Canada: What Might Be The First Trade Issues Under The Canada-EU CETA?

Last Updated: August 1 2017
Article by Cyndee Todgham Cherniak

The Canada-EU Comprehensive Economic and Trade Agreement (the "Canada-EU CETA") will come into provisional effect on September 21, 2017.  Sometimes, disputes that have arisen prior to the implementation of a free trade agreement, which are left unresolved at the time of implementation, turn into full disputes between the parties. What could those disputes be? The first place to look is areas where both parties, Canada and the EU or an EU member or territory, have overlapping preferred industries.  The best place to look for potential problems is at the World Trade Organization ("WTO") disputes (existing and past problems) and recent or historical trade irritants to predict where Canada-EU CETA consultations may arise.

Cheese

The Canada-EU CETA provision implementation has been delayed (it was to start on July 1, 2017) due to a disagreement between the EU and Canada concerning the allocation of new entrant cheese quota in the Canada-EU CETA.  In the Canada-EU CETA, over a 5 year gradual increase period, Canada has agreed to grant more quota for cheese over and above the WTO commitments.  Canada has made commitments regarding the allocation of the new cheese quota.  In Annex 2-B, "Declaration of the Parties concerning tariff rate quota administration", Canada has agreed to allocate cheese quota using an import licensing system on an annual basis.  The EU cheese quota allocation method must allow for new entrants each year. During the phase-in period from Year 1 to Year 5, at least 30 per cent of the tariff rate quota will be available to new entrants every year. After the end of the phase-in period from Year 6 and in subsequent years, at least 10 percent of the tariff rate quota quantity will be available for new entrants.

However, in June 2017, it was leaked that Canada planned to grant 60% of the new entrants quota to cheese producers in Canada, who might prevent the importation of the European cheese into Canada or not make the quota available to consumers. This upset the European Union who negotiated the new entrants quota to ensure European cheese will have improved market access in Canada.

If Canada does not resolve this issue to the satisfaction of the EU, this could very well be the first dispute under Canada-EU CETA Chapter 29 "Dispute Settlement".  If the Canadian allocation program does not result in the desired market access (because it is used in a protectionist manner), a trade dispute could arise. The focus will be on implementation and effect, rather than legislative changes or restrictions.

Wine

Canada and the EU both have important wine producing regions.  The EU and Canada produce wines and market wines domestically and internationally.  Canadian provincial measures have become a point of contention. Provinces have set up liquor monopolies (such as the Liquor Control Board of Ontario) through which marketing and sales activities occur. The provincial liquor monopolies in British Columbia and Ontario have come under criticism by promoting local wines over imported wines.  In addition, provincial programs that allow wineries to sell wines at farmer's markets, at retail stores, at wineries and directly to local restaurants creates a trade issue because all imported EU wine must be sold through the liquor monopolies.

The EU joined the consultations in WTO dispute DS520 "Canada: Measures Governing the Sale of Wine in Grocery Stores", which was filed by the United States against Canada in January 2017.  This case involves regulations in British Columbia that are alleged to discriminate against imported wine.  The British Columbia regulations are:

  • BC Liquor Control and Licensing Act [RSBC 1996] Chapter 267;
  • B.C. Reg. 42/2015, deposited March 17, 2015, under the Liquor Control and Licensing Act [section 84] and the Liquor Control and Licensing Amendment Act, 2014 [section 48]. Order in Council 121/2015, approved and ordered March 16, 2015. The British Columbia Gazette, Part II, Volume 58, No. 6 (March 24, 2015);
  • Policy Directive No. 15-01, issued by the BC Liquor Control and Licensing Branch, re: Liquor Policy Review Recommendations #19 and 20: Phased-in Implementation of Liquor in Grocery Stores, dated February 26, 2015; and
  • "Wine Store Terms and Conditions, A Guide for Liquor Licenses in British Columbia," BC Liquor Control and Licensing Branch publication, updated September 2015.

These British Columbia regulations and policies are argued to provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves.

The European Union has similar concerns about placement of Ontario wines in Ontario retail stores.  The regulations are drafted to appear to allow both domestic and foreign wine sales in grocery stores. However, the regulations grant special access to small producers, which happen to be local Ontario wineries.  The Ontario concerns have not developed yet into a WTO dispute. The Ontario and British Columbia concerns may turn into a dispute under the Canada-EU CETA if the EU believes that they will see quick political action to resolve the disputes since the provinces were at the Canada-EU CETA negotiating table.

It also is worth noting that in 2008, the European Union filed a request for consultations at the WTO concerning Canada's excise taxes against wine and beer. DS354 "Canada – Tax Exemptions and Reductions for Wine and Beer" was resolved between the parties.

Beer

Similar concerns arise in respect of beer as with wine. Micro-breweries and craft breweries sell beer at their production facilities and to local restaurants without having to go through the provincial monopoly.  This may result in preferential treatment being granted to local beer producers over EU producers.

