Final EU-Canada trade text includes transnational investment courts By Craig James Willy, dpa dpa Insight EU 15 December 2014 18:39
The EU and Canada have finalised the 1,500-page text of a trade agreement. The deal however includes controversial investment protection clauses, under which multinationals may sue governments, which have been criticised by MEPs and Germany. (New: Ifo estimates EU GDP boost to 0.22 per cent, says ISDS not needed, 15/12/2014)
Brussels (dpa Insight) - European and Canadian negotiators have finalised the text of a free trade deal known as the Comprehensive Economic and Trade Agreement (CETA), after five years of painstaking talks.
The deal would eliminate most remaining tariffs between the two economies and is seen as template for an EU-US trade deal, including controversial investment protection provisions which have been criticised by Germany.
"Canada and the European Union are pleased to announce that officials have reached a complete text," the Canadian government said in a statement. The text must now be reviewed by lawyers, translated into the EU's 23 other official languages and examined by Canadian provincial and EU national governments.
A German foreign ministry report dated September 8 indicates the European Commission does not intend to initial the agreement at an September 26 EU-Canada summit because it is "legally unnecessary". Instead, the agreement is to be signed only after legal scrubbing and approval by EU member states in Council. The summit's date was confirmed a mere 10 days prior.
There is continued German reticence regarding the deal's investment protection clauses, with Berlin fearing that potential haircuts and financial sector restructuring could lead banks to launch lawsuits against governments. Germany proposed excluding such restructuring from investment protection.
According to the document, the German position was supported by several smaller EU states, including the Netherlands, Sweden, Slovakia, the Czech Republic, Finland and Austria. "Germany is not alone in its requests for changes to CETA," the text says. "A number of member states - but not the 'big' member states such as the UK and France - supported our demands to amend the investment protection chapter." The Commission however told the German officials that the text of the agreement could not be re-opened for negotiation, according to the text.
After signature, the 1,634-page agreement (see links) will need to be ratified by Canada's 10 provinces, the EU's 28 nations and the European Parliament, which is expected to occur by 2016. Brussels and Ottowa had initialed a "political agreement" on the trade deal in October 2013, but some remaining provisions still needed to be negotiated.
## Major points of the proposal
Negotiators have said CETA will increase EU-Canada trade 23 per cent or by about 26 billion euros and that this will lead to increases in GDP annually of 12 billion euros for the EU and 8 billion euros for Canada. It is the first free trade agreement between the EU and a G8 economy. The final text has yet to be published however many provisions are already known.
Mutual recognition of regulation key
As tariffs between the EU and Canada are already relatively low, the bulk of economic gains are expected to come from the mutual recognition of regulation. This will involve liberalisation of areas such as financial services, telecommunications, e-commerce, energy and transport.
In particular, Canada will recognise United Nations standards for car safety, which are also the standards that the EU uses. There will also be increased protection for European investors, the EU being the second biggest investor in Canada. Canada will also recognise EU intellectual property rights, notably for pharmaceuticals.
All levels of Canadian government to open up public procurement
Public procurement is a major part of the deal. All levels of Canada's government - federal, provincial and local - would commit to opening their public procurement contracts to European firms. These contracts have an estimated annual value of over 100 billion euros. "It's something which puts us beyond NAFTA," said an EU official.
The official went on to say that there would be a size threshold so that major projects, such as the construction of bridges, would need to be open to EU companies, while smaller contracts would be excluded. The goodwill of Canada's provincial governments will be needed to implement these clauses at provincial and local level.
The provinces of Quebec and Ontario will be able to maintain 25 per cent local content requirements for government contracts regarding transport and 30 per cent for energy.
Compromise over geographical indications
European geographical indications will be extended beyond wines and spirits to foods, with 145 names recognised by Canada. Newcomers to the market will not be allowed to sell "Black Forest Ham" or "West Country Cheddar" or use advertising imagery associated with the country of origin. Compromises have been found for a further 20 or so products under which Canadian producers will be able to sell under labelling such as "Asiago-style" or "Feta-style".
However, current Canadian trademark holders of names of European locations will continue to be allowed to market their products under their current names for certain products, especially cheeses. Producers will need to clearly indicate where the product was made and EU producers will be able to sue when a Canadian company misuses their geographical indications.
Elimination of 99 per cent of tariffs
Ninety-nine per cent of tariffs will be eliminated as part of the deal, including 98.4 per cent of tariffs directly upon entry into force. The Commission estimates that this should save 500 million euros annually for EU exporters to Canada.
