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Canada, the EU, and the Comprehensive Economic and Trade Agreement (“CETA”)
These materials were prepared by Celso A. A. Boscariol, Barrister & Solicitor, of Vancouver, BC, Canada for the Canadian Corporate Counsel Association World Summit in Montréal, Canada, April 2012. © Celso A. A. Boscariol
Table of Contents
1. History ..................................................................................................................... 3 2. Joint Study and Scoping Report ............................................................................ 5 . 3. Current Canada‐EU Trade ...................................................................................... 6 4. Scope ........................................................................................................................ 8 5. Current Obstacles .................................................................................................... 9 5.1 Provincial Regulations .................................................................................... 0 . 1 5.2 Public Procurement ......................................................................................... 0 1 5.3 Supply Management ........................................................................................ 11 5.4 WTO Sanitary & Phytosanitary Standards .................................................... 12 5.5 Market Access .................................................................................................. 13 5.6 Rules of Origin ................................................................................................. 13 5.7 Intellectual Property ....................................................................................... 4 . 1 5.8 Geographic Indications ................................................................................... 15 5.9 Services ............................................................................................................. 15 5.10 Cooperation Mechanisms ............................................................................... 17 5.11 Labour Mobility & Movement of Business Persons ...................................... 8 1 5.12 Investment ....................................................................................................... 8 1 5.13 Regulatory Cooperation and Technical Barriers to Trade (“TBT”) ............. 9 1 5.14 Monopolies and State Enterprises ............................................................... 20 6. What’s Different this Time? .................................................................................. 20 7. Future ...................................................................................................................... 21 .
Acknowledgement I wish to thank Anthony G. Seepish, Barrister & Solicitor, Watson Goepel LLP, for his invaluable contribution to this paper.
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Economic relations between Europe and Canada are long‐standing. Canada and Europe share cultural and economic bonds built up over centuries of immigration, trade and exchanges through academic, sports and cultural activities. Most of Canada's ethno‐cultural communities hailing from Europe maintain strong ties through family relationships, friendships and business. Starting with the fur trade in New France 400 years ago and progressing to aerospace products, technology transfers, pharmaceuticals, and scientific exchanges today, Canada and Europe have been active trading partners. So CETA is a natural fit for Canada as an extension of its long standing and multifaceted relationships with countries of the European Union (“EU”). The first formal treaty between Canada and the EU dates back 53 years to 1959, when an agreement was concluded between the Government of Canada and the European Atomic Energy Community (“EURATOM”) dedicated to the peaceful uses of atomic energy. The economic relationship between Canada and the EU in trade and economic cooperation more generally dates back to 1976 when the Bilateral Framework Agreement for Commercial and Economic Cooperation was concluded. It is the EU's first formal economic relationship with any industrialized country. Since the 1976 Framework Agreement, Canada and the EU have entered into a number of sector specific agreements, most prominent among them, Agreement on Science and Technology (1996), Higher Education and Training (1995, 2000), Customs Cooperation, (1998), Veterinary Equivalency (1998), Competition with Cooperation (1999), Wine and Spirits (2004), Civil Aviation Safety (2009) and Comprehensive Air Transport (2009). 1 The joint committees established under these agreements have provided the opportunity for meetings of both parties in both formal and informal venues. In addition, the 1998 European Canada Initiative (“ECTI”) established a framework for future negotiations to enhance cooperation on trade related issues, both multilaterally and bilaterally. The CETA negotiations represent the second attempt in less than a decade by the EU and Canada to expand their economic relations. 2 Since 2000, cooperation in mutual fields of endeavor such as fisheries, environment and energy has increased. In 2004 Canada and the EU undertook an ambitious agenda to deepen social, economic and political ties through a Trade and Investment Enhancement Agreement (“TIEA”) with its stated purpose being the elimination of non‐tariff barriers to the movement of goods and services, in addition to resolution of traditional market access issues such as tariffs and freer movement of capital. However, TIEA negotiations were suspended in 2006, officially to allow the stalled World Trade Organization (“WTO”) Doha round of negotiations to complete, but practically due to the EU’s insistence that the agreement include Canada's
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provinces and territories since barriers to market access in areas such as public procurement are in large measure within provincial jurisdiction. Reciprocally, Canada would be able to penetrate the EU’s local national and sub national markets through increased EU trade and commercial liberalization. Some in the Canadian government saw that agenda as being too ambitious to deliver and the Europeans were loathe to continue discussions excluding domestic public procurement. Nevertheless, the Canadian government motivated by its trade liberalizing agenda acted domestically by engaging provincial and territorial governments to support a CETA that would include binding commitments on their part as well as mounting a vigorous lobbying campaign aimed at various EU member states to convince them of the merits of a bilateral trade pact between Canada and the EU. The other factor contributing to the abandonment of the TIEA negotiations was that such an agreement could imperil relations and commitments with Canadian and EU trading partners in the Doha round projected to conclude by 2007. Doha did not come to fruition, rekindling interest in a Canada‐EU trade pact, culminating in the commitment to negotiating a comprehensive economic trade