|Angela Parkin, Manager, Trade Compliance||In my last post, I spoke about the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) at a high level, and the potential positive impact it may have the economies of both Canada and the EU. Today I’d like to take a closer look at one of the key drivers of that positive impact: tariff elimination. I’ll also discuss the agreement’s possible impact on one of the most important sectors in both economies: the automotive sector.
When the agreement comes into force, 98.4% of Canada’s tariff lines and 98% of the EU tariff lines are expected to become duty free, according to Canada’s CETA technical summary. Canada’s tariff lines will increase to 98.8% duty free after seven years and the EU will reach 99% in the same time period. The EU exporters are expected to save $670 million annually in duty payments, with an estimated $225 million in annual savings for Canada (Europe currently exports more to Canada than vice versa).
While we await the details of the rules stated in the Canadian technical summary, rules with a high proportion of imported inputs will have origin quotas. The following have been identified as having origin quotas; automobiles, seafood, beef, pork, textiles and apparel, high-sugar products, chocolate and processed foods.
Once the text is available it will be important to examine the criteria pertaining to the quota rules for each of the products, as the quota details will vary.
In the case of automobiles less is known on the agreed EU rules, other than there will be a gradual phase out period of three, five and seven years. Currently, the EU duties range from 3.5% to 22% (averaging 11.2%). Canada duties are currently 6.1%. Canada has agreed to a seven year phase-out on the most “sensitive lines.” The Canadian government has yet to provide the clarification for which automobiles fall under “sensitive lines” – we’ll need to wait until the full text is released to learn more.
Canada exported 10,023 cars to the EU in 2012, after exporting an average of 8,180 cars per year in the previous five years. There is reference in the technical summary to a primary rule of origin with a 50% limit on non-originating materials, decreasing to 45% after seven years and a more liberal rule of origin (70% transaction value or 80% net cost) for non-originating materials with an origin quota of 100,000 vehicles.
In protecting the North American market, Canada has negotiated a cumulating provision once the EU-US agreement (Transatlantic Trade and Investment Partnership (T-TIP)) comes into force. This cumulating provision will allow auto parts originating in the United States to count towards the originating status of a vehicle produced in Canada or the EU. However, this provision does have some conditions; one year after the implementation of the T-TIP the origin quota provision is eliminated, allowing for accumulation with the United States. In addition, the primary rule of origin includes a 40% limit for non-originating materials.
Because of the importance of the auto sector to Canada’s economy, we expect the government to place serious consideration behind any aspects of CETA that deal with automobiles. It will be interesting to see how the industry responds when the full text is released!
Next time out, I’ll be discussing CETA’s potential impact on a number of other industries, including agriculture, chemicals, textiles and more. See you then!
Check out the other installments in our CETA series: