International Trade & Customs Law Bulletin

On October 5^th 2015, twelve Pacific Rim countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the USA, Vietnam) concluded nearly eight-year long negotiations on the Trans-Pacific Partnership Agreement ("TPP"). It is said to be the largest regional trade agreement ("RTA") in history, constituting 40% of the world GDP.

The TPP is broad in its scope - dealing with tariffs, small- and medium-sized enterprises (SMEs) trade, services trade and investment, environmental and labour protections, intellectual property, and various, broad commitments regarding currency manipulation and exchange rate policies. This bulletin will highlight the key impacts of the TPP on Canadian businesses as communicated through various government agencies. Confirmation of what is contained in the TPP will require a full and detailed examination of its contents, once released.

Goods Access Under the TPP and its Impact on Canadian Businesses

A number of Canadian industries and sectors are affected under the TPP:

·         Industrial goods and consumer products: The majority of Canadian industrial goods and consumer products to TPP countries will be duty-free once the TPP comes into force. The majority of the remaining tariffs will be eliminated within 10 years, and the rest within 20 years. Regarding the export of heavy crude oil from Canada, the NAFTA rules of origin do not allow for the use of non-originating diluent and in consequence Canadian heavy crude oil exports to the United States may not be eligible for duty-free treatment.  Instead, they may face a per-barrel duty. The TPP rules of origin applicable to Canadian crude oil exports are intended to address this concern such that imports into the United States will not be subject to this duty.

·         The automobile industry: The TPP will provide for phased-in tariff elimination for all vehicles and vehicle parts into TPP markets. Canada already has duty free market access for passenger vehicles and other automotive products into Japan. With the TPP, Canada will be able to export automobiles to Malaysia and Vietnam under the phased-in tariff elimination process instead of tariffs as high as 35% and 74% respectively. The TPP's rules of origin for vehicles and vehicle parts will allow Canadian producers to use parts and other materials sourced from within the region, and in turn, benefit from preferential market access treatment when they export to other TPP countries. To access this preferential rate, the TPP rules of origin require that 45% of key Canadian-produced vehicles parts and 40% of other key Canadian-produced vehicle auto parts be comprised of TPP-originating content. At this date, we understand that the 45% of key vehicle parts includes engines, transmissions, chassis, bumper systems and larger assemblies like axles.  The final list of items will be known when the final TPP text is released.

·         Canada and Japan have bilaterally negotiated a special motor vehicle safeguard, more comprehensive than the regular TPP transitional safeguard, to protect the Canadian domestic automobile industry from harm caused by any potential import surge of Japanese automobiles arising from tariff reductions under the TPP. It will be available for 12 years after Canada's motor vehicle tariff is eliminated (through 5 annual cuts). Once the safeguard is triggered, it can remain in place for up to 5 years.

·         Further, there is an accelerated dispute settlement procedure such that in the event of non-compliance with TPP and the bilateral obligations, Canada's tariffs on Japanese motor vehicles may be "snapped-back" to the original rate for a period of 100 days. This "snap-back" mechanism is available to Canada for a period of 6 years after the motor vehicle tariff is eliminated.

·         Forestry and related products: The TPP apparently will eliminate tariffs for forestry and related products in markets such as Japan, Malaysia and Vietnam. This means that a Canadian mill that manufactures and supplies pulp and paper products, including newsprint, will have duty-free access to several markets with which Canada currently does not have a free trade agreement (FTA). Depending on the type of forestry products, and the countries involved, some tariffs will be lifted on the coming into force of the TPP, while others will be eliminated over a period of between 3 to 15 years.

·         Fish and seafood products: Canadian fish and seafood exporters to the TPP member countries are currently facing tariffs of between 5% to 34%. With the implementation of the TPP, tariffs apparently will be eliminated in key TPP markets. Depending on the type of fish and seafood products and the countries involved, some tariffs will be lifted upon the coming into force of the TPP, while others will be eliminated over a period of between 3 to 10 years after the entering into force of the agreement.

·         Agricultural and agri-food products: The TPP will allow Canadian agricultural products, food and beverages and wines and spirits to benefit from either a complete elimination or significant reduction in tariff duties depending on the product. Further, non-tariff barriers such as technical barriers to trade, customs administration procedures and regulatory 'red-tape' increasing costs of cross-border business are addressed with new rules on technical regulations, customs facilitation, and enhanced regulatory cooperation.

·         Supply-managed products: Canada has offered limited new access for supply-managed products to TPP members. This access will be granted through progressively greater in-quota allocations over a 5-year period, which apparently amount to the following percentages of Canada's current annual production: 3.25% for dairy, 2.3% for eggs, 2.1% for chicken, 2% for turkey and 1.5 % for broiler hatching eggs.