agreement between Canada and the EU. This fortuitous convergence of Canadian and European strategies to liberalize trade and increase the competitiveness of their respective economies set the stage for the October 2008 Canada‐EU Joint Study, Assessing the Costs and Benefits of a Closer EU‐Canada Economic Partnership (the “Joint Study”) 3 . Both are committed to building stronger and more competitive economies by securing favourable market access terms, attracting foreign investment, innovation and expanding their international commercial networks to provide support for their multinationals to exploit foreign business opportunities. The Joint Study laid the groundwork for the commencement of negotiations toward CETA. Canada and the EU have differing motives for entering into the CETA negotiations. Some authors point to the European desire to diversify into different sectors of the Canadian economy, especially in services and government procurement. Canada may be trying to level the playing field vis‐à‐vis third country producers who already have preferential access into the European market. 4 There has been some suggestion that Canadian disillusionment with the North American Free Trade Agreement (“NAFTA”) and stalled multilateral initiatives such as Doha and FTAs with the Americas and Asia‐Pacific region have also provided incentive for CETA negotiations. Europe is seen as a partner to counterbalance American influence and reduce Canadian dependence on the United States, especially in light of the effect of the US economic crisis on Canada. 5
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Joint Study and Scoping Report
The decision to launch CETA negotiations was based on the Joint Study and their scope was defined in the March 2009 Canada‐European Union Joint Report: Towards a Comprehensive Economic Agreement (the “Scoping Report”) 6 . The Joint Study, a cost‐benefit analysis, concluded that increased trade with the EU, Canada’s second largest trading partner, would generate significant new economic opportunities across a number of sectors. It determined that an agreement in the form of the comprehensive economic trade agreement would enable Canada to increase its export of goods and services to the EU by $12.5 billion (€8.5 billion), while EU exports destined for Canada would increase by $25 billion (€17 billion). The study showed there are important benefits for both sides to pursuing a closer economic partnership. An agreement could benefit many sectors of the Canadian economy, including aerospace, chemicals, plastics, aluminum, wood products, fish and seafood, automotive vehicles and parts, agricultural products, transportation, financial services, renewable energy, information and communication technologies, engineering and computer services, among others. The study also illustrated the potential for enhancing the relationship in areas such as investment, labour mobility, regulatory cooperation, environment, and science and technology through removal of non‐tariff barriers (“NTBs”). The Scoping Report concluded that a maximum degree of benefit to both sides would result from a maximum degree of liberalization. The Joint Study outlined a broad and ambitious negotiating agenda, including: trade in goods and services; investment; government procurement; regulatory cooperation; intellectual property; temporary entry of business persons; competition policy; labour mobility; and environment. The Joint Study relies on empirical data that pre‐dates the 2008 financial crisis and the 2010 debt crisis, and assumes the successful completion of the Doha round of WTO negations. Nevertheless, it provides a solid economic basis on which to conduct high‐level trade negotiations. 7 The extent of mutual gains under CETA accruing due to cost reductions from liberalization of services and reduction of NTBs depends on the openness of the final agreement and some exogenous factors. 8 These exogenous factors include those driving foreign direct investment (“FDI”) such as GDP and business cycles, factors related to prices of domestic currencies and natural resources, and factors relating to the performance of the US economy. 9 Another factor that potentially limits the accuracy of the gains‐ predictions in the Joint Study is the post‐2008 rise in protectionism, an example of which is the US Buy‐American campaign. 10
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The Joint Study is only an illustration of the potential impact of CETA. The actual outcome is impossible to predict in light of the stalled Doha negotiations, the assumption that all tariffs and tariff‐rate quotas will be eliminated, including those in sensitive agricultural and industrial sectors, and does not consider the economic impact of opening government procurement markets and changing levels of FDI. 11 However, the stalled Doha talks and other multilateral agenda can also be seen as a motivating factor for bilateral agreements such as CETA. 12 The Scoping Report recommends that in the areas under negotiation, the parties aim to go beyond current WTO provisions. 13 Against this backdrop, the Government of Canada and the European Commission (“EC”) concluded an agreement to initiate negotiations for a comprehensive economic trade agreement at the May 6, 2009 Canada‐ EU summit in Prague. Canada and the EU have completed the ninth round of negotiations toward CETA. They are committed to building on the success of negotiations thus far, where significant progress has been made across the board, including the areas of goods, services, investment, government procurement and many others. The negotiating text is said to be well‐advanced, with many chapters closed or parked pending further development, and issues in the remaining chapters narrowed down to key differences where solutions are being actively explored.
Current Canada‐EU Trade
Canada and the EU have a long history of economic cooperation. Composed of 27 Member States with a total population of over 500 million and a GDP of nearly $16.8 trillion in 2010, the EU is the world’s largest single common market, foreign investor and trader. As an integrated block, the EU represents Canada's second largest trading partner in goods and services. In 2010, Canadian goods and services exports to the EU totaled $49.1 billion, and imports from the EU amounted to $55.2 billion. Canada and the EU already share strong trading bonds. Canada is the EU’s eleventh‐largest partner for trade in manufactured goods and the EU is second‐ largest trading partner to Canada. For trade in services, Canada accounts for 2.2% of the EU total, and the EU for 16% of the Canadian total. According to Statistics Canada, the EU is the second largest source of FDI in Canada, with the EU’s FDI totaling $148.7 billion at the end of 2010. In 2010, Canada's EU FDI amounted to $145.7 billion, 23.6% of Canadian direct investment abroad. Eurostat identified Canada as the EU’s third largest FDI destination and its fourth largest source of FDI in 2009. Bilateral economic relations with the EU are very important to Canada, and this economic relationship is a high priority for the Government of Canada.
