The Comprehensive Economic and Trade Agreement (CETA) between the European Union (EU) and Canada has prompted hopes within the Canadian personal care industry that it can seize more future sales in Europe’s huge market. Industry figures told SPC that while they welcomed the duty reductions arising from the deal, which was agreed in principle last October, what really encourages them is the prospect of regulatory harmonisation between the EU and Canada.
Darren Praznik, President and CEO of the Canadian Cosmetic, Toiletry and Fragrance Association (CCTFA), said: “What we’re excited about is the Canada-EU trade agreement’s provision... talking about the alignment of regulation, and regulators meeting regularly and talking when they’re developing regulations.
“The personal care products industry is a very international industry and it depends very much on trade,” he said. This is particularly true in a relatively small country such as Canada (33 million people), where cosmetics and personal care producers rely on exports in order to produce enough to reach economies of scale, he added.
An important segment of Canadian producers are contract manufacturers that produce cosmetics and personal care products for brands. Tariff reductions are always welcome to enhance trade, he added.
Once CETA enters into force – which is expected to take place by the end of 2015 (assuming some continuing drafting problems can be resolved) – all personal care product tariffs will be removed on both sides.
This will include the 6.5% tariffs imposed by Canada on EU cosmetics such as perfumes, toilet waters, personal deodorants and antiperspirants, bath salts and oils, and shaving preparations.
While the EU does not impose any tariffs on most Canadian personal care products, CETA will eliminate the European duties still standing on products such as essential oils, which range between 2% and 7%. It will also erase the 6.5% duties that Canadian exporters of shaving preparations, as well as personal deodorants, have to pay for their products to enter the EU market.
Caitlin Workman, the Canadian government’s International Trade Spokesperson, noted the EU is a significant cosmetics and personal care products trade partner for Canada. “The EU is Canada’s second largest export market for cosmetics and personal care products. On the other hand, the EU is Canada’s second most important supplier of these products. Through the immediate and complete elimination of tariffs, CETA could further deepen the already strong trade flows in this sector,” she said.
The trade balance for cosmetic products is, at the moment, in favour of the EU, which last year exported €300m worth of essential oils, perfumery, cosmetics and toilet preparations (including shaving/aftershave products and personal deodorants) to Canada. This was an increase from 2012, when the EU cosmetics exports to the North American country were valued at €280m. Canada’s exports of cosmetic products to the EU were worth €108m in 2013 and €104m in 2012.
Workman also welcomed the deal’s attack on non-tariff barriers, noting: “CETA includes provisions that will help Canada and the EU find ways to either prevent the imposition of non-tariff barriers or deal with them efficiently when they do arise.”
One regulatory challenge European cosmetics producers face when exporting to Canada, for instance, is that Canada classifies cosmetic products claiming to offer SPF benefits as a drug. These products must therefore meet the more rigorous and costly requirements that are applied to pharmaceutical drugs. On the other hand, the EU classifies these as cosmetics.
“If you tell the consumer there’s SPF in [the product], when that product crosses the border, it has to go into a [Canadian customs] bonded warehouse like a prescription drug, and it has to be retested,” said Praznik. He added the CCFTA estimated the cost of this process to be between CA$150,000 (US$135,000) and CA$190,000 ($175,000) per sku of lipstick on a first year basis. This deters companies exporting into Canada to make value-added claims of SPF, or from exporting to Canada at all.
CETA includes provisions that will help Canada and the EU find ways to either prevent the imposition of non-tariff barriers or deal with them efficiently when they do arise...
If EU and Canadian regulations can be aligned, CETA could make it easier for Canadian manufacturers to bid for work and export. Smaller companies in the marketplace could also benefit as they will have a greater chance to expand and grow outside of Canada, reaching the necessary economies of scale, noted Praznik.
He added the CETA is an important part of a greater movement towards international regulatory cooperation, as noted in other planned trade agreements such as between the EU and the US (the Transatlantic Trade and Investment Partnership) and the expanded Trans-Pacific Partnership. “The Canada-EU agreement is one part of a large puzzle,” he said.
Commenting, Daphné Mollot, VP of Research & Development at Canadian beauty cosmetics company Lise Watier, said: “Entering a new market has its challenges – adapting the communication, formulas [and] ingredients to meet its rules and regulations. All improvement to have a better harmonisation of regulations between two markets is definitely positive from my point of view as it facilitates import/export. We are currently reassessing our export strategy to bring the Lise Watier brand in a broader distribution at the international level.”
In Europe, Cosmetics Europe has welcomed the agreement in general, but has not assessed its impact in detail.
Indeed, some detailed negotiations on technical issues are still ongoing between the two negotiating teams, holding up ratification. “Final technical discussions have proven more difficult than foreseen,” the EU Trade Commissioner Karel de Gucht said during a meeting with the 28 EU trade and foreign affairs ministers in Brussels on 8 May. According to a spokesperson for the European Commission’s trade directorate general: “Intensive work continues between Brussels and Ottawa on the deal with a view to wrapping up the agreement as soon as possible.”
Once all of the technical issues are ironed out, the agreement will have to be approved by the European Parliament and ratified by all of the 28 EU member countries before entering into force.