CETA: a great opportunity for our businesses

March 3rd, 2017

Credit: Investissement Québec

With CETA coming into effect, our businesses need to fully prepare for one of the biggest trade opportunities of this generation.

Investissement Québec’s Manufacturing Initiative tour is visiting 17 cities in the province between October 2016 and next April and our Lawyer Didier Culat is one of a handful of experts participating in this endeavour.

In an interview published on IQ's web site, our lawyer Didier Culat answers their questions on the subject. Read the interview below.


CANADA-EU AGREEMENT: BEING WELL PREPARED

Is your business set to take full advantage of the European market? As you may well know, the Comprehensive Economic and Trade Agreement (CETA) ratified recently by the European Parliament and that should be in force over the next six weeks provides wonderful opportunities for Québec’s manufacturing businesses, paving the way to a market of 500 million consumers.

Trade between Canada and the European Union will be facilitated by, among other things, tariff reductions. Currently, the average tariff paid by Canadian businesses selling their products in Europe is 14%. “The CETA will abolish more than 98% of these tariffs,’ stressed Mr. Didier Culat, legal counsel at BCF and one of the international commercialization experts involved in the Innovative Manufacturer Tour. This change will provide Canadian businesses a significant advantage over, for example, their American and Chinese competitors who will continue to pay the full tariff.

Nonetheless, to take advantage of this agreement, one must be prepared. “As for any proposed export plan intended for a new market, the key to success is planning and foresight,” indicated Mr. Culat. “First step: become familiar with the jurisdictions where you wish to do business, keeping all the while the five following points in mind.”

  1. UNDERSTANDING THE RULES OF ORIGIN

The rules of origin are used to determine the required Canadian portion a product must contain to benefit from the advantages provided under CETA. “These rules determine among other things if the business selling a product can benefit from the zero tariff. There lies the crux of the matter”, noted Mr. Culat.

To determine if a product is Canadian, the rules of origin take into consideration the origin of each of its components. It is not unusual for a portion of these components to be produced outside of Canada. “Before setting out to conquer the European market, a business could decide to rework its supply chain. This would ensure that the business’s product complies with the rules of origin, allowing it to take full benefit of CETA’s tariff changes.”

  1. ESTABLISH A TAX PLAN

The country where one intends to do business should be carefully chosen. “CETA covers 28 states, each with their own tax regulations”, added Mr. Culat. “Quebec businesses often tend to focus their efforts in France, a natural choice in view of their affinities with that country. And yet, the corporate tax rate there is 33%, whereas it is between 22% and 25% in Quebec and 12.5% in Ireland…”

Mr. Culat also recommends that businesses interested in opening new export markets consider setting up a subsidiary company in the relevant countries. This would allow them to segregate their Canadian revenues from those derived from other countries, usually subject to different tax rates.

  1. PREPARE YOUR BUSINESS PLAN

This point will certainly raise a number of questions. Does the business want to hire someone locally? If so, the business will have to acquaint itself with that country’s labour law requirements. “If, on the other hand, your business is contemplating a distribution agreement, you will have to examine exclusivity and non-compete issues very carefully as well as determine with which currency you wish to be paid, among other things,” indicated Mr. Culat. Acquiring an existing company, setting up a subsidiary company or operating through an online platform are other options which will, similarly, raise several questions.

  1. PROTECTING YOUR INTELLECTUAL PROPERTY

It is crucial that the necessary measures be taken to protect a business’ intellectual property prior to exporting. A business which holds patents, for example, must confirm their validity in Europe. And the same should be done for trademarks. “If your business operates under a license, it would be wise to ascertain if it hasn’t also been granted to a business based in the country where you would like to export,” added Mr. Culat. “A confidentiality agreement should also be drawn up to protect the sharing of trade secrets with partners. Intellectual property experts can help you plan your strategy.”

  1. UNDERSTANDING THE RULES GOVERNING EMPLOYEE MOBILITY

CETA affects the workforce as it improves business traveller mobility rights. In fact, the agreement reduces the recruiting requirements of several categories of workers outside of Canada, and eases the rules related to the work permits needed by a Canadian employee to work in Europe. “These rules are nonetheless complex as they do relate to 11 types of commercial activities and 8 types of business travelers, in 28 countries enforcing different laws,” emphasized Mr. Culat.

ONE LAST PIECE OF ADVICE

“Call on professionals accustomed to the jurisdictions where you expect to do business,” concluded Mr. Culat. “With their help, you will certainly avoid quite a few unpleasant surprises.”