Navigating the Complex Web of Canadas Free Trade Agreements

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Navigating the Complex Web of Canadas Free
Trade Agreements

• Orlando E. Silvaosilva_at_mccarthy.ca14th
  Annual Customs Compliance and Border
  SecurityBest Practices for Regulatory Issues in
  Cross-Border Trade Conference January 20 and 21,
  2009Delta Toronto Airport WestMississauga,
  Ontario

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Overview

• Paralysis in multilateral trade negotiations at
  the WTO and the FTAA
• Update regarding recently concluded FTAs
• Update regarding FTAs currently being negotiated
• Overview and description of varying scope of
  Canadas FTAs
• Rules of origin under Canadas FTAs
• Role of FTAs and rules of origin in strategic
  decision making

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Paralysis in Multilateral Trade Negotiations at
the WTO and the FTAA
Proliferation of Canadian Sub-regional and
bilateral FTAs

• Why?
• no prospects for conclusion of the Free Trade
  Area of the Americas (FTAA)
• paralysis of Doha Round at the WTO
• United States has approved five deals in the
  Americas with 10 countries since 2001 Canada
  does not want to be left behind

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Update Regarding Canadas FTAs

• Implemented FTAs
• Canada-U.S. (1987) superseded by NAFTA
• NAFTA (1994) Canada, U.S., Mexico
• CIFTA (1997) Israel
• CCFTA (1997) Chile
• CCRFTA (2002) Costa Rica

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Update Regarding Canadas FTAs (contd)

• Concluded FTA Negotiations
• European Free Trade Association signed January
  2008
• Peru signed May 2008
• Colombia signed November 2008
• Jordan negotiations concluded in August 2008

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Update Regarding Canadas FTAs (contd)

• Ongoing FTA Negotiations
• Republic of Korea
• Panama
• Dominican Republic
• Caricom
• Central America Four (Guatemala, El Salvador,
  Honduras and Nicaragua)
• Singapore

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Update Regarding Canadas FTAs (contd)

• Prospective FTAs
• European Union scoping discussions
• Japan trade policy dialogue
• Morocco initial discussions

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Overview and Description of Varying Scope of
Canadas FTAs

• First Generation
• focus on tariff elimination
• do not include substantial obligations in other
  key areas
• services
• investment
• government procurement
• sanitary and phytosanitary measures
• technical barriers and
• intellectual property
• Israel
• EFTA
• Jordan?
• text unavailable - undergoing final legal scrub

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Overview and Description of Varying Scope of
Canadas FTAs (contd)

• Comprehensive
• substantial obligations in many key areas,
  including
• trade in services
• financial services
• investment
• emergency action
• government procurement
• telecommunications
• competition policy, monopolies and state
  enterprises
• temporary entry for business persons
• sanitary and phytosanitary measures
• technical barriers to trade and
• intellectual property
• side agreements
• labour
• environment
• NAFTA
• energy

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Overview and Description of Varying Scope of
Canadas FTAs (contd)

• More than tariff elimination, but not complete
• substantial obligations in more than trade in
  goods, including
• emergency action
• investment (see Costa Rica bilateral investment
  treaty) and
• competition policy
• side agreements
• labour
• environment
• Costa Rica
• Chile
• Additional areas key covered, include
• trade in services
• telecommunications
• government procurement in force September 2008
  and
• financial services negotiations concluded 2007
  not yet in effect
• Jordan?
• text unavailable - undergoing final legal scrub

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Overview and Description of Varying Scope of
Canadas FTAs (contd)

• New Model
• EU non-NAFTA template

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Rules of Origin under Canadas FTAs

• Perfect World
• MFN standard among all trading nations
• no need for preferential rules of origin
• Proliferation of FTAs and stalling of Doha/FTAA
• rules of origin needed to determine which goods
  originate in member countries and the applicable
  preferential tariff rate
• each FTA has a set of preferential rules of
  origin

