March 3, 2013

The EU-Canada Comprehensive Economic and Trade Agreement (CETA): brief update on a winter of discontent (Armand de Mestral)

Network member Armand de Mestral (McGill) has passed on this brief update on the CETA negotiations.  It outlines a number of issues that have emerged which should be of particular interest to the broader transatlantic legal community given the renewed attention in the US to a trade agreement with the EU.  Thanks Armand for the contribution.

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The CETA negotiations, which were first expected to be concluded over a year ago, have continued to drag on through the summer, the autumn and now even the winter. It took Canada a long time to decide that it wanted the CETA and even longer to convince the EU to negotiate. Now, when both sides really want the CETA, it is proving harder to get than either expected despite the obvious advantages of liberalising trade between the two parties.

It was always understood that the EU would demand that provincial governments should make extensive concessions with respect to their service and government procurement markets, something that did not happen with NAFTA in 1004. Some Provinces, although wishing an agreement, are still refusing to open access to utilities such as Hydro Québec. The EU has made no secret of its desire to have Canada extend the period of patent protection under Canadian federal law extended beyond the 20 years set under NAFTA and TRIPS. Provincial governments will be faced with very unpalatable increases of provincial health system drug costs should this concession be made.

It was also no secret that the EU desired to have greater access to Canadian mining and energy resources. It has only recently become clear that this takes the form of a negotiating demand that Canadian federal foreign ownership laws be relaxed or exempted with respect to EU foreign investment. Not an easy call for Ottawa, especially as the impact is largely on provincially controlled natural resources.

More surprising still has been an apparent EU demand that Canada’s foreign ownership controls and banking laws be relaxed with respect to the potential access to and ownership of Canadian banks and insurance companies by EU investors. In response, Canada is proposing a clause reading: “A party may prevent or limit transfers….through the equitable, non-discriminatory and good faith application of measures relating to maintenance of the safety, soundness, integrity or financial responsibility of financial institutions or cross-border financial service suppliers.” This may be linked to a joint dispute resolution measure.

Negotiations over provincial and federal service markets have been further complicated by the fact that the EU is negotiating its first foreign investment chapter with a complete mandate under the TFEU article 207.  The Commission has been feeling its way in this area, hampered by doubts as to the desire of member states to have the Commission making bilateral agreements over direct foreign investment, the extent of the exclusivity of EU competence over domestic standards of treatment and the capacity of the EU to commit itself to all forms of investor-state arbitration.

Both sides profess to be eager to conclude. The sensitive issues are now well understood. Officials have done what they can. A first meeting of the Trade Commissioner and the Canadian International Trade Minister has taken place without reaching agreement and another will take place very shortly. Canada has got what the negotiation it wanted but has met a very determined EU negotiator, ready to ride roughshod over provincial health costs, foreign investment controls and even the integrity of the Canadian banking sector – one of the few in the Western world to come unscathed through the financial crisis. The EU is said to be determined to have an agreement which will set it up for a future EU – United States negotiation. It is not certain that the Canadian federal and provincial governments will be able to accept the terms.

There is as yet no demand from Canada that it should join the coming EU – United States negotiation in order to form a North Atlantic Free Trade Area.

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