Pasta/Durum Wheat

Earlier in 2017, the Government of Italy asked the European Commission to allow it to impose mandatory country of origin labeling (COOL) rules for Italian pasta.  Italy wanted the COOL rules to apply in all EU members.  On July 20, 2017, Italy signed a decree to impose COOL labeling requirements for pasta and rice.

The Italian government decree also included that pasta packaging must reveal where the wheat was grown and milled into semolina for pasta-making.  Canada is the world's largest exporter of durum wheat.  Canada is concerned about the proposed measures because the country of origin labeling is protectionist and could affect sales of durum wheat (an ingredient in pasta) into Europe and depress prices.

Canada and the United States have been in a contentious battle over country of origin labeling for beef. Canada was successful in challenging the U.S. measures at the WTO and the U.S. was required to reverse its protectionist measures.  The spectre of country of origin labeling rules has new life in the Trump Administration NAFTA Renegotiation objectives.  As a result, Canada will want to take a strong position on and challenge at the WTO or under the Canada-EU CETA any EU country of origin labeling rules for pasta.

A second issue is that the Italian government has stopped durum wheat imports from Canada on two occasions taking the position the Canadian wheat has higher levels of toxicity.  The wheat was found to not be contaminated, but this happened after news spread about the seized Canadian wheat.  There seems to be underlying protectionist sentiment that is limiting Canada-EU trade.

Refined Sugar

Canada imposes countervailing duties against refined sugar from the European Union (and antidumping duties against refined sugar from Denmark, Germany, the Netherlands and the UK).  The term "refined sugar" is defined to mean "refined sugar, refined from sugar cane or sugar beets, in granulated, liquid, and powdered form. Refined sugar is sold as white granulated, liquid and specialty sugars. Granulated sugar comes in a range of grain fractions (e.g., medium, fine and extra fine). Liquid sugar includes invert sugar. Specialty sugars include soft yellow sugar, brown sugar, icing sugar, demerara sugar and others and may be sold in granulated, liquid or powdered form."  A number of sugar products are excluded from the Canadian International Trade Tribunal Order.

However, the European Union ended its preferential sugar policies and ended export subsidies.  As at September 30, 2017, the EU will no longer impose sugar quotas.  The EU agricultural policy has undergone a profound reform, including in the sugar sector. Since 26 September 2008, Commission Regulations 947/2008 and 951/2008, export refunds in the sugar sector do not apply anymore. The new system, the basic payment scheme ("BPS") is in line with WTO commitments and qualifies for inclusion in the green box (i.e. it is not trade distortive) as defined in Annex 2 of the WTO Agreement on Agriculture, and in particular the decoupled income support described in paragraph 6 of this Article.

A fundamental goal of the reform was to limit production. The reform was very effective, as 5 million tons of production capacity was dismantled. Production has been reduced accordingly. EU production now varies between 15 and 19 million tons depending on weather circumstances. Before the reform EU production was around 22 million tons. As a result, EU production is now well below EU consumption and the EU has become, and is expected to remain, a net importer of sugar. The full implementation of the reform in the EU sugar sector will lead, as from September 2017, to the elimination of the EU sugar quota regime (Regulation (EU) No 1308/2013 of 17 Dec. 2013). As a result, the price differential between quota and out-of-quota sugar in the EU will disappear. In practical terms, there will no longer be minimum prices and no cross subsidy from quota sugar to out-of-quota sugar production.

Canada has not taken steps to terminate the CVD order imposing countervailing duties in light of the removal/termination of the offending program.  If Canada maintains the CVD duties, this may become a trade dispute.

Steel

The European Union has said that should President Trump impose steel tariffs, the EU will expedite a steel safeguard case.  While Canada may be excluded from the U.S. Section 232 tariffs, Canadian steel companies would be caught by the European Union safeguard case.  There is no provision in the Canada-European Union Comprehensive Economic and Trade Agreement (the "Canada-EU CETA") to exclude Canada from EU safeguard actions.

Chapter 3 of the Canada-EU CETA covers the agreement relating to trade remedies and does not establish an exemption for Canada. None of the provisions say that the EU must exclude Canada from definitive measures.  This means that Canada may be caught up in any EU safeguard action taken in retaliation to the U.S. steel tariffs.  Since global safeguards look at imports from all countries combined and not at imports from specific countries, there will be no preferential treatment even if Canadian steel imports into the EU did not cause serious injury to EU steel producers.

What this means is that the solution to this problem may be at the WTO.  Most challenges of global safeguards are successful.  While in Chapter 3 of the Canada-EU CETA, the Parties reaffirmed "their rights and obligations concerning global safeguard measures under Article XIX of GATT 1994 and the Safeguards Agreement" and agreed to impose global safeguard measures "in a way that least affects bilateral trade", it may be more risky challenging any steel safeguard under the Canada-EU CETA dispute settlement provisions.

Seal Products

There have been two WTO cases filed by Canada against the European Union concerning EU bans of seal products from Canada.  Canada was successful in DS400 "European Communities – Measures Prohibiting the Importation and Marketing of Seal Products".

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions