Doing business in the European Union

Almost all internationally traded products are classified according to the numeric codes set out in the Harmonized Commodity Description and Coding System, commonly called the Harmonized System (HS). Under this system, every product is assigned its own HS classification and HS code. Basic HS codes have six digits and collectively define about 5,000 commodity groupings covering some 98% of international trade.

One major function of these codes is to help customs authorities and businesses select the proper tariff rates for products that are being imported or exported. HS codes also help determine other levies or non-tariff requirements that may apply to the goods (such as rules of origin) and any trade protection measures related to the product. Governments also use the codes to track and analyze export and import statistics.

All your products will need properly assigned HS classifications and HS codes before they can leave Canada or enter the EU. For more detail, consult the Canadian Border Services Agency (CBSA), which has information about the HS system on its Customs Tariff page. This page has a link to current Customs Tariff data, which covers all the HS classifications and their associated codes.

4.1.1 - Understanding the EU’s Combined Nomenclature System

The Combined Nomenclature (CN) system is the EU's extension of the basic HS system. It uses the product’s basic six-digit HS code, plus two more digits that denote further EU subdivisions. The eight-digit CN code is the basis of the EU's common customs tariff and provides statistics for trade within the EU and between the EU and the rest of the world.

The CN system also makes use of the Integrated Tariff of the European Union (TARIC). This database provides information on all trade policy and tariff measures applicable to specific goods in the EU, such as suspension of duties. A TARIC subheading is denoted by adding an additional two digits to the product’s eight-digit CN code.

For details on CN classifications, including TARIC information, use the TARIC Consultation web page to browse the database or search for a specific product code.

4.1.2 - Assigning CN classifications and codes to your products

The basis for the proper classification of a product is your own knowledge of the merchandise and the product description you use with your customers. Unfortunately, CN product descriptions require very specific wording formulas, which may not align well with how you describe your goods. Furthermore, the number of goods and product groups is constantly shifting, so that your products may have to be reclassified after the annual CN code updates.

Determining the correct classification for your product can be complex. Moreover, misclassification can lead to overpayment or underpayments of taxes, supply chain delays, reputational damage, export bans and other penalties. As a result, many companies use expert help to make sure their product classifications are done properly. If you’re at all unsure about how to classify your products, consult a trade professional familiar with EU customs rules and processes.

To further reduce the risk of misclassifying your goods, you can apply for a Binding Tariff Information (BTI) decision before shipping them. If you obtain a favourable ruling, it verifies that your classification is correct. Rulings are issued by the national customs authorities in EU countries and are valid throughput the EU for a period of three years. For more information, refer to the Binding Tariff Information page.

Free trade agreements, including CETA, usually incorporate rules of origin. For Canadian exporters , these rules govern how the total “Canadian content” of a product is determined.

If 50% or more of a product is of Canadian origin, it benefits from CETA’s tariff provisions and can enter the EU tariff free (with a small number of exceptions). If the product is less than 50% Canadian origin, it is treated as non-Canadian goods and tariffs are applied accordingly.

If you want to take full advantage of CETA, you’ll need a basic understanding of how the EU’s rules of origin work and how they may apply to your products. The official document to review is the Protocol on Rules of Origin and Origin Procedures.

4.2.1 - How origin is determined

There are three main scenarios for a product to be considered as originating in Canada.

• It has been wholly obtained in Canada, such as raw materials mined or plants grown here.
• It has been produced exclusively from materials originating within Canada (for example, foods produced from Canadian milk and fruit).
• It has been manufactured using materials that did not originate in Canada, but which were “sufficiently transformed” in the EU or Canada.

The criteria for sufficient transformation are described in Annex 5 of the protocol. Note that sufficient transformation must go farther than minimal operations such as basic assembly or packaging. Determining whether the transformation goes far enough can be complicated, so be sure to contact your local Trade Commissioner or work with a customs broker.

Canadian producers can also use EU-origin materials to help them comply with the rules. If you use Canadian plastics and German-origin electric motors to manufacture your product, for example, this can satisfy the rules of origin requirements.

4.2.2 - Confirming and declaring origin

To confirm the origin of a specific product, you can obtain a Binding Origin Information (BOI) decision, which is normally valid for three years. You do this by applying to the customs authorities in the EU country where the BOI will be used. You can obtain a list of these customs authorities here. If you have any doubts about the Canadian origin of your product, it’s a good idea to obtain a BOI.

