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Shifting landscapes: New trade agreements and food safety regulations

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Foodservice businesses cannot escape the shifting landscape in Canada caused by major developments in international trade and new domestic food safety legislation. In late October, Canada finally ratified the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), opening up trade with Japan and other Pacific Rim countries. Then, after more than a year of high pressure and often tense negotiations, Canada signed onto the new United States-Mexico-Canada Agreement (USMCA) at the end of November, which, if ratified by all three countries, will replace the North American Free Trade Agreement (NAFTA). Both have direct and indirect impacts on the foodservice industry, such as access to and cost of food products, labour mobility and alcohol distribution. The CPTPP comes into force as of Dec. 20, 2018, and, if approved, the USMCA could take effect starting Jan. 1, 2020. We are also now about to see the introduction of the Safe Food for Canadians Regulations, which will alter compliance processes for Canadian food businesses. These changes, individually and collectively, will have broad effects on the foodservice industry, involving increased compliance requirements and changing input costs.

United States-Mexico-Canada Agreement

The USMCA was negotiated to replace NAFTA, which has been a pillar of North American trade relations since 1994. However, the results of the recent midterm elections in the US, with Democrats gaining the majority of seats in the United States House of Representatives, makes the ratification of the USMCA uncertain. A new Democratic majority must determine if the agreement is in the best interests of Americans or, through another lens, if it is worth giving the Trump administration a major win on international trade. This may result in delays, or minor changes to the text of the USMCA, but it is still likely that it will come into force at the beginning of 2020.

Assuming that the USMCA comes into force, whether on schedule or not, there are important changes for Canadian foodservice businesses to be aware of:

Supply-Managed Products
US dairy and turkey products will have more in-quota access to Canada than under NAFTA, meaning Canada will get more US imports at lower costs than what is typically available from Canadian producers. US egg producers may also have some additional access for sales to Canadian processors, while the United States will see reduced access for fresh and frozen chicken than under NAFTA. Canada has also agreed to eliminate certain types of pricing for milk and will now price some dairy products based on a minimum price that is tied to US non-fat dry milk prices. Canadian milk classes 6 and 7, which allow Canadian producers to sell milk ingredients at low prices, have been controversial among US producers who argue those low prices undercut US imports in the Canadian market and affect their export sales in other markets. A revised milk pricing system could result in higher prices for some Canadian processed dairy products and lower prices for others.

Wine and Spirits
Canadian restaurants will not see a significant change in the availability of imported US wine, though under side letters to the USMCA, British Columbia must eliminate, by Nov. 1, 2019, regulations that allow only BC wine to be sold on grocery store shelves, while imported wine may only be sold in grocery stores through a “store within a store.” The United States is pushing to expand the BC distribution changes to other provinces, notably Ontario and Quebec. The USMCA upholds grandfathering provisions on the internal sale and distribution of wine and other alcohol that were established in 1989 in the Canada-US Free Trade Agreement (CUSFTA), and later incorporated into NAFTA.

Customs Procedures
Customs procedures under the USMCA are modernized, including by the codification of current Canadian practices regarding release of goods, penalties for improperly declared goods and customs audits of past declarations. The USMCA underlines the importance of efficiency at the border, and Canada is encouraged to continue to improve its single window initiative, allowing importers to report and obtain necessary regulatory approvals prior to import. Over time, this will simplify the import process, reducing border wait times and costs (especially for perishable goods). Overall, this will be beneficial only to large importers and customers in Canada of US and Mexican food.

Labour Mobility
Despite Canada negotiating for changes that would broaden labour mobility, the USMCA made no significant changes to these rules. Most food and hospitality professions, such as chefs or restaurateurs, will remain ineligible for treaty-based work visas.

Comprehensive and Progressive Trans-Pacific Partnership

The CPTPP will create a number of trading opportunities for the Canadian foodservice industry with Pacific Rim countries, including Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Canada has granted market access to imports of dairy, poultry, turkey and egg products from CPTPP countries. Global Affairs Canada has yet to publish rules and policies for importers, but this will be something to watch for businesses that may be able to take advantage of the new tariff rate quotas.

The CPTPP takes effect as of Dec. 30, 2018. One can expect to see significantly better trade opportunities for the agri-food and prepared foods sectors resulting in greater access to goods from CPTPP countries and new opportunities for innovative restaurant owners to bring new foods and concepts to Canadians.

Safe Food for Canadians Regulations

Foodservice businesses will need no reminder that the Safe Food for Canadians Regulations (SFCR), a key outcome of Canada’s Food and Consumer Safety Action Plan, will come into force on January 15, 2019. In addition to the critical step of ensuring that they comply, businesses should consider the potential effects on supply chains, as suppliers and third parties will also be making changes. Three key areas for compliance will be:

Licensing
Currently, federal laws require the registration of “establishments” in certain federally regulated industries, for example, those processing meat and agricultural products. Starting Jan. 15, 2019, the regime of “establishment registration” will transition to a licensing regime, and will be broadened to cover food importers, and businesses that manufacture, process, treat, preserve, grade, package or label food that will be transported across provincial borders. The Canadian Food Inspection Agency (CFIA) has developed an online portal as a resource and for businesses to submit and manage license applications. This could have major compliance costs for Canadian restaurants that move food across the country.

Traceability
Importers, producers, processors and others will be required to keep documents that allow food to be uniquely identified and traced one step forward and one step back. Businesses selling food at retail (e.g., grocery stores, bakeries) will be exempt from the requirement to trace one step forward, that is, to consumers purchasing the food. Restaurants and other “similar enterprises” that sell food as a meal or snack are completely exempt from these requirements, but should note that their suppliers will be required to keep track of the restaurants to which they are supplying food in such a way that products can be identified in the event of (for example) a recall or investigation. Restaurants will likely be asked by suppliers to meet certain on-boarding requirements and may bear commercial risks for errors or non-compliance.

Preventive Controls
New requirements apply to “operators,” which include food businesses licensed under the SFCR, and govern the identification and management of biological, chemical and physical hazards; the maintenance and operation of an establishment; investigation, notification, complaints and recall procedures; and the requirement to maintain a preventive control plan that meets specific content requirements. These will likely only apply to restaurants that must be licensed, but businesses should be aware that their suppliers may implement modified processes and procedures in order to meet these requirements.

The CFIA’s existing Administrative Monetary Penalty System (AMPS) will be expanded to cover violations of the SFCR. This means restaurants will now face potential penalties for food commodity-related violations. These penalties are part of a range of enforcement tools available to the CFIA under its Compliance and Enforcement Policy.

Canadian businesses should closely review their supplier relationships to investigate costs savings and new opportunities.

Conclusions

Recent developments involving new free trade agreements and the Canadian regulatory landscape have created both opportunity and risk for the Canadian foodservice industry. In light of these changes, Canadian businesses should closely review their supplier relationships to investigate costs savings and new opportunities for business expansion and/or innovation under the USMCA and the CPTPP. They should be aware of compliance issues, such as recognizing that as owners of goods they can be held liable for customs violations even if they do not import those goods, the need to examine entry procedures to ensure that goods are appropriately classified and to determine whether goods can benefit from reduced duties at the border. Canadian businesses must also ensure that they obtain any new licenses and implement compliance procedures under the new food safety regulatory regime.

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