An EU official said the main European sectors benefiting include the automobile industry, textiles, machinery, sugar confectionary, cereal-based foods, fruits, vegetables and high-quality cheese. The biggest gains for Canada should include machinery, fish and chemicals.
Agriculture: opening beef, dairy and liquor
The two per cent of tariff lines that will remain are primarily "sensitive agricultural products" including beef, pork and sweetcorn. The EU will grant Canada however a tariff-free quota for 45,800 tonnes of beef annually. There will be no opening of the Canadian chicken market, which is sensitive for local farmers.
Canada for its part will almost double the EU's tariff-free quota for cheeses to 30,000 tonnes. A compromise has been found on wines and spirits - the sale of which is managed by provincial monopolies - under which Canadian price supplements for imported alcoholic beverages will be made proportional to volume rather than price. Since European beverages are often of a high price for a low volume, this is expected to significantly reduce the discriminatory effect.
The agreement is expected to increase labour mobility with a "negative list" of excluded worker categories, with all others benefiting from looser mobility rules. In contrast, Canada's North American Free Trade Agreement (NAFTA) with the US and Mexico only includes a "positive list".
Workers likely to be covered include corporate transfer employees, short-term business and investment visitors, and independent service providers. There will also be recognition of certain scientific and engineering qualifications as equivalent.
Investor-state dispute settlement
The final EU-Canada text as of August 2014 includes controversial invest-state dispute settlement (ISDS) provisions which would allow Canadian firms to sue EU governments before transnational arbitration courts for alleged violations of investor rights. EU companies would also be able to sue the Canadian government. These provisions have been included against the backdrop of a wider debate on ISDS in the EU's trade agreements, with significant opposition to their inclusion in deals with economies with advanced judicial systems (see our Insight EU dossier).
## Main points of conflict
Some European governments and members of the European Parliament have criticised the inclusion of ISDS in CETA. The clauses are meant to protect foreign investors from unfair treatment such as expropriation but have been criticised for limiting states' right to regulate and provide public services, and for being unnecessary between countries with mature legal systems.
The German government, the Socialists and Democrats in the European Parliament, and Brussels NGOs are among those that have been critical (see positions).
ISDS attracted significant public attention and criticism with its possible inclusion in the EU-US free trade agreement known as the Transatlantic Trade and Investment Partnership (TTIP). The European Commission decided to freeze talks on investment protection in TTIP pending a recently concluded public consultation which attracted some 150,000 submissions.
In Canada, there have been concerns that consumers or particular industries would be hit by CETA. Canadians have worried that recognition of EU intellectual property rights would increase prices for medicines. Canadian Prime Minister Stephen Harper has pledged that the federal government will compensate provincial governments for more expensive health costs because of intellectual property rights.
Canadian dairy farmers have also been concerned that the deal is expected to almost double EU cheese's tariff-free access to the Canadian market to 30,000 tonnes. The Canadian federal and the Quebecois provincial governments have pledged to compensate dairy farmers. In exchange, the deal should enable Canada to export 900 million euros worth of beef and pork to the EU.
There had also been potential opposition from some EU governments, notably the Czech Republic. Prague had said it would oppose CETA until Canada lifted restrictions on visa-free travel for Czech nationals. In November 2013, Canada granted Czechs visa-free travel for up to six months.
In September 2014, the European Commission announced that it would take the unusual step of not initialing the agreement in order to appease wary member states. EU officials assure initialing is not necessary for final passage and that the step can simply be skipped. They also say contested provisions, notably on ISDS, cannot be removed without a full renegotiation of the text with Canada
The Commission has not yet decided if the agreement is a mixed agreement entailing both EU and national competencies. If the agreement is deemed mixed then all 28 EU national parliaments will need to ratify it for it to permanently come into force. The EU executive will take a position on this after lawyers finish reviewing the text, probably by autumn 2014. Member states in Council can unanimously overrule the Commission's opinion and determine that the agreement is mixed.
## Chronology and next steps
- May 6, 2009: CETA negotiation launched at EU-Canada summit in Prague.
- October 18, 2013: A "political agreement" on CETA is reached at an EU-Canada summit in Brussels, although the final text still needs to be negotiated.
- August 6, 2014: EU and Canadian negotiators agree to a full text on CETA.
- September 26, 2014: EU-Canada summit in Ottawa and publication of draft text, but no initialing.
- Late 2015: Possible completion of translation and legal scrubbing of text and presentation to Council for approval of signature.
- Mid-2016: Possible provisional entry into force with ratification by the Canadian and EU parliaments. Public procurement and other provincial provisions would come into force with ratification by Canada's provinces. Final entry into to force in the EU could also require ratification by the 28 national parliaments.
