The European Commission has pressed for the swift conclusion of the Comprehensive Economic and Trade Agreement, a trade deal between the European Union and Canada, proposing that it be a “mixed” agreement signed by both it and individual EU member state governments.
In a press release on 5 July, the European Commission said it has made a proposal to the Council of the European Union that the deal be signed during the forthcoming EU-Canada summit in late October. “The deal is set to benefit people and businesses – big and small – across Europe as of the first day of its implementation,” the release says. “To allow for a swift signature and provisional application, so that the expected benefits are reaped without unnecessary delay, the Commission has decided to propose CETA as a ‘mixed’ agreement.”
However, the release continues that this is “without prejudice” to the Commission’s legal view, set out in a case currently before the European Court of Justice in respect of a trade deal between the EU and Singapore, that the EU has exclusive power to conclude such deals under the Lisbon Treaty, with no need for the signature or approval of individual member states.
In force since 2009, the Lisbon Treaty reformed the constitutional basis of the EU and made key changes to its powers, including giving it exclusive competence to deal with foreign direct investment. However, the question of whether the Commission would sign trade and investment deals with non-EU states alone or jointly with member states was left unclear.
Before the ECJ, the Commission is arguing firmly that it can sign such deals alone. However, in the wake of “Brexit” [the UK’s vote to leave the EU in a referendum on 23 June], there is political sensitivity about the unelected and unaccountable Commission taking decisions that bind the whole EU without the participation of the Council of the European Union, which includes ministers from each of its 28 current member states.
As explained by influential German weekly Der Spiegel in a recent article, there is also resistance to any move by the Commission that may be perceived as taking power from member state governments and increasing the federal power of the EU.
With the ECJ judgment still pending, the Commission's decision to make CETA a mixed agreement appears to be a pragmatic one to get the deal concluded as soon as possible and thus demonstrate the EU’s effectiveness in the sphere of trade relations. Once signed, the deal will be provisionally applicable pending ratification by the EU parliament and the parliaments of each signatory state.
The decision does, however, create the risk that individual member states may drag their heels over ratification. In an address in Frankfurt early last year, renowned Austrian arbitrator Christoph Schreuer said that he doubted that deals such as CETA and the Transatlantic Trade and Investment Partnership between the EU and the US would ever be ratified by member states if they took the form of “mixed agreements”. The recent decision of negotiators to drop CETA's investor-state dispute settlement provisions, a source of controversy in many European countries, may make states more amenable to ratifying it.
If CETA is signed in October as the Commission wants, the UK would also most likely be a signatory, as the prevailing view is that, the referendum result notwithstanding, it remains an EU member state until two years after triggering Article 50 of the Lisbon Treaty to leave the union (which it has yet to do).
In an article written for GAR on the potential implications of Brexit in May 2015 – long before it became a reality – Herbert Smith Freehills partner Andrew Cannon and practice manager Hannah Ambrose raised the intriguing possibility that, if CETA and TTIP were mixed agreements, they would not cease to apply in the UK if it left the EU.
Speaking today, Linklaters' global co-head of international arbitration Matthew Weiniger QC agreed with this view. "If it is a 'mixed agreement' then the member states individually as well as the EU need to sign it. If the UK signs it before Brexit, then the UK will remain a party even after it leaves the EU," he said.
"This may seem unusual to some and it is bound to receive a lot of publicity. Much of the discussion about the UK's global trading position after Brexit revolves around trade deals, with people talking in terms of 'Canada-Max' – a slightly broader agreement than CETA envisions between the UK and EU – or 'Norway-lite'. Supporters of Brexit can use the UK's participation in CETA to reinforce their view that a wide range of trade deal options will exist for the UK even after leaving the EU."
"But, as with all things Brexit, it may not be so simple."
In the press release on CETA, Commission president Jean Claude Juncker says: “The trade agreement between the EU and Canada is our best and most progressive trade agreement and I want it to enter into force as soon as possible. It provides new opportunities for European companies, while promoting our high standards for the benefit of citizens. I have looked at the legal arguments and I have listened to heads of state or government and to national parliaments. Now it is time to deliver. The credibility of Europe’s trade policy is at stake.”
EU Trade Commissioner Cecilia Malmström calls CETA “a milestone in European trade policy" and “the most ambitious trade agreement that the EU has ever concluded”.
“I now hope that the deal can be signed, provisionally applied and concluded quickly, to the benefit of consumers, workers and entrepreneurs," she says. "This is an agreement that Europe needs."
“Meanwhile, the open issue of competence for such trade agreements will be for the European Court of Justice to clarify in the near future. From a strict legal standpoint, the Commission considers this agreement to fall under exclusive EU competence. However, the political situation in the Council is clear, and we understand the need for proposing it as a ‘mixed’ agreement, in order to allow for a speedy signature.”
Negotiations for CETA began in 2009 and were concluded in August 2014. The latest text provides for disputes to be resolved by a permanent "investment court" of state appointees rather than through investor-state arbitration.
From day one of its provisional application, CETA will scrap 98 per cent of tariffs between Canada and the EU. It will also make it easier for service suppliers to travel to connect with their customers and allow EU companies to bid for Canadian public contracts at all levels of government.
The deal will further provide for mutual recognition of "conformity assessment certificates" for a wide range of products, from electrical goods to toys, meaning they won't need to be tested twice, once in their country of origin and again in the country to which they are imported.
It will also prevent food and drink from particular regions of Europe, such as Austrian beer Tiroler Speck and Gouda and Roquefort cheeses from the Netherlands and France, from having to compete with imitation products in Canada sold under the same names.
This article was first published in Global Arbitration Review, July 2016.