Guido Calderaro:
Well, CETA is more than just a trade agreement, it's a strategic framework that opens doors beyond tariff reduction. Looking ahead to some of the biggest opportunities for Canadian business in E.U., and Italy, particularly, are sector specific innovation, regulatory alignment, and smart supply chain positioning.
Charmaine Goddeeris:
Hello again, and welcome to the BDO Cross Border Tax Podcast, where we break down the latest in international trade and tax policy for business and advisors. I'm Charmaine Goddeeris, director and leader of the Customs and International Trade Practice, here at BDO Canada. Today we're diving into the Canada European Union Comprehensive Economic and Trade Agreement, or CETA, just one more acronym for everyone to try and memorize. CETA has been a cornerstone of Canada's trade policy since the provisional implementation in 2017. One of the most impactful features of CETA is the elimination of tariffs on over 98% of qualifying goods traded between Canada and the E.U. This has created significant cost advantages, not only for Canadian exporters accessing the E.U. market, but also for Canadian importers sourcing high quality, yes, those high quality European goods, components, and finished goods from European suppliers. And with our Canadian government signaling a renewed focus on strengthening trade ties with trusted, like-minded partners, especially the European Union, CETA's strategic importance is more relevant than ever. I'm joined today by Carol Lynch, partner at BDO Ireland, and Guido Calderaro, and Guido, you can correct me if I got that wrong. I probably did, (laughs) who's the head of customs and exise, BDO Italy. Together, we're going to unpack working, where the gaps are, and how companies on both sides of the Atlantic can better leverage CETA to reduce costs, simplify customs, and grow market share. Carol, Guido, very warm welcome, and thank you for being here with us today.
Carol Lynch:
Looking forward to this.
Guido Calderaro
Thank you, and thanks for the invitation. The correct pronunciation is Cal-de-aro. (chuckles)
Charmaine Goddeeris:
Calderaro, oh, but see, you can tell that, I cannot roll my tongue.
Guido Calderaro:
It's difficult, I know. No problem. No problem.
Charmaine Goddeeris:
(laughs) Okay, let's start by setting the scene. Carol, we are nearly eight years into the provisional application of CETA. So how would you assess CETA's performance on the ground in the E.U.? Are we seeing real functional alignment between the E.U. and Canada, or are businesses still navigating gaps in the implementation?
Carol Lynch:
It probably depends on the country within the E.U. that you're talking about. The implementation has been very smooth, to be honest. It's kind of an easy agreement to work with, and I say 98% of products are duty free, which makes it extremely easy. And I looked up the trade in goods between Canada and the E.U. before this call, and they have increased substantially. So we have about 72% increase in trade in goods and services between 2016 and 2024, which is a massive achievement. And the E.U. is also as a block, and Canada's second biggest trading partner. So clearly very strong links between Canada and Europe. I think it was $72 billion or something of trade and goods last year. So it's kind of like it's going ahead, and it's working, and it's happening, but really quietly. So I know in Ireland we had a meeting with the trade team last week, and you know, there's a strong link, again, between Canada and Ireland, and the agreement, as I said, is working. We've seen an increase in Canadian companies, for example, in Ireland, I think from about, more than double from about like 30 to 70. Well, it's not double, but 30 to 70 over the last couple of years. So it seems to me that the trade is there and it's happening and it's strong, and it's just getting on with it.
Charmaine Goddeeris:
Good, I'm glad to hear that. I think you're right. It's quietly increasing, right? In North America, we always talk about and hear all of the hoopla around CUSMA and USMCA, and it's always in the news, but we don't see as much about about CETA, but as you said, it is increasing, and it's a good thing. It's a good thing for us to have access to that market, and it's really good to see the increase of European companies in Canada using that, or setting up shop in Canada, and then using the CETA agreement to mitigate costs. Okay Guido, from your perspective in Italy, how visible is CETA at the operational level? Are businesses actively leveraging it or is there still a lack of awareness or engagement with its benefits?