European Commissioner-Designate for Trade Cecilia Malmstrom, appearing in her candidacy hearing before the International Trade Committee (INTA), rejected suggestions to renegotiate CETA in order to remove ISDS. "It would be a mistake to open up the Canadian agreement," she said. "They (the Canadians) will open other chapters and then the whole agreement risks to fall."
"Many of the concerns [on ISDS] are actually addressed in the deal we have with CETA," Malmstrom added. She indicated that CETA would be brought before MEPs in spring 2015.
The free trade deal has split opinion in the European Parliament. While centre-right, conservative and social-democratic lawmakers hailed its potential economic benefits, leftists and Greens denounced what they say is the secretive and multinational-driven nature of the negotiations and warned that the terms of the accord could erode workers' rights and have a negative impact on environmental policies. European and Canadian trade unions have also been critical.
Perhaps the most contentious issue is ISDS, which may prove a deal-breaker for the Socialists and Democrats (S&D). The treaty is unlikely to pass with the S&D's support given that it is the second-largest group in the Parliament and that Left, Greens, euroskeptics and non-aligned are likely to vote overwhelmingly against.
European Peoples' Party (EPP)
In 2013, the centre-right EPP welcomed the EU-Canada free trade deal in a joint statement issued by the group's spokesman in the European Parliament's international trade committee (INTA), German MEP Daniel Caspary, and the European Parliament's rapporteur on EU trade with Canada, Slovakian MEP Peter Stastny.
Caspary said on October 18, 2013 that the EU-Canada Trade Agreement is an "important bridge" that could ease progress towards the inking of the "similar" Transatlantic Trade and Investment Parternship (TTIP) between the EU and the US. "The fact that the EU and our Canadian partners managed to find an agreement provides a boost for the upcoming TTIP negotiations, which will include many of the same elements," he added.
In a more qualified welcome, French MEP Nora Berra described a EU-Canada free trade agreement as a "a oxygen boost" for the French and European economies provided "red lines" in certain sectors are not crossed. Berra cited EU rules governing "sanitary and phytosanitary issues, those on public procurement and intellectual rights," in particular as areas where France and the EU have to "enforce their strategic interests".
At the September 16, 2014 plenary debate, Italian EPP MEP Salvatore Cicu praised the "oustanding work that had been done" on CETA, citing the support for SMEs and geographical indications in particular.
Socialists and Democrats (S&D)
The S&D expressed support for the agreement also having some criticisms. Spanish MEP and then-chairman of the International Trade Committee (INTA) Vita Moreira said on October 18, 2013: "This ambitious agreement will boost our trade and investment relations with Canada and create new opportunities for growth and jobs."
Lange regretted however the inclusion of an "investor-state dispute mechanism, which we wanted excluded."
He added: "We will study in detail the chapter on social and environmental standards and still expect a robust human rights clause to be included in the strategic partnership agreement which has not yet been finalised between the EU and Canada."
The S&D reiterated this opposition to ISDS upon announcement of the agreed text on August 6, 2014. "I cannot imagine that the Social Democrats in the European Parliament will agree to CETA if the investment protection clause is not removed," said Austrian S&D MEP and Trade Committee member Joerg Leichtfried.
He added that it was "incomprehensible and pure nonsense" to include ISDS in a deal between two economies "with a strong rule of law".
On September 16, 2014, INTA Chairman Lange, speaking on behalf of the German Social Democrats, said in a statement that the Commission should publish CETA's text and that the inclusion of ISDS was "unacceptable". "The Commission is perfectly aware of our red lines," he warned.
During the plenary debate, British Labour MEP and S&D spokesman David Martin asked whether the Council considered the agreement unconcluded given the lack of initialling and reiterated his group's opposition to ISDS. "There are certain things we will not compromise on," he said.
European Conservatives and Reformists (ECR)
The ECR expressed satisfaction with the EU-Canada trade deal. British MEP Robert Sturdy, who is also vice chairman of the European Parliament's international trade committee (INTA), said on October 18, 2013 that he "looked forward to receiving the text of the agreement soon, so the European Parliament can analyse the text and express our views promptly."
"When you realise that the value of bilateral trade in goods between the EU and Canada was 61.8 billion euros in 2012, you see the huge potential which exists for this agreement to boost economies on both sides of the Atlantic. Access to Canadian public procurement is potentially a huge boost the UK and the rest of Europe," Sturdy added.
