Canada: CETA And The Legal Impact On The Canadian Shipping Industry

Presented by: Jack Mahoney, President, Maersk Line Canada and Nils Goeteyn, Lawyer, Insurance and Tort Liability Practice, BLG

These are early days, but Canada's trade pact with the European Union is having an immediate impact on demand for transatlantic maritime transportation between the two partners.

A case in point is Danish ocean carrier Maersk Line. It was the first in Canada to use its own ships to position its own equipment between Montréal and Halifax for perishable exporters immediately after the Comprehensive Economic and Trade Agreement (CETA) allowed Maersk Line to do so. It also joined Hapag-Lloyd's JMCSA service from Mediterranean ports to Montréal in September, a fortnight after CETA provisionally took effect, demonstrating its confidence in the beneficial effect of CETA to trade between Montréal and the Mediterranean. Maersk Line Canada president Jack Mahoney told attendees at BLG's Maritime Law Seminar in Montréal that the "pro-trade mindset" in this country is a big driver in his company's growing interest in the Canadian market.

CETA, which covers a wide range of areas from goods and services, investment, intellectual property and government procurement, eliminates 98 percent of tariffs on trade between Canada and the EU. Roughly 47 percent of trade between the two partners is carried by ship, and the trade deal is projected to increase bilateral trade by 20 percent according to Global Affairs Canada.

There are also provisions, contained in Chapter 14 of the trade pact, that are specific to the maritime industry. CETA introduces significant changes to Canada's coasting trade regime, which for years has protected Canadian shipowners against competitors registered under foreign flags.

That's because under the Coasting Trade Act, only Canadian-flagged vessels — or duty-paid vessels — can carry goods or passengers between two Canadian ports. Foreign shipowners, however, must apply for a coasting trade license. But Canadian authorities will only grant one if no Canadian vessel is available and capable of doing the work. Even then the license is limited in time and place, and to a specific service or activity.

"CETA changes this", Nils Goeteyn, an expert in international law in BLG's Montréal office, told the seminar. "It gives preferential market access to EU entities. It allows more ships into the Canadian coasting trade for a number of specific activities."

There are three such activities that no longer require a coasting trade license if performed by EU vessels. The first is that EU shipping lines can now provide feeder services on both continuous and single trip bases between the ports of Montréal and Halifax, provided the service is part of carriage involving the importation of inbound goods into Canada or of outbound goods from the country. Normally, foreign vessels can only perform single trip feeder services. For anything more in Canadian waters, they would need a coasting trade license.

Practically speaking, that means vessels that are registered in the first national registry of an EU member state can simply leave a vessel stationed between Halifax and Montréal. Then, according to Goeteyn, they can move between the two ports "picking up containers and dropping them off." "That's perfectly fine under CETA," he said. Vessels on an international voyage and that are registered on an EU member state second registry can also load full containers in Montréal and discharge them in Halifax on their way overseas.

"It makes it easier for us to move things between Canadian ports," said Mahoney. "That makes it easier for Canadian products to reach foreign markets."

The second activity is the repositioning of empty containers within Canada. "This is a measure simply to make life easier for everybody," Goeteyn told the seminar. It's important to note that there can be no financial gain involved in repositioning containers, meaning that CETA will only allow European vessels to transport their own empty containers on a non-revenue basis. They cannot offer the service to others.

The last activity is dredging services. Canadian companies can now hire EU vessels for dredging anywhere in Canadian waters – though this does not apply to Federal government agencies who must follow CETA's procurement rules if the contract is valued at more than 8.81 million CAD. "When the government wants to do big dredging works they will have to respect certain conditions, go through Canadian shipowners, or they will have to work with coasting trade licenses," said Goeteyn.

As transformative as CETA is expected to be in terms of bringing about a more liberalized cabotage market in Canada, there are still outstanding issues, not the least of which is the question surrounding foreign work permits. CETA has made it far easier on EU-registered shipowners who no longer need to apply for the coasting licenses, said Goeteyn. "But that was the easy part. The hard part is getting the work permits." Indeed, most foreign nationals entering Canada on a vessel as crew members engaging in the coasting trade need a work permit from Immigration, Refugees and Citizenship Canada. Before hiring a foreign worker in Canada, employers also generally need to get a Labour Market Impact Assessment to show that there is a need for a foreign worker to fill the job.

Of course, with new trade agreements it always takes time to work through various domestic rules. But in the shipping industry there is plenty of optimism about the impact CETA will have. As Mahoney told the audience, "With CETA, we're anticipating that, like a lot of trade agreements that we have seen implemented in the past, it will be slow and steady. But we'll see almost irreversible progress in the trade between Canada and Europe."

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