With the Walloonian crisis averted by the application of a band-aid solution, a comprehensive free trade agreement ("CETA") was signed by the European Union and Canada on Sunday, October 30, 2016.
The agreement that allowed Belgium to consent to the CETA's official signing and to its provisional application falls far short of a guarantee that Belgium will ratify CETA, so there is still considerable uncertainty about the shape of the final deal. While a decision or provisional application of the agreement still needs to be finalized, it now seems certain that a large part of the agreement will be in force on a provisional basis by early 2017.
Provisional application of CETA will bring significant opportunities for Canadian businesses, along with some serious competitive challenges. This bulletin presents an overview of the main features of the deal. It is the first in a series exploring the competitive opportunities and threats in an attempt to cast light on what the agreement will mean for Canadian business. Sign up to receive regular updates, or continue to check back with us.
For those wondering about the impact of Brexit on CETA, the UK will remain a part of the agreement until it withdraws from the EU.
CETA in Statistics
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For Canada, the agreement merely has to be signed and then ratified by Parliament. In the EU, CETA is being treated as "mixed" agreement, meaning that some provisions are within exclusive EU competence and others are a shared competence with the EU and each of the 28 Member States. As a result, ratification of the agreement will take years because each of the Member States must ratify in accordance with their own domestic law. Here is where things get interesting. In the Intra-Belgium Agreement that allowed Belgium to give its approval for Sunday's signing and provisional application of portions of the CETA, the Walloon government stated specifically that it would not allow Belgium to ratify CETA if it contained the chapter on investor rights in its current form. Other EU governments may also use the ratification process to seek concessions from Canada or the EU. For example, the Romanian and Bulgarian governments have said they would not ratify until Canada dropped its visa requirements for its citizens.
The agreement will eliminate virtually all tariffs on goods immediately: over ninety-nine percent (99%) of the non-agricultural tariff and over ninety-two percent (92%) of the agricultural tariffs will be zero on day one. The rest will be phased out over time; up to seven (7) years for the most sensitive goods. Most tariffs between Canada and the EU are already fairly low, but in some sectors they remain a significant barrier. For example, Canadian duties on garments are in the range of 17%, while EU tariffs on automobiles can reach 10%.
With some notable exceptions, for example in the financial sector, the EU is notorious for being a difficult place to do business in terms of technical requirements. With a supra-national authority, 28 national governments and hundreds of sub-national entities, all with regulatory authority, the maze of requirements can be difficult to navigate. CETA attempts to address that problem with a joint Canada-EU committee to address trade irritants and encourage greater industry participation in regulatory development. There is even a separate chapter on regulatory cooperation between Canada and the EU and formal mechanisms for joint initiatives. These initiatives may take years to bear fruit, but Canadian businesses will now have formal mechanisms to address technical barriers to trade.
Sanitary Phytosanitary Measures
Sanitary and phytosanitary ("SPS") measures are rules to ensure food safety and animal and plant health. They are necessary to ensure consumers have safe food to eat, but they are also an almost irresistible way for governments to shield domestic producers from competition. CETA tries to address the misuse of SPS measures to protect domestic producers by providing a dispute settlement mechanism to address complaints of protectionism, and a strong commitment by both parties to more cooperation and communication.
This is one of the most contentious chapters in CETA and, following the Intra-Belgium Accord, it is not clear that the investor protection chapter will survive into a final CETA. Certainly, it will not be applicable during the provisional application phase.
CETA has three chapters devoted to labour issues. One reinforces the parties commitment to high labour standards. A second eases rules of the temporary entry and stay of business people, intra-corporate transferees, investors, contract service suppliers, independent professionals, and business visitors The third focuses on encouraging the mutual recognition of qualifications by professional associations in the EU in Canada, so that a German engineer will find it easier to qualify in Canada, and a Canadian architect can more easily sell her services in France.
This promises to be one of the most exciting CETA chapters in terms of providing new business opportunities for Canadians. The agreement opens EU and Canadian public procurement to non-discriminatory participation by businesses from the other party. The EU will allow Canadian to bid on public contracts let by the EU institutions, the 28 national governments, and the regional and municipal entities within the Member States. Canada will open its public markets to EU participation at the federal, provincial, and municipal levels, including procurements by academic institutions and health and social services organizations.
CETA covers far more than mere trade in goods. It will liberalize trade in services across the board on a "negative list basis". That means the new rules will apply to all kinds of services except those sectors that have been specifically excluded. The services grouping covers a vast range of activities, including financial services, insurance, architectural, urban planning, legal, environmental and IT services.
The chapter on intellectual property ("IP") seeks to bring consistency to Canadian and EU IP rules and sets out minimum standards of protection for trademarks, copyrights and geographical indications of origin. An enforcement section in the agreement establishes procedures in the case of infringement and a border measures section sets out procedures for IP rights holders to bar the import or export of infringing products
Environment and sustainable development
In separate chapters on the environment and sustainable development, the emphasis is on cooperation and dialogue rather than rules and limitations. The absence of rules-based commitments is perhaps inevitable in a political climate where a free trade agreement that does not address environmental issues is politically unsellable, and where no party will sign-on to an agreement that limits it ability to regulate on environmental issues.
CETA's comprises a myriad of Chapters, Schedules, Appendices, side letters, and side emails of understanding. Over the next weeks and months, Fasken will be producing insightful guides to help you navigate the largest and most complex trade agreement Canada has ever signed. You don't need to become a CETA expert to understand its implications for your business. But, as Canadians have learned from NAFTA, you do need to consider how it will affect your competitive position.