Canada, E.U. make a deal
March 27, 2014
by Leo Quigley
When Canada entered into a trade agreement in principle with the E.U. last year it was heralded as “a historic win” by Canada’s Prime Minister, Stephen Harper.
“It represents thousands of new jobs for Canadians and a half-billion new customers for Canadian businesses,” he said.
Commonly referred to as CETA, the Canada-European Union Comprehensive Economic and Trade Agreement is said to be the biggest trade deal Canada has ever entered into.
Once ratified, which is expected to take roughly two years, CETA will provide exporters in Canada with full access to European markets and remove an estimated 98% of E.U. tariffs. Key agricultural items included in the agreement include:
• Duty-free beef access of 50,000 tonnes annually (transition period to be determined);
• Immediate duty-free access for Canadian beef under the existing 14,950-tonne Hilton Quota;
• Immediate, duty-free pork access of 81,011 tonnes and bison access of 3,000 tonnes annually;
• Seven-year tariff phase-out for: durum and high quality wheat, rye, barley, and oats;
• Immediate, duty-free access of 100,000 tonnes of low- and medium-quality wheat annually, and the removal after six years of the duty and quota; and
• Immediate elimination of tariffs on canola oil and processed pulses and grains.
The Canadian Agri-Food Trade Alliance estimates, when fully implemented, CETA could result in $1.5 billion in new Canadian agri-food exports. This includes $600 million in beef, $400 million in pork, $50 million in bison, $90 million in canola, $20.5 million in wheat, $1.9 million in other grains, and $50 million in biofuels.
While it may be the largest trade agreement Canada has ever entered into, there are several major differences when you compare CETA to previous trade agreements.
CETA, as it’s presently drafted, is not a phased-in agreement. Most of the non-agricultural items traded between Canada and the E.U. will become duty free almost immediately.
However, for a wide range of grain products that are exported to Europe, including wheat, there will be a seven-year introductory period before tariffs are reduced to zero (the average tariff on Canadian exports to Europe at present is 13.9%).
But, as has been pointed out by the Western Canadian Wheat Growers Association, just the knowledge that these tariffs will be eliminated within seven years will provide certainty to the market and lessen the risk of protectionist trade tariffs in the future. It will also end a tariff that is now applied to Canadian exports of low-protein wheat.
Also, while it’s estimated by Ottawa that Canadian trade to Europe will increase by about C$1.5 billion (about 3%) as a result of the signing, these new export opportunities are most likely to positively impact a few specific sectors — particularly the meat trade.
Producers of feed wheat and barley expect Canadian beef and hog herds will benefit from immediate access to Europe and domestic herds will increase, creating a greater demand for feed wheat and barley supplies. As well, Canadian dairy farmers and poultry producers have grown up in a system of marketing boards that control production and market prices that are based on input costs. However, with the Canadian Wheat Board conveniently stripped of its monopoly powers prior to the signing, one very large marketing board has been removed from the arena.
From a global standpoint, Europe’s competitiveness as an exporter of agricultural products has declined in recent years due to systematic high costs, extremely difficult environmental regulations and the fact that subsidies that resulted in overproduction have mostly been put to rest.
On the other hand, to wheat and barley producers in Canada who have only recently been unshackled from the Canadian Wheat Board, CETA provides a refreshing opportunity to sell their product in a market that is about to open its doors to trade, which many Canadian farmers have been doing over the past decade as Western Canadian agriculture has moved from what was essentially a wheat monoculture to a polyculture and a diversity of non-board crops resulting in a less vulnerable industry.
In the process of shifting a portion of their acreage to canola, field peas, beans, lentils, malting barley, canary seed and other specialty crops, farmers and their associations have also learned how to market their product in the global marketplace and adapt new crops to their farming operations.
WESTERN CANADIAN WHEAT GROWERS
“This deal is hugely important for Western Canadian grain farmers,” Levi Wood, president of the Wheat Growers, said in a prepared statement. “Not only will we see improved market access for grains, but it will also be of substantial benefit to the beef and pork sector. Canadian cattle and hog farmers are major customers of our grain.”
“The Comprehensive Economic and Trade Agreement will significantly reduce and eventually eliminate tariffs on a wide range of grain exports, including wheat,” he said. “In recent years, Canadian exports of durum and high-protein wheat have entered Europe duty-free. However, the E.U. maintains the right to impose tariffs (up to 90 euros per tonne on wheat) under existing trade rules. CETA would see these tariffs reduced to zero over a seven-year period. The tariff that now applies on Canadian exports of low-protein wheat to Europe would also be eliminated over a seven-year period. Ending these tariffs creates trade certainty and greatly lessens the risk of future protectionist trade action.”
