EUROPEAN COMMISSION Dictorate-Ganarl for Trade Directorate € —Neightourng courte, USA and Canada re relations with North America Brussels, 15 October 2012 LIMITE CONSTLIUM. 41gi12 :__| Commission information 46-40-2012 NOTE FOR THE ATTENTION OF THE TRADE POLICY COMMITTEE SUBJECT: EU Canada Comprehensive Economic and Trade Agreement - state of play ORIGIN: OBJECTIVE: For information REMARKS: Please find attached, for your information, a note on the state of play of the EU-Canada free trade negotiations. ‘This document is Limited and should not be distributed outside the IU institutions see ~ ‘canrnason svoréenne, 6-1048 Grace Eusopene Corti, 81049 ree -Balghr,Teleohon: (322) 298 1 ‘1LIMITED CETA State of play - October 2012 General state of play: “The FU-Canada free trade negotiations have entered their final phase. Both sides work with the objective of finalising this year. For the EU, this means thatthe Commission would wish to presenta deal - ad referendum or sill in its final stage - to the Foreign Affairs Council in ‘Trade Ministers format of 29 November. To this end Canada and we are planning 4 meeting, between the Trade Commissioner and his Canadian counterpart before that date, in order to irom out remaining differences. Commission services also plan to discuss the preparation of such a meeting, as well as prospects for the Trade/FAC. at the TPC Full Members of 9 November. “The negotiations have covered considerable ground and the EU has already reached its negotisting objectives in many areas, as will be detailed below. Stil, a sizeable list of issues femains open, which needs to be narrowed down by technical negatiators in order to prepare the meeting between the Commissioner and the Canadian Minister. Many issues are inter- linked and have been kept by Canada for an end game. Therefore, things could fall into place ‘once there is movement on one of the key remaining issues. This being said, there is also & remaining group of more complex and hence tme-cntical items, in particular around the services and investiient cluster ardtind which internal diseussions with the Member States are on-Poing (i.e ifivestment, on, where»Ganada ling, behind, financial, Se ac bee Sulags tras lhe aca was coming weeks Quality and coming to an ambitious balance remain the key objectives thatthe Commission ‘Gants fo attain as soon as possible, While "quality over timing" remains the overriding goal, both the EU and Canada are at the stage whore ineremental progress and technical work alone ‘re unlikely to produce the momentum needed to conclude the CETA, and the time appears inereasingly ripe for a look at the overall balance of the negotiations and at how we can lift the ambition to the level required for a successful conclusion, In this respect, @ key challenge remains that the lst of offensive EU interest is (as it has been since the beginning of the negotiations) longer than that of Canala: indeed, while Canad shares our views that the Tonger term, CETA onght to deliver decp economic integration, based on free wads and investment flows, in the short term Canadian constituencies are more likely to focus on Motive market access for a small number of commodities, essentially fish, cereals, beef, and pork, since the ofher major Canadian interest - investment - is in large part satisfied by the Zencral openness of the EU to FDI. The EU, instead, has a much wider range of intersis, ath bot shor- and longer-term implications: market access in goods and services, investment, public procurement, IPR, protection, etc. ‘This paper atempts to set out the state of play ofthe CETA negotiations, deseibing areas and issues where tentative {has been reached, as well as the two sides positions in the meas sill open. Agreements mentioned in this paper are all strictly ad referendum ani subject to an overall satisfactory outcome of the CETA negotiation. The paper attempts to strike & Keuance between offering a comprehensive picture and being a usable tool to assess the 1 LIMITEDLIMITED. situation. It should be read in conjunction with the market access offers currently on the table, ‘as well as the current text of the different Chapters, The Commission services will update these Chapters, as needed, a8 soon as the state of the discussion with Canada permits Furthermore, some Chapters have been provisionally closed and set aside: Customs and Trade Facilitation, Trade Defence Instruments, Regulatory Cooperation, Dispute Settlement. ‘Member States should therefore refer to the latest text of these Chapters. 