27 Jan 2017
HK SMEs Set to Benefit from New Canada-EU Free Trade Agreement
Could the historic CETA agreement provide a convenient and low-tariff backdoor trade route for Hong Kong businesses?
The recently-agreed trade treaty between Canada and the European Union could also open new commercial opportunities for Hong Kong's export-focused businesses.
CETA – the Comprehensive Economic and Trade Agreement – was signed at the end of October last year and followed seven years of often-strained negotiations. The agreement comes at an opportune time for the Euro Zone, with many of the member nations struggling with becalmed domestic economies, while the full impact of the Brexit storm has yet to be felt.
According to supporters of the pact, CETA will increase trade between the EU and Canada by as much as 20%. In the process, it is hoped that this will boost the EU economy by as much as HK$100 billion a year, while Canada should benefit by up to HK$70 billion.
Once the agreement is implemented, later this year, it should lead to an almost immediate reduction of customs duties on virtually all industrial goods between the two parties. In the case of a number of the more sensitive sectors, duties will be reduced over the next three to seven years.
With regard to the fishing industry, the EU has agreed to immediately eliminate 95.5% of the relevant tariffs. In the case of the agricultural sector, 92.2% of the tariffs are to be reduced immediately, rising to 93.8% within seven years. A number of other sensitive products – including beef, pork, chicken and turkey meat, cheese, eggs, egg products and canned sweet corn – are either subject to quotas or excluded from the current round of tariff reductions.
Speaking after the signing and acknowledging the importance of the agreement, Didier Reynders, the Belgian Foreign Minister, said: "I think this is the best commercial treaty the European Union has ever signed, especially as it is with a particularly close partner that shares our values."
Before the deal is fully implemented, however, it has to be approved by the European parliament in Strasbourg, then rubber-stamped by the 28 national parliaments of the EU member countries, as well as several regional parliaments. The Canadian parliament also has to ratify the deal.
Overall, it is believed that there are a number of ways Hong Kong SMEs could leverage the agreement to their benefit. The level of trade between Hong Kong and Canada, as well as between Hong Kong and the EU, is already quite significant, with the Canada-EU deal likely to translate into savings when approached appropriately.
Since 2011, Hong Kong has had a Free Trade Agreement (FTA) in place with the European Free Trade Association, a body that comprises Iceland, Liechtenstein, Norway and Switzerland. Subsequent to that, in February 2016, Canada and Hong Kong signed a Foreign Investment Promotion and Protection Agreement (FIPA). As this latter deal had no FTA component, it is believed that CETA could go some way towards remedying this shortcoming.
As of 2015, Hong Kong was Canada's fifth-largest export market for beef and its fourth-largest for seafood. Other major Canadian exports to Hong Kong include crude animal and vegetable materials; meat and meat preparations; and raw hides, skins and fur skins. According to figures from Hong Kong's Trade and Industry Department, as much as 6% of Canada's trade with mainland China – some HK$23.5 billion – was actually routed through Hong Kong.
In the case of the EU, Hong Kong its 15th largest merchandise trading partner in 2015, while the EU was Hong Kong's number two trading partner in 2015, second only to China. In total, the merchandise trade between Hong Kong and the EU was worth in excess of HK$583 billion, representing around 8% of Hong Kong's global merchandise trade.
Again based on 2015 figures, 6.9% of Hong Kong's imports – HK$263 billion – are sourced from the EU, with Germany (19%), Italy (18%) and the United Kingdom (17%) Hong Kong's top three suppliers of such goods.
At the same time, more than HK$82 billion worth of EU imports to mainland China was routed through Hong Kong. The reverse figures are even more significant, with HK$271 billion of re-exports from China to the EU shipped through Hong Kong.
Alfred Romann, Special Correspondent, Vancouver