Canada and EU inch toward massive trade and investment pact

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With the collapse of the housing market and large financial institutions in the United States in 2008,[1] European banks with large investments in the U.S. mortgage market quickly lost enormous amounts of money, and Europe’s entire economy was threatened.[2] In response, the European Union (EU) launched a recovery plan to prevent its economy from collapsing.[3] In late 2008, EU and Canadian leaders met and agreed to work together to “define the scope of a deepened economic agreement [between the EU Member States and Canada] and to establish the critical points for its successful conclusion.” The agreement, later called the Comprehensive Economic and Trade Agreement (CETA),[4] was negotiated for the next five years,[5] and in September 2014 EU and Canadian leaders announced that they had agreed in principle to CETA.[6]

In essence, CETA seeks to increase revenue and jobs by providing easier trading and safer investing among EU nations and Canada.[7] The agreement calls for eliminating 99% of customs duties,[8] opening up services markets,[9] ending limitations on access to public contracts,[10] and offering safer conditions for investors.[11] First, ending customs duties would save Europeans an estimated 470 million euros per year; most duties will be removed as soon as the agreement enters force, and the rest are scheduled to be eliminated seven years thereafter.[12] By doing so, leaders foresee markets keeping prices down and expanding consumer goods options.[13] In addition, CETA’s plan to open markets for services such as financial, telecommunications, energy, and maritime transport services would make it easier and more realistic for EU professionals to work in Canada.[14] Opening these markets will allow EU companies to bid for public contracts in Canada at all levels of government—federal, provincial, regional, and municipal—making European businesses the first foreign companies to get extensive access to public contracts in Canada and expanding opportunities for European businesses.[15]

Canadian logging
Log driving near Vancouver, British Columbia. Lumber and wood are
Canada's eighth-largest category of exports, and paper is its tenth-
largest. The European Union accounts for about 8.5% of Canada's
international trade, a distant second to the United States's 71% share.
Photo via Wikimedia Commons.

As for investment protection, CETA promotes and protects EU investors in the Canadian market.[16] It does so by providing strong and clearly defined language on the right to regulate protection at different levels of government, more detailed commitments on ethics to avoid any conflicts of interest, full transparency of proceedings, and a ban on forum shopping.[17] To enforce the investment protection, CETA establishes a dispute-settlement system that breaks from the current ad hoc arbitration system.[18] The new system is made up of fifteen members who hear claims on violations of investment standards.[19] Instead of members being appointed by the investor and the state involved in the dispute, as the old system called for, the members will be appointed by both EU and Canadian authorities in accordance with set competency standards.[21]

After CETA’s negotiated text was published, a legal revision was conducted with representatives from each party.[22] The revised text, completed in February 2016, expands investment protection and the investment dispute settlement system.[23] The new article expands investment protection by ensuring the right to regulate investments for public policies,[24] clarifying that a regulation that may negatively affect an investment or affect an investor’s expectations of profits is not inconsistent with the agreement for that reason alone,[25] and stating that provisions are to not be interpreted as an undertaking from governments that legal frameworks which remain consistent with international law will change.[26] The revised text also establishes an appellate tribunal, which expands the dispute settlement system, where decisions from the tribunal established in the original text will be checked for legal correctness and reversed where an error arises.[27]

CETA has yet to be ratified by either party.[28] The revised text is now being translated into all EU official languages and will then be submitted to the EU Council and the European Parliament for discussion and approval.[29] The EU will apply the agreement only after both sides agree.[30] According to a joint statement released by the EU commissioner for trade and Canada’s minister of international trade, both sides are “confident that CETA will be signed in 2016 and enter into force in 2017.”[31]

[1] Why did the crisis happen?, Eur. Comm’n (Sep. 4, 2014), [].

[2] Id.

[3] Responding to the financial crisis, Eur. Comm’n (Sep. 4, 2014) []. For a chronological overview of measures taken by the EU in response to the financial and economic crisis, see The Financial and Economic Crisis-Chronological Overview-October 2008, Eur. Comm’n (Oct. 29, 2008) [].

[4] Joint Report on the EU-Canada Scoping Exercise (Mar. 5, 2009), available at [hereinafter Joint Report]; see generally Comprehensive Economic and Trade Agreement (CETA) (Feb. 2016), available at [hereinafter CETA] []. EU and Canadian leaders met a total of four times in late 2008 to have substantive discussions on subjects that may be contained in the agreement before negotiations officially began, which were recorded in the Joint Report on the EU-Canada Scoping Exercise. Joint Report, supra note 4.

[5] See EU-Canada agree deal to boost trade and investment, Eur. Comm’n (Sep. 24, 2014) [] (announcing successful conclusion of five-year negotiations to create CETA).

[6] Id.

[7] See generally CETA, supra note 4 (“The Parties hereby establish a free trade area . . . .”).

[8] Id. ch. 2.

[9] Id.

[10] Id. ch. 9.

[11] Id. ch. 8.

[12] Comprehensive Economic and Trade Agreement (CETA), Eur. Comm’n (Mar. 3, 2016), [] [hereinafter CETA's Goals].

[13] Id.

[14] Id.

[15] Id.

[16] See generally CETA, supra note 4 (“[This agreement is made to] establish clear, transparent, predictable and mutually-advantageous rules to govern their trade and investment . . . .”).

[17] Id. ch. 8.

[18] Id. ch. 29; see also CETA's Goals, supra note 12.

[19] CETA, supra note 4, art. 29.8.

[20] Id.CETA's Goals, supra note 12.

[21] CETA, supra note 4, art. 29.7.

[22] CETA: EU and Canada agree on new approach on investment in trade agreement, Eur. Comm’n (Feb. 29, 2016). In the press release, the EU referred to the legal revision as “legal scrubbing.” Id.

[23] Id.

[24] CETA, supra note 8, art. 8.9(1).

[25] Id. art. 8.9(2).

[26] Id. art. 8.9(4).

[27] Id. art. 8.28.

[28] CETA's Goals, supra note 12 (“Note that the text of the agreement is not yet binding under international law and will only become so after a legal review and the completion of the ratification process.”).

[29] Eur. Comm’n, supra note 22.

[30] Id.

[31] Joint statement: Canada-EU Comprehensive Economic and Trade Agreement (CETA), Eur. Comm’n (Feb. 29, 2016).

Posted by Amanda R. Dizon on Mon. March 14, 2016 2:11 AM
Categories: Canada, Direct foreign investment, European Union, Free Trade

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