barriers to an end. For example, the fee covering the difference in service charges applied by provincial boards will be applied based on volume rather than value, and calculated in a more transparent manner.
In the case of cheeses, a tariff quota fixed within the framework of the World Trade Organisation currently limits exports. The allowances are fixed at 22,000 tonnes per year and any overruns are subject to a 227 percent tax.
Now, CETA is offering two new duty-free quotas: 16,800 tonnes of high-quality cheese and 1,700 tonnes of industrial cheese. France’s cheese makers will therefore have the chance to provide around 84 percent more than before the deal.
The elimination of franchises will boost other categories of products, making them more competitive. Mineral water, pastry products and biscuits, as well as intermediate products like fruit juice and milk protein concentrates will see their two-digit duties eliminated, opening doors that until now have been blocking progress in trade.
Prospects are encouraging, not only for European companies, but also for Canadian firms. Agro-based companies from Canada will see several products exempt from customs duties, which will increase sales from Canada to Europe. Berries, sugar products, fish and seafood, non-alcoholic beverages, and processed legume products will all benefit from the tax cut. In addition, the deal provides larger quotas for pork and beef exports and eliminates duties on equipment and ingredients used by the beer industry.
Despite the many advantages of the deal, negotiations were carried out amid controversy, and some questions remain. Points of contention have arisen with regards to two main areas. First, there are concerns over the settlement of differences.
According to the terms of the treaty, in cases of disagreement with public policy by a state, multinational companies may file a complaint in an international arbitration tribunal. In response to this concern, the European Commission has presented a draft declaration aimed at reinforcing the impartiality of this arbitration tribunal.
Second, there are fears about the impact CETA will have on the agriculture industries of other EU members. Many think the guarantees that have been offered for the protection of local agriculture are insufficient. For example, French farmers deplore the lack of recognition of more certified products, claiming that the number of protected items is not enough to shield them from open imports in the future.
In the hope of alleviating the fears surrounding CETA, Desjardins Group will advise companies about how best to profit from the new framework, as well as offering guidance about new business opportunities they might benefit from. Desjardins has a team of business development experts dedicated to assisting companies engaged in international trade, along with a wide range of international products and services.
The bank is the leading cooperative financial group in Canada, and with over $258bn in assets, is ranked as the fourth safest bank in North America. Additionally, it has one of the highest capital ratios and credit ratings in the industry. Thus, as a proven expert in finance, Desjardins wants to help companies make the best of CETA, encouraging them to do business in foreign markets, taking care of relationships with customers and suppliers and providing assistance to optimise their cash management processes.
In order to better achieve these goals, Desjardins has locations on both sides of the ocean: in Canada, it has a physical presence throughout Quebec and in various regions of Ontario, while its office in Paris caters to its European clients. Desjardins is ready to connect the dots.