Canada: The CETA Saga: Can Final Negotiations Save The Agreement?

The road to completion of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union has been a rough ride since negotiations began in 2009, and it did not get any smoother in October 2016, when the French-speaking region of Wallonia in Belgium declared it could not accept the agreement.

It took five years of negotiations before the CETA was declared to be concluded on August 5, 2014, although what was described as the final text of the agreement was not released until two months later, on September 26, 2014.

The agreement is described as a "second generation" free trade agreement as it covers both direct and indirect barriers to trade and investment and contains 30 chapters covering such topics as: trade in goods, trade remedies, sanitary and phytosanitary measures, customs and trade facilitation, investment, cross-border trade in services, financial services, electronic commerce, government procurement, intellectual property, and dispute settlement. Upon entry into force, the CETA would:

  • See 98 per cent of European Union (EU) tariff lines become duty-free for Canadian exporters
  • Grant Canadian contractors the right to bid on opportunities in the EU government procurement market — worth approximately C$3.3-trillion annually
  • Provide protection and guarantees of fair treatment to foreign investors, backed with an investor-state dispute settlement (ISDS) mechanism

A revised version of the text of the agreement was released on February 29, 2016, containing an updated ISDS mechanism, intended to soothe European concerns that the original ISDS provisions constituted a threat to the state's "right to regulate". This was followed last summer by a Joint Interpretative Declaration, which was in part aimed at addressing European concerns over the agreement's treatment of government procurement. These attempts to respond to European concerns over the CETA appeared to have come to naught in October 2016, when the Belgian region of Wallonia declared that it could not accept the CETA as it currently stands.

A MIXED AGREEMENT

While it was unclear during the initial negotiation of the agreement, in July of 2016, the European Commission decided that the CETA would be treated as being of "mixed competence" for the purposes of ratification, meaning that the agreement would need to be approved both by the European parliament, and by each European Union national government, and in some cases, by regional governments.

In October 2016, the regional government of the French-speaking region of Wallonia in Belgium, threw what may be the final roadblock in the path of the CETA by refusing to accept the current version of the agreement. The parliament voted to reject the CETA on the basis of several concerns with the current CETA text, ranging from competition from Canadian agricultural exports, to concerns that the ISDS will restrict the government's authority to regulate, among still other concerns.

FREELAND WALKS AWAY FROM THE TABLE, BUT NOT ENTIRELY

After indicating that Wallonia could not accept the CETA, Wallonia Premier Paul Magnette then rejected a proposed deadline of Friday, October 21, 2016, as the final day on which Wallonia would be able to reverse its decision, allowing the agreement to move forward. Talks continued during the week, until Canadian Minister of International Trade Chrystia Freeland walked out of negotiations on October 21, declaring that she had decided to return to Canada, citing her belief that the European Union was "not capable of having an international agreement".

This dramatic turn of events was followed by an announcement late on October 21 by the President of the European Parliament, Martin Schulz, that he would meet with Minister Freeland and Premier Magnette over the weekend in an attempt to keep the deal alive. Wallonia was given a new deadline, Monday, October 24, by which it must reverse its decision to reject the CETA. However, as of Tuesday, October 25, Wallonia has yet to reverse its decision to block the CETA, leaving the fate of the agreement uncertain. It's now unlikely that Canadian Prime Minister Justin Trudeau's stated intention of signing the CETA on October 27, 2016, will be realized.

FATE OF CETA SPELLS TROUBLE FOR OTHER TRADE NEGOTIATIONS

Each of the EU's other member states approve of the CETA, yet Belgium cannot make it a consensus due to Wallonia's objections. Should this ultimately kill the CETA, future trade negotiations involving the EU would share equally uncertain outcomes. It seems likely that the Transatlantic Trade and Investment Partnership with the U.S. would not proceed in light of a CETA failure. It is also likely that any Brexit negotiations would be subject to local concerns of regions such as Wallonia, whose consent is required for any significant trade agreement to proceed. Canada, it seems, has been prepared to accommodate concerns in the EU by agreeing to certain modifications and clarifications of how CETA is intended to apply. Canada will need to judge how much further it can go to secure the CETA without undermining the market access gains it was able to negotiate to this point.

We will continue to monitor developments involving CETA and provide a subsequent briefing should any substantial changes occur.

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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