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These statistics notwithstanding, many studies characterize the Canada‐EU trade relationship as "underperforming". One of the findings of the Joint Study is that the Canadian‐EU economic relationship is significantly under‐traded. Comparing total trade in 2006, trade between the EU and Canada was roughly the same level as trade between EU and India, despite Canada’s economy being 1.5 times larger than India’s. A comparison between Canada and South Korea shows a similar situation: Canada’s total trade with the EU in 2006 was 25% lower than South Korea’s, however Canada’s GDP was 1.5 times the size of South Korea’s. 14 Canada and the EU have in common the United States as their most important trading partner, even though Canada is more reliant on US trade (80% versus 16% for the EU). Canadian trade dependence on the US, and its consequent vulnerability, particularly in times of economic crisis (as experienced these last few years), makes the rationale for diversifying international markets a business imperative. The American Recovery and Reinvestment Act, restricting foreign participation in US infrastructure projects immediately leaps to mind. With a new trade agreement in place between Canada and the EU, US businesses will doubtlessly experience an erosion of their competitiveness in Europe and Canada, as well as a reversal of the trade diversion created by NAFTA at the expense of the EU. The privileged relationship between Canada and the US framed by NAFTA will, in many ways, be overshadowed by the new, far‐reaching agreement with the EU which could conceivably open the door to negotiate expanded agreements with the United States, both for Canada and the EU. Moreover, Canada and the EU share a public commitment to improving the business environment for small and medium enterprises (“SMEs”). Institutional changes taking place in the EU as a result of the Lisbon Treaty, the Treaty of the European Union (“TEU") and the Treaty on the Functioning of the European Union (TFEU") contain provisions aimed at reinforcing democracy, transparency and dissemination of information in all its dimensions. The Lisbon Treaty also strengthened the framework for the design of policies targeted specifically for SMEs culminating in the EU’s adoption of the Small Business Act in 2008, a set of principles guiding the design and implementation of policies to promote SME growth, both at EU and national levels. In addition, the EU Single Market Act is well on its way to achieving harmonization of regulations and standards governing industrial production of goods and services, labour mobility, access to finance, recognition of professional qualifications, and unitary patent system and broadening access to public procurement. This augurs well for Canada in that Canadian businesses and in particular SMEs will find market penetration easier in an EU single market having to deal with a single set of harmonized regulations and standards.
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Many EU member states have extensive bilateral economic relationships with Canada, most notably the United Kingdom and France, based upon centuries‐old historical tradition. Virtually all EU member states have bilateral agreements with Canada in areas of social and economic cooperation such as social security, avoidance of double taxation and prevention of tax evasion, air transport, promotion and reciprocal protection of investments, etc. Several Canadian provinces and territories enjoy formalized cultural and economic relationships with EU member states and in some instances, regions within EU member states through memoranda of understanding and agreements on cooperation in cultural, social and industrial, technological and scientific cooperation arrangements are projects with projects. Predictably, Québec has developed a strong and broad‐reaching cultural and economic relationship with France over the last 50 years.
CETA moves beyond traditional free trade arrangements such as NAFTA which emphasize tariff and customs duties reduction and/or elimination. It is being touted as a “second generation” trade agreement focusing on removing obstructive NTBs such as domestic regulations, standards and procedures that impede the flow of goods and services between countries. Negotiations cover 22 areas straddling both tariff and will follow NTB issues. Topics for areas of negotiation include the following: • trade in goods; • sanitary and phytosanitary issues (food safety, animal and plant health measures); • technical barriers to trade; • trade facilitation; • customs procedures and rules of origin; • cross‐border trade in services, including mutual recognition of professional qualifications; • investment; • central and sub‐central government procurement; • regulatory cooperation (laws and procedures); • intellectual property; • temporary movement of business persons; • competition policy and related matters (monopolies and state enterprises); • institutional arrangements and dispute settlement; and • sustainable development. 15
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The core areas for negotiation are market access for agricultural and non‐ agricultural goods, trade in services, investment protection, government procurement, NTBs to trade and regulatory cooperation, intellectual property protection, labour mobility and dispute settlement. 16 Tariff barriers have by and large been eliminated by the General on Agreement on Trade and Tariffs (“GATT”) and the WTO. Current tariffs a relatively modest. Canadian goods exported to the EU are subject to an average tariff of 2.2% while those from the EU entering the Canadian market face an average levy of 3.5%. While generally low, even minimal tariffs constitute a competitive disadvantage and can divert trade. 17 Tariff peaks exist in some sectors that effectively prohibit trade. Peaks for the Canadian dairy market reach up to 200%, with peaks for animal products and cereals at 33% and 20% respectively. For the EU, peaks reach 56% for dairy and from 20% to 30% for drinks, cereals, and animal products. 18 The Joint Study concluded that the largest proportion of gains expected from CETA come not from the reduction or elimination of tariffs, but from liberalization of trade in services and FDI. The extent of the benefit will depend on the exact contents of CETA’s provisions. 19 Each round of CETA negotiations alternates between Ottawa and Brussels. The first round took place in October 2009 in Ottawa, the second round of CETA negotiations took place in Brussels in January 2010, a third round in Ottawa from 19 to 23 April, a forth round in Brussels from 12 to 16 July, a fifth round in Ottawa from 18 to 22 October 2010, a sixth round in Brussels from 17 to 21 January 2011, a seventh round in Ottawa from 11 to 15 April, an eighth round in Brussels from 11 to 15 July and a ninth round in Ottawa from 17 to 21 October 2011. 20 No draft agreements have been officially released or published. Copies of documents purporting to be leaked texts have been posted on various websites. The leaked documents seem to reveal that negotiations are advancing and that “all, if not everything” is on the table. 21
Trade and investment between Canada and the EU faces a number of structural impediments. Some of theses are a natural consequence of the federal/provincial division of powers in Canada that produces a fragmentation of jurisdiction over trade and investment issues.