1. Trade in Goods As regards Market Access for Goods, the offers that the EU and Canada have exchanged at ‘the end of 2009 and in July 2011 already guarantee an excellent coverage, to which will be added the additional market access that the TRQs (still to be negotiated) on the remaining sensitive agricultural products would provide. Under the EU current offer 99,2% of tariff lines (99,8% of import value’) would be liberalised within 2 maximum period of 7 years (98,6% of tariff lines / 95,9% of import value at entry into force). The Canadian offer would liberalise 99% of tariff lines (99,99% of import value’) within a maximum period of seven years (984% of tariff lines / 92.9% of import value at entry into force), ‘More generally, in all areas certain tariff lines remain subject to transitional periods of 3, 5 and 7 years, On the EU side this concems basic agricultural products and fish, on the cS ae fisher impo ‘due mainly ¢6 the tariff dismantling period of 7 years SCHEIN st heous! theit 25% tariff on ships in 7 years (hitherto their best offer had been 15 years, to EFTA). a Products for which offers have not yet been exchanged are beef, pork and sweet corn (78 lines) for the EU; and products under the supply management regime: dairy, poultry, eges (98 lines) for Canada. The Canadian position that beef and pork not only condition dairy, but also Gis, GP and other EU offensive issues also complicates matters, but also offers opportunities for the overall balance of the negotiations, The agricultural negotiators have started to discuss formulas/modalities for the calculation of the IRQs. However, there is no agreement as yet on a method. 2. Rules of Origin (RoO) This area is crucial to effective market access in these negotiations, but more so for Canada than for the EU since, in general and for most products, EU exporters can easily meet Canadian RoO, and it is Canada who has sought greater flexibility than the EU's standard RoO would allow. The key point of this negotiation, therefore, has been the search for a " Average EU imports ofthe 3 years before the exchange of tariff data between the EU and Canade, ie. 2005- 2008 * Average Canadian imports ofthe 3 years before the exchange of tariff data between the EU and Canad, Le 2005-2008, 2 LIMITEDLIMITED balance between limiting moves away from our standard RoO and allowing Canada effective ‘access to the tariff concessions we are negotiating, without which there could be no fgreement at all. The compromises now on the table have been discussed with the Member States in an experts meeting on 5 September. Following that, and the discussions in mid- September in Ottawa, both sides are now very close 10 an agreement in the complex area of fisheries rules of origin and for most of the industial products, with the notable exception of motor vehicles and textiles. Neither issue is particularly sensitive from an economic viewpoint, given the relatively small value of EU-Canada trade in these products, but: (@) The question of textiles and clothing raises issues of principle; therefore, the EU's firm position (red line) is that the general RoO for these products must be based on the EU ‘approach, and only quantitatively limited derogations could be possible, Curent discussions focus on the products for which these derogations are appropriate, their ‘quantitative limits, any flexibility across products (song Canadian demand) and reciprocity (strong EU demand). (b) For cars, the situation is more complex: the EU (based on MS and industry input) has shown more flexibility in the case of Canada than with any other past (and future, one might add) FTA partner; however, this has proven insufficient, given that a "Canadian" car js in reality a North American car, with most of the value being added in the US, To add to the complexity, most of the “Canadian exporting interest’ for the future (current Canadian exports being less than 10,000 vehicle a year) comes from product integration strategies of at least two groups with deep European roots (Fiat-Chrysler and Ford): there ought to be, therefore, a shared interest in facili this trade, Currently, the EU has ‘proposcd anvorigin’derogation, With «quantitative Limit that ought to caterfor the aboves mentioned strategies, while Canada we deal Hind hal for 8 compromise" ROO. Both sides agree that the issue could satisfactorily ‘be: in the future if the EU were to enter into an FTA with the US, through appropriate cumulation provisions, and that a review clause to that effect should be written into CET. Finally, the question of RoO for cars is also linked 1 wo other open issues: Canade's (unacceptable) backloading of its proposed tariff dismantling, and recognition of UN-ECE ‘automotive standards by Canada. Similar issues arise for other vehicles than cars (where more technical work and consultations with industry are ongoing, with both sides hoping that other solution than a derogation might be possible, also in light of the very small ‘volume of trade — a few hundred vehicles) and for auto parts (in which respect too more