Guido Calderaro:
Well, from an Italian perspective, CETA is not very visible at an operational level. While some larger company and sport-oriented businesses are actively leveraging the agreement, especially in sector like agrifood, machinery, and fashion, there is still a significant lack of awareness amongst more medium size enterprises. Many businesses either do not fully understand the benefits of CETA, such as reduced tariffs, simplified custom procedure, or easier access to the Canadian market, or find the process of navigating international trade agreement too complex without specialized support. In short, the potential is there, but more research, education, and practical support are needed to help Italian businesses, especially small and medium size enterprises, fully take advantage of what CETA offers. I should also mention that unlike with the companies from other countries, we don't receive many requests from support from Canadian companies looking to enter the Italian market.
Charmaine Goddeeris:
Well that's interesting 'cause I really think that there's a need for more good Italian shoes in Canada. I'm just gonna put that out there. (laughs) I will buy them. (laughs)
Carol Lynch:
We all will.
Charmaine Goddeeris:
(laughing) Exactly. Oh yeah, yeah, send them over to Ireland too. Okay, Carol, (laughs) this brings us to the business perspective, and what it really means for Canadian companies exploring opportunities in Europe. A very wise woman once said to me, when I met with her in Dublin in June, that Ireland is the gateway to doing business in the E.U. Not sure who that very intelligent woman was. I think she's on the call, but what does that mean in practical terms and why should Canadian companies consider Ireland as the launch point for accessing the broader European market?
Carol Lynch:
Yeah, very wise, very wise comment, indeed. Not at all influenced by who’s in the room (laughing). Ireland very much put themselves forward, but as the gateway to Europe. So a lot of companies would consider setting up in Ireland and saying, well, you know, what's the market there? And Ireland is a small country, so the market is not significant. But what we do present ourselves, and kind of where we place ourselves, and particularly post-Brexit with the U.K. leaving the E.U., is basically the landing point for access to the European market. And the European market, as we know, is one of the biggest markets in the world. So I think a recent survey said that Ireland is probably one of the top three destinations for companies looking to access the E.U. market, and particularly in relation to Canada. I think the joint history, your new prime minister of having very strong Irish roots, helps that, and the English speaking language for both of us, the rules are pretty much the same. The way of doing business is very much the same. It's easy access to the revenue and the government authorities, and we're a very business-friendly environment. So companies generally find it very easy to set up here, manufacture, and then sell into the whole of the European market. So you're not just getting one country, you're getting all the member states. And at the same time, it's a very easy launchpad into the U.K. market because with the trade limit between the E.U. and the U.K., there's duty free access to the U.K. market once you qualify as originating in Europe, in the same way as the CETA allows duty free access for goods qualifying as originating in Canada. So you can really mix between both of those agreements to access both the U.K. and the E.U. market. So I think that's why we're probably seeing that growth in Canadian companies establishing here, because it gives them that broader access to that bigger market, and in a way, that it's very easy to do business, and the time difference isn't huge. I think it's five, six hours maybe, between us. And it's also easy to travel with so many direct routes between Ireland and Canada. Again, it's just easy.
Charmaine Goddeeris:
You know, it makes sense to me that, you know, if you want to dip your toes into the European market that it makes sense to start in Ireland where, you know, we have a lot of similarities, as you indicated. So get comfortable in Ireland, and then explore out from there. And I think a lot of the Canadian banks also have, you know, solid, not solid roots, but you know, they're solid in those in Ireland as well. So, you know, if you use a bank in Canada, it's easy to use the bank in Ireland as well.
Carol Lynch:
Yeah. And I actually checked that out before coming on the call and we have eight of the top 10 Canadian companies have a presence in Ireland, and four of the top six Canadian banks, so it's very easy to set up your net. Yeah.
Charmaine Goddeeris:
Yeah, makes sense. Okay Guido, when Canadian companies are approaching continental Europe, especially markets like Italy, what customs or supply chain considerations should they have in mind? Where do you see them succeeding, or missing key steps when they're starting trade with Italy?
