Canada: Canada–EFTA Free Trade Agreement Comes Into Force On Canada Day

Copyright 2009, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade & Investment, May 2009

Bill C-2, the domestic legislation required to implement the Canada–EFTA Free Trade Agreement (Agreement) passed its third and final reading in the Senate on April 28, 2009. This development means that the much-anticipated free trade agreement between Canada and the European Free Trade Association (EFTA), which is comprised of Switzerland, Liechtenstein, Iceland and Norway, will come into effect on July 1, 2009. The Agreement will open new markets for exporters in the territory of the various parties, and will also alleviate or remove some of the burdens faced by those who import goods from any of the EFTA countries.

ESTABLISHMENT OF FREE TRADE AREA

The Agreement is comprised of a free trade agreement (FTA) as well as three separate agricultural agreements between Canada and Switzerland, Norway and Iceland. The FTA establishes a free trade area among the contracting parties, similar to other trade agreements to which Canada is a party, with the objective being to promote the harmonious development of economic relations between Canada and the EFTA through the expansion of reciprocal trade. It is also intended to provide fair conditions of competition affecting trade between Canada and the EFTA states, and to establish a framework for further co-operation between Canada and the EFTA states, in particular with the aim of liberalizing trade in services and increasing investment opportunities.

TARIFF ELIMINATION IS FOCUS OF AGREEMENT

The Agreement can be described as a basic FTA because its focus is almost exclusively on the elimination of customs duties on goods traded between the EFTA countries and Canada. Although it is therefore a relatively modest agreement in terms of its scope, it is significant because it is the first trade agreement by Canada with European countries. In addition, it is important to note that, for the most part, duties on originating goods are eliminated immediately upon implementation, rather than a phased elimination as was the case under the North American Free Trade Agreement. This means that Canadian importers and exporters will benefit immediately once the Agreement enters into force. It is a significant achievement for Canada because the EFTA countries are important trading partners with Canada, accounting for C$13.2-billion of two-way merchandise trade in 2008, a figure which includes C$4.2-billion in Canadian exports. Moreover, a total of C$18.4-billion in foreign direct investment into Canada flowed from Norway and Switzerland in 2008.

In summary, the Agreement provides for:

• the elimination of tariffs in all non-agricultural sectors (i.e., goods classified in Chapters 25 - 97 of the List of Tariff Provisions) including aluminum and cosmetics, prefabricated buildings, coldwater shrimp and apparel products

• the elimination or reduction of tariffs on selected Canadian agricultural and agri-food products (i.e., goods classified in Chapters 1 - 24 of the List of Tariff Provisions) such as durum wheat, frozen french fries, beer and Canadian crude canola oil

• duty-free access to Canadian and EFTA markets for most industrial goods, fish and other marine products.

The primary exception to provisions providing immediate duty-free access is in the case of ships, boats and floating structures imported into Canada. In the case of such goods, customs duties are to be eliminated after a transitional period of up to 15 years. The Agreement also provides specific rules dealing with processed agricultural products. For items in this grouping, such as cocoa and confectionary sugar, the tariff rate will be reduced from 6% to zero immediately upon entry into force of the Agreement.

The Agreement includes provisions on subsidies, antidumping, services and investment, competition laws, and state-trading enterprises, among others, that are consistent with rules of the World Trade Organization (WTO). The Agreement also contains provisions that implement certain WTO agreements, including measures that affect sanitary and phytosanitary measures. Rules of origin under the Agreement will be determined using an approach that reflects a hybrid between the Canadian rules and the EFTA rules.

CONSEQUENTIAL AMENDMENTSTO OTHER TRADE-RELATED STATUTES

Bill C-2 also amends certain aspects of the Customs Act, the Customs Tariff and the Canadian International Trade Tribunal Act (CITT Act). In particular, the amendments that Bill C-2 makes to the CITT Act expands the CITT's current jurisdiction over emergency action (safeguard measures) to recommend safeguard measures in appropriate circumstances against any of the EFTA countries. In particular, the CITT, either on its own initiative or pursuant to a complaint from a domestic producer, may inquire into and, if appropriate, recommend that safeguard measures such as temporary surtaxes or quotas be imposed where the reductions in tariffs lead to increased volumes of imports that result in serious injury or pose a threat of serious injury to domestic producers of like or competitive goods.

UNIQUE TREATMENT OF ORIGIN VERIFICATIONS

One unique aspect of the Agreement, as reflected in Bill C-2, is its procedures in respect of country of origin verification, implemented into domestic legislation by way of amendments to the Customs Act. Most of the trade agreements to which Canada is a party empower the President of the Canada Border Services Agency to conduct an origin verification on imported goods, thereby confirming that imported goods are in fact eligible for a particular tariff treatment. Bill C-2, however, excludes goods imported from the EFTA states from this verification process and instead sets out a method that involves having the customs administrations in the various EFTA states, following a written request from Canadian customs officials, conduct the verification and determine whether the goods are "originating" within the meaning of the Agreement.

COMMENTS

In addition to the Canada–EFTA Free Trade Agreement, Canada has implemented five other FTAs including the Canada-U.S. FTA, the NAFTA, the Canada-Chile FTA, the Canada-Costa Rica FTA and the Canada-Israel FTA. Canada has also signed FTAs with Colombia and Peru, implementing legislation which is currently proceeding through the parliamentary approval process. Canada is exploring additional trade agreements with the European Union as well as several other countries.

The Canada–EFTA Free Trade Agreement and the other ongoing negotiations are part of the federal government's Global Commerce Strategy, an aggressive trade negotiations agenda aimed at securing competitive terms of access in markets that offer significant potential for Canadian products and expertise. Trade agreements such as this Agreement give Canadian exporters additional tools to expand into other markets around the world. The Agreement also gives Canadian importers additional opportunities to source goods and materials from EFTA countries at reduced cost.

With the growing number of bilateral trade agreements to which Canada is a party, companies operating in Canada should implement or review their supply chains in order to take advantage of the opportunities afforded by these various agreements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.