Canada-EU Free Trade Agreement (CETA)
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Canada-EU Free Trade Agreement (CETA) The Issue: Following 5-years of negotiation, CETA was signed in principle on October 18, 2013, and signed officially by Prime Minister Trudeau on October 29, 2016, and approved by the EU Parliament on February 15, 2017. CETA will provide Canada with preferential market access to both the EU’s 500 million consumers and its annual $17 trillion in economic activity. Background: CETA is estimated to boost Canada’s income by $12 billion annually and bilateral trade by 20 percent. Over the past three years, the agreement went through a full legal review prior to being put to the EU’s 28 national governments, the European Parliament and the federal Cabinet for final approval. the legal text has been “scrubbed” by lawyers to ensure the language properly reflects the intent of the negotiators; the text was translated into all EU official languages; and the agreement is currently in the Canadian Senate prior to formal ratification in mid- 2017. Canada-EU Wine and Spirits Agreement (CEWSA): The Canada-EU Wine and Spirits Agreement (CEWSA) was officially signed in 2004 and will be incorporated as a separate chapter in the CETA agreement. Due to the negotiation of CEWSA, the vast majority of trade issues have been regularly discussed, and most issues negotiated prior to the launch of CETA negotiations, including: Mutual recognition of oenological practices; Protection of Geographical Indications and terms (e.g., Chateau, Clos, Sur lie) Loss of use of common wine names (e.g., Chablis, Champagne, Port, Sherry, etc.) Principles of wine labelling; Wine certification and competent authority; Icewine definition. 1 Canadian Vintners Association CETA Briefing Note, 2017 Canada-EU Trade Agreement (CETA) EU Wine Imports EU wines imports into Canada (2015) totalled 178 million litres, valued at $1.2 billion EU wines represent 51% of total Canadian import value and 43% of total Canadian import volume Top 5 EU imports to Canada include: Italy (71.1 million litres), France (56.6 million litres), Spain (31.6 million litres), Portugal (10.1 million litres), and Germany (5.7 million litres) EU top three country imports represent 89.5% of total EU wine imports and 43% of total imports into Canada. Canada Wine Exports Canadian wine exports to the EU (2015) totalled 123,239 litres, valued at $2.77 million Import Tariffs Under CETA, all import tariffs on wine will be eliminated upon ratification, it is estimated that the remaining tariff elimination for EU producers is approximately $4-5 million per year. Note: In 2009-2010 the import tariffs on bulk wine, sparkling wine, port, sherry, vermouth, cider, mead and perry were eliminated. The import tariffs on all bottled wines were reduced by 50%. The value of the import elimination on bulk wine producers has benefitted Canadian producers by roughly $2 million annually. Under CETA, all import tariffs on equipment will be eliminated upon ratification, including wine making equipment. Canada There are only two tariffs remaining on EU wines entering Canada: Tariff Line Tariff Rate Containers holding 2L or less with alcoholic strength by volume not $0.0187 per litre exceeding 13.7% alc 2 Canadian Vintners Association CETA Briefing Note, 2017 Containers holding 2L or less with alcoholic strength by volume exceeding $0.0468 per litre 13.7% alc but not exceeding 21.9% alc European Union Three import tariffs remain on Canadian wine entering the EU, which will be eliminated upon ratification. Tariff Line Tariff Rate Of an actual alcoholic strength by volume 13.1 €/hl -- ($0.1847 per litre) not exceeding 13 % alcohol Of an actual alcoholic strength by volume exceeding 13 % alc. but not exceeding 15 15.4 €/hl.-- ($0.217 per litre) % alc. Sparkling wine: 32€/hl.-- ($0.451 per litre) Liquor Board Cost of Service Differential A key concern for the EU in the CETA negotiations has been the audited cost of service differential (COSD) charged on EU wines by provincial liquor boards. The COSD refers to the difference between the markup applied on domestic and imported products. Under international trade law (WTO), higher markups are permitted on imported products to recover the substantiated higher costs of bringing the product to market, such as shipping, importation and storage. At the end of the fifth year following the entry into force of CETA, it was agreed to review the progress made on the elimination of COSD based on the examination of all developments in the sector, including the consequences of any granting to third countries of a more favourable treatment in the