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Among the more prominent forms of NTBs are professional qualifications that are governed by provincial legislation in most Canadian provinces and territories. Licenses and accreditation are frequently granted by self‐regulating professional bodies such as law societies, associations of professional engineers, medical colleges, etc. Mutual or reciprocal recognition and accreditation of professional qualifications and designations would go a long way to eliminating this non‐tariff barrier by enhancing the ability of professionals to move between jurisdictions, thus facilitating the flow of goods and services between Canada and EU. Trade in goods is also affected by provincial regulatory differences. For example, the provincially regulated retail and wholesale of alcoholic beverages can be a source of trade distortion. 22 Federal and inter‐provincial/territorial differences in corporate regulations, health and safety standards and value added taxes not only constitute internal trade barriers within Canada 23 but also create inefficiencies and impediments in for trade goods and services and FDI.
Given the magnitude of government procurement in Canada and in the EU, it is no surprise that liberalization of public procurement has ascended to the top of the agenda. It represents great untapped potential for both Canadian and EU exporters, and perhaps more so for European exporters in that many EU companies are world leaders in areas such as transportation equipment, public works and utilities and infrastructure development. Areas of particular interest will be power generation, public transportation, waste management and water treatment plants. Canada too, has its share of potential exporters of infrastructure services and goods, albeit on a somewhat smaller scale than EU exporters. From the outset the EU has made it a priority to obtain broad access to Canadian government procurement, both on the national and provincial level. EU companies are at a disadvantage when responding to calls for tenders from provincial and territorial governments on infrastructure and other projects, as well as in what has come to be known as the "MASH" sector, municipalities, academic institutions, schools and health and social services organizations. Canada, as a signatory to the WTO Agreement on Government Procurement ("GPA”) is generally amenable to opening its public procurement process to foreign suppliers. However, as we all know Canada’s commitment under the GPA
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is greatly diminished by the exemption of the sub‐central (i.e. provincial, territorial, and municipal) and “other” (i.e. Crown Corporation) markets. The lone exception is the 2010 Canada‐ US Procurement Agreement which provides the US and Canada some reciprocal access to each other's public procurement market. Within its member states, the EU has made provisions for procurement at the sub‐ central and other levels, but has closed these sectors to Canadian firms on the basis of reciprocity. Consequently the EU has insisted that Canada include representatives from provincial and territorial governments in the CETA negotiation so access to government procurement can be dealt with conclusively. The balance to be found is between citizens’ demands for greater efficiency in public spending and sub‐central governments’ desire to use public spending as a tool to serve political interests such as boosting local production, or job creation. 24 A European Commission study of increased intra‐EU competition for foreign procurement showed price reductions of around 30%. 25 However, loss of government control and policy space is an issue. Municipalities wish to retain the flexibility to make strategic decisions about what is best for them in their own circumstances― quality of infrastructure and products, standards, local jobs, environment, cost, taxpayer value and the like. Government procurement tends to follow strict guidelines and policies with respect to environmental stewardship. This will be the case even after a CETA with the EU is implemented. Through the Single Market Act, the EU is seeking to provide simpler procedures to those who manage public procurement, and allow them to support socially responsible and environmentally friendly approaches. The EU also places emphasis on maximizing the acceptance and respect of European values and rules and relationships with its trading partners with the objective of reaching "reciprocal opening" of public procurement markets. The goal is to provide Canadian and European suppliers with open, transparent and non‐discriminatory market access to each other’s government procurement markets. Thus the EU has made the opening of the Canadian market for public procurement an essential condition of CETA. 26
5.3 Supply Management
The agricultural sector is strongly entrenched, socially and politically in both Canada and EU. Canadian agricultural goods enjoy export subsidies and supply management mechanisms such as marketing boards and dairy quotas. The EU Common Agricultural Policy, on the other hand, is seen by Canadian producers as an impediment to Canadian exports to the EU, particularly wine. Subsidies are an
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area of concern as they distort competition and constitute a barrier to trade and investment. Agricultural subsidies, however, are not a topic of CETA negotiations as this is one area of considerable friction at the Doha negotiations. The EU position is that removal of subsidies is not an appropriate area of bilateral negotiation as their removal would benefit all WTO members, not simply the party on the other end of a bilateral negotiation. 27 If concessions were made, provisions would delimit the rights and obligations of the Parties in respect of subsidies.
WTO Sanitary & Phytosanitary Standards
Sanitary and Phytosanitary standards (“SPS”) are the standards and regulations countries adopt vis‐à‐vis imports of plants and animals in order to prevent the introduction or spread of plant pests, pathogens or harmful additives that these products may contain. As such, these measures are designed to protect human, animal, and plant life. SPS standards can function as NTBs as they operate to delay imports and increase costs by requiring certification or by barring importation completely. Canadian exporters in the agriculture and agri‐food, fish and shellfish sectors are concerned about current European NTBs in the guise of these regulatory standards. There is, however, significant concern in Europe about genetically modified organisms (“GMOs”) and the practice of adding hormones to meat products. There is divergence between Canadian and European approaches to SPS matters. Canada, much like the US, uses a science‐based approach to SPS, setting standards for products or additives based on scientific evidence of harm. The EU on the other hand uses a society‐based approach, setting standards based on public perception of harm. This approach stems from experiences where public health crises arose where there was no prior scientific evidence of danger, such as with Bovine Spongiform Encephalopathy (“BSE”), or “mad cow disease”. 28 In order to overcome these divergent approaches, CETA should at minimum affirm and enhance commitments under the WTO Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) and the continued use of the WTO dispute settlement procedures for any formal disputes regarding SPS measures. 29 Going beyond the WTO agreement, CETA should provide for harmonization or reciprocal recognition of each other’s standards and norms and eliminate exceptions.
