Written by By Matthew S. Kronby, Milos Barutciski, Laura A. Murray, and Jessica B. Horwitz
On August 5, 2014, Canada and the European Union (EU) announced that they have completed negotiation of the Comprehensive Economic and Trade Agreement (CETA). The announcement puts to rest extended speculation about whether a deal was still possible, speculation fuelled by the nearly ten months that elapsed since the parties announced an "agreement-in-principle" last October.
The agreement goes far beyond the NAFTA in its scope and will result in significant trade and investment liberalization across a broad range of sectors. Much of that liberalization, including most tariff elimination, will take effect immediately when the CETA comes into force rather than being phased in over extended periods as was the case with the NAFTA. In fact, while ratification and formal entry into force could take another two years or more, as described below in more detail, key parts of the agreement could be applied on a provisional basis once the agreement is signed, which we expect will be in about a year.
Canadian businesses interested in entering the EU market or expanding their presence there, and EU businesses interested in doing the same in Canada, therefore should start to plan how best to take advantage of the substantial opportunities the CETA will create.
The Draft Text
Business planning in response to CETA will be aided significantly by the release of the negotiated agreement text, including all schedules and annexes. The details, in areas such as rules of origin (establishing where goods must be sourced to qualify for tariff preferences) are of fundamental importance in understanding how businesses will need to organize their operations and supply chains to benefit from liberalization, and understanding the real extent to which the Parties have liberalized, including at sub-national levels, with respect to labour mobility, government procurement, and market access and non-discrimination for investment and services.
Canada and the EU provided some significant details of the CETA's content in conjunction with last October's announcement, including in Canada's Technical Summary of Final Negotiated Outcomes. Our update published at the time described the main elements of the agreement. However, Canada and its negotiating partners ordinarily do not release the texts of trade treaties until they are finalized and signed. That reluctance has its logic, but is more difficult to justify in the case of an agreement of the CETA's economic and political importance. We note for example that the Parties to the NAFTA released the text in draft form not long after those negotiations were concluded. It similarly would make sense for the draft CETA text to be released promptly, perhaps by September's Canada-EU Summit between Prime Minister Harper and EU President Barroso.
Next Steps: Scrubbing, Signing, Ratification and Implementation
The draft CETA text must now undergo a careful legal "scrub" or review to ensure its coherence and that it expresses clearly the commitments the negotiators intended. Because the "authentic", or legally binding, versions of the CETA will include not only the English in which it was negotiated but also French and 21 other official EU languages, the text will need to be translated accurately into each of those languages. Once the legal review and translation is completed, the text will be ready for signing. On the EU side, this will require a decision of the EU Council. The process is simpler on the Canadian side where policy approval for signing is obtained by a decision of Cabinet, along with an Order-in-Council granting signing authority.
As noted above, the process through to signing should take about a year. After that, the CETA contemplates that Canada and the EU could agree to apply on a provisional basis any parts of the agreement that are within the competence of the European Commission, as opposed to Member States, provided any necessary implementing legislation is in place. This could include the elimination and phasing-out of tariffs.
The decision to provide in the CETA for its provisional application was driven by concerns that ratification on the EU side could be a drawn-out process. As a formal matter, the CETA will not come into force until it has been ratified. Again, that is a relatively straightforward affair on the Canadian side – particularly with a majority government to pass implementing legislation – but less so for the EU, where the respective roles of the Commission and Member States in the post-Lisbon Treaty era remains the subject of some debate. We know that it will require a vote of the EU Parliament but whether Member State parliaments too will have to approve the agreement remains a question.
Another question is whether any Member States will seek further changes to the CETA text as the price for their endorsement of it, either at the Council stage prior to signing or in the ratification process. For example, it has been suggested recently that Germany might do so with respect to investor protections. While we are skeptical of these scenarios they cannot be dismissed entirely, particularly as domestic debate over the CETA takes place against the backdrop of EU negotiations of a similar trade and investment agreement with the United States. We therefore will be following the EU approvals process closely.