Background

On September 26 2014 the European Union and Canada completed negotiations on the Comprehensive Economic and Trade Agreement (CETA) at the Canada-EU Summit in Ottawa. On the same day, the European Union and Canada also concluded a strategic partnership agreement regarding foreign policy cooperation.

The European Union and Canada initiated CETA negotiations in May 2009 after completing a joint study that concluded that both parties could expect significant benefits from a comprehensive bilateral trade and investment agreement. The joint study predicted annual income gains of €11.6 billion and €8.2 billion for the European Union and Canada, respectively, within seven years (within which CETA's implementation will take place). As a consequence of CETA, bilateral trade (which amounted to around €60 billion a year in recent years) is estimated to grow by more than 20%.

On October 18 2013, a year before completion of the negotiations, the European Union and Canada reached an agreement on CETA's key elements. The finalisation of some of the CETA chapters (which has more than 1,600 pages) took longer than expected. CETA will now be legally scrubbed, translated into the 24 official EU languages and submitted to the European Council and Parliament for approval. Ratification will also have to be undertaken in Canada.

Before CETA's conclusion, preferential trade relations between the European Union and Canada were governed by the Framework Agreement for Commercial and Economic Cooperation (which dates back to 1976) and a series of bilateral agreements concluded over time that cover, among other things, customs cooperation, wines and spirits, and veterinary issues.

Immediate liberalisation of trade

CETA provides for the full elimination of duties on non-agricultural goods. On the day of its entry into force, the European Union and Canada will eliminate customs duties on 98% of goods. This should save EU importers of Canadian goods around €500 million a year. Remaining duties will be eliminated over a seven-year period.

For agricultural goods, the European Union and Canada will respectively eliminate duties on 93% and 92% of imports from day one. Only a few sensitive products (eg, poultry, eggs, beef, pork, corn and dairy products) will not be liberalised and remain subject to quotas.

Comprehensive liberalisation of trade

In addition to abolishing customs duties, CETA provides new sets of rules to facilitate bilateral trade by removing non-tariff barriers. According to the assessment study realised in 2008, the dismantling of non-tariff barriers alone will account for 25% of the gross domestic product (GDP) gains under CETA. The European Union and Canada agreed to chapters on technical barriers to trade, regulatory cooperation and a protocol that will improve the recognition of conformity assessment procedures. They also approved customs and trade facilitation rules that will guarantee:

  • the use of automated customs clearance procedures;
  • access to advance rulings; and
  • a review of customs rulings and decisions.

Further, the European Union and Canada adopted specific transparency and consultation rules regarding subsidies to facilitate the exchange of information.

Since both the EU and Canadian economies are dominated by the services sector, the European Union and Canada have decided to largely open their services markets. Around 50% of GDP gains under CETA are expected to derive from the liberalisation of trade in services. Canada has agreed to open its financial services, telecommunications, energy and maritime transport sectors, while the European Union has made concessions in the research and development, mining, energy, environmental services and training sectors. The European Union and Canada also reached an agreement on the mutual recognition of qualifications in regulated professions.

Under the chapter on IP rights, Canada has agreed to provide additional protection for pharmaceutical products protected by eligible patents and effective rights of appeal under the Canadian patent system. Canada also agreed to guarantee protection for additional European agricultural products from specific geographical origins. Geographical indications such as Grana Padano, Roquefort and Elia Kalamatas olives will be reserved for products imported from the traditional EU regions of production.

The government procurement chapter will open the €100 billion Canadian federal and provincial government contract market to EU firms, while Canadian companies will be able to compete on the European Union's €1.9 trillion government procurement market. Both parties will continue to have the possibility to grant certain preferences to domestic companies and have agreed to exceptions, but the commitments made are far greater than those to which they consented under the World Trade Organisation Plurilateral Agreement on Government Procurement and other previously concluded agreements, including the North American Free Trade Agreement for Canada.

Investment protection rules

CETA is the first EU trade agreement that includes precise and enforceable disciplines governing investor-state dispute settlements. It provides for clear standards on the protection of investments and sets rules regarding the conduct of arbitration proceedings. Unlike most traditional bilateral investment treaties, CETA provisions on investment define the standard of "fair and equitable treatment" and "indirect expropriation" to limit claims against "legitimate public policy measures". Some of the particular features of CETA's investment rules include:

  • open and transparent proceedings;
  • the prohibition of parallel proceedings;
  • the limitation of remedies to compensation for losses suffered; and
  • statutory time limits for bringing a claim.

In 2011 bilateral direct foreign investment between the European Union and Canada amounted to €237 billion.

Comment

CETA is important for the benefits that it will bring to economic operators on both sides of the Atlantic and prefigures future trade and investment agreements. Provisions of the Transatlantic Trade and Investment Partnership being negotiated between the European Union and the United States, as well as other trade and investment agreements under negotiation, will undoubtedly be inspired by the CETA provisions.

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