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CETA should also create an SBS Committee to provide oversight. Consideration can be given to the establishment of a bilateral mechanism to manage SPS issues so as to avoid disputes.
As noted above, tariffs imposed by both the EU and Canada are generally low. However, existing tariffs can have a negative impact, especially on intra‐firm or intra‐industry trade, where they operate as a tax. The Joint Report notes that these tariffs can be the equivalent to up to one half of industry profit margins. 30 The Scoping Report estimates that one‐quarter to one‐third of the overall benefit to bilateral trade liberalization under CETA would come from the elimination of tariffs. 31 96 to 98% of tariffs will be removed on the day CETA is implemented, including 99% of industrial products. The timeline for phase out of agricultural and fish products remains to be determined (some speculate it may be seven years). Trade facilitation provisions to streamline customs processes and facilitate the movement of goods will also improve market access, speeding up customs clearance and delivery of goods and services to end consumers.
Rules of Origin
The objective of rules of origin is to ensure that the benefits of an agreement flow to goods originating in the territory of either party. Canada and the EU have differing approaches to rules of origin. Canada, with its manufacturing industries integrated into the US under NAFTA, prefers looser rules of origin. The EU, on the other hand, prefers a stricter approach, with the aim of ensuring that goods that are technically Canadian are not in fact of US or Mexican origin. 32 The Scoping Report recommends that CETA have provisions for rules of origin that are clear, as simple as possible and leave little room for administrative discretion. 33 This should ensure that the rules of origin are administered in a fair, effective and transparent manner by customs administration and to provide the trading community with the means to take advantage of the preferential tariff treatment contemplated under CETA.
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The EU seeks stronger enforcement of the WTO Trade Related Intellectual Property Rights Agreement (“TRIPS”) and 1970 United Nations World Intellectual Property Rights Organization (“UN WIPO”). These represent a minimum level of protection for intellectual property rights (“IPR”). Although IPR protection is strong in Canada, some European stakeholders are of the opinion that Canadian standards do not go far enough. EU stakeholders also complain that IPR enforcement in Canada is difficult to activate, be it through the courts, customs, or police. The division of responsibilities between the Canadian Border Services Agency (“CBSA”) and Royal Canadian Mounted Police (“RCMP”) complicates matters. From the European perspective, harmonization would mean bringing Canadian standards up to European levels. A European IPR Enforcement Report released in 2009 identified Canada as a priority country due to issues with copyright, pharmaceutical patents and geographical indications. 34 For example, the EU is pressuring Canada to agree to EU IP standards such as longer effective patent terms, more stringent data protection and right of appeal for research‐ based pharmaceuticals. However, IPR issues in other areas, particularly for pharmaceuticals, are more problematic. Canada’s patent protection regime is criticized for not protecting brand‐name drugs enough; on the other hand, the much lower cost of generic drugs is important to Canada for controlling health care costs which are spiraling out of control. This puts Canada in an interesting and delicate position― with a thriving brand‐name pharmaceutical industry and a thriving genetic pharmaceutical industry. The talks with the EU have highlighted this divergence. Differences in the two parties’ legal systems create multiple standards and procedures for IPR registration, all of which is seen to constitute “a significant collection of all kinds of NTBs”. 35 CETA aims to harmonize standards, provide for mutual recognition of IPR, and improve the transparency of both European and Canadian IPR regimes. The EU Single Market Act has identified adopting legislation establishing unitary patent protection and a unified patent litigation system throughout the EU as priorities. Although Canada is criticized for being weak in protecting intellectual property it is moving toward significant improvements to our Copyright Act * , which hopefully will bring Canada in line with international standards.
Bill C‐11, An Act to Amend the Copyright Act, received second reading and referral to Committee in the House of Commons 13 February, 2012 and Committee report presented 15 March, 2012.
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The Joint Study notes the differing viewpoints on geographic indications (“GI”) put forward by Europe and Canada at WTO negotiations. The European Community pressed for a mandatory registry with legal effect, while Canada, among other nations, argued for a voluntary registry with no legal effect. 36 The EU views GI as important in the context of the reduction of subsidies to large‐scale agricultural production. GI is seen as a method of protecting small producers in the global market. 37 Currently, certification marks relating to GI can be registered in Canada under the federal Trade‐Marks Act, but only if no prior registration has taken place. This has led to the infamous example of the European GI for “Prosciutto di Parma” being unregisterable in Canada due to a prior Canadian‐owned trademark for “Parma.” 38 A list of 180 goods focused on cheese, meat and wine & spirits, was submitted by the EU for GI protection. This is a source of controversy because before Canada offers GI concessions it will want to know what the EU is prepared to offer in exchange.
The EU, as the world’s largest exporter of services (30% of the global share) 39 , has a strong incentive to liberalize trade in services beyond the minimum standards set by the 1995 WTO General Agreement on Trade in Services (“GATS”). GATS distinguishes between four modes of supply: • Mode 1: Cross‐border supply is defined to cover services flows from the territory of one Member into the territory of another Member (e.g. banking or architectural services transmitted via telecommunications or mail); • Mode 2: Consumption abroad refers to situations where a service consumer (e.g. tourist or patient) moves into another Member's territory to obtain a service; • Mode 3: Commercial presence implies that a service supplier of one Member establishes a territorial presence, such as ownership or lease of premises, in another Member's territory to provide a service (e.g. domestic subsidiaries of foreign insurance companies or hotel chains); and • Mode 4: Presence of natural persons consists of persons of one Member entering the territory of another Member to supply a service (e.g.