technical work and consultations with industry are ongoing). On agricultural Rules of Origin, the structure has been agreed and chapters where origin derogations are the only way to find a compromise have been identified (high sugar content products, confectionary and chocolates, certain processed products, dog and eat food), The iscussion on the quantitative limits of derogations are ongoing. (On the General RoO, some differences remain, in particular on the list of minimal operations (@ red line for the EU), on cumulation (where che EU has rejected Canada's proposal for a “CETA origin’, in favour of the more usual approach of cumulation), and on the prohibition of duty drawback (another red line for the EU, and where Canada’s insistence appears more tactical than substantive, given that DDB is prohibited under NAFTA). LIMITEDLIMITED. Rules of Origin is an important chapter since this area is a gateway towards the final negotiations of the goods, public procurement and IPR cluster. In fact, the entire market access offers on goods on both sides are conditional on a satisfactory outcome on RoO, Tehas been one the technically most complex areas in this negotiation and subject of intensive and difficult negotiations since the beginning of the CETA process. We are now coming close to an overall deal on RoO, and this is having the desired effect on Canada's attitude towards the end game. A detailed state-of-play on the rules of origin negotiations has been provided to Member States in the framework of a technical experts meeting on 5 September. 3. Technical Barriers to Trade The TBI Chapter has been largely agreed (note, however, that the question of the recognition of car standards is dealt with separately - see the next section), The only part that needs to be completed is related to a Protocol on Conformit . The Protocol would build on the existing bilateral Mutual Recognition Agreement (MRA) concluded in 1998 and would replace it. It aims to substantially simplify the current MRA. procedures by relying on accréditation, and on closet cooperatior! between EU and Canada's “accreditation “bodies: et. already te place international accreditation systems such SILAC aad ae create mutual confidence in the technical competence of conformity assessment bodies (CABS). The discussions on the text of the Protocol with Canada are still ongoing, and the precise scope (sectorial coverage) of the Protocol in particular is yet to be determined, At this stage, agreement bas already been reached on including telecommunications and electromagnetic compatibility, in respect of which the 1998 MRA has Worked reasonably well, and for which the new Protocol should offer a measure of simplification, and therefore cost reduction, rather than a change in substance. The Parties also agreed to negotiate a specific stand-alone text on good manufacturing practice for pharmaceuticals based on the corresponding annex to the 1998 MRA, which also worked satisfactorily and the Parties therefore wish to retain in its current format. Additional sectors could be added to the list by mutual consent according to a procedure to be set out in the Protocol. For these “new" sectors, as opposed to those already in the current MRA, facilitation and cost reduction for both sides could be substantial, but the technical work required to verify whether the Protocol would in fact be appropriate for a given sector, in light of both Parties’ regulations, cannot be done in the short-term. The likely outcome, therefore, is a Protocol agreed within the CETA package, immediately applicable to some of the sectors covered by the current MRA, with a work programme to ad more sectors over time, based on mutual consent to do so. > Intemational Laboratory Accreditation Cooperation “ tnjemational Accreditation Forum 4 LIMITED.LIMITED 4. Automotive Standards ‘This is part of the discussions on an automotive cluster of issues, which includes RoO and tariffs, We essentially seek Canada's unilateral recognition of « limited number (20+) of cuxent UN-ECE. standards (followed by the EU) as fimotionally equivalent to Canadian standards (Canada already recognises de facto 5 of the UN-ECE standards mentioned in the EU request), Canada resists this recognition because of the (real or imaginary) threat to the integration of the North American market and strong opposition by the local automotive industry. During the negotiation meetings mid-September, Canada accepted to cxamine equivalence rather on the basis of the outcome of the regulations (the safety level) than on the technical parameters, Discussions are angoing. 