During the September 16, 2014 plenary debate, Croatian MEP Ruza Tomasic said she did not believe the concerns surrounding ISDS were founded and that she "strongly supported CETA" in order to boost trade and investment. She added that it was particularly necessary to increase access to Canada as agricultural exports to Russia had been cut off.
Alliance of Liberals and Democrats for Europe (ALDE)
Dutch Liberal MEP Marietjie Schaake welcomed CETA during the September 16, 2014 plenary for "facilitating exports and market access". She seemed to neither support nor oppose ISDS, noting that such agreements are already included in 1,400 bilateral agreements by EU countries and that she was eager to see the results of the Commission's consultation on the topic.
European United Left/Nordic Green Left (GUE/NGL)
The GUE/NGL said it was joining civil society groups "on both sides of the Atlantic," to demand the "immediate release of the text of the Canada-EU Comprehensive Economic and Trade Agreement".
German MEP Helmut Scholz, a member of the International Trade Committee (INTA), said on October 18, 2013 that he rejected the inclusion of an investor-to-state dispute settlement into CETA and pointed to recent cases of corporate arbitration panel lawsuits in Canada which should be "a wake-up call" for the EU.
"Our court systems should not be bypassed. Trade agreements have to be mutually beneficial for the people affected by them on both sides of the deal; this means firmly enshrining investors' obligations into the agreement, particularly when it comes to respect for provisions concerning trade unions and workers' rights, transparency and environmental protection," Scholz said.
Irish MEP Paul Murphy said on October 18, 2013 that "like all free trade negotiations conducted by the European Commission, CETA negotiations have been held in secret and have been driven by Canadian and European multinationals and agrobusiness that want market access and access to vital public services so they can profit at the expense of working class people."
Murphy described the deals as a "charter for further liberalisation which will undermine the standards and quality of our services and utilities." He said corporations should not be given the right to sue governments when social or environmental policies "cut across their profiteering".
Murphy said he could foresee "significant civil society opposition in Europe if the agreement gives private Canadian investors the right to file a legal action against public policies in Europe".
Dutch MEP Anne-Marie Mineur reiterated her group's opposition to CETA during the September 16, 2014 plenary debate.
Greens/European Free Alliance
In his reaction Greens trade policy spokesman, French MEP Yannick Jadot said on October 18, 2013 that CETA "has been negotiated and sealed with little transparency, poses a real threat to agriculture, and could undermine EU rules on environment and consumer protection."
Jadot said that "for the first time," an EU trade agreement had included provisions on investment protection and investor-to-state dispute settlement which "will allow corporations to challenge EU regulations, for example on consumer protection, public health or the environment, with a view to overturning more ambitious rules through an opaque and costly arbitration process".
Jadot said the Greens were particularly concerned that the deal could challenge EU rules on fuel quality, such as those that prevent oil from environmentally-damaging tar sands being sold on the EU market.
In terms of the likely impact on agriculture, Jadot warned that its provisions "threaten the livelihoods of smaller farmers in Europe and Canada". "In particular, the deal will allow Canada to export much higher amounts of beef and pork to the EU, threatening European farmers who are already under pressure."
"The agreement also includes a 'negative list' of service liberalisation for the first time, which make the liberalisation of sensitive service sectors the automatic default option," Jadot added.
He also noted that the provisions prevent any privilege being granted to small, local companies in public procurement, a situation which would "reinforce corporate power at the expense of smaller enterprises."
Jadot confirmed his group's opposition during the September 16, 2014 plenary debate. "There are more risks than benefits," he said.
Europe of Freedom and Democracy Group (EFDD)
Italian Five-Star Movement MEP Tiziana Beghin attacked CETA during the September 16, 2014 plenary debate for forcing European companies to compete with Canadian ones enjoying laxer environmental standards, noting that Ottawa has not adopted the Kyoto Protocol on fighting climate change.
"How can our SMEs compete with companies who are not expected to respect these environmental rules?" she said.
Non-Attached MEPs (NA)
French National Front leader Marine Le Pen was the first to speak among the Non-Aligned MEPs during the September 16, 2014 plenary debate, attacking the agreement for containing ISDS. "The text that we have will put in place private justice in the disputes between the states and investors instead of public justice," she said.
Le Pen challenged MEPs to vote against the agreement, noting that many had criticised ISDS. "The moment of truth is approaching," she said.