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accountants, doctors or teachers). The Annex on Movement of Natural Persons specifies, however, that Members remain free to operate despite measures regarding citizenship, residence or access to the employment market on a permanent basis. 40 GATS seeks to gradually liberalize trade in services across all four modes by establishing a system of rules based on principles of non‐discrimination. Liberalization of trade in services is complicated by regulation of the various modes falling under the jurisdiction of both national and sub‐national governments. Including the provinces and territories in the CETA negotiations addresses this complication. Other barriers include foreign ownership caps on commercial establishments, restrictions on the types of commercial presence and types of services that can be offered, and discriminatory treatment giving advantages to domestic companies, such as registration and nationality requirements. The Joint Study acknowledged the difficulty in quantifying potential gains from the liberalization of trade in services. However, it cited an estimate of the additional cost of current barriers to trade in services as 24‐52% of services into Canada and 18‐42% of services into the EU. 41 The EU Single Market Act affirms that services are a major driving force behind job creation in Europe. Accordingly the EU identified a need for standardization which is essential for making procedures more effective, efficient and inclusive. The services provisions of CETA are broad, with improvements to be made the utilities, construction, trade, transportation, communication and information, financial services and securities trading, insurance, business, consumer, and public services areas. Canada is especially keen to gain access to Europe to deliver architectural, engineering professional, distribution, environmental, and logistics services. Both Canadian and European stakeholders raise concerns about the openness of each other’s telecommunications services markets, where cross border issues include billing systems, privacy, spectrum allocation, security, and licensing. 42 For financial markets, the lack of a national securities regulator in Canada creates inefficiencies. However, the incentive to liberalize financial services may still be low in light of the recent financial crisis. Barriers to labour mobility such as licensing requirements both across and within countries also adversely affect trade in services. CETA will not address any regulatory changes in the banking sector. Other likely exemptions include education, health and public services. CETA provisions would
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provide for improved market access, transparency and predictability for Canadian and EU service providers. According to the Joint Study, liberalization of trade in services would account for a large portion of projected GDP gains: 50 % of the total gains for the EU and 45.5% of the gains for Canada. 43
5.10 Cooperation Mechanisms
Cooperation mechanisms are necessary in areas where jurisdictional competency is divided between the national (federal) and sub‐national (provincial and territorial) levels. The Joint Study identifies the following areas as those with existing or potential for bilateral cooperation: science and technology, energy, environment, transportation, customs cooperation and trade facilitation, employment and social affairs, movement of people, education and training, competition policy, and fisheries. Most European environmental and employment standards legislation is generally seen to be more expansive and rigorous than Canadian laws. Where regulatory standards diverge, these standards must be harmonized so as not to give one side or the other an unfair advantage. Again, this is an area of predominantly provincial jurisdiction in Canada such that provincial participation is essential to the process. Despite differences in regulatory approaches in areas such as energy and environment, Canada and the EU face mutual energy security and climate change challenges. These common challenges will provide impetus for future cooperation. Cooperation in the energy sector goes back to EURATOM in 1959, whereas cooperation in environmental matters dates from 1975. In 2004 Canada and the EU entered into a broad Framework on Regulatory Cooperation and Transparency, whereby the regulators both in the Government of Canada and the European Commission are encouraged to cooperate. The framework aims to improve regulatory governance, establish good regulatory practices to create better regulations, facilitate trade and investment, promote competitiveness, and enhance the climate for innovation. 44 The framework is implemented by the 2007 EU‐Canada Roadmap for Regulatory Cooperation, which sets out sector‐specific areas for annual negotiation. The existing framework is limited in that it is not legally binding, focused on the goods sector and restricted to the national government level. A CETA would address these shortcomings.
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5.11 Labour Mobility & Movement of Business Persons
Barriers to labour mobility and the temporary movement of managerial, professional and executive personnel have been shown to exert a negative influence on trade in services and investment. Special visas for investors, professionals, intra‐company transferees and others such as key personnel having special qualifications similar to those found in NAFTA are critical to well functioning business operations. Expedited work permits to permit the flow of skilled workers on a temporary basis to facilitate trade in goods and services that observe internationally‐recognized labour principles and effective enforcement of domestic labour laws are key features. Five categories of business persons will be recognized: short‐term visitors, intra‐company transferees, professionals, investors and management/graduate trainees. Expedited visas, spousal visas and entry for skilled technicians are also included. Mutual recognition of diplomas and qualifications and simplifying and modernizing rules for the recognition of professional qualifications are also under discussion. Great enthusiasm exists for mutual recognition and accreditation of qualifications and credentials. Negotiators are building on an existing agreement between Québec and France (which covers about 80 professions).
