The proliferation of multilateral and bilateral Free Trade Areas(FTAs) over the last few years means that your products are now effectively competing with rival products from all over the world. In this situation, taking full advantage of free trade agreements is imperative to stay competitive. However, in a recent KPMG study it is reported that “70% of companies do not fully utilize Free Trade Agreements.” One of the main reasons mentioned is that companies find it difficult to understand and manage complex and changing international agreements rules and regulations. The cost associated with the time and resources dedicated to manage rules and regulations of international trade agreements is not another reason. There is also a risk of penalties associated when classification, documentation, licencing or origin certificate are incorrect. Lack of awareness of available FTAs and the benefits that can be obtained and uncertainty associated with the process for the qualification of a particular product for preferential or zero duty is also one of the contributing factors in not leveraging the benefits from FTAs
How can we help you in Leveraging Free Trade Agreements ?
Transmanna’s international trade consultants can help you in taking full advantage of FTAs by:
- Analyzing all the international trade agreements signed by Canada with different countries with a view to identify those FTAs that can be leveraged easily.
- Understanding and interpreting complex rules of origin of different international trade agreements and recommending you the products that can qualify for free or preferential treatment
- Determining which of your current products meet the origin rules and where they do not and what actions could be taken for the goods to qualify for preferential/ free customs duty treatment.
- Understanding what documentary evidence and records need to be kept to demonstrate to the rules of origin certifying authorities and the supporting documentary requirements that need to be fulfilled.
- Reducing risk of non compliance by checking the authenticity of the certificate origin and the correctness of its contents.
Canadian International Trade Agreement
FTAs promote regional economic integration and build shared approaches to trade and investment. FTAs don’t just eliminate tariffs, they also address behind-the-border barriers that impede the flow of goods and services between parties. FTAs ensure that goods are given preferential treatment in partner countries by way of tariff elimination or reduction. This increases the competitiveness of products exported by businesses to a FTA partner country. The degree of tariff advantage you receive from an FTA therefore depends on your product. This is why FTA tariff rates may be a determining factor in entering a market in some cases but not in others. You still have to make sure there is a need for your product or service, that you have a unique selling proposition, and that you can deliver your offering in a way that meets customer needs. Besides preferential tariff rate, Trade agreements help level the international playing, and encourage foreign governments to adopt open and transparent rule making procedures, as well as non-discriminatory laws and regulations. FTAs help strengthen business climates by eliminating or reducing tariff rates, improving intellectual property regulations, opening government procurement opportunities. Tariff treatment agreements fall into three categories: the General Tariff, Non-Free Trade Agreements, and Preferential Trade Agreements. Here is the detail of each category:
1.The General Tariff Treatments
According to Section 29 of the Customs Tariff, a General Tariff rate of customs duty of 35% applies to:
- Goods that originate in countries that are not included in the List of Countries and Applicable Tariff Treatments; and
- Goods that originate in a country set out in the List of Countries and Applicable Tariff Treatments but do not meet the requirements for a preferential tariff treatment.
The General Tariff is the default tariff, with a blanket duty rate of 35 %. It is imposed on imported goods from countries not eligible for any of the tariff treatments. In Canada currently only goods originating in from North Korea are subject to the general tariff rate of 35%.However, countries who are not member of WTO or have no trade agreement with Canada or do not qualify for preferred rate for some other reason will have to pay this rate as well.
2.Tariff Treatments Arising from Non- Free Trade Agreements
These preferential tariff treatments are applied to those countries that have unique economic and political situations to which Canada has elected to extend reduced rates of duties. These countries fall into following three categories:
a) Most-Favored-Nation (“MFN”) Tariff treatment
MFN status is given to all those countries where Canada has a trading relationship. Most of these countries have also signed the General Agreement on Tariff and Trade (GATT) and are members of the WTO and/or WCO. MFN rates vary depending on the goods. Duty rates under MFN tariff treatments are equal to, and sometimes higher than, the free trade treatment rates.
- MFN beneficiary countries are set out in the List of Countries of the Customs Tariff.