5, Sanitary and Phyto-sanitary measures (SPS) ‘The key BU aims in this CETA Chapter were (a) ihe incorporation into CETA of the existing Veterinary Agreement, in order to consolidate it, together with the improvements achieved ‘ver time and a broader scope (to include food safety), and subject it to an effective bilateral dispute settlement mechanism; and (b) to improve transparency and predictability for BU exporters on plant health issues, ‘The first objective is agreed invprinciple. TTechnical- work is sill being carried out in relation to the annexes to the current Veterinary Agreement, but is ‘progressing satisfactorily in terms ‘of both substance and timing, Legal details are currently being worked out, ‘As to plant health, there is still work to be done. The Canadian and the EU regimes are very different, as EU publishes import requirements for all products/origins, while Canada sets them on a case by case basis (as it is done in the US), Canada has been mildly cooperative in addressing our request to improve transparency and predictability for EU exporters, but has no interest in this area and has serious concerns as to the impact on its relations with the US W ought to be noted, however, that thore are very’ few known complaints from EU exporters in respect of Canada - unlike for the many problems related to the very long and unpredictable procedures in the US, 6. Wines and Spirits ‘Four issues are at stake: the incorporation ‘of the wit i ant CETA; private outlets (small alternative to the monopoly of the Provincial Liquor Boards, but only ‘open to Canadian producers); ‘out-of-province activities of certain liquor boards (including in third markets, with risks of cross-subsidisation ‘and unfair competition); the Cost of Service | Differentials (COSD - higher "service" fees imposed by the Liquor Boards on imported wines and spirits than on Canadian ones). 5 LIMITEDLIMITED Canada confirmed its agreement 10 the incorporation of the wine and spirits agreement into the CETA. This is important as it puts wines and spirits under the dispute settlement provisions of the agreement. The negotiators had already agreed earlier on a standstill on the number of private outlets, On the COSD, there are constructive discussions and we may see progress at the end of the negotiations, notably on the key issue of ad valorem vs. specific fees. Key to a solution is the attitude of Ontario, which raises the political profile of the issue in Canada. As regards the out-of-province activities of certain liquor boards, work is on-going. Canada for the moment argues that all these activities are in full compliance with relevant WTO provisions and rejects any specific CETA provisions. The solutions being explored range from “arm's length behaviour’ or “commercial behaviour” obligations for liquor boards when engaging in out-of-province activities to provisions based on their possible impact on our trade interests. 7, Intellectual Property Rights Several sections of the IPR chapter are now closed or almost closed: trademarks, copyright, designs, enforcement (with the exception of border measures). Discussions are ongoing regarding Gls and border measures. There is a deadlock regarding pharmaceutical patents res oA The Engen rae tu ins r AC uropean Patli ‘a text revisi ‘taken place. The EU is the main demandeur a TPR issues (for res ie ‘only few minor requests, mainly as mere bargaining chips). Regarding pharmaceuticals, the EU has three requests to Canada: (1) Introduction of (PTR). Canada is the only G7 country not having such a mechanism, which allows extension of the duration of patent protection in order to compensate (at feast partially) for delays in the marketing authorisation procedures; (2) introduction of a right of appeal under Canada's marketing authorisation regime (in respect of which there are serious questions in Canada as to whether the current regime would not violate the Constitution); (3) extension of the period of data exclusivity (the EU has requested +2 years, as in its own regime, Canada's current legislation foresees 6+2 years, but Canada is reluctant to consolidate even this, quoting public pressures to reduce this protection 10 +1 years, which is the minimum WTO standard and ‘Canada's current position in CETA). ‘These requests are strongly supported by Canada's own research-based pharmaceutical industry, but strenuously opposed by generic drugs producers, who are attempting to frame ‘the Debate in Canada in terms of higher costs for the public health services. Canada has not made any move on this issue in the negotiations. Canada has indicated that a decision on the BU requests will be taken at highest political level at the end of the negotiations. Regarding criminal IPR enforcement following the recent decision by the European Parliament to reject ACTA, the Commission proposed to Member States to drop criminal 6 LIMITEDLIMITED, enforcement provisions in CETA. ‘The final Decision on this matter belongs to the Council ‘The