There are numerous factors that influence flows of investment, some, such as GDP fluctuations and business cycles are exogenous to CETA’s mandate. 45 Barriers not only encompass regulatory limitations to FDI, but also barriers to services and labour movement (GATS modes 3 and 4). For example, a WTO study found that a 10% increase in movement of temporary workers produced an increase of 8% in inflow and 7.1% in outflow of FDI. 46 The Joint Study identifies barriers to FDI as both specific (e.g. formal limits to foreign investment in particular areas) and general, based on the wider framework of the regulatory environment. FDI barriers not only affect the ability of investors to acquire foreign businesses, but also prevent businesses from setting up subsidiaries in the target foreign market. A country’s overall openness to FDI is an important consideration. According to OECD data 47 , Canada has improved its openness to FDI since the Joint Study was published. The OECD ranks countries’ openness to foreign investment on a scale of 0 (open) to 1 (closed). In 2006, Canada’s rank was 0.375. In 2010, it was 0.15. Despite this improvement, Canada’s openness to foreign investment is limited in certain sectors. In Canada, for example, the media (o.7), fishing (0.6), telecommunications (0.35), and transport (0.27) sectors are restrictive. In
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individual EU member states, certain sectors are likewise restrictive, for example business services (Belgium: 0.225), transport (Germany: 0.275), fishing (Italy: 1.0), electricity (Austria: 1.0), and media (France: 0.285). Even where there are no specific restrictions on a particular sector, different rules for foreign ownership across different provinces and territories leads to jurisdiction shopping. 48 The EU seeks non‐discriminatory measures in respect of financial institutions, including elimination of ownership quotas and restrictions. European investment in Canadian telecommunications services is also hampered by limits on foreign‐ ownership, as mandated by the federal Telecommunications Act. Improvements in these areas would provide Canadian and EU investors with greater certainty and predictability as well as enhanced confidence to invest in the territory of the other Party.
5.13 Regulatory Cooperation and Technical Barriers to Trade (“TBT”)
TBT operate to restrict trade despite the reduction of tariffs. These barriers are typically not intentional, but are the result of differences in technical regulations, standards, or conformance assessment procedures. 49 In the telecommunications sector, for example, the Agreement will ensure that regulations governing public telecommunications transport networks and services do not impede market access commitments, as well as providing an open and competitive market for these services. Through the breadth of its scope, CETA would promote greater cooperation in the field of standards‐related measures, address horizontal transparency issues, including notifications and participation in consultation processes, and establish a mechanism to provide direction on identification, management, and resolution of issues dealing with standards‐related measures to avoid disputes. The consultative mechanisms for the effective resolution of disputes would operate outside the formal dispute settlement framework. Such provisions could involve the establishment of specific committees and/or working groups. These provisions could also provide for a general exception allowing for the adoption and enforcement of measures to protect animal or plant life or health, and measures relating to the conservation of exhaustible natural resources. The EU is moving in this direction and the Single Market Act which seeks to increase the ease with which people, goods, services and capital can circulate freely from one member state to another by simplifying procedures and reducing the
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regulatory and administrative burdens, in particular, for example, by simplifying accounting standards for businesses.
5.14 Monopolies and State Enterprises
The Treaty of Rome which created the European Community contains competition provisions in the form of antitrust and state aid. In addition, the Commission regulations provide for merger control rules. Canada regulates competition via the federal Competition Act. Both parties have a history of regulating competition, In the area of state aid, Canada and the EU have different approaches. Individual EU member states must comply with the EU prohibition on any subsidies or state aid having an adverse impact on competition. In Canada, state aid is self‐regulated at the federal and provincial/territorial levels. 50 The Scoping Report refers to the 1999 Agreement between the Government of Canada and the European Communities regarding the Application of their Competition Laws as a good basis for cooperation and information exchange between competition authorities. The group recommended that CETA address the issues of state aid, designated monopolies and state/public enterprises so that they do not distort competition or create barriers to trade and investment. 51 Such provisions ensure that anti‐competitive business practices do not undermine the benefits of the Agreement.
What’s Different this Time?
Modern trade negotiations recognize that the nature of international trade has evolved to the point where traditional free trade agreements with their focus on goods moving across borders are no longer sufficient. The liberalization of other aspects of international trade such as trade in services and FDI has the potential to produce gains that eclipse the potential gains from a simple reduction of tariffs and goods‐related NTBs. Agreements such as NAFTA and negotiations under GATT/WTO have addressed or attempted to address these issues. CETA, however, aims to live up to its title and be truly comprehensive, going beyond past negotiations. To start, both sides agree that CETA is extremely ambitious in scope and both are committed to its successful conclusion as they have invested a great deal of
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political capital in it. Commitment of the parties is evident from the fact that negotiations have continued despite the shocks of the 2008 financial and 2010 debt crises. The provinces and territories are participating as full partners in negotiations alongside federal officials for the first time in the annals of Canada's foreign trade policy. This is critical as the Provinces have to implement most nontariff barrier provisions (labour, environment, public procurement, etc.) as they fall within their jurisdiction. Consequently, the EU is insistent that provinces participate in negotiations to assure compliance with CETA. This is the key difference that sets CETA apart. Another difference is the “negative” list approach, which starts from the position that trade in all services will be liberalized except those specifically identified as exceptions. Prior to CETA, the EU had always insisted on a “positive” list, an approach that required a listing of specific services. The negative list is the approach used by NAFTA and for government procurement under the WTO GPA. The advantage of this approach is broader coverage of sectors. CETA, in short, recognizes the realities of twenty‐first century international commerce, with complex networks of value‐chains and flows of people, services, and ideas across borders.
CETA will be the first comprehensive trade agreement between the EU and an OECD country. It will be a model or prototype for a new generation of trade agreements which move beyond the elimination or reduction of tariff barriers to the dismantling of NTBs. It is understandable that the EU is investing enormous energy in the CETA negotiations as this would create a template for future economic and trade pacts with other nations or groups of countries. It could conceivably set the stage for a Transatlantic trade agreement between the NAFTA countries and the EU. CETA might also catalyze the negotiations currently underway for the Transpacific trade agreement as other nations will not want to be left behind scrambling for market access or missing out on attracting investment. On the Canadian side, given provincial and territorial legislative competencies are impacted, a Canada‐EU deal could lead to harmonization of regulatory issues among the provinces and territories as they move to compliance with CETA.