Guido Calderaro:
Well, when Canadian companies approach continental Europe, especially complex markets like Italy, they need to pay close attention to several cap and supply chain consideration. First, even though CETA simplifies many procedures, there's still a need for precise documentation and compliance with the E.U. regulation, particularly around the product standard labeling and certification. In sectors like food, cosmetics, and pharmaceutical, Italian and E.U. rules can be strictly specific. The European Union is often perceived as an highly bureaucratic system with complex regulation that operators must follow meticulously. Italy, in particular, stands out for having one of the most stringent regulatory framework. Custom controls are extremely thorough, and penalties for noncompliance can be high. In this context, a deep understanding of the rule is essential to ensure smooth goods movement and avoid delays or calcify. Just a side note, Italy is still in the process of ratifying CETA. The CETA has been a game changer in simplifying customs procedure, reducing tariff barriers, and promoting regulatory transparency. One of the important points that the Canadian exporters must consider is if they want to import in Europe with the DDP encoders, they cannot direct lodge the customer's declaration in their name, but they need to appoint an indirect custom representative. Only an E.U. established person can be connected directly. And it is not easy to find operators willing to take on the risk of operating on behalf of foreign entities, and ensuring the compliance of important products. CETA has opened up new opportunities, but it needs to consider the regulatory expertise is a competitive asset. For Canadian companies, knowing the rule is not just about compliance. It's a strategic level for succeeding in a demanding market, like Italy. In short, success comes down to preparation, local partnerships, advisors, and clear understanding of E.U. and Italian regulatory framework.
Charmaine Goddeeris:
I know Guido, that the small amount, not small amount of trade, but the existing trade that Canada has with Italy, from what I see, a lot of it is in the, you know, clothing, shoes and there's tons of others, but I have a lot of clients in that clothing and shoes area, and CETA has been a game changer. So into Canada, for the most part, clothing, shoes has some of the highest duty rates. You know, it's 18% for most of them. And when companies are able to use CETA, and they are able to meet the rules of origin under CETA, those goods come into Canada, you know, at 0%. So, you know, zero versus 18%, it is certainly incentive for those types of companies to do more business with Canada. And hopefully we'll send some good Canadian clothes over your way (laughs) soon. You're still in the hot seat, Guido. So what should companies be thinking about in terms of compliance, planning, and risk management under CETA, particularly when it comes to origin documentation and the self-certification process? So can you just talk a little bit about that?
Guido Calderaro:
Yeah, with CETA, companies get to enjoy lower tariffs and easier access to market, as you said, but they also have to make sure they are following the rules, especially about preferential region, or original type products, and the self-certification process. One of the key advantage of CETA is that exporters can self certify the preferential region or the goods directly on the commercial invoice without needing prior approval for customer orders or submitting the additional documentation. This means faster access to tariff benefits, which is a real competitor advantage. However, such flexibility places a clear responsibility on companies to implement solid internal compliance systems. This also means keeping meticulous record on sourcing, production processes, and the value added at each stage of manufacturing. For a planning perspective, business need to build compliance checks into the supply chain and documentation workflow that include training staff, auditing supplier, and maintaining traceability in case of inspection or audit by Canadian or E.U. customs authority. In term of risk management, the biggest mistake companies can make is assuming that self-specification is a light process. If customs authority find error of false claim, it can lead to penalty, delayed shipment, or even suspension of CETA benefits for that company. So the takeaway is this CETA offer real advantages, but those come with accountability. Smart companies treat compliance not as a formality, but as a strategic function, built into today’s export planning. It is important to remember that the E.U. Canada border adjustment mechanism is already operational. This require monitoring until December and the payment of CETA embedded in imported goods from next year onward.
Charmaine Goddeeris:
Thank you. Carol, in your experience, what tends to prevent companies from claiming CETA, even when they're eligible? Is it the complexity, is it a lack of awareness, or is it hesitation around the inevitable customs audit or verification?