framework of other trade negotiations involving Canada. The LCBO completed the COSD requested by the EU in 2014. The EU has argued that the LCBO should charge the audited COSD on a flat tax basis rather than translating this into a percentage increase in ad valorem markup. According to the Department of Global Affairs Canada briefings, the LCBO has considerable flexibility in defining the COSD, and is eligible to receive an equal value to what is currently charged under the ad valorem system. Ontario is the only remaining 3 Canadian Vintners Association CETA Briefing Note, 2017 liquor board to use the ad valorem approach for administering the cost of service differentials. Retail Stores The CETA will continue to permit private winery retail stores operated both on and off the winery establishment, as is the case with NAFTA. CETA will cap the number of private wine retail stores that are restricted to sell wines produced in Canada, to a maximum level which will be set at the following levels: 292 in Ontario; 60 in British Columbia. Under CETA Quebec will continue to be able to require all wine sold in grocery and convenience stores to be bottled in-province. Liquor boards are also required to not use the monopoly position they hold in their home jurisdiction to engage in activities that have an anti-competitive effect in other markets. 4 Canadian Vintners Association CETA Briefing Note, 2017 EU Wine and Grape Support Programs Upon ratification of CETA, all import tariffs will be removed and the EU will no longer be permitted to use any export subsidies. EU support for wine promotion in Canada will be permitted unless it can be proven that this government support is causing a negative impact on Canadian producers. The EU provides considerable financial support for wine promotion in third-country markets (approximately $155 million over the 5-year period 2008-2013) plus funding from individual member states. Anticipated Impacts CETA is not anticipated to have a major impact on the Canadian wine industry as the majority of wine trade issues with the EU were addressed under the Canada-EU Wine and Spirits Agreement, which was signed in 2004. The Canada Wine and Spirits Agreement ratified and operating since 2004 is the foundation for the wine chapter in CETA. CETA will provide access to one of the largest markets in the world (500 million consumers) which should provide new benefits as Canadian wine exports continue to grow. CETA will support the growth of the Canadian economy and is anticipated to provide savings of approximately $1,000 per Canadian, resulting in greater buying power. Upon ratification, CETA will remove remaining tariffs on EU wines entering Canada. The tariffs are very low ranging from 1.4 cents to 3.5 cents per 750ml bottle, and should have a limited impact of $4-5 million annually on 178 million litres of wine sales. It is possible that these savings could be used to further promote EU wines in Canada or reduce the price of wine, although this was not evidenced in 2009-10 with the last round of tariff reductions. Upon ratification, CETA will remove all import tariffs on viticultural and winery equipment entering Canada from Europe (tanks, harvesters, bottles, etc. with varying levels of tariffs. (Note: in 2007 the CVA negotiated the removal of the 3% tariff on oak barrels). 5 Canadian Vintners Association CETA Briefing Note, 2017 Upon ratification, tariffs on Canadian wine entering the EU will also be removed. These tariffs are much larger, ranging from 12.95 cents to 33.75 cents per 750ml bottle, and will provide positive benefits for Canadian wineries currently exporting to the EU, and additional benefits as wine exports increase beyond the 123,239 litres we presently ship to EU member states. CVA has no further information on how the government of Ontario will implement the COSD for EU wines, but we remain confident that the changes will not result in higher costs for the domestic wine industry and consumers of Canadian wine. While CETA will reduce tariffs on EU wines entering Canada, it is important that all levels of government help the Canadian wine industry take full advantage of the Agreement. This includes removing internal barriers to wine trade, providing domestic and international market development support, and infrastructure funding as proposed in the CVA Wine Industry Innovation Program (WIIP). This will best position our sector to take full and immediate advantage of CETA, as we strive to increase sales and grow the contribution of the Canadian wine industry from $8 billion to $12.3 billion over the next 5 years. 6 Canadian Vintners Association CETA Briefing Note, 2017 .