Canadian companies importing and exporting goods may be affected by the new Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union and by changes to the General Preferential Tariff that applies to selected countries. Canadian companies should also make sure they obtain any required NAFTA certificates of origin for 2014.
If your company imports or exports goods to Europe, you may save money on tariffs when the new CETA between Canada and the EU comes into force. CETA will remove approximately 98% of all tariffs on goods moving between Canada and the 28 EU countries, which comprise a $17 trillion integrated economy.
Once in force, CETA will provide Canadian companies with preferential market access to the EU's more than 500 million consumers. The Canadian government has stated that a study concluded that such an agreement could boost Canada's income by $12 billion annually and increase bilateral trade by 20%.
CETA will come into effect once the governments of the EU countries, the EU Parliament and Canada's 10 provinces sign the official agreement. It is currently expected that the deal may come into effect in late 2015.
CETA's rules of origin for preferential tariff treatment
CETA's intent is to remove tariffs on goods that are produced in Canada or the EU and shipped directly to one party from the other. The intent is not to remove tariffs on goods having a non-EU or non-Canadian origin that are simply shipped from one party to the other. For example, if goods are produced in China, imported into the EU and then shipped to Canada, those goods would not be eligible for preferential tariff treatment under CETA.
The 2013 federal budget announced the government's plan to modernize the General Preferential Tariff (GPT) that applies to selected countries. The government plans to withdraw GPT eligibility from 72 higher-income countries and trade-competitive countries, such as China, Korea, Brazil and India, starting January 1, 2015. The government will renew the GPT for the remaining countries for another 10 years.
As a result, importing companies will need to review the tariff treatments for countries from which they import goods and determine how any changes could affect the duties and taxes they pay when goods cross the border. Companies will need to begin planning now for some of the adverse affects that this loss in preferential treatment may create.
Of particular concern is the impact that this loss in GPT will create on textiles and other consumer goods that are sourced from less developed countries such as Bangladesh where manufacturing inputs are sourced from GPT countries.
With 2014 around the corner, companies that obtain annual NAFTA certificates of origin from their suppliers on a calendar year basis should make sure that they receive all blanket NAFTA certificates covering 2014 by January 1, 2014. Without the NAFTA certificate in place, a company cannot legally claim the preferential tariff treatment and is therefore not eligible for the benefits that it provides.
KPMG's Trade & Customs group has the knowledge and resources to advise Canadian importers and exporters on customs and related matters. We offer a wide variety of services including customs and international trade planning, compliance reviews, system analysis and design recommendations, NAFTA certification, tariff classification reviews, duty relief and recovery applications and assistance with exports.
Our professionals are part of KPMG's global network of Trade & Customs practices with 260 professionals located in 60 countries around the world. For details, please contact your KPMG adviser.
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Information is current to November 24, 2013. The information contained in this TaxNewsFlash-Canada is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.
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