Presidency is currently in discussions with Canada, 8. Geographical Indications (Gls) Gils are not unknown to Canada as it has already accepted protection of Gils in the EU-Canada Wines and Spirits Agreement, Canada has now accepted to discuss all types of food products (afer initially only wanting to focus on cheeses and processed meat) It also dropped its objection to an open GI list, hereby allowing the addition of new Gis in the furure. These are in themselves important steps. However, the progress made so far in the text discussions is not conclusive yet. Even more important, divergences persist on generics, prior use (where for ‘both issues Canada rejects the - long — phasing out periods proposed by the EU) and co- existence with registered trademarks (so far also rejected by Canada), Canada fusthermore rejects any form of ex-officio systems for Gl protection. Case by case discussions have ‘Teduced the list of potential EU conflicting names, but these include red line names for some ‘Member States and systematic problems conceming generics, prior use and trademarks, 9. Public Procurement The Canadian Public Procurement market access offer (received and presented to Member States in July 301 l)jis the most ambitious and comprehensive offer Canada and its Provinces yo “ovany_ parnety-including he. US. On, caverage, the outcome. regarding, the lusiott of regional and irs entities, dae ‘crown corporations, ‘and the MASH sector (municipalities, ja, schools, :) is highly, satisfactory, In ‘the GPA there had not been any sub-central coverage until 2011, and there currently is no coverage at the local level. The proposed coverage goes far beyond to what has been committed to the US, and outreaches even the mutual ‘commitments between the different Canadian Provinces in the so-called Agreement on Internal Trade (AIT - though ‘corresponding internal apening is likely to follow’ in that way, CETA opens the way for an important infra-Canadian reform). However there do remain some important gaps in areas of EU interest, and Canada is keeping for the end game certain additional concessions, especially st the provincial level. In texchange for these, the Provinces will require additional market access in agricultural goods. ‘The following issues are likely to remain for the end-game: (a) Public urban transport: Canada is offering good access in general, at both Federal and Provincial level, but Ontario and Quebec maintain locel production requicements. Our position remains that Canada must provide full access and in particular eliminate all loca} Content requirements. We have linked this request to the coverage of urban transport and railways in our own offer. (b) Energy generation: a number of Canadian Provinces have been very reluctant to allow foreign access to this sector, which includes politically sensitive urilities as Hydro Quebec. The EU is ready to grant fll and unrestricted access to Canada, on condition of reciprocity, but Canada deliberately keeps the energy sector for the end-game. LIMITEDLIMITED. (©) In addition, some smaller Provinces have included in their offer a Regional Economic ‘Development (RED) clause, drafted in such terms that it would void the market access commitments of much of their content. Canada is aware that this would not be acceptable and has promised to redraft such clauses in a way that resembles EU internal provisions on regional development. We remain watchful. In addition, while Canada is ready to commit fully ports and airports, at both Federal and Provincial level, most of such major entities in Canada are not government-run and therefore, properly speaking, they do not "procure" goods and services. hus, the Canadian offer would cover, in practice, only a number of relatively mainor ports und airports. The Commission has hired a Canadian law firm to help to verify these assertions, which scem to be correct. This needs to be addressed in the end-game, in particular in terms of overall balance; at this stage, there seem to be two possible options: excluding the sector from the coverage of the CETA, on the grounds that the formal balance of the offers hides an imbalance in their economic value, or accept the situation, also on the grounds that these Canadian ports and airports are on publicly-owned land, and therefore a procurement commitment would catch them in the future if their status were to change, Canada also maintains important reservations for shipbuilding, which would be in principle ‘not acceptable, However, one has to bear in mind that Canada has recently concluded a major tendering effort in this sector, which is likely to have exhausted the bulk of public tenders in this sector for the next 20-25 years. sssefttas ses "niles! part of the Procurement-Chapter is coneemed, thestexteise finalised, on the basis of” rftheart, s derived from the new GPA, ~ exception for detailed wording concerning: fa's Commitment to create asingle electronic — procurement website that will include all relevant tenders atthe federal level as well as forall sub-central entities and will substantially facilitate the access to relevant information for European suppliers (an important GPA+ achievement). Canada will create such a website, but consultations among Provinces and Territories on the details are stil! pending. 