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Canada and the European Union Customs Cooperation Agreement

Buy custom Canada and the European Union Customs Cooperation Agreement essay

1 General concept of customs cooperation

Customs union is an agreement between two or more countries (a form of an international agreement) on the abolition of customs duties on trade between them, a form of collective protection from third countries. Customs union also includes the formation of "a single customs territory."

Usually, participating countries of the customs union agree to establish the international bodies that will coordinate the foreign policy. Typically, this is to hold periodic meetings of Ministers in charge of relevant departments, which are relying on a permanent intergovernmental Secretariat.

We speak about the form of intergovernmental integration where the creation of supranational department is supposed.

Due to this plan, customs union is a much more advanced form of the integration than, for example, free trade area. In the recent years, the government of Canada undertakes systematic efforts in order to change the image of the country that has been formed.

2 The history of economic and customs relations between the EU and Canada

The predominated opinion that Canada is a calm and peaceful country where the nation of the woodcutters lives has become inappropriate for the ruling classes in the period of globalization and information revolution. Immediate reasons for developing a new Canadian's brand are, maybe, 2 facts. The first is the impressive example of some other countries that have succeeded in the creation of global image. Secondly, it is in the character of Canadians to have a pragmatic approach the purpose of which is to make their country more attractive for the foreign investors whose capital plays an important role in the development of the country.

Canada is one of the eight countries in the world that does not have special preferential trade relations with the European Union. Existing bilateral agreements promote trade between the EU and Canada. For trade facilitation between the EU and Canada, the 1976 agreement on commercial and economic cooperation created a Joint Committee on Cooperation. Joint Political Declaration of 1996 on EU-Canada Action Plan of Canada and the EU has allowed to formulate goals for the expansion of relations not only in the trade and economic sphere, but also in domestic and foreign policy.

At a summit in Ottawa in December 2002, the leaders of Canada and the EU made a commitment to develop the "Agreement on the expansion of trade and investment between Canada and the EU", which would solve arisen problems in the relationship and ensure the removal of trade barriers.

The government of Canada has identified priorities for improving the access of Canadian goods to the EU market. This applies particularly to areas of agriculture and natural resources, which are restricted. Product list of Canadian exporters includes wine made from frozen grapes, alcoholic beverages, fish and seafood, aluminum, and some non-ferrous metals (lead, mercury, cadmium), paper products within the scope of environmental labeling.

There are also problems in the certification of forest products, green products, and building materials. Sanitary and phytosanitary rules of the EU have affected Canadian exports of pine (Pre heat treatment), beef (EU ban to use hormones to speed up growth), live animals and animal products, potato seeds, genetically modified canola, and other genetically modified products (requiring mandatory labeling and traceability of product from the farm to the store counter).

In October 1999, the Canadian government announced the start of negotiations with the European Free Trade Association - EFTA (Iceland, Liechtenstein, Norway, and Switzerland). Negotiations on the main range were complete, however, some challenges remained. The Free Trade Agreement of the "first generation" focused on eliminating tariffs on manufactured goods, some liberalization in the agricultural field, and cooperation to facilitate trade and competition.

In 2003, Canada continued to create the legal basis of trade and economic relations with the EU, including:

  • The negotiation of agreements, which facilitate access of wine and alcoholic beverages to the EU market;
  • The development of proposals for an agreement to expand trade and investment between Canada and the EU;
  • Intensification of cooperating in regulation of trade relations to establish a new bilateral framework agreement and facilitate the procedural rules for Canadian exporters and trade in general.

In 2006, Canada celebrated 30 years since the signing of the framework agreement on the bargaining and economy cooperation between Canada and the European Union, which along with other Canadian-European agreements in the economic, scientific, and technical fields formed the legal basis for the multifaceted economic cooperation with the countries of Canada group, targeting both sides of the development and diversification of relations within the established and effective functioning mechanism of regular bilateral consultations.

Major milestones in the history of bilateral economic relations were also adopted in 1996. Joint action plan set priority directions of economic cooperation and was launched in 1998. Canada-European trade initiative made the parties focus on promoting cooperation in the field of trade and investment, services, and state procurement, intellectual property rights, e-commerce, communication between the business community, etc. In recent years, intensive development of bilateral contacts in the WTO, in which Canada and the EU hold multilateral trade negotiations, has strengthened the role and importance of the WTO in international trade.

Promotion of a joint action plan and trade initiatives along with other issues of bilateral relations in the economic, political, and other fields forms the agenda of the Canada-EU summit, which is held twice a year.