Other provisions under the TPP

Cross-Border Trade in Services

Trade in services will encompass a wide range of areas including engineering, architecture, information management, environmental protection and monitoring, and mining and energy development.  The following are some of the highlighted features:

1.     The TPP covers all service sectors with a few exceptions that are listed by each member country. This approach is known as the "negative list" approach. In Canada, certain types of services are excluded, for example, health, public education and other social service sectors and activities.

2.     There is a broad reservation for existing and future programs and policies with respect to cultural industries that aim to support the creation, development or accessibility of Canadian artistic expression and content.

3.     Where a TPP country autonomously liberalizes certain laws, that liberalized law will become part of the party's obligation under the TPP.

Investment

The TPP will contain investment rules intended to make investment in other TPP markets more transparent and predictable.  For Canadian investors, these rules provide a framework of legal rules governing investments in other TPP markets that is expected to have an impact on energy, mining, manufacturing, and the provision of financial and professional services through companies. In particular, TPP rules on investment will cover:

1.     Fair, equitable and non-discriminatory treatment;

2.     Rules ensuring that Canadian investors are treated on an equal footing with other investors in TPP countries;

3.     The right of governments to legislate and regulate in the public interest; and

4.     Access to specialist arbitration to enable investors to seek dispute settlement against the relevant TPP country for claimed breaches of the investment rules.

Intellectual Property (IP)

The TPP contains rules for the civil, criminal and border enforcement of IP rights that include combatting trade in counterfeit and pirated goods in line with Canada's Combating Counterfeit Products Act.  The provisions governing IP permit a two year cap on additional protection.

With respect to pharmaceuticals, the TPP reflects Canada's existing regime on patent linkage, protection for clinical trial data, and early working exceptions. The TPP includes a regulatory review exception for the introduction of generic drugs after the expiry of a patent across the region.

Assistance to SMEs

The TPP contains a chapter specifically dedicated to SMEs to make market access easier and less costly for this group of businesses.  The TPP provisions create a committee to help SMEs through training programs, trade education and finance, as well as assistance for capacity building.

Labour Protections

TPP provisions commit all parties to the International Labour Organization's principles for collective bargaining, including minimum wages, safe workplaces, and provisions against child labour, forced labour and excessive hours.

TPP members also will be subject to a non-derogating clause preventing them from waiving their responsibilities under domestic labour laws in order to encourage trade or investment.

Environmental Protection

There are mechanisms in place in the TPP that will help ensure that countries do not gain an unfair advantage by lowering their environmental standards to promote trade or attract investment. It also has provisions against wildlife trafficking and illegal or unsustainable logging and fishing. The TPP includes provisions that promote corporate social responsibility and that encourage trade in environmental goods and services. It also establishes a binding and enforceable dispute-resolution process to address non-compliance.

Currency Manipulation and Exchange Rate Policies

TPP members have committed to negotiating a side agreement that will incorporate non-binding commitments on exchange rate policies in an effort to discourage currency manipulation.

Three key commitments that member countries are to undertake as part of the side agreement are:

1.     To not devalue country currencies to make their exports cheaper;

2.     To enhance the transparency of respective monetary policies; and

3.     To set up a multilateral forum to discuss exchange rate policies.

Dispute Settlement

The TPP will include a rules-based dispute settlement mechanism modelled on the WTO, which will defer to an impartial panel of experts. The TPP also includes alternative methods to settle a dispute such as conciliation and mediation. Finally, the TPP contains provisions to expedite disputes and provides for a panel of trade experts to effectively adjudicate disputes in specialized areas, such as in environment, financial services, labour and anti-corruption areas.

Next Steps

All 12 parties must next sign an agreement in principle. Once that is concluded, each country will subsequently need to ratify the TPP before it comes into force, a process that varies in each country. In Canada, the TPP will be subject to a ratification vote in Parliament.  Once all TPP countries have ratified the agreement, in Canada, the agreement will need to be entered into Canadian law through relevant amendments to existing legislation.  In the course of this process, it will be imperative for Canadian businesses to study the details of the agreement, understand how it affects them and understand the implementing legislative process.

This bulletin was written with the collaboration of Nerissa Yan and Nina Lavoie.

Source:  www.fasken.com
Bruce White, CCS
Manager, Customs
Fraser Direct Logistics
100 Armstrong Ave
Georgetown ON 
L7G 5S4

Direct: 905-877-4411 Ext 230 | Fax: 905-877-2053

This email address is being protected from spambots. You need JavaScript enabled to view it. | www.fraserdirect.ca

Partners in Protection(PIP) member

    A key challenge to cross border emergency communications was recently overcome with the October 21, 2014 announcement of an agreement between Industry Canada and the United States (U.S.) Federal Communications Commission, allowing each country’s emergency responders to bring and use portable mobile devices, such as hand-held radios, across the border without permit.

The agreement furthers the objective of the Beyond the Border Canada-U.S. Communications Interoperability Working Group, co-led by Public Safety Canada and the U.S. Department of Homeland Security.

