CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

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CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

CANADA'S LEADING INFORMATION SOURCE FOR THE METALWORKING INDUSTRY

Free-trade agreements: a valuable but complicated resource for Canadian manufacturing exporters

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Although the benefits of shipping made-in-Canada goods to other countries duty free is an obvious benefit of free-trade agreements for domestic manufacturers, their complexities may be contributing to underutilization. PHOTO by Pexels.

Free Trade Agreements are under-utilized by Canadian exporters, according to the Canadian Chamber of Commerce.

A blog posted on the Chamber’s website, outlines the missed opportunities: “In Canada, 2021 data shows that the utilization rate for the trade agreement with the European Union (CETA) was just above 60%. Although this figure continues to rise year over year since CETA’s implementation in 2017, it still means that almost 40% of Canadian exports heading to that region did not receive the preferential duty rates that they were entitled to. For exports to Australia under the CPTPP agreement, the utilization rate in 2020 is even lower, sitting at 36%.”

The blog argues that free-trade agreements Canada has worked out with other countries help build trust with new foreign buyers, addressing worries over obvious risks such as cargo insurance, getting paid and delivering goods on time.

“But rarely do we stop and question ourselves about origin compliance and what it means to our foreign buyers. This is especially relevant when exporters have chosen a foreign market that has a free trade agreement with Canada,” the blog post states.

But although the benefits of free-trade agreements are obvious — exporters get to ship their made in Canada goods duty-free – the practice is not quite so simple and may be part of the reason why free-trade agreements are not as utilized as they should be.

“When attempting to leverage a free trade agreement, it’s easy to become overwhelmed by the intricacy of origin. Each free trade agreement not only has its own set of rules, but product specific rules as well. Value chains today are increasingly complex, with components being sourced from all over the world. How much foreign content is allowed? Did the final product undergo sufficient transformation or processing to be considered Canadian? How do I know which H.S. code to use, not just for my final product, but for each input? And this is just scratching the surface,” the blog post states.

It provides the example of a Canadian made product that could be allowed 50% foreign content if shipping to the EU under the CETA agreement, but is only be allowed 40% of foreign content if shipping to the United States under CUSMA. That exact same product is not treated the same way depending on its destination.

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