In the intervals between meetings of the leaders, a number of bilateral operate structures are formed on the basis of the intergovernmental commission "Sub-Committee, the working group." For example, in trade and economic bilateral relations, there operates a joint cooperation committee, trade and investment sub-committee, the working groups in key areas of interaction, the Canada-Europe Roundtable for Business, etc.

Traditionally, an important place in any summit is given to trade, economic and investment relations, the importance of which is increasing.

EU countries are the second largest (after the U.S.) partner of Canada in the field of trade and investment, accumulating about 9% of Canada's trade and 20% of foreign investment. In 2005, bilateral trade volume reached 56 billion dollars (including Canadian exports – 19 billion, import – 37 billion), about 18 billion dollars had to trade in services. In the structure of Canadian exports to the EU (its five members Britain, Germany, Belgium, France and Italy are among the ten largest trading partners of Canada), machinery and equipment (including energy and electro technical), aircraft and spare parts to it, pulp and paper products, metals and metal products, timber, agricultural products and seafood, machinery, equipment, vehicles, raw materials, chemical products have leading positions in Canadian imports from European countries.

The role of the EU and the bilateral investment cooperation is very high: in 2007 the total amount of direct investment in the Canadian state groups (mainly in the UK, Ireland, and the Netherlands) was 63.6 billion dollars, while the inflow of direct European investment in Canada reached 85.4 billion dollars. However, despite this impressive volume of bilateral trade and investment, working closely on all main vectors of the political and economic life, in trade relations between Canada and the EU there remain a lot of problems, discussion and solution of which is not easy and absorbs the lion's share of time during bilateral negotiations and consultations at all levels including the highest.

3 The economic and customs relations problem between the EU and Canada

The main problem, according to Canadians, is that Canada remains one of the few WTO members that do not have preferential access to the market of goods and services of the European Union and therefore has suffered from all the "charms" of tariff and non-tariff barriers until 2013.

It should be noted that the level of import tariffs in the EU in recent years has significantly decreased and averages 5% (in Canada – 4.6%). However, this is enough to keep Canada's unfavorable balance of trade, limiting the development of Canadian exports (growth rates in recent years are much lower than the growth rate of imports) and gradually reducing the share of the group in the foreign trade of the country in favor of more dynamic relations with other countries, especially the U.S.

Complete abolition of customs barriers in bilateral trade, according to current estimates, can immediately increase the volume of Canadian exports to the group by 16% or 3.4 billion dollars, while imports may increase by more than 30% or 7 billion per year. Predicting such a rate of growth of foreign trade with the EU, the Canadians focus primarily on existing by now structure of trade and opportunities for its expansion through the elimination of duties under tariffs set by the EU – 48% of the commodity nomenclature of Canadian exports and 52% of the commodity nomenclature of imports (taxed at a rate of 5% to 25% of the cost on Canadian goods).

This is about such goods of Canadian exports to the EU as fish, shrimp, and other seafood (taxed at a rate of 12 to 23% of the cost with the exception of coming for recycling in the EU shrimp within a certain quota for Canada – 5 tons per year taxed "preferential" 6% duty), aluminum billet (6%), the wide range of industrial goods duty, which although still at a low level (below 5%), are very sensitive with significant volumes of supplies.

In its turn, Canadians continue to hold back the import of European food products, textiles, and clothing (imports of wool and synthetic fibers fall under 16% of the customs, duty clothing – under 25%), footwear, shipbuilding products (most of which are taxed 25% on import duty). Canada applies a system of so-called "Escalation" customs tariffs. It provided a consistent increase in rates of import duties, depending on the depth and extent of processing of the goods and also the large number of "tariff quotas" (especially against imports from the EU dairy products, eggs, poultry, etc.), when imported above quota goods are taxed by higher rates. Europe is worried about such system.

The situation with the non-tariff barriers used by sides to each other is also complicated. Europeans worry about existing Canadian restrictions on the access of foreign capital to the various branches of business (including banking and finance, and also to the entire line of business regulated by the interests of protecting the national cultural identity); practice of provincial authorities to regulate purchases of alcohol; restrictions in public procurement system; bans on the import of fresh fruits and vegetables without firm orders from Canadian customers, limiting coastal shipping and trading ships registered under the Canadian flag, etc.

In turn, Canadians do not like the pace of reform of the European "Common Agricultural Policy", which hindered access of Canadian agricultural products in the EU Member States and third countries. Established in the EU requirements for certification of wine products, bans on the import of genetically modified food and the extremely cautious approach to issuing permits for imports; restrictions and prohibitions on the import of lead, mercury, and cadmium and products containing these elements; strict  requirements for the manufacture, packaging, labeling, and quality control of products of organic origin; requirements on obligatory heat treatment of timber in order to eliminate pests; ban on imports of beef produced with growth-promoting hormones; and restrictions in public procurement system (prefers European producers telecommunications, transportation, electrical and power equipment and services, etc.) are also not suitable for Canada.

