Canada: Well Worth The Wait: Canada And The EU Reach Historic Free Trade Agreement

On October 18, 2013, in Brussels, Prime Minister Stephen Harper and European Commission president Jose Manuel Barroso made the historic announcement that, after nine long rounds of negotiations, the Canada – European Union Comprehensive Economic and Trade Agreement (CETA) has been finalized.

BACKGROUND AND SIGNIFICANCE

CETA, said to be a 'second-generation' free trade agreement since it addresses both direct and indirect barriers to trade and investment, represents an enormous opportunity for Canadians to gain increased access to the European  market. A joint study conducted by Canada and the EU estimated that the agreement would result in a C$12-billion boost in Canadian exports of goods and services to the EU, an increase in bilateral trade by over 20%, and the creation of 80,000 new jobs in Canada. In addition, CETA will provide an opportunity for Canada to halt its declining net export position with the EU. Areas of significance covered by the agreement include trade in goods, trade in services and labour mobility, rules of origin regulations, government procurement, and intellectual property.

The CETA is significant for a number of reasons. One is the coverage of the agreement beyond the usual reach of bilateral free trade agreements. In addition, the CETA was the first time that each province and territory were invited to participate in the negotiations, needed because certain important provisions of the CETA required buy-in at those levels of government.

THE NEGOTIATION PROCESS

Canadian and EU leaders announced at their summit in October 2008 that they would begin to work together to define the scope of a deepened economic relationship. Negotiations for the agreement began in May 2009, and nine rounds of negotiations were held. Pressure to complete the agreement was created in February of this year, when the United States announced that they would be launching trade negotiations with the EU in the summer. Two contentious issues that emerged in the final stages of negotiations were: broadening the Canadian market for European cheese, and opening the European market for Canadian beef and pork.

AGREEMENT-IN-PRINCIPLE

With the conclusion of the CETA negotiations, the federal government confirmed that the CETA will see the elimination of 98% of EU tariffs on Canadian goods and services.

The text of the agreement has not yet been released and, while few details of the agreement have emerged, we understand that certain provisions have been leaked about the deal.

For example, Canada has allegedly agreed to raise import quotas on cheese from 20,000 to 37,000 tonnes, with the EU's share of those quotas increasing by 17,000 to 30,000 tonnes. Import quotas on foreign cheese are part of Canada's supply management system, which sets a minimum price for domestically produced cheese, and imposes substantial tariffs on foreign cheese with only a small amount of foreign cheese – reflected in the import quotas – allowed to be imported tariff-free. While the Governor General confirmed the federal government's commitment to the supply management system in his speech from the throne on October 16, 2013, Canadian dairy farmers were said to be "angered and disappointed" over the increase in import quotas.

In exchange for the increase in Canadian cheese quotas, the EU has allegedly increased Canada's beef and pork quotas up from 15,000 and 6,000 tonnes, to 50,000 and 75,000 tonnes respectively, a concession that has been reported as leaving French beef farmers "outraged."

The final agreement has also been reported as allowing Canadian automakers to export 100,000 cars a year to the EU with Canadian content requirements as low as 20%, with additional cars allowed to be exported tariff-free where they have at least 50% Canadian content. Full access to EU markets has been granted to Canadian fruits, vegetables, wheat, oats, barley, rye, canola oil, and the dairy industry, with the exception of poultry and eggs. Tariffs on Canadian seafood, metals and mineral products have all allegedly been swept aside by the final agreement.

With certain exceptions, the final agreement allegedly grants European companies the opportunity to bid on Canadian government procurement contracts in the range of C$205,000 to C$7.8-billion, while the vast majority of EU tariffs on Canadian advanced manufactured products will be eliminated. Canadian machinery and equipment, medical devices, rail products, electrical equipment, and scientific precision instruments will no longer be subject to EU tariffs once the CETA comes into force. Tariff elimination expected in the final agreement will also provide a significant advantage to Canadian chemical, plastics, forestry, and information technology industries.

More details will be available once the actual text is available to the public. This will include details on the "rules of origin" for the determination of when any particular goods will be accorded duty-free treatment under the CETA, and details concerning the treatment of services, investment, procurement, pharmaceuticals, and geographical indicators, among other topics.

COMMENTS

The completion of the CETA negotiations has come at an opportune time for Canada's Conservative Government. There was pressure on Prime Minister Harper to conclude a deal which was originally scheduled to have been concluded last year. In addition, since the EU has already commenced negotiating an EU-U.S. agreement, there were fears that Canada might lose its advantage over the U.S. if its CETA negotiations were not concluded before the EU-U.S. agreement. Finally, concerns were also raised about the risks to the CETA of the elections happening in Europe in 2014 which could see a change in the level of support for the CETA.

Now that the CETA has been concluded, there will be a further period of time needed for each of the respective parties to convert the political text into legislation, and for the legislation to be implemented into domestic law. It could be another two years before the CETA actually takes effect. Despite this, businesses in Canada as well as in Europe should start planning for the implementation, including investments, and changes in sourcing and manufacturing which could increase the benefits available under the CETA. An experienced trade lawyer or consultant should be consulted to maximize all available benefits and for guidance through the complexities of the CETA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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