CETA and medical devices: five things you should know and actively considerAugust 30th, 2017
The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU) provisionally comes into force on September 21, 2017. At that time, all the provisions of CETA will come into force, with the exception of the provisions governing dispute settlement mechanism, free trade in financial services, and camcording which will come into force upon full implementation when all Member States of the EU have ratified CETA.
CETA is the first free trade agreement concluded by the EU with a G7 country. It affords exceptional opportunities for Canadian businesses in the medical device industry seeking to better penetrate the European market with its 500 million consumers.
ELIMINATION OF CUSTOM TARIFFS
Most significantly, through CETA there will be an immediate elimination, on September 21, 2017, of 99.2% of the applicable customs tariffs on products originating in Canada and exported to the EU. This is to be contrasted with the 1990 free trade agreement with the United States where customs tariffs reduction was phased in over a 7 year period. It is important to note that the exported products need to respect the applicable rules of origin provided in CETA in order to be considered as originating in Canada and be eligible for a custom tariff free access to the EU. Businesses would be well advised to adjust their component supply chain to ensure compliance with their applicable rules of origin.
So while a medical device competitor based in the United States or China will see their products subject to a customs tariff of 2% to 8% upon its entry into the EU, products originating in Canada will incur no customs tariff. This will enhance the competitive advantage of Canadian medical device businesses in the EU vis-a-vis their international competitors and place them on an equal footing with their European competitors.
SUB-STATE PROCUREMENT OPPORTUNITIES
While CETA does not lower the procurement threshold as it did in the free trade agreement with the United States, it does enhance the procurement opportunities to sub-state units of government including notably, and of interest for the medical devices industry, to schools, hospitals and universities. As such, for those public tenders over the thresholds 130,000 SDR (about CA$200,900), a Canadian supplier of medical devices will be able to bid to supply European schools, hospitals and universities as if they were a European supplier of the same product.
In addition, Canada and the EU have undertaken, within 5 years of the implementation of CETA, to establish an electronic gateway for publishing notices of procurement opportunities. As such, any medical device business interested in participating in EU public procurement tenders with hospitals and universities should stay tuned to this electronic gateway for new opportunities through CETA.
WORKING TOWARDS HARMONIZED STANDARDS
While both the EU and Canada will maintain their respective standards regarding amongst other things medical devices, both have undertaken under CETA to work towards harmonized standards that would apply to both jurisdictions.
In addition, a conformity assessment protocol under CETA will authorize recognized establishments in Canada and the EU to accept one another’s product certifications. As a consequence, a Canadian medical device business will not have to undergo the expense, delay and uncertainty of having its products certified in Europe since when they undergo the certification process in Canada through a Canadian certification authority, the same authority will be authorized to apply all the necessary tests according to the EU standards to certify the product for Europe.
If you intend to send Canadian employees to Europe for business, note that CETA provides a series of enhanced business traveller exemptions authorizing access to the EU. Visas or work permits may still be required however. Therefore, be prepared and ascertain the terms of your mobility rights before you travel to save time and money.
Inversely, do you intend to attract skilled workers from the EU to your Canadian place of business? Normally such recruitment would be subject to a labour market impact assessment (LMIA) which could be lengthy, have uncertain outcomes, and potentially hinder your recruitment process. Under CETA, certain classes of workers, notably those conducting research and development, will be able to temporarily reside in Canada with a work permit that is not the subject of an LMIA. Furthermore, in situations of an acute shortage of skilled workers, CETA also offers recruiting opportunities.
OPPORTUNITY FOR GROWTH
The EU is the world’s second largest medical device import market with a value of $56B. In 2015, Canadian medical device manufacturers held 1% of this import market having exported $568M worth of products to the EU. The principal importers of medical devices into Europe are from the United States and China each holding respectively 43.3%, and 14.4% of the European import medical device market.
Neither of these primary import competitors have a free trade agreement with the EU, and their imports into the EU are subject to a custom tariff of between 2% and 8%.
Therefore, in terms of opportunity for growth, it is estimated that trade between Canada and the EU will grow by about 10%, equating to approximately $56M more business for the Canadian medical device industry.
Our specialists at BCF will be pleased to advise you concerning the opportunities offered by the public procurement markets made available with the implementation of CETA. Notably at BCF we can assist you prepare for this opportunity as you prepare entry in the European market with your intellectual property plan, your tax plan, your commercial business implementation plan, your rules of origin plan or your labour mobility plan.