The Barley Council of Canada applauded the news and said it is confident the landmark agreement will ensure a successful future for Canada’s barley producers and industry stakeholders.
CETA is expected to remove tariffs on virtually all of Canada’s agriculture and food products over time, giving Canadian export markets a significant boost. With over 500 million people, the E.U. has one of the largest consumer markets in the world.
“CETA means long-term profitability for the entire Canadian barley value chain,” said BCC Vice-Chair and Cargill Director of Corporate Affairs, Chantelle Donahue.
Currently, Canadian agri-food exports to the E.U. are $2.4 billion a year, a number that could increase by more than $1.5 billion annually under this agreement, she said.
The Malting Industry Association of Canada (MIAC) said it supports the agreement in principle of the Comprehensive Economic and Trade Agreement and said it will eliminate tariffs on malt immediately and the phased elimination of tariffs for barley. It will provide the ability to consider potential niche geographic market opportunities in an open and transparent market environment.
“Eliminating tariffs and liberalizing trade globally for malt is critically important for our industry, so any agreement that continues to move forward the Government of Canada’s trade negotiation agenda globally is good news,” says MIAC president Phil de Kemp.
The Canola Growers of Canada encouraged federal and provincial governments across Canada to quickly conclude the Canada-Europe Comprehensive Economic and Trade Agreement and said a successful conclusion to the CETA will expand European market opportunities for value-added canola products including canola oil for biofuels and canola meal for livestock feeds.
CETA will improve market access for Canadian canola to one of the world’s largest markets.
“By lowering oil tariffs, the exports of Canadian canola oil to Europe will increase in value by approximately $90 million, creating a new demand for canola seed to feed our expanding oilseed crushing capacity,” said Rick White, General Manager of the Association.
“CETA incorporates commitments to cooperate on issues related to biotechnology. With canola relying heavily on traits created through biotechnology, we look forward to the E.U. adopting more timely and science-based policies related to the approval of biotech traits as well as addressing issues related to establishing low-level presence policies.”
Pulses and specialty crop consultant Brian Clancey of British Columbia-based White Rock, told World Grain that this sector will not benefit greatly from CETA. “Canadian peas, lentils, edible beans, chickpeas, canary and mustard seed already enter the E.U. duty free,” he said. “The E.U. does not impose quantitative limits on pulse imports from any origin. Pulses and other specialty crops are all developed using non-GMO plant breeding methods, so that has never been an issue. The only trade problem has been differences in tolerances for chemical residues.”
This, he said, differs from the NAFTA free trade agreement that eliminated significant trade barriers to specialty crops traded between Canada, the U.S. and Mexico.
This grain terminal at the Port of Montreal is operated by Viterra Inc. Photo courtesy of the the Montreal Port Authority.
Chronology of events leading up to the agreement in principle
October 2008 – Canada and the E.U. issue a joint study, Assessing the Costs and Benefits of a Closer E.U.-Canada Economic Partnership, which provided supporting rationale for a launch of negotiations.
December 2008 – A notice was published in the Dec. 20, 2008 Canada Gazette seeking Canadians’ input on the possibility of negotiating a trade agreement with the E.U. These consultations were open to all stakeholders and groups.
March 2009 – A Canada-E.U. joint report was finalized, defining the scope of potential negotiations.
May 2009 – The Comprehensive Economic and Trade Agreement (CETA) negotiations were launched at the Canada-E.U. Summit in Prague, Czech Republic.
October 2009 – A successful and productive first round of negotiations toward a CETA was held in Ottawa. Both sides made efforts to identify common grounds and set an ambitious negotiating timeline.
December 2010 – Canadian and E.U. trade ministers met to take stock of progress to date, instructing negotiators to maintain the pace and ambition of negotiations.
October 2011 – Nine formal rounds of negotiations were completed, with significant progress made across all sectors. Negotiations moved into a more intensive and focused phase.
November 2012 – Canadian and E.U. trade and agriculture ministers met in Brussels, Belgium to take stock of progress and discuss outstanding issues.
February 2013 – Canadian and E.U. trade and agriculture ministers met in Ottawa to further narrow the remaining outstanding issues in the negotiations.
October 2013 – Canada and the E.U. announce that they have reached an agreement in principle on a CETA.
Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at Quigley@dccnet.com.