10. Services and Investment Services and investment have made steady progress and many areas have been closed. However, there is a cluster of interrelated issues of considerable economic interest still open in services & investment market access, especially financial services, and in investment protection (see Point 11). This knot can only be undone if, on the one hand, the EU manages to establish its actual margins of manoeuvre on investment protection and, on the other hand Canada takes a more reasonable approach with regard to the special treatment it wants to reserve for financial services and clearly spells out its market access reservations. At the same time, specific issues of a more limited economic relevance but high political sensitivity for ne Party or both (Mode 4, cultural services, public utilities, ministerial discretion in relation to domestic regulation) continue to require attention. ‘The remainder of the "rules" part of the services chapter, as regards cross-border services is now essentially complete, waiting only for the addition of certain definitions and concepts from the investment Chapter, with the exception of the question of "in like circumstances", 8 LIMITED.LIMITED ‘which requires more thought and is also linked to progress in the investment Chapter. The text ‘on maritime services is also far advanced. The open areas can be divided into four groups: 8) Services and Investment Market Access On services and investment market access we are already on par with NAFTA, but some ‘imporamt offensive interests for the EU remain open. The primary focus of these interests from the outset of negotiations, apart from financial services, which is a discussion on its ‘own, has been on investment (establishment), since Canada, unlike the EU, maintains « number of general and sectorial barriers to investment both at Federal and Provincial level. Accordingly, Canada wishes to take several horizontal Federal and Provincial reservations ‘Which are too broad in their potential effects and leave open the possibility o mullfy ot impair market access commitments: the Investment Canada Act (discretionary screening of FDI for omens remons: “net benefit t> Canada); dasa ‘companies; senior ement o directors: telecoms. rel oad eR oo ‘On cross-border services, the situation is more evenly balanced, The listing of provincial reservations for the first time, however, while increasing transparency, has also raised a ‘number of new areas for concern. Open market access issues include: postal services (the EU has a broad reservation to protect our reserved area for monopolies - letters up 10 S0g, and Conte took an equally broad reservation for their pace, where the reserved fea WOUld be letters’ up to, 5100; it on ise era kK: a eg ‘a comprehensive reservation for the selling fe we ‘of air transport services, which is an EU interest and # sector where the EU is completely open); distribution (wbolesale and retail), where Canada retains a number of restrictions which are protected by their broad cultural carve-out. A revised version of the July 2012 offers on cross border services and investment has been circulated to Member States on 9 October. bv) Financial services: Canada's practice is to treat financial services as a special case due to their potential systemic impact, resulting in Canada providing reduced guarantees of market access and undertaking fewer core obligations for financial services than for other services. Their proposal includes significantly reduced standards of protection for investment protection (only in case of expropriation), the application of the prudential carve-out to expropriation, and reduced access of investors 10 investor-state-dispute settlement, by filtering all disputes in order to assess whether the dispute concerns a prudential measure. In this scheme, if both Canada and the EU were to agree that this is the case, the dispute would be prevented from proceeding. The EU is secking to include proportionality in the prudential carve-out and the inclusion of a market access obligation similar to the GATS, as well as additional liberalisation, with similar opportunities available to both sides, in order to redress the imbalance in opportunities that Canadian financial institutions have in Europe. Still, Canada is adamant that