You’ll also need to include a CETA origin declaration with your export documentation, as specified in Annex 2 – Protocol on Rules of Origin and Origin Procedures (the template text for the declaration appears under the annex heading). The declaration may be provided on an invoice or any other commercial document that describes the originating product in sufficient detail to enable its identification. An origin declaration is valid for 12 months from the date it was completed by the exporter.

Like Canada, the EU has an extensive body of health, safety, consumer protection and environmental standards and regulations that it applies to a range of products. If you’re going to market such products in Europe, they’ll need to conform to the rules that govern their sale. There’s a overview of the system on the Building blocks of the single market page of the European Commission web site.

4.3.1 - Conformity assessment

A product can be sold in the EU only if it conforms with all relevant EU directives and regulations. EU importers must ascertain that any products they bring into the EU are in compliance, so you’ll need to verify that you’ve taken the steps required to do this. You’ll find details of the assessment process on the conformity assessment page of the European Commission web site.

4.3.2 - Product safety

The EU has a set of basic product safety rules that apply across all member states. These are set out in the General Product Safety Directive and the General principles of EU product safety. The directive doesn’t cover pharmaceuticals, medical devices and food, which are regulated separately.

To comply with the regulations, you must:

• Supply products that are safe for consumers to use
• Inform consumers of any potential risks of using your product, and inform them of any precautions they should take with it
• Immediately notify relevant national authorities if you discover that your product is dangerous

Note that EU authorities monitor the marketplace and rigorously enforce the safety rules.

4.3.3 - CE marking

Many products sold in the EU, such as machinery, medical devices and gas appliances, must carry the “CE mark.” This indicates that they comply with EU standards for safety, health and environmental protection. The CE marking web site provides details of the scheme. Consult the Manufacturers page for an up-to-date list of products to which the CE marking rules apply, and for the procedure for obtaining a CE mark.

4.3.4 - Food safety

The EU has a food policy that regulates food safety and animal and plant health within the EU’s member states. The Food Safety web site covers a wide spectrum of topics such as labeling and nutrition, biological and chemical safety, animal feed, food waste, food laws and more.

4.3.5 - Packaging

Packaging used in the EU must meet both environmental and health requirements. For general rules, refer to the European Commission pages on packaging and packaging waste, package sizing, special rules for materials and articles in contact with foodstuffs, and imports of packaging made of wood.

Value Added Tax (VAT) is the European sales tax, similar to Canada’s GST/HST. CETA does not affect VAT requirements, so imports from Canada also remain subject to it. However, your buyer is normally responsible for paying the VAT on your shipment.

VAT rates vary from country to country. For details, and for more information on the tax, refer to the VAT section of the EU web site. The EU Trade Helpdesk also has a useful page on VAT.

While paying VAT may not affect you directly, it may influence how you price your goods in your EU market. For this reason, if no other, you should pay some attention to how it works. To determine how VAT rules may apply to your specific situation, check with an accountant and/or your local Trade Commissioner.

You’ll have to provide numerous documents before your goods will be allowed to enter the EU. The major items are as follows:

• A commercial invoice
• A Customs Value Declaration, if the value of the imported goods exceeds €20,000
• Transport documentation, including bills of lading and waybills
• Freight insurance documentation
• A packing list

Imports to the EU must also be declared to the local customs authority using the Single Administrative Document (SAD). This is usually completed by the importer (your customer) or the importer’s agent, not by the exporter (you).

For detailed information, refer to the Documents for customs clearance page on the EU Trade Helpdesk web site. Customs clearance requires extensive, accurate paperwork, so it’s advisable to use freight forwarders or customs brokers to prepare it for you.

Consumers in many countries, including the EU nations, perceive Canadian products to be of very high quality, especially in the agri-food sector. The phrases “Product of Canada” or “Made in Canada”—known officially as the “Canada brand”—can be a competitive advantage when applied to the label or packaging.

However, the Competition Bureau of Canada sets tight restrictions on the use of the Canada brand, as follows:

• To qualify as a “Product of Canada,” the item must have incurred at least 98% of its manufacturing costs in Canada.
• To meet the less onerous “Made in Canada” standard, 51% of a product’s manufacturing costs must have been incurred in Canada, plus its last substantial transformation (for example, from tomatoes to ketchup).
• Products using the “Made in Canada” label should add qualifying language such as “Made in Canada with domestic and imported ingredients” or “Made in Canada with 60% Canadian content and 40% imported content.”

If you decide to use the Canada brand, be sure the product complies with the rules and that you have the paperwork to back up your claim. Severe penalties can be levied for fraudulent or misleading claims. For more information, refer to the Competition Bureau Guidelines on the use of the Canada brand.