- Goods that originate in countries not set out in the List of Countries of the Customs Tariff and goods that do not satisfy the MFN rules of origin are subject to the General Tariff rate of customs duty. Goods originating in North Korea are not entitled to the MFN tariff rates.
b) General Preferential Tariff (“GPT”) Treatment
Canada unilaterally provides preferential access in the form of reduced tariffs on goods imported from developing countries. The GPT, introduced in 1974, benefits more than 180 developing countries and customs territories. The purpose is to assist developing countries in growing their trade with developed countries such as Canada. Not all goods can be classified under GPT, as the availability for this tariff treatment depends on the eligibility of the imported good. Under the GPT, three-quarters of GPT-eligible products enter Canada duty free .The remainder face tariffs lower than the MFN rates applicable to exports from most developed countries. The GPT applies to most products, with the exception of dairy products, poultry, eggs, refined sugar and most textiles, apparel and footwear.
c) Least Developed Country Tariff (“LDCT”) Treatment
Canada unilaterally provides greater preferential access to imports from a subset of GPT eligible countries in the form of the LDCT treatment. The LDCT was introduced in 1983 and applies to 49 of the world’s least developed countries, as defined by the United Nations. In January 2003, the benefits of the LDCT were substantially expanded, and this tariff treatment now provides duty-free and quota-free access for all products from LDCs, with the exception of over-quota access for supply-managed products in the dairy, poultry and eggs sectors. The most important change was the inclusion of textile and apparel products which now enter Canada duty- and quota-free under the LDCT.
d) Commonwealth Caribbean Countries Tariff (“CCCT”) Treatment
Canada unilaterally provides preferential access to imports from 18 Commonwealth Caribbean countries. Under the CCCT, which was introduced in 1986, eligible imports from these countries are provided duty-free access. Currently, exceptions to the duty-free access provided by the CCCT are most textiles, apparel, footwear, headgear, supply-managed agricultural products and other agricultural products subject to over access commitment. The Commonwealth Caribbean Countries include:
- Antigua and Barbuda.
- The Bahamas.
- Saint Kitts and Nevis.
- Saint Lucia.
- Saint Vincent and the Grenadines
- Trinidad and Tobago
e) Country-Specific Tariff Treatments
Certain countries are also specifically entitled to preferential tariff treatment, for reasons other than the existence of an applicable FTA. These country-specific tariff treatments are described below:
- The Australia Tariff (“AUT”) treatment; and
- The New Zealand Tariff (“NZT”) treatment.
3.Tariff Treatments Available Under Free Trade Areas(FTAs)
The following preferential tariff treatments are available as a result of FTAs in force between Canada and each designated country:
- The United States Tariff (“UST”), Mexico Tariff (MT)
- Canada-European Free Trade Agreement (CEFTA)
- Canada-Chile Free Trade Agreement (CCFTA)
- The Canada-Israel Tariff (CIFTA).
- The Costa Rica Tariff (CCRFTA)
- The Iceland Tariff (IT)
- Honduras Tariff (HT)
- Norway Tariff (NT) and Switzerland-Liechtenstein Tariff (SLT)
- The Peru Tariff (CPFTA).
- The Colombia Tariff (CCOFTA)
- Canada- Korea Free Trade Agreement (CKFTA)
- Canada-Panama Free Trade Agreement (CPFTA)
- Canada-Ukraine Free Trade Agreement (CUFTA)
- Canada-Jordan Free Trade Agreement (CJFTA)
- Australia Tariff and New Zealand Tariff (AUT and NZT)
4.The Canada-European Union (EU) Comprehensive Economic and Trade Agreement (CETA)
Another key cross-border trade initiative that Canadian businesses need to be cognizant of is CETA, which came into force on September 21, 2017. CETA will not only reduce and ultimately eliminate tariffs between Canada and the EU, but also open up vast new opportunities for Canadian businesses in the EU government procurement sector. A new 12-country Pacific Rim trade agreement is also being renegotiated and expected to be implemented as early as next year.
5.North American Free Trade Agreement(NAFTA)
In 1994, the North American Free Trade Agreement(NAFTA) came into effect, creating one of the world’s largest free trade zones and laying the foundations for strong economic growth and rising prosperity for Canada, the United States, and Mexico. While renegotiation of the NAFTA are under way and any unfavourable outcome for Canada will have a widespread ripple effect on multiple industries. Canadian enterprises are concerned about the uncertain future of NAFTA, but they can leverage this as an opportunity to diversify their ties to international markets.