Carol Lynch:
I think, as Guido said, it's the complexity in managing the origin process. So you do have to go through a lot of documentary and compliance procedures, and put together your due diligence. And in order to qualify at point of import, you obviously you have that backup file in place. And there's also extremely, increasingly, I suppose, an increasing amount of audits taking place, particularly in the area of origin, as we see trade agreements grow over the years. So when you're looking at, as Guido said, you're looking at the verification of the origin status, I think you look at companies probably falling into two categories. One are the very low tariff rate products. So we're looking at industrial goods. So we've got very low duty rates. and you really have to balance out, is the kind of the maintenance and the management worth the saving in that case. So you are in that sort of zero to, you know, 3%, you're probably thinking about it. And then you've got the other side of the equation where you've got the food and the retail and garments where, you know, the 12 to 18% where it's absolutely worthwhile. But now you're looking and saying, okay, well I'm in that area. And say, food manufacturing, well that's probably maybe easier to manage because you could have a lot of, you know, naturally grown products, easier to work out the supply chain on. Maybe not too much coming in for manufacturer, but if you're in retail, you probably have a significant amount of raw material content coming from all around the world. So you have to manage all of that, and build materials, and have really good systems in place. And then you have to work out what are, at the very structured level, what's the tariff code of my finished product? Look at the agreement and then determine, based on that tariff code, what is the rule of origin for that heading. Make sure you're doing more than simple assembly to qualify. And also then apply the rule of origin through your bill of materials to make sure it is a 60% added value. Is it a change in tariff? Is it a different type substantive processing? So there's a lot of management. It's not really that difficult to manage once you get up and running. The difficulty is always in the beginning. It's putting the procedures in place, making sure that they're right. What happens if a new part comes onto your list? How do you flag that? What does it change in the values of the cost and the sales price? How are you valuing that? So you really have to get into the detail of it. And to be honest, you'll either need an expert in house, who's a trade compliance person, or you will need to get advisors. 'Cause you don't wanna put yourself in a situation that you have an audit at a future point and the audit goes back three years, and then the duty liability that you have can't be passed on. So that'd be kinda my analysis of why people find difficulty in setting it up, or would be nervous at.
Charmaine Goddeeris:
Yeah, I know in Canada that audits, or we call them verifications, but it's an audit, are ramping up. So every time I talk to one of our Canadian importers or exporters, 'cause U.S. customs is doing the same thing, but you really have to be audit-ready right now. Each of our countries, you know, Canada is looking for revenue, and where do they get revenue? They get it from the taxpayers, and you know, an importer is considered a taxpayer, right? A duty is, at the end of the day, you know, a tax. So they will be going back, and when we're talking about certain industries or certain products that have 18% duty, Canada customs is very interested that you are legitimately, you know, claiming preferential or duty free entry into the country. So I think anyone who is moving goods around the globe and using any type of free trade agreement right now needs to be audit-ready. You know, have your packages. Even, you know, if you've done your own qualification, right, as you said, Carol, you know, lean on probably a third party. And I do have some clients here, you know, speaking about, I know this is a CETA conversation, but you know, speaking about the U.S., and their U.S. customers are saying, that's great, thank you for this certificate, but we want you to go and have this vetted and verified by a third party, whether that be a trade lawyer, consultants, such as ourselves. So I think we're gonna see the importance of that audit readiness increase over the next while, and into the future. Okay, Guido, CETA is often seen as a trade agreement, but it's also a strategic tool. Looking ahead, where do you see the biggest untapped opportunities for Canadian businesses in the E.U. market? Whether in sector-specific, regulatory cooperation, you know, supply chain strategies, where should companies be leaning into right now?
