Negotiations between Canada and the European Union (EU) on the Comprehensive Economic and Trade Agreement (CETA) began in 2009. In October 2013, an agreement was reached in principle and last month, it was reported that the legal review of CETA has finally been completed. Some reports indicate that CETA could come into effect next year.
In October, 2013 this blog commented on the possibility that CETA "may be good for business in M&A", specifically citing the proposed increase in the threshold for government review of foreign direct investment by EU companies in Canada as compared to other non-domestic companies. However, despite the opportunities that might arise in Canada as a result of CETA, Canadian companies looking to pursue opportunities in Europe will need to be mindful of recent developments.
For example, backlash in the EU surrounding the CETA chapter dealing with disputes between companies and governments (known as ISDS) has led to significant changes in the text of the CETA. Over the past year, it has been reported that there were "concerns [in the EU] that the investor-state dispute settlement chapter would give big companies the power to sue governments for creating regulations that affect their profits." On February 29, 2016 a revised version of CETA was released that dramatically altered the chapter at issue. Notably, the ISDS system was replaced with an international investment court, made up of a tribunal and an appellate tribunal composed of fifteen members elected by the EU and Canada.
Concerns of rising "corporate power" are also directly reflected in the activities of the EU. For example, in the March/April 2016 edition of Foreign Policy magazine, the European Union's Commissioner for Competition, Margrethe Vestager, was featured and the article stated that "[a]s the EU's antitrust czar" Ms. Vestager has waged "an aggressive, high-profile war against corporate power." The magazine specifically reported that Ms. Vestager had recently ruled that a decade old "corporate tax-break system that Belgium had designed...to slash taxes on multinational corporations' profits by up to 90 percent" was illegal.
Most recently, the upcoming referendum in the United Kingdom on a British exit from the European Union has added an additional element of uncertainty to the potential impact that CETA might have for Canadian companies. International Trade Minister Chrystia Freeland has not commented on the impact "Brexit" might have but, as the reports referenced above indicate, Canadian companies looking to take advantage of CETA by engaging in European based M&A activity will have to monitor developments in Europe over the next several months carefully.
The author would like to thank Andrew Nicholl, articling student, for his assistance in preparing this legal update.
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