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Trade lawyers keeping an eye on tariff-rate quotas

Could impact clients
|Written By Dale Smith
Trade lawyers keeping an eye on tariff-rate quotas
Daniel Hohnstein says the United States’ withdrawal from the TPP gives Canadian exporters an edge over the American goods in important markets such as Japan, particularly around agricultural and manufactured goods.

Market data from the first year of implementation of the Canada-EU trade agreement showed that Canada’s implementation of tariff-rate quotas on European cheese was found to have been done in a manner that did not open up markets as promised.

Trade lawyers say that this experience could impact the implementation of quotas for their clients under the incoming Comprehensive and Progressive Trans-Pacific Partnership, especially for Ontario agricultural trade.

The bill to implement the CPTPP in Canada, Bill C-79, is currently before the House of Commons international trade committee. 

The CPTPP would create a free-trade zone between Canada, Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The United States was initially part of TPP negotiations, but it  withdrew following the election of U.S. President Donald Trump.

Daniel Hohnstein, a partner with Tereposky & DeRose LLP in Ottawa, says the United States’ withdrawal from the TPP gives Canadian exporters an edge over the American goods in important markets such as Japan, particularly around agricultural and manufactured goods.

“Canadian lawyers will be looking to assist producers and exporters with their efforts to maximize these advantages to their grow market share in CPTPP markets,” says Hohnstein.

Robert Glasgow, an associate at McCarthy Tétrault LLP in Toronto, says access to traditionally protected areas of the economy is why TRQs are in high demand, which is why lawyers should pay attention to them.

“If you don’t know how the system works, you can’t help your clients take full advantage of the system,” says Glasgow.

Hohnstein adds that trade lawyers are monitoring the TRQ situation carefully, given that there are a number of different ways to allocate quotas and that some are more trade-restrictive than others.

“There are a number of factors in the approach that Canada has taken, but one of those factors is that 50 per cent of the quotas is allocated to [domestic] cheese manufacturers,” says Hohnstein.

Twenty of those cheese manufacturers with TRQs are located in Ontario.

Hohnstein says this practice offers the benefit of the TRQ not to the EU producers and exporters but to the Canadian industry, whose protected market is being opened up by the TRQs.

Glasgow says TRQs are one mechanism to help countries protect certain industries without using subsidies, which are usually used in agricultural products, and in Canada, it’s also about protecting the supply management system for dairy, poultry and eggs.

Glasgow adds that the 50-per-cent allocation to domestic manufacturers is also a way of compensating them from the knock-on effects of opening access to supply management and allows manufacturers to slowly ease into it.

The system also makes it difficult for new entrants, especially if their quota is below the requisite tonnage to fill a shipping container.

Hohnstein says the critical question is how domestic producers make use of their allocations.

“How much of their quota allocations do they utilize and at what prices do they sell duty-free EU cheese into the Canadian market?” asks Hohnstein.

“There are certainly distributors, retailers and a market of consumers in Canada who would very much like to have greater access to imported EU cheese products at prices that do not reflect customs duties of 245.5 per cent.”

Hohnstein says that while it is early days with the EU trade agreement and the trade data is only for the first year, the TRQ utilization rate is still low for the first half of the current year, which has prompted the European Union  to hold discussions with Canada on why this is the case.

Joseph Pickerill, spokesman for International Trade Diversification Minister Jim Carr, says the government is currently consulting on the administration of the TRQs under the CPTPP.

“With respect to utilization under [the Comprehensive Economic and Trade Agreement], various factors impact TRQ utilization throughout the allocation year — the first year we have been working through utilization under CETA,” says Pickerill.

“For example, the time required to establish business links can impact the timing of import and utilization.”

Glasgow says he’s willing to give the minister the benefit of the doubt because it’s still early in the process.

“If we check back next year and we’re seeing similar low utilizations, then we have to seriously consider if something’s wrong,” says Glasgow.

“With only one year of data with a new process, you always have lag.”

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