0.3 – EU – Canada CETA and footwear sector: first peek.

Today the EU Parliament approved the EU- Canada CETA (Comprehensive Economic and Trade Agreement) (previously approved by Parties on 30 october 2016). To enter into force within Europe this new agreement (hereinafter, simply “CETA”) needs to be approved by EU Parliament and EU national Parliaments, as well. First step (EU Parl) done. Now, voice passes to EU citizens through their national representatives. Major targets of this new trade deal between EU and Canada seem to be: (1) to cut up to 98% of tariffs between them while boosting trade and investments; (2) to uphold Europe’s high standards in areas like food safety, workers’ rights and the environment; (3) to respect democracy. According to the concept of “liberalization” CETA implies the prohibition of distort competition (such as cartels, abusive behaviour by companies with a dominant market position, anti-competitive mergers, otherwise anti-dumping and countervailling measures) in favour of cooperation granting, above all, transparency and fair behaviour of all the actors involved (Ch. III – IV). In the EU Commission website it is published that “will overwhelmingly benefit small companies, create new opportunities for farmers and food producers and benefit the EU’s 500 million consumers”. Supporters of CETA are confident this “will increase Canadian-EU trade by 20% and boost the EU economy by €12bn (£10.9bn) a year and Canada’s by C$12bn (£7.4bn)” (guardian.com).
Taking into account, therefore, how more focused this trade deal is on sectors other than footwear, this article tries to figure out potential business chances in this field. In preparation of CETA, the EU Commission launched (2008) separated consultations processes with members of private sector and civil society plus questionnaire covering various aspects of this new trade deal and related investment relationship which anyone interested could fill in. In turn, private sector associations carried out internal consultations to get feedbacks by their members. Of course majority of participants were interested in transatlantic business and consequent outputs highlighted still many obstacles and much potential to improve bilateral relationships.

Moreover, the EU Commission’ s focus on textile and clothing sector is embedded in the framework of the Market Access Strategy (MAS) as relaunched in 2007. Among MAS’ major aims the followings seem anticipating CETA goals: (1) to reduce barriers to European textile exports in growing markets abroad; (2) to promote participation of European textile and clothing sector to public procurement services; (3) to ensure a fair and equal treatment focused on IPR protection and fighting counterfeiting (Partnership EU – Canada on textile and footwear). The MAS promoted a joint forum among economic operators, Member States and the Commission itself which started meetings in 2009 on a regular basis (approximately 3 times per year). Problems about supplying of raw materials have arisen lately in textile and clothing sector then the EU addresses related problems within the framework of its Raw Material Initiative. CETA provisions try to face difficulties struggled by EU footwear sector about, first, high / non-tariffs barriers affecting its exports in several markets, and, secondy, counterfeiting and piracy. As above mentioned CETA art. 2.4 – “Reduction and elimination of custom duties on imports” remarks one of the major pillars of this deal with the aim to promote trade liberalization in goods (stating exemptions as per this deal). Subsequent art. 3.1 introduces the concept of “rules of origin” in Ch. III titled to anti-dumping and countervailling measures (another CETA pillar and among the targets of the above mentioned EU MAS).In particular, “Rules of Origin” (RoO) as defined by an ad hoc CETA Protocol set conditions under which products can be qualified as “European” and “Canadian” relevant for tariff preferences by the trade deal itself (Change of Tariff Heading, CTH). In other words, EU companies producing footwear will now have duty free access to the Canadian market if their products are wholly made in EU with EU materials. Otherwise restrictions still remain for that footwear made in the EU with uppers are imported by extra-EU contries as attached to the insoles to be finished. This leds to “customs and trade facilitation” (Ch.VI) aiming to “streamline customs procedures and make them more efficient”, therefore remarking the following principles: transparency, streamlined and risk-based procedures, certainty and predictability.
Hot topics” in EU – Canada CETA for the purpose of this post are rather the followings:

  1.  this trade deal opens up to investments, on one hand, (Ch. VIII),  by focusing on foreign direct ones (FDIs) which seem being promoted by ad hoc dispute settlement clauses (further info on Germany’s claims as background to said clauses here: euractiv.com). On the other hand,  its Ch. XIII rules financial resources towards increasing liberalization (btw, financial firms can provide cross-border services only in a limited number of sectors – eg. certain insurance and banking); 
  2. e-commerce, which I must say footwear (and not only) market is increasingly based on: Ch. XVI explicitly refers to “any business done electronically (e.g. online shopping)” providing warranties that online services will not include customs duties;
  3. intellectual property rights (as defined by TRIPS Section 1 through 7 Part II):Ch. XX provides standards and regulations as well as outline procedures to protect against IP violations so to reach “an adequate and effective level of protection and enforcement of intellectual property rights” (art. 20.1 (b)). Before CETA some EU – Canada differences on IPRs protection regarded, for example, digital media: lack of strong protection for TPM (technological protection measures) affecting contents in digital form when shared. Moreover, the new joint approach between these Parties in protecting IPRs under CETA could contribute in developing a more unified front by OECD countries. 
  4. Finally, public procurements: Ch. XIX includes government contracts (i.e. federal governments as well as provinces, regions, cities and state-owned enterprises). This seems correcting the less openness of Canada market for this type of contracts rather reaching a balance with EU in standards, common definitions and policies. More probably this will be a key-issue for further discussions between EU and Canada. 

Few conclusions for footwear sector.
First, among the main CETA targets the reduction of tariffs and custom duties could risk to act as a disincentive to trade by EU: low tariffs, indeed, could work as a competitive disadvantage towards diverting trade. Despite CETA provisions on tariffs, for EU private sector Canadian duties still remain in place on, among others, textile/apparel (18% vs 17% EU tariffs faced by Canadian private sector. These EU data refer also to footwear and leather), other manufactures (18% vs 16% EU tariffs for Canadian products), and leather (20%). Canadian enterprise had no preferential access to European market before CETA which then puts the basis to improve this (Assessing the cost and benefits of a closer EU – Canada economic partnership – A joint study by the EU Commission and the Government of Canada). Consequently, EU shoes are quite cheaper in Canadian market.
Many of EU-Canadian divergences in terms of technical standards and regulations on health and safety, and environmental protection seem still affecting merchandise trade (despite CETA provisions on compliance and some previous agreements on specific sectors, i.e. pharmaceutics).
Many open issues, therefore, still remain even in footwear sector. The following comment by John Saunders,CEO of the BFA (British Footwear Association) well shows different and sometimes divergent interests (depending on economic and political evaluations) to the new EU – Canada CETA:

With a lower value of Sterling – CETA does offer a real opportunity for many UK manufacturers and brands to increase sales of domestically and European produced footwear to Canada” (footweartoday.co.uk)

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