Background: Public consultation on the origin quota for vehicles exported to the European Union under the Comprehensive Economic and Trade Agreement (CETA)

The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union (EU) has been provisionally applied since September 21, 2017.  

Under the CETA, Canada and the EU agreed to establish a number of origin quotas to allow for specific quantities of some products to utilize an alternative set of rules of origin in order to receive preferential tariff treatment. Given that Canadian-made vehicles would not qualify under the main CETA rule of origin based on current supply and production patterns, the EU agreed to establish an origin quota for exports of vehicles from Canada to provide Canadian manufacturers of specific types of light passenger vehicles with preferential access to the EU market. Vehicles for export were placed on Canada’s Export Control List in 2017.    

The annual origin quota quantity for vehicles is 100,000 units. The origin quota year runs from January 1 to December 31. Information on utilization is available on the EU website (Order number 098361).

CETA origin quota

An origin quota is a mechanism whereby a specified quantity of a particular product can qualify for preferential tariff treatment under the CETA using an alternative set of rules of origin (often more favourable than the main rules of origin). In order to receive this treatment, the product must meet the specified product description and satisfy the product-specific rule of origin associated with that origin quota. The origin quota for vehicles is listed in Table D.1 of  Annex 5-A (Origin quotas and Alternatives to the Product-Specific Rules of Origin) .

Export permits

In order to access the preferential tariff for light passenger vehicles eligible under the provisions in Annex 5-A of the CETA, a valid Canadian-government issued shipment-specific export permit is required.

Current allocation methodology and available options

As outlined in the notice, Global Affairs Canada established two pools of 50,000 units each, with distinct allocation methodologies to accommodate the preferences of stakeholders:

Pool One: Applicants were required to indicate their interest in receiving an equal-share allocation from this pool; and

Pool Two: Applicants were required to demonstrate an active program for exporting to the EU. Successful applicants to this pool received the amount of quota necessary to accommodate their export program. 

Under the policy, a company’s total allocation of quota cannot exceed its quota needs based on its export forecast.  Furthermore, once a company receives an allocation from pool Two, it cannot request additional quota until it has exhausted its total allocation of quota from both pools. 

Generally, allocation methodologies vary from quota to quota. The following are some examples:

1. First-come, first-served:
   1. There is no allocation policy;
   2. Eligible companies may export products and receive the preferential rate of duty until the quota is filled;
   3. Export permits are issued on a shipment-by-shipment basis until the specified quantity for the quota is reached; and,
   4. Once that threshold is reached (i.e., once the quota is filled), additional exports will be subject to the Most-Favoured Nation (MFN) rate of duty.
2. Previous year’s utilization:
   1. Eligible applicants receive an allocation equal to their total utilization during the previous year;
   2. Further allocations are available on a first-come, first-served basis as long as quota remains available; and,
   3. New entrants normally obtain quota on a first-come, first-served basis for their first year.
3. Equal Share: All eligible applicants receive an equal allocation.
4. Domestic Market Share: All eligible applicants receive an allocation proportional to their respective domestic market share.
5. Export Program: All eligible applicants receive an allocation based on their stated requirements, as demonstrated in a company forecast, endorsed by a senior company official.
6. Hybrid: The allocation method combines two or more of the above approaches.

Canada’s current administration of the origin quota for vehicles  

Following consultations in 2020, Global Affairs Canada revised its administration policy, which established an allocation methodology for vehicles based on a combination of the Equal Share and Export Program allocation methods.  The administration of the origin quota for vehicles is published on the Global Affairs Canada website in the Notice to Exporters – Vehicles for Export to the European Union and its Member States - Serial No. 1004 dated September 2, 2020 (the ‘Notice’)

Allocation period

t Under the CETA, origin quotas are administered on a calendar year basis (i.e.: January 1 – December 31). As established in the Notice, an allocation period of four years was implemented in order to provide allocation holders with predictable access to the origin quota over a period of time. Allocation holders were notified of their annual allocation for each of the four years of the allocation period. The allocation each year may change depending on forecasted requirements. Allocations are valid only for the year in which they have been granted.

Eligibility criteria

As defined in the notice, an eligible applicant is an establishment in Canada that manufactures light passenger vehicles of the type eligible to benefit from the CETA origin quota for vehicles.

Eligibility criteria can be used to determine who is eligible to obtain an allocation under a quota or a permit to export products that are controlled under the Export and Import Permits Act.  In some cases, there is only one eligibility criterion, which is that the applicant be a resident of Canada.

Often, there are additional eligibility criteria, depending on the type of product, whether it is destined for retail sale or for manufacturing purposes, or depending on the number of applicants who are interested in exporting that product. Eligible applicants could include exporters, manufacturers, or distributors.  

Return policy

As established in the notice, a voluntary return policy was implemented to enable companies to return surplus quota to make it available to others who may be able to export. Allocation holders may return any portion of their origin quota no later than September 30 in each origin quota year.

A return policy contributes to maximum utilization of the quota. The return date may vary from quota to quota.