Last month the EU Parliament gave its consent to the conclusion of the Canada-EU Comprehensive Economic and Trade Agreement, better known as the CETA. That vote marked the last major obstacle in a nearly eight year saga. Canadian and EU officials are indicating that the CETA will take effect by June of this year.
This is good news for international trade, something that has been in short supply since the November 8, 2016 US presidential election. Canadian businesses and investors are rightly concerned about the overtly protectionist attitudes of the Trump Administration and the prospect of a NAFTA re-negotiation that, for Canada, will be more about seeking to preserve North American trade flows than expanding them.
Because roughly 80% of Canada’s trade is with the United States, those concerns may not be lessened much by the prospect of preferential trade with the European Union. However, it is worth recalling that the EU is, collectively, the world’s largest economy and, even without the United Kingdom, will remain larger than the US. It is also Canada’s second largest trading partner. The CETA will offer opportunities for Canadian businesses to expand into a market of some 440 million relatively prosperous inhabitants (over 500 million including the UK) and to reduce their export dependency on the United States. Some of those opportunities will be apparent on a quick glance at the CETA text; others may be less obvious. Three in particular, stand out.
One is the importation and exportation of goods thanks to the elimination of nearly all tariffs, including on 100% industrial goods and 95% of agricultural goods. Most – about 98% of tariff lines – will be eliminated as soon as the CETA takes effect and the longest phase-out period will be seven years. In these respects tariff elimination under the CETA is more comprehensive and more rapid than under most trade agreements. And the rules of origin, which determine which goods qualify for duty-free treatment, are simpler and more flexible than under previous Canadian free trade agreements, including the NAFTA.
Another is that Canadian suppliers of goods and services will be able to participate on equal footing with EU suppliers for a wide-range of government procurement contracts at the EU, Member State, regional and local levels. Canadian businesses will have an advantage over suppliers from the United States and other non-EU countries as a result of commitments that go beyond those the EU has made under the WTO’s Agreement on Government Procurement.
A third is that the CETA will enable various categories of Canadian business persons and skilled professionals to work temporarily in the EU without visas or work permits. This will help businesses operate more effectively, whether as pure service suppliers in consulting industries, to service and support export sales or to manage investments. Temporary entry will be available for terms of up to three years in the case of intra-company transferees and up to one year for contractual service suppliers and independent professionals. These latter categories include lawyers providing advice on foreign law.
However, other parts of the CETA offer less than on close examination that may at first be apparent. One such area is trade in services. The CETA largely commits the Parties to maintain existing levels of market access for services although in most cases it will lock in any subsequent liberalization. The same is true of financial services, despite their being the subject of a dedicated chapter in the agreement.
Another area where the CETA falls short is on the regulatory front. After decades of tariff reductions at the WTO and unilaterally, regulatory requirements are often a far greater impediment to trade than customs duties. The CETA makes very limited progress toward regulatory harmonization or even the recognition of regulatory equivalence between the Parties. It does offer institutional arrangements that could achieve future progress in these areas but persuading recalcitrant regulators will require concerted effort on the part of businesses that could benefit from deeper regulatory integration. The automotive sector is one that that may be interested in making the effort.
Finally, it is important to note that not all of the CETA will take effect this spring. The CETA is, in the parlance of the EU, a “mixed” agreement, within the competency of both the EU itself and its Member States so it will not formally enter into force until it has been ratified by each of those 28 states (or 27 post-Brexit). Because that might not happen for several more years at least, Canada and the EU provided in the text that most of the agreement, the parts that are not exclusively within the competence of the Member States, could be applied on a provisional basis.
That is what will happen this spring, once both Parties have enacted the necessary implementing measures. In Canada, this is being accomplished through Bill C-30, now in the Senate, and by some changes to provincial and territorial procurement regimes.
Nearly all of the CETA will be provisionally applied, including the commitments already described. A notable omission will be investment protection commitments that were an important cause of the CETA’s prolonged gestation period. However, the practical consequences are limited because Canadian investors already have direct access to foreign investment protection agreements with seven of the more risky EU Member States and may have indirect access to others depending on how their EU investments are structured.
Despite some shortcomings, the CETA will create real opportunities for Canadian businesses to expand their presence in the EU, and for EU businesses to do likewise in Canada. Those opportunities can grow over time thanks to the institutional and substantive arrangements built into the agreement. With provisional application just a few months away, now is the time for companies to assess how to take advantage of what the CETA has to offer.
About the author
Matthew Kronby is a Partner in the International Trade and Investment Law group at Bennett Jones LLP (Toronto). Before joining Bennett Jones, Matthew was the Government of Canada's lead lawyer in the negotiation of the CETA with the EU. Matthew is the recipient of the 2017 OBA Award of Excellence in International Law.
This article was originally published in the March 31, 2017 issue of Lawyers Weekly.