The Comprehensive Economic and Trade Agreement Opens a New Bridge Across the Atlantic

By Jose Corte-Real

The Future Model for European Trade Deals?

After seven years of negotiations, the landmark Comprehensive Economic and Trade Agreement (CETA) was signed on October 30, 2016. The agreement, which has been touted as a major success for the future of EU trade deals, has also been the target of criticism and protests. With approval from the European Parliament and the Canadian Parliament, 90% of the deal will be able to take effect, leaving the rest of the deal to be ratified and implemented by each of the twenty-eight member states’ national legislatures.

The deal purports to remove 98% of tariffs between Canada and the EU, and officials hope it will generate a €10.9 billion ($14.3 billion Canadian) increase in trade worth. Further, EU exporters are estimated to save €500 million in duties annually, and there will be mutual recognition in regulated professions such as architecture, accounting, and engineering and easier transfers of company staff and other professionals between the EU and Canada. The European Commission also hopes CETA will create a more level playing field between Canada and the EU on intellectual property rights and strengthen the protection and enforcement of copyrights. “Canadians and Europeans share the understanding that in order for real and meaningful economic growth, we need to create more good, well-paying jobs for our citizens. Progressive trade agreements like the one signed today, will do just that,” Trudeau said, shortly after signing the landmark deal.

European Commission President Jean-Claude Juncker referred to a “new chapter” in relations between Canada and the EU, hoping this deal will open new opportunities for the millions of workers seeking them on both sides of the Atlantic.

The seven years of negotiations between each of the EU member states and Canada were left hanging in the balance as Wallonia, Belgium’s southern French speaking region with a population of 3.6 million people voted to veto the agreement just a few days before the deal was due to be signed. Because all twenty-eight EU states had to agree on the deal before it Trudeau could sign it, Belgium’s veto almost pushed back the long-awaited deal yet again. Belgium was the lone holdout to signing the deal because its regions can veto international treaties. The protestors were fearful of an investor-state dispute mechanism provision and sought safeguards for labor, environmental and consumer standards, and more protection for Walloon farmers who believe they will face increased competition from Canadian imports. In order for the deal to move forward, a last minute addendum was added addressing the regional concerns.

Further criticisms of the deal include that it will weaken European consumer rights protections, including those concerning food safety, and that tariffs are already low and do not need lowering. The deal has also been criticized as being beneficial only to big business and multinational corporations while risking net-losses, unemployment, and environmental damage that might impact individual citizens. These criticisms seem to highlight how hard it is to get free trade agreements done in a multifaceted and multicultural economy such as the EU’s. CETA also brought up a lot of talk in Brussels regarding finding a new consensus on trade. Whatever this consensus is, it will be very relevant to how the EU approaches Brexit negotiations.

A Potential Model for Post-Brexit Relations with the UK?

Many of the British leaders who advocated a leave vote during the Brexit campaign pointed to Norway and Switzerland’s relationship with the EU as a model to aspire to. However, the CETA model may be significantly more appealing. Norway and Switzerland’s access to the European Union single market comes at a steep price. Both countries sign up for most EU regulations, accept the free movement of EU workers, and make payments into the EU budget. CETA seemingly will give Canada access to the EU single market without the obligations faced by Norway and Switzerland. However, some Brexit proponents still have apprehensions about using CETA as a viable model for a trade deal with the EU.

CETA’s removal of tariffs does not include some sensitive food items such as eggs and chicken. Further, the EU will still require Canada to comply with its rules of origin, which oblige non-EU states to undergo rigorous customs checks. Because of these customs requirements, Canadian exporters are expected to face extra costs in order to prove their goods are “made in Canada.”

Finally, the service industry, which makes up about 80% of the United Kingdom’s economy are only partially covered by CETA. Thus, although CETA could be a good starting model for discussions with the EU, it is expected that a trade deal between the UK and the EU would have to be significantly more comprehensive in order to deal with the intricate web of ties that currently link the UK and the EU.

How CETA Will Affect the Legal Landscape of Investor-State Disputes

A lot of debate has revolved around an investor-state dispute settlement mechanism included in the deal through which a permanent arbitration tribunal is to be established. This tribunal, which will settle disputes between companies and governments, has been controversial, with many protestors claiming it gives too much power to big multinationals at the expense of consumers and workers. Amongst other criticisms, critics allege that the investor-state dispute settlement provisions will allow U.S. companies to engage EU states in arbitration through Canadian subsidiaries.

Section 4 of CETA provides investment protection to foreign investors and guarantees a “fair and equitable treatment and full protection and security.” CETA will allow foreign corporations to sue states before arbitral tribunals if they claim to have suffered losses because a state violated its Non Discriminatory Treatment obligations (which can be found in section 3 of CETA) or because of a violation of the guaranteed investment protection.

Such investor-state arbitrations are not necessarily new under public international law, but for transatlantic trade and investment, the comprehensiveness of this parallel model of justice is new. In addressing fears of confidentiality of arbitral proceedings, CETA provides transparency by adopting the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration.
The tribunal will consist of fifteen members named by Canada and the EU, dealing with individual cases in panels of three, and an appeals mechanism will be established to ensure “legal correctness” of the awards. Further, the tribunal’s members will not be allowed to appear as experts or party counsel in other investor-state disputes.

These investor tribunals  are not a guaranteed part of CETA, and each national legislature will have to ratify them individually. For example, Belgium’s opposition to the court suggests that it might never be enacted there, meaning Canadian companies will not be able to use the arbitration tribunal to sue Belgium over policies that negatively affect their investments. This could serve as a model for other countries that worry this provision unduly gives too much power to corporations.

Moving Forward

Supporters of the deal say that it will create more than one million jobs, with the European Commission saying the deal will be worth €545 to each European citizen every year. Opponents are angry that CETA meetings were held in secret and fear that the deal has given too much power to corporations by making it easier for them to sue governments. However, only time will tell if this deal will boost the stagnant economies of these two global markets and serve as a viable model for the future of EU trade deals.