     CBSA launched its Trusted Trader Portal on June 15, 2014, to provide secure and efficient online services to accredited members of the trade community. The Portal will allow eligible companies to submit online applications for membership in Partners in Protection (PIP) and obtain timely updates on the progress of their application.

It will also allow existing PIP members to manage their Trusted Trader membership online.

Fraser Direct is both a Trusted Trader and PIP member.

Effective January 1, 2015, the Canadian government will withdraw General Preferential Tariff treatment duty rates from all goods that originate in 72 higher-income and trade-competitive countries (out of current 176 beneficiaries). 

After that date, the goods must be accounted for under the Most-Favoured-Nation Tariff (MFN).

Countries Affected (72) 

Algeria, American Samoa, Antigua and Barbuda, Antilles, Netherlands, Argentina, Azerbaijan, Bahamas, Bahrain, Barbados, Bermuda, Bosnia and Herzegovina, Botswana, Brazil, Brunei, Cayman Islands, Chile, China, Colombia, Costa Rica, Croatia, Cuba, Dominica, Dominican Republic, Ecuador, Equatorial Guinea, French Polynesia, Gabon, Gibraltar, Grenada, Guam, Hong Kong, India, Indonesia, Iran, Israel, Jamaica, Jordan, Kazakhstan, Kuwait, Lebanon, Macao, Macedonia, Malaysia, Maldives, Mariana Islands, Mauritius, Mexico, Namibia, New Caledonia and Dependencies, Oman, Palau, Panama, Peru, Qatar, Russia, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Seychelles, Singapore, South Africa, South Korea, Suriname, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turks and Caicos Islands, United Arab Emirates, Uruguay, Venezuela, and Virgin Islands, U.S.A.
Impact and Advice for Importers

Goods imported after January 1st, 2015, from the above countries, may attract additional duties payable. 

Please note that goods that are in transit to Canada prior to January 1, 2015 are exempt from the withdrawal order.

It may be to an importer's advantage to purchase and ship goods prior to that date or advise your customers that pricing may be affected by the Canadian Government's decision.  Importers may also search other countries to source their goods where trade agreements are still is place.  Countries listed above such as Panama, Jordan, Columbia, Costa Rica, Chile, Israel and United States will not be affected as they have separate trade agreements with Canada.

Please contact Fraser Direct Logistics' Consulting Team to assess your potential duty-change impact.

Questions?

If you have any questions or need more information, please contact us a This email address is being protected from spambots. You need JavaScript enabled to view it. or phone 905-877-4411 x 230.   

Bruce White, CCS
Manager, Customs
Fraser Direct Logistics
100 Armstrong Ave, Georgetown ON  L7G 5S4
Direct: 905-877-4411 Ext 230 | Fax: 905-877-2053
This email address is being protected from spambots. You need JavaScript enabled to view it. | www.fraserdirect.ca

Partners in Protection (PIP) member

The Canada-Honduras Free Trade Agreement (CHFTA) will be implemented on October 1, 2014.

With the exception of a few agricultural goods, the CHFTA will essentially eliminate the customs duties on all imports from Honduras, either immediately upon implementation of the agreement, or through a tariff phase-out.

Proof of Origin:

The required proof of origin is the Canada-Honduras Certificate of Origin, available in English, French and Spanish.

In order to claim the preferential tariff treatment accorded under the CHFTA, importers must have in their possession the Canada-Honduras Certificate of Origin completed by the exporter in Honduras.

Source:  http://www.cbsa-asfc.gc.ca/publications/cn-ad/cn14-021-eng.html

Bruce White, CCS
Manager, Customs
Fraser Direct Logistics
100 Armstrong Ave, Georgetown ON  L7G 5S4
Direct: 905-877-4411 Ext 230 | Fax: 905-877-2053
This email address is being protected from spambots. You need JavaScript enabled to view it. | www.fraserdirect.ca

Partners in Protection (PIP) member

Fraser Direct is now Controlled Goods Registered

To enhance our Supply Change Management services, Fraser Direct is now registered with the Controlled Goods Program (CGP) at our Georgetown, Ontario and London, Ontario locations. 

The CGP plays a vital role in the prevention and detection of the unlawful examination, possession or transfer of controlled goods in Canada. Under the authorities of the Defence Production Act  and the Controlled Goods Regulations, the CGP's mandate is to strengthen Canada's defence trade controls through the mandatory registration and regulation of businesses and individuals who examine, possess and/or transfer controlled goods.

Fraser Direct combines CGP registration with our Partners in Protection (PIP) membership with Canadian Border Security Agency (CBSA) to further enhance cross border supply chain security for our clients.

For further information please contact:

Georgetown:

Bruce White, CCS
Customs Manager
905-877-4411 Ext 230
This email address is being protected from spambots. You need JavaScript enabled to view it.
 
London:

Steve Hogg
Director; Supply Chain Services
519 850 1555 ext. 615
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