Guido Calderaro:
Well, CETA is more than just a trade agreement. It's a strategic framework that opens doors beyond tariff reduction. Looking ahead, some of the biggest untapped opportunities for Canadian business in E.U., and Italy particularly, lie in sector specific innovation, regulatory alignment, and smart supply chain positioning. At the structural level, there's huge potential in chain technology, digital services, and sustainable agriculture. The E.U.’s Green Deal, and it's push toward carbon neutrality, aligned well with the Canadian strengths in the renewable energy, environmental tech, and low carbon innovation. Canadian companies that can offer scalable and sustainable solution, especially in areas like water management, circular economy, or green building will find eager partners in Europe. On regulatory side, CETA encourages deeper cooperation and dialogue. Companies that understand and engage with this process here, especially in areas like data government, EI and biotech, can help shape the standard of tomorrow. That gives them a first mover advantage in a very competitive market. And in term of support chain strategy, near-shoring, diversification are top priorities for many European firm, especially after recent global disruption. Canada business that position themselves as reliable, rule of law based partner, offering both quality and resilience, can fill key gaps in European value chains. In Italy, sector has higher space, agriculture, and processed food, automotive, clean technology, information and communication technology may be interesting. Also consider that the National Recovery and Resilience Plan, PNRR, is still active in Italy. It's part of the next generation E.U. program, the 750 EUR billion package, roughly half of which consists of grants agreed by the European Union in response to the pandemic crisis. The U.S.A. has demonstrated that is still not a reliable partner, so Canadian companies should consider Europe as a strategic positioning, not just a market for export. Building long-term partnership, co-innovation, under shared regulatory framework and lean into areas where E.U. priorities and Canadian capabilities naturally align. That's where the real long-term value of CETA lies.
Charmaine Goddeeris:
So Carol, what should business leaders watch for in the coming years as CETA evolves?
Carol Lynch:
Well, I'd say something very similar to Guido. I think what we're seeing in the world at the moment is really a fundamental change in how the global trade world and environment operates. So moving from an environment of free trade, to a large extent, global supply chains, global value chains, to a much more fractured world where you're going to have companies selling up in kind of regional manufacturing and sales helps maybe just, you know, sell to the U.S. market or then in Ireland to sell to the European or mere market. And I think those friendship links between territories who operate under particular structured agreements is going to increase because it gives you the certainty that you know with the European, Canada agreement, how trade is going to operate, what the tariffs are going to be, what you need to do to comply, what are the rules, and it's a kinda structured environment that we would've been used to. So I think as we see, I suppose the U.S. market diverging from the Global World Trade Organization rules, to some extent, we're going to see that Canadian companies, you know, will look to move to Europe, and I think we've seen that recently with a number of trade missions that have taken place between Canada and Europe. And similarly, from an Irish perspective, where we're having difficulties in selling goods into the U.S., for example, maybe in areas like spirits or, you know, where there's the 15% duty hits now. I've been saying to companies to look to the Canadian market, you know, where there's some displacement, we've seen that, in the news, but that there's an opening for diverging and for extending your trade pattern. Whereas you might have just gone into, you know, say the U.S. market would've been pre-built, now you need to look elsewhere. So looking to Canada from Europe and Ireland is a very clear and easy picture. So I think what we're gonna see, you know, what I'm seeing at the moment even is, you know, CEOs and boards having to recalibrate in the new environment and restructure their sales, and really look strategically forward to say, things will change and how do we react to that? Do we need to split our markets? Do we need to have more diverse markets? Do we need to look at, you know, friend or near shoring, all that type of thing. So it's a very different world we're about to enter into.