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It is important to realize the significance of the EU market – media doom and gloom over recent fiscal problems is exaggerated. It underestimates the strength and resiliency Europeans have demonstrated in recovering from the devastation of two world wars fought largely in Europe as well as living in the shadow of the Iron Curtain for over forty years. With a combined population of over 500 million inhabitants, or 7.3% of the world population, the EU generated a nominal GDP of 16,242 billion US dollars in 2010, which represents an estimated 20% of global GDP when measured in terms of purchasing power parity. As the world’s largest economy it has grown from 6 member countries from its inception in 1958 to 27 today and still growing. There will be expanded opportunities as new member states join. Croatia is expected to become the 28th member of the EU on 1 July 2013. Iceland, Macedonia, Montenegro, Serbia and Turkey are all official candidates for admission to the EU. Turkey alone, with its emergent middle class is an example of untapped market potential that exists for Canadian goods and services. Expanded trade through enhanced market access is seen as many observers as the way out of the economic woes that have befallen the advanced and developed economies since 2008. Financial restraint can accomplish only so much. Growth through trade is the other side of the equation. CETA and the various other trade pacts currently being negotiated are seen as the solution by business as well as governments tasked with creating conditions conducive to economic recovery. In addition, by expanding and diversifying trade activities beyond North America, Canada will reduce its economic dependency on the United States, as well as becoming less vulnerable to economic shocks south of the border. Endnotes
Online: European Commission http://ec.europa.eu/trade/creating-opportunities/bilateralrelations/countries/canada/ [EC Bilateral Relations].1 Online: European Commission <http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/canada/ > 2 Alexandre Gauthier & Michael Holden, Canada-European Union Trade Negotiations p. 1. Overview of Negotiations, Library of Parliament, 2010 at 1 [Gauthier & Holden]. 3 EU Commission & the federal government of Canada (2008). Assessing the costs and benefits of a closer EU-Canada economic partnership. A Joint Study by the European Commission and the Government of Canada [Joint Study]. 4 Jonne Kregting, The EU-Canada Comprehensive Economic Trade Agreement: An Evaluation of the Public Policy Debate and Assessment of its Potential Results, (Master Thesis, Aarhus University, Aarhaus School of Business, 2011) at 22 [Kregting]. 5 Christian Deblock & Michèle Rioux, “From Economic Dialogue to CETA”,(2010-1011) International Journal, Winter 2010-2011,39 at 40 [Deblock & Rioux]. 6 Joint Scoping Group, “Joint Report on the EU-Canada Scoping Exercise”, 2009 Online: http://trade.ec.europa.eu/doclib/docs/2009/march/tradoc_142470.pdf [Scoping Report]. 7 Kregting, supra note 4 at 30. 8 Ibid. at 32. 9 Ibid. at 55-56.
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Kurt Hübner, “CETA: Stumbling Blocks in Ongoing Negotiations”, Canada-Europe Transatlantic Dialogue: Seeking Transnational Solutions to 21st Century Problems, (Ottawa: Carelton University, 2010) [Hübner] p. 2. 11 Gauthier & Holden, supra note 2 at 2. 12 Hübner, supra note 10 at 2. 13 Scoping Report, supra note 6 at 3. 14 Joint Study, supra note 3 at 18. 15 Gauthier & Holden, supra note 2 at 3. 16 Ibid. at 4. 17 Joint Study, supra note 3 at 36. 18 Stephen B. Woolcock, “The Canada-EU Comprehensive Economic and Trade Agreement (CETA) Towards a New Generation of FTAs?”, in Kurt Hübner, ed., Europe, Canada and the Comprehensive Economic and Trade Agreement, (New York: Routledge, 2011) 21 at 30 [Woolcock]. 19 Kregting, supra note 4 at 11. 20 EC Bilateral relations, supra note 1. 21 Deblock & Rioux, supra note 5 at 53. 22 Kregting, supra note 4 at 26-27. 23 Ibid. at 58. 24 Hübner, supra note 10 at 3. 25 Joint Study, supra note 3 at 78. 26 Hübner, supra note 10 at 4. 27 Woolcock, supra note 18 at 31. 28 Ibid. at 33. 29 Scoping Report, supra note 6 at 3. 30 Joint Study, supra note 3 at 36. 31 Scoping Report, supra note 6 at 3. 32 Kregting, supra note 4 at 68. 33 Scoping Report, supra note 6 at 4. 34 Kregting, supra note 4 at 63. 35 Ibid. at 62. 36 Joint Study, supra note 3 at 87. 37 Woolcock, supra note 18 at 32. 38 Joint Study, supra note 3 at 87. 39 Ibid. at 41 40 Online: WTO GATS Objectives: <http://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm> 41 Joint Study, supra note 3 at 44. 42 Ibid. at 89. 43 Joint Study, supra note 3 at 55. 44 Ibid. at 119. 45 Kregting, supra note 4 at 48. 46 Joint Study, supra note 3 at 65. 47 B. Kalinova, A. Palerm and S. Thomsen (2010), “OECD's FDI Restrictiveness Index: 2010 Update”, OECD Working Papers on International Investment, 2010/03, OECD Publishing. http://dx.doi.org/10.1787/5km91p02zj7g-en 48 Kregting, supra note 4 at 65. 49 Woolcock, supra note 18 at 33. 50 Joint Study, supra note 3 at 143. 51 Scoping Report, supra note 6 at 7.
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