New EU-Canada trade agreement comes into force

Deal to reduce consumer prices and boost trade

On 21 September 2017, the long-awaited free trade agreement between the EU and Canada, the Comprehensive Economic and Trade Agreement which the EU Parliament approved on 15 February 2017, provisionally came into force after more than eight years of arduous, detailed negotiations.

The EU-Canada trade agreement CETA, as it is known, eliminates virtually all tariffs on imports between the two economies, harmonizes and reduces trade regulations and related structural barriers, and provides a mechanism to resolve disputes concerning, trade, investment, and other economic matters. The provisional nature of CETA means that certain parts have not yet been completely agreed; these parts relate to investment protection and the Investment Court System. The rest of the agreement, including tariff reduction and removal, has entered into force.

For fish and seafood products, CETA eliminate tariffs that on most products were already zero or low (many under 5% ad valorem). However, some important items, such as lobsters from Canada and herrings from the EU, faced significant import tariffs. With the removal of these tariffs, prices of such products are expected to fall, leading to increased demand, consumption, and trade.

 

Pre-CETA trade was already growing at a healthy pace

Even prior to CETA, EU-Canada trade in fish and seafood had been growing at a healthy pace. Between 2012 and 2016, EU exports to Canada grew by 55 percent in volume and 93 percent in value, reaching 13 million tonnes valued at €72 billion. During the same four-year period, EU imports from Canada grew by 4 percent in volume and 21 percent in value, to 56 million tonnes valued at €439 billion in 2016. Average unit values of EU exports to Canada rose by 25 percent during this period, while average import values grew by 15 percent.

The usual suspects account for the bulk of EU-Canada trade. EU salmon and trout (in all product forms) are the single largest export to Canada, accounting for 13 percent of annual export value during 2012-16. Sardines, sardinella, brisling and sprats accounted for 10 percent, and mackerel and tunas added another 8.7 percent and 8.4 percent, respectively, to the value of EU exports during 2012-15.

On the EU import side, shrimps and prawns (in all product forms) made up exactly 50 percent of the total value of EU imports from Canada during 2012-16, followed by lobsters (14 percent), scallops (9 percent), and crabs (8 percent).

What products are (or rather, were) the highest tariffs on?

Before CETA entered into force, many fish and seafood products going between the EU and Canada were already tariff-free to begin with, as both economies have sharply reduced or eliminated fish and seafood tariffs during past rounds of global negotiations of the World Trade Organization (WTO) and its predecessor body, the General Agreement on Tariffs and Trade (GATT). The tariffs that the EU, Canada, and most economies in the world apply are those in the WTO’s “most favored nation” (MFN) category, which are the lowest category (no country outside of special agreements such as CETA get preferential trade treatment different from that accorded a country’s “most favored nation” trading partner.

Before CETA, 52 percent (by value in 2016) of the EU’s imports from Canada entered free of any MFN tariffs, and when all EU imports of fish and seafood from Canada are combined, the weighted average EU tariff rate before CETA was 5,5 percent. In the other direction, 68 percent (by value) of all EU exports of fish and seafood to Canada in 2016 entered free of any MFN tariffs, and Canada’s weighted average tariff on all fish and seafood combined from the EU was only 2,3 percent (see accompanying graphs).

However, some high MFN tariffs have survived previous rounds of trade liberalization. Among products subject to EU tariffs, tuna in all its forms famously stands out, as it has been the subject of several disputes. Imports of fresh or frozen whole tunas (mainly imported by EU tuna canners) are dutiable by the EU at 22 percent, and tuna in airtight containers (e.g., canned tuna, the product of those canners), at 24 percent. In addition, a tariff of 15 percent is applied to EU imports of fresh or frozen whole plaice, sole, sardines and sardinella, jack and horse mackerel, swordfish, rays and skates, sea bass, toothfish, monkfish, and most species of hake, among others. Fresh or frozen fillets of rainbow trout, flatfish, cod, coalfish, swordfish, mackerel, monkfish, and several others are charged a tariff of 12-18 percent upon entry through an EU port. Most EU imports of crustaceans are dutiable at 7.5-18.0 percent (American lobsters, a popular EU import from North America, are charged between 6 and 20 percent depending on product form), and most molluscs are charged tariffs in the 6-11 percent range.

For Canadian imports, all fresh or frozen fish in whole form or fillets/steaks (even tunas) already enter free of MFN tariffs. A 5-percent tariff is charged on various crustacean imports, including rock and Norway lobsters, and crabs, and imports of many molluscs in smoked form face a 4 percent tariff. Among fish processed or preserved (e.g., in cans), herrings (except pickled) are charged 5 percent, salmon 2 percent, tunas at 7 percent, and fish sticks and portions, 7 percent. Imports of prepared or preserved crabs and crayfish are charged 5 percent, and scallops, mussels, and jellyfish are all charged 4 percent upon entry into Canada. The leading products traded either way are shown in the table.

An obvious question is, with tariffs on some products so high, how can the weighted average EU and Canadian tariffs be only 5.5 percent and 2.3 percent, respectively, on one another’s trade? The answer is, the tariffs are effective at keeping imports of those products to a minimum, while tariff-free products make up the bulk of both EU and Canadian imports. Indeed, during 2012-2016, 68 percent of all EU exports to Canada entered duty-free, and 52 percent of all Canadian exports to the EU entered duty-free, meaning a large share of products subject to import tariffs were effectively kept out.

All that will change now that CETA provides for the elimination of all tariffs on fish and seafood traded between the EU and Canada.

How CETA might affect seafood trade

Within days of CETA’s implementation, press reports appeared describing the joy by some and distress by others at the impacts of CETA on EU lobster imports from Canada. The joy was expressed by Canadian producers and exporters, who had new orders coming in from EU buyers who no longer had to pay the 8-percent EU tariff. Distress was felt by American producers and exporters of an identical product, whose customers (and former customers) in the EU still face that tariff.

These experienced are mirrored by traders in other seafood products. It will take some time to know CETA’s full effects, but the general results are likely to include increased volumes of EU-Canada trade, and lower consumer prices everywhere (including the USA, where lobster supply available to domestic consumers have suddenly grown a little).

What reportedly has happened with lobsters is also going to happen with other seafoods: a shift in seafood trade patterns between the EU and its trading partners. Lower-priced Canadian fish and seafood products will tend to replace EU imports from the USA, Asian countries, and other sources, while on the export side, EU exporters will likely see increased opportunities in the Canadian market at the expense of other nations’ suppliers. As always, where some see loss, others see opportunity: as reported by Seafoodnews.com, some enterprising Maine lobster suppliers are already redirecting toward the China market.

Roger Corey