Charmaine Goddeeris:
Yeah, no, I totally agree and I love what you just said there, because I think companies, all companies, doesn't matter what country they're in, or where they're trading, need to undertake the exercises that you're speaking about. You know, I'm just sort of reading off this, "Fortune favours the brave and staying still is rarely the right choice." And I think those ring very true right now. You know, in Canada, as we saw some of the uncertainty, I found a lot of companies were sort of stuck in this paralysis, and they didn't know what to do. This was an unknown environment. You know, maybe like in 2017, during the first Trump presidency, this would go away, you know, these tariff tiffs, and wars, and back and forth would go away. So, you know, we're gonna hold the pattern for six months, for nine months. Well we're getting into that, you know, six months, nine months. And what we're seeing is that the trade world has forever changed, and companies need to start, if they haven't already, thinking about all of those things. Because fortune, I'm gonna come up with the other one, fortune favours the brave, right? So there is opportunities out there, and there's opportunities for these businesses to excel. You just gotta, you know, just take that first step. Okay, so you've both raised some really powerful and some really great points today. So let's bring this home with clear actionable advice for our listeners. Before we wrap up, I'm gonna ask Guido first, and then I'll ask Carol, what are your top three tips for businesses looking to maximize CETA benefits right now? Guido.
Guido Calderaro:
I can suggest become familiar with the rules of origin and self-certification. This means take the time to understand the origin requirements under CETA. If there is more than one applicable rule, evaluate which is better. Bear in mind the complexity of their application. Set up internal systems to manage self-certification properly. It's a powerful tool, but only if you use it accurately. Localize your strategy for your market. This means understanding local regulation, consumer preferences, and cultural nuances, especially in diverse market like Italy, France, or Germany. Partner with local distributor or advisor to get it right. Finally, think beyond trade. Focus on collaboration. Use CETA as a bridge, not just a tariff breaker. Explore opportunities in joint innovation, sustainable supply chain, and regulatory cooperation. In short, be compliant, be localized, and be strategic. That's how you turn CETA from a document into a competitive advantage.
Charmaine Goddeeris:
I love that. I'm probably gonna steal that, Guido. I'm gonna steal that. That was great. Carol, your final words, your final-
Carol Lynch:
You know, Charmaine, I don't think I can improve on that. I think, from my perspective I don't have anything to say, really. He said it all.
Charmaine Goddeeris:
You know, he really, yeah. Very well done, Guido. (laughs) And that's okay. (laughs)
Carol Lynch:
I think we need to look at, I think, again, going back to what I'm saying, we're in a different world, and now we wanna look forward and say, okay, if I'm a company, where am I selling to? Where am I buying from? What are the costs? And what's the security of supply and sale? It's now not just about how much do things cost, but also about security, and am I going to have continued access to that market, or to that critical material that I might need? And then factoring, I think as Guido said, CETA is a living document, factoring that in. So if you're looking at expanding your marketplace and you're looking at Europe, or you're looking at Asia, or you're looking at, you know, Mexico, obviously that the USCMA, but you know, where is the benefits of using CETA. Now it's not just simply, you know, in Europe leaving landmass, there's a benefit to trading in Europe. Use the agreement, work out what the cost would be if you use that agreement, but also be really careful to be compliant because there's no point saving money on the one hand to pay it out again in two or three years time.
Charmaine Goddeeris:
Exactly.
Carol Lynch:
So I don't know, yeah, so I think it's like it's being proactive, stay ahead of the curve, kind of move away now from the, kind of, we're not really sure what's gonna happen mode to assuming that the world is going to be very difficult and unsteady going forward, and try and really stabilize your supply chain. (laughs) So it's such good news for the end of... And I did notice actually yesterday that Canada and Europe have agreed on mutual recognition of our AEO programs. So that came into effect yesterday under CETA. And that's beneficial too because if you're European authorized economic operator exporting to Canada, or Canadian authorized economic operator importing into Europe, you're gonna have faster access to the market and be subject to less controls and less checks. So keeping up to date with those regulatory changes are really important.
Charmaine Goddeeris:
Totally agree. Totally agree. Okay, our time has come to an end. That went by really fast. So thank you Carol and Guido for your insights, and thank you to our listeners for joining us on BDO’s Cross Border Tax Podcast. If you've enjoyed this episode, please take a moment to leave us a five star rating and a review, and don't forget to hit the follow or subscribe button so you never miss an episode. For more updates and resources, visit bdo.ca. Until next time, stay proactive, stay informed, and remember, sometimes noise is just that, noise in these turbulent times. Thank you.