Berlin has been critical of the inclusion of ISDS provisions in CETA. "The German government will now be scrutinising the draft agreement (including the draft's provisions on investor protection)," said an EU diplomat on condition of anonymity. "The German position will be hammered out in due course, taking into account all relevant aspects." The German government has said that it does not think ISDS is necessary in an EU-Canada deal but that it might accept the agreement nonetheless if the overall "European interest" justified it. [08/08/2014]
German Vice-Chancelor and Minister for the Economy and Energy Sigmar Gabriel has said that the German Social Democratic Party's "red lines" on TTIP should also apply to CETA. These include rejection of ISDS. Gabriel has also commissioned a legal study which finds that CETA would be a mixed agreement requiring ratification by national parliaments. [24/09/2014]
Gabriel voiced a change of position in the Bundestag, saying that Germany would approve of CETA including ISDS if other EU countries did so. "If the rest of Europe wants this agreement ... then Germany will also agree," he said, causing consternation among the left wing of his Social Democratic Party. [27/11/2014]
European and Canadian trade unions have criticised the negotiations for lack of transparency. In a joint statement, the European Trade Union Confederation (ETUC) and the Canadian Labour Congress (CLC) said on February 14, 2013 that they "are concerned that CETA will interfere with the right of governments to regulate in the public interest, protect public services, or create new public programs."
ETUC and CLC went on to warn that accessible and affordable public services could be undermined by the agreement as a "barrier to trade in services". They said "we are deeply concerned our respective governments may replace broad exemptions for public services with narrowly specified exemptions in trade and investment agreements."
The trade unions also oppose the liberalisation of public procurement at regional and local level. "Local governments should have a clear and permanent exemption from the CETA so they can use public money in support of sustainable, local, economic development", they said.
European Consumer Organisation
The European Consumer Organisation (BEUC) is critical of the inclusion of ISDS in CETA. "Today's announcement of a deal between Canada and the EU - 'conveniently' concluded during the summer - puts the spotlight on its investor/state arbitration clause which is so heavily being criticised," said BEUC Director General Monique Goyens on August 6, 2014.
"This clause in the deal with Canada will put a foot in the door for US companies to sue European governments via their Canadian subsidiaries, even if TTIP concludes without this tool," she added.
Council of Canadians
The Council of Canadians, a social action organisation, has criticised the negotiation and content of CETA. On August 13, 2014, it attacked several provisions of a leaked version of the text. The ISDS provisions appear "standard" as "three-person panel would make decisions rather than the mature court systems", they said.
They added: "The 30-page procurement section appears to give no consideration to the numerous Canadian municipalities that requested to be exempted from its provisions."
The Council also criticised the provisions on property rights, claiming it could increase health costs for Canadians by 900 million to 1.7 billion Canadian dollars (620 million to 1.2 billion euros). "The EU language was adopted on resolution of pharmaceutical patent disputes," they said. "This will open the flood gates to pharmaceutical companies' law suits (and) will lengthen patent lengths and delay generics coming to market."
The Ifo Institute, Center for Economic Studies, estimated in a study that CETA would boost EU GDP in the long term by 0.22 per cent. This would mean an increase in annual wealth production of 28 billion euros. German exports to Canada could triple according to the study, with an increase of GDP of 0.19 per cent. The biggest winners in the EU would be Finland with 0.4 per cent growth, Belgium with 0.35 per cent and the UK with 0.34. Canada would benefit much more, seeing up to 2.97 per cent growth.
"The greatest beneficiaries in Germany would be consumers of agricultural products and resource-intensive products, as well as fossil fuel consumers, as they could buy these products cheaper abroad," said trade expert Gabriel Felbermayr. "These beneficiaries would primarily belong to poorer groups of the population".
The study argues that ISDS would not be needed to achieve this growth. "Controversial investor-state arbitration courts are not necessary to achieve these positive effects," said Felbermayer. "It is highly questionable whether global investment protection can really be best guaranteed through a web of bilateral agreements."
The economist added that a global investment protection tribunal would be preferable: "An institutionalised, independent international court, with full-time and truly independent judges that are remunerated irrespective of any case and offer a means of revision would be a far better alternative." [15/12/2014]
-->[European Commission, consolidated CETA text, September 26, 2014](http://dpaq.de/VNblR)
-->[Joint statement on EU-Canada summier, September 26, 2014](http://dpaq.de/jlnDk)
-->[Canadian government, press release, August 5, 2014](http://dpaq.de/AWnfY)
-->[European Commission, news piece, October 18, 2013](http://dpaq.de/eo5Ji)
-->[European Commission, investment provision in CETA, December 3, 2013](http://dpaq.de/X4VsF)
-->[European Council, leaked text of CETA agreement, August 5, 2014](http://dpaq.de/E0wIH)
-->[Council of Canadians, reaction to leaked CETA text, August 13, 2014](http://dpaq.de/JPC0Y)