The set of existing problems in the sphere of trade and investment is the subject of bilateral consultations between both Canadian and European institutions as well as special WTO bodies aimed to settle disagreements. However, not always such disputes are resolved peacefully. For example, ban on imports of beef produced with growth-promoting hormones established by the EU in 1989 was the subject of lengthy proceedings between Americans and Canadians on the one hand, and the EU on the other, filing suit in the WTO. The EU refused to carry out the decision in favor of the U.S. and Canadian arbitral and the WTO Appellate Body. This led to retaliation. In 1999, Canada imposed countervailing duties on imports of European beef, pork, cucumbers, and gherkins.

Ottawa tried to overcome these differences, particularly in terms of ensuring non-discriminatory access of commodities and services in each other's markets again on Canadian-European summit held in June 2001 in Stockholm. Some progress in this direction (in particular, in order to reduce average rates customs), according to Canadians, does not reflect the state of the sale of goods and the situation in non-tariff regulation, bearing in some cases character of protectionism. During the summit, Canadians actively promoted the idea of a bilateral free trade agreement because they are interested in further increasing the volume of trade and investment cooperation with the EU. In support of their position, analytical paper indicating significant mutual benefits from the rejection of customs tariffs in mutual trade was submitted to the EU leadership.

Then, the Canadians could not gain the support of this idea in Europe. As before, the EU leadership reacted very cautiously to the "free-trade" initiatives of Ottawa, speaking in the sense that existing tariffs in bilateral trade were too small to have a significant influence on its course.

4 Consequences of Canada and the European Union Customs Cooperation Agreement

On 4 March, 2013, the EU and Canada signed customs cooperation agreement in which they agreed to cooperate more closely. Agreement was signed with the aim to provide the security of their deliveries. A customs cooperation agreement was signed on the basis of existing agreements and was a complement to them.

This will allow the two sides to cooperate more closely in order to ensure a high standard of security. At the same time, the signing of the agreement facilitates legal trade between Europe and Canada. Cooperation will include work on the development of risk management methods, risk standards, control security, and trade partnership programs (EU AEO and partners in the defense of Canada).

Ratification of the agreement will be held in the participating countries in the nearest future. After this, the agreement will come into force. Such an agreement promotes safety, supports economic growth, and allows opening new markets for Canada in Europe, which is a key objective of the Canadian government. Facilitating trade through agreements will help Canadian exporters to get greater access to the dynamic market of Europe and to strengthen financial protection of company employees in each region.

However, the free trade agreement and the decision of the establishment of a customs union are still in the development stage.  Different views of Canada and the European Union on agricultural exports in the EU and compliance of intellectual property rights and medical research have caused the delay of customs union negotiations.

Countries should agree upon a list of items before signing the agreement. In the sphere of agricultural exports, too much debate and compromise on contentious issues are far away. Each side defends its position in the meat trade.

According to experts, in the case of agreement and signing the agreement during the negotiations, bilateral trade of the European Union and Canada could increase by 20%. At present, 75% of Canadian exports go to the U.S.  Customs union with Europe would be a good incitement for the growth of the Canadian economy and would create jobs on both sides of the Atlantic. Agreement will strengthen the global trading system and have a positive impact on both sides of the agreement. While the customs union is not established, tariffs and taxes on imports and exports are a barrier to trade. It should be noted that the level of import tariffs in the EU in recent years has significantly decreased and averages 5% (in Canada – 4.6%). However, this is enough to keep negative balance of trade on Canadian economy, limiting the development of Canadian exports (growth rates in recent years are much lower than the growth rate of imports) and gradually reducing the share of the group in the foreign trade of the country in favor of more dynamic relations with other countries, especially the U.S.

Complete abolition of customs barriers in bilateral trade, according to current estimates, can immediately increase the volume of Canadian exports to the group by 16% or 3.4 billion dollars, while imports may increase by more than 30% or 7 billion per year. Predicting such a rate of growth of foreign trade with the EU, the Canadians focus primarily on existing by now structure of trade and opportunities for its expansion through the elimination of duties under tariffs set by the EU – 48% of the commodity nomenclature of Canadian exports and 52% of the commodity nomenclature of imports (taxed at a rate of 5% to 25% of the cost on Canadian goods).

So, despite the common views of Canada and the EU on most major international problems and approaches to their solution, trade and investment sphere of bilateral relations is still far from perfect. Each party primarily defends its interests and does not want to find a compromise despite all the benefits offered by union. 

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