The Value of Compliance: The Importance of Origin in International Trade

It’s hard enough for exporters to build trust with new foreign buyers. We worry about the obvious risks such as cargo insurance, getting paid and delivering goods on time, but rarely do we stop and question ourselves about origin compliance and what it means to our foreign buyers. This is especially relevant when exporters have chosen a foreign market that has a free trade agreement with Canada. The benefits are obvious, exporters get to ship their made in Canada goods duty-free, but is it really that simple?

The Intimidating Complexity of Rules of Origin

When attempting to leverage a free trade agreement, it’s easy to become overwhelmed by the intricacy of origin. Each free trade agreement not only has its own set of rules, but product specific rules as well. Value chains today are increasingly complex, with components being sourced from all over the world. How much foreign content is allowed? Did the final product undergo sufficient transformation or processing to be considered Canadian? How do I know which H.S. code to use, not just for my final product, but for each input? And this is just scratching the surface. For example, a Canadian made product could be allowed 50% foreign content if shipping to the EU under the CETA agreement[1], but is only be allowed 40% of foreign content if shipping to the United States under CUSMA.[2] That exact same product is not treated the same way depending on its destination.

Free Trade Agreements are Under-utilized in Canada

In Canada, 2021 data shows that the utilization rate for the trade agreement with the European Union (CETA) was just above 60%. Although this figure continues to rise year over year since CETA’s implementation in 2017, it still means that almost 40% of Canadian exports heading to that region did not receive the preferential duty rates that they were entitled to. For exports to Australia under the CPTPP agreement, the utilization rate in 2020 is even lower, sitting at 36%.[3]

How the Chamber can help

At the Canadian Chamber of Commerce, we understand that without the proper tools, expertise and experience, this can be overwhelming, and may possibly steer exporters away. This is why we are launching Genesis: a digital tool initiated by the International Chamber of Commerce that enables us to verify exporters’ origin self-certification. Genesis allows exporters to get a second opinion regarding the origin of their products, meaning that they can export with greater confidence in their level of compliance, and help their foreign buyers mitigate importer risk.  

To register for this service, visit here.

To learn more about Canadian Chamber Export Services, contact importexportservices@chamber.ca

[1] https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/text-texte/P1.aspx?lang=eng#5

[2] https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cusma-aceum/text-texte/04.aspx?lang=eng

[3] https://www.international.gc.ca/transparency-transparence/state-trade-commerce-international/2022.aspx?lang=eng#a2