their various market restrictions in place are fundamentally "prudential" in nature, and feels in a very 9 LIMITEDLIMITED strong position on this, its financial institutions having weathered the financial crisis better than ours. A lot work remains to be done in this area. ©) Temporary entry (Mode 4): Temporary Entry is a key offensive interest for Canada and its Provinces. The main requests are the following: = Canada requests the horizontal elimination of the economic need test for certain categories of service providers (contractual services suppliers and independent professionals, + Canada asks for technicians and technologists to be included in the agreement; - Canada requests a binding commitment to issue residence permits for accompanying spouses of Mode 4 category service suppliers; - Canada requests that the Parties take commitments (market access, national treatment, ‘most favoured nation) with regard to all categories of natural persons dealt with under the temporary entry chapter while supplying services in the territory of the EU, similar in effect to the obligations already undertaken for cross-border suppliers not present in the territory (thus not only covering those service suppliers permitted to enter the EU under the mode 4 commitments of CETA, but covering also those entering on the basis of atonomous libéfalisation), AL FS ge Le chy Hl, Geb requirements for a maximum contract length of 12 months, which Canada considers to be a limitation on the provision of services rather than on the actual service provider, and restriction that "the number of persons covered by the service contract shall not be larger than necessary to fulfil the contract”, which they consider to have the effect ot creating a necessity test, thus substantially nullifying EU commitments; = Canada seeks to expand the scope of coverage of the category "Short-term business visitors” to add additional sub-sectors. ‘These requests are currently subject to consultation with Member States, The important - and in principle very difficult - issue of mutual recognition of professional ‘qualifications is virtually solved - the text of a framework for the conclusion of MRAs for individual professions (over time, and within the overall CETA framework) is agreed; MS, Canadian Provinces, and professional associations on both sides are being, consulted; and the architects’ professional associations on both sides are actively working to supply the technical underpinning for a first such MRA. d) Public Policy issues: ‘On the question of public utilities at the last TPC Full Members on 5 October a majority of ‘Member States has expressed a preference for maintaining a reservation for the EU as a whole 10 LIMITED‘LIMITED based on the existing global GATS reservation. This will now be taken up again with Canada (who is concerned by the lack of clarity concerning the potentially extremely broad scope of application, which moreover does not reflect the actual situations on the ground in various Member States; the overlap and duplication between various EU reservations which creates legal uncertainty; the lack of transparency of existing monopolies; as well as the overall economic impact of this reservation on the value of EU commitments relating to market access), ‘The text on domestic regulation is very advanced, with two outstanding issues: (i) what reservations, if any, should be taken from domestic regulation disciplines (on which, as far as the EU is concemed, MS are being consulted), and (ii) the Canadian proposal on "ministerial discretion”, The latter is generally not applicable in EU Member States, for instance to issues such as licensing. It is unclear how much such “discretion” in Canada goes beyond what we ‘would consider as a normal power of appreciation of facts by a public authority, Discussions are on-going to define the scope of the application of any such ministerial discretion, in order {o prevent a nullification of the important obligations relating to domestic regulation and avoid creating an undesirable precedent. Concerning cultural services, Canada requested an explicit and very broad reservation for the liberalisation of services and investment in culture-related areas. The EU will now need to ‘assess the impact of these reservations on its economic interests. Clearly, we would not be seeking commitments on audio-visual services, but areas like distribution, news agencies, printing and publishing, will need to be looked at carefully, Methber" fave ‘been, on and eect issti€S inthe TPC) rE ‘and Inyestment. ere Tues shai been scheduled! for, the! 15 Jctober. 