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Rules of Origin under Canadas FTAs (cont'd)

• Justification for rules of origin
• prevent trade deflection/transhipment
• Criteria used to establish origin
• range from concept of wholly produced in member
  country to sufficient processing or substantial
  transformation
• sufficient processing/substantial transformation
• change in tariff classification
• a minimum amount of domestic value added
• a specific manufacturing process

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Rules of Origin under Canadas FTAs (cont'd)

• Costs associated with rules of origin
• costs associated with compliance
• costs associated with proving compliance
• satisfying administrative procedures
• required documentation
• costs of accounting maintaining systems
• Costs may operate to undermine benefits of an FTA
• can affect sourcing and investment decisions
• may cause businesses to source higher cost inputs
• expense of complying may outweigh benefit of duty
  elimination
• costs/complexity most problematic for small
  countries and businesses

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Rules of Origin under Canadas FTAs (cont'd)

• Rules of Origin to determine Tariff Treatment
• Thirteen separate tariff treatments for goods
  imported into Canada.
• Non-free trade agreement tariff treatments
• GT General Tariff
• MFN - GATT
• GPT - General Preferential Tariff
• CCCT - Caribbean Commonwealth Countries Tariff
• LDCT Least Developed Country Tariff
• AUT/NZT Australia and New Zealand Tariff

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Rules of Origin under Canadas FTAs (cont'd)

• Rules of Origin to determine Tariff Treatment
• Current preferential tariff treatments under FTAs
• UST - United States Tariff, MT-Mexico Tariff and
  MUST - Mexico-U.S. Tariff (NAFTA)
• CT - Chile Tariff (CCFTA)
• CIAT - Canada-Israel Tariff (CIFTA)
• CRT - Costa Rica Tariff (CCRFTA)

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Rules of Origin under Canadas FTAs (cont'd)

• NAFTA Rules of Origin
• Chapter 4 sets out the rules for determining
  whether goods originate
• Chapter 5 establishes customs procedures that
  must be followed by customs authorities
• certificates of origin
• record keeping
• origin verification audits
• advance ruling programs
• origin/customs working groups

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Rules of Origin under Canadas FTAs (cont'd)

• NAFTA rules of origin
• Complex
• tariff classification shift rules
• regional value-content requirements
• combination and
• minor non-originating content

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Rules of Origin under Canadas FTAs (cont'd)

• Novel Rules under new FTAs
• Peru/Colombia
• Cross-cumulationArticle 306(3) and (4) of the
  Peru FTA provides as follow"3. Subject to
  paragraph 4, where each Party has a trade
  agreement that, as contemplated by the WTO
  Agreement, concerns the establishment of a free
  trade area, with the same non-Party, the
  territory of the non-Party shall be deemed to
  form part of the territory of the free trade area
  established by this Agreement, for purposes of
  determining whether a good is an originating good
  under this Agreement.4. A Party shall give
  effect to paragraph 3 only once provisions with
  effect equivalent to paragraph 3 are in force
  between each Party and the non-Party. The Parties
  may agree to limit such provisions to specified
  goods or to apply under specified conditions."

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Rules of Origin under Canadas FTAs (cont'd)

• Novel Rules under new FTAs (contd)
• Canada-EFTA
• rules of origin mix between Canadian and EFTA
  rules

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Role of FTAs and rules of origin in strategic
decision making

• Canadian government and customs authorities must
  comply with FTAs and rules or origin
• monitoring developments and due diligence
• identifying opportunities
• ensuring compliance

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Role of FTAs and rules of origin in strategic
decision making (contd)

• opportunities for participation in the process
• negotiation of FTAs
• changes in rules of origin

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Orlando E. Silva Partner McCarthy Tétrault
LLPSuite 5300Toronto Dominion Bank
TowerToronto-Dominion CentreToronto, Ontario
M5K 1E6www.mccarthy.caDirect
Line 416-601-8028 E-mail osilva_at_mccarthy.ca