11. Investment Protection As regards investment ion jons had a late star: it should be borne in mind that the Commission obtained supplementary negotiating directives only in September 2011 and was only able to table a first text to Canada in March 2012, following extensive consultations both within the Commission and with Member States, Our aim is clear in general terms; to promote the standards found in Member States’ Bilateral Investment Treaties (BITS). ‘The negotiations made good progress, but there are still complex open issues where both sides have sharp differences of view, which stem from differences between the traditional Canadian approach to investment protection and the approach many Member States have traditionally taken in their BITs, Discussions on two of the outstanding issues, the outcome of which are fundamental for the negotiations, national treatment reservations and architecture, have taken place in the TPC full members of 5 October. Regarding Investor-to-State Dispute Settlement, discussions are ongoing. Main differences remain as to the scope of application of ISDS and the access of financial investors to ISDS. u LIMITED‘Member States have been informed on CETA Investment Protection issues in the TPC Services and Investment. An informal technical meeting has been scheduled for the 15 October, 12 LIMITEDLIMITED 12. Monopolies and State Enterprises Both we and Canada are concerned that the disciplines of CETA could be cireumvented and market access effectively denied when public authorities act through private entities, for instance by granting them special owners or privileges, or otherwise when the market is altered by public intervention, or even “eliminated” altogether when public authorities establish a monopoly. The latest discussion with Canada resulted in the following outline: (a) a general clause stipulating that the Parties will not circumvent CETA obligations by entrusting private entities with powers or privileges that belong to public authorities; (b) a non-discrimination clause that applies to private entities whenever powers or privileges aiributed to them for legitimate reasons free them in whole or in part from market constraints (and applies @ fortiori to monopolies); (¢) a "commercial behaviour” clause that applies to all the above-mentioned entities, as well as to state-owned enterprises, whenever they operate in the market. We have resisted the application of the non-discrimination clause to state-owned enterprises because, ‘when they operate in the market without any special powers or privileges, they ought to have the sume rights as private operators have to choose whom they do business with, Canada is currently reviewing the last EU text proposal. M The Chapter.on aaron ree Pot tre ii i lane han a6 nc Member States have been consulted on Monopolies and State Owned Enterprises in July 2012. 13. Subsidies The negotiators are close to an agreement on a subsidies text, based on the following principles: ~ Transparency clause covering all types of subsidies / government support related to trade in services; - Consultation clause on industrial subsidies / government support related to trade in services; = Consultation clause for subsidies / govemment support related to agricultural goods and fisheries products. + Disciplines on export subsidies for agricultural products. 14, Sustainable Development Whereas the EU deal with Labour and Environment together and with a similar level of ambition, Canada has traditionally covered both disciplines in separate side-agreements. We 3 LIMITEDLIMITED have succeeded to bring both areas under CETA and a common sustainable development chapeau, but the negotiation progress in the two fields has not been the same. ‘The Labour text is advanced, but two difficult issues of principle still need to be solved. One is the scope of the obligations: the EU is relying on the ILO core conventions and their specific rights and obligations as the relevant framework of rules whereas Canada only accepts a vague reference to the ILO principles and norms. From the EU perspective, this ‘would be a lowering of ambition in comparison with the labour provisions in other EU FTAs, which is difficult to accept. The other area of divergence is the enforvement mechanism for dispute settlement resolutions: following its traditional approach, Canada is putting forward a system of monetary remedies in case of breach of obligations. The implementation of such an approach would be very complex in the EU system, be it alone for budgetary and financial ‘reasons (at the level and at level of EU States). @here is has not been much Tainiakcr cori Environment was for some time lagging behind, mainly because Canada, as many commodity-rich countries, is mote defensive on environmental issues. However, there has been substantial progress more recently. Key differences remain, in particular about the way to address the Parties’ commitments in Multilateral Environmental Agreements (MEAS), 4 LIMITED