Bilateral Ambition

Canada, the EU, and the Comprehensive Economic and Trade Agreement (CETA)
These materials were prepared by Celso A. A. Boscariol, Barrister & Solicitor, of Vancouver, BC, Canada for the Canadian Corporate Counsel Association World Summit in Montral, Canada, April 2012. Celso A. A. Boscariol


TableofContents
1. History.....................................................................................................................3 2. JointStudyandScopingReport ............................................................................5 . 3. CurrentCanadaEUTrade......................................................................................6 4. Scope........................................................................................................................8 5. CurrentObstacles....................................................................................................9 5.1 ProvincialRegulations.................................................................................... 0 . 1 5.2 PublicProcurement......................................................................................... 0 1 5.3 SupplyManagement........................................................................................11 5.4 WTOSanitary&PhytosanitaryStandards....................................................12 5.5 MarketAccess..................................................................................................13 5.6 RulesofOrigin.................................................................................................13 5.7 IntellectualProperty....................................................................................... 4 . 1 5.8 GeographicIndications...................................................................................15 5.9 Services.............................................................................................................15 5.10CooperationMechanisms...............................................................................17 5.11LabourMobility&MovementofBusinessPersons...................................... 8 1 5.12Investment....................................................................................................... 8 1 5.13RegulatoryCooperationandTechnicalBarrierstoTrade(TBT)............. 9 1 5.14MonopoliesandStateEnterprises...............................................................20 6. WhatsDifferentthisTime?..................................................................................20 7. Future......................................................................................................................21 .

Acknowledgement IwishtothankAnthonyG.Seepish,Barrister&Solicitor,WatsonGoepelLLP,for hisinvaluablecontributiontothispaper.

Watson Goepel LLP

1.

History

Economic relations between Europe and Canada are longstanding. Canada and Europeshareculturalandeconomicbondsbuiltupovercenturiesofimmigration, trade and exchanges through academic, sports and cultural activities. Most of Canada's ethnocultural communities hailing from Europe maintain strong ties throughfamilyrelationships,friendshipsandbusiness.Startingwiththefurtrade in New France 400 years ago and progressing to aerospace products, technology transfers, pharmaceuticals, and scientific exchanges today, Canada and Europe have been active trading partners. So CETA is a natural fit for Canada as an extensionofitslongstandingandmultifacetedrelationshipswithcountriesofthe EuropeanUnion(EU). The first formal treaty between Canada and the EU dates back 53 years to 1959, when an agreement was concluded between the Government of Canada and the European Atomic Energy Community (EURATOM) dedicated to the peaceful usesofatomicenergy.TheeconomicrelationshipbetweenCanadaandtheEUin trade and economic cooperation more generally dates back to 1976 when the Bilateral Framework Agreement for Commercial and Economic Cooperation was concluded.ItistheEU'sfirstformaleconomicrelationshipwithanyindustrialized country.Sincethe1976FrameworkAgreement,CanadaandtheEUhaveentered into a number of sector specific agreements, most prominent among them, Agreement on Science and Technology (1996), Higher Education and Training (1995, 2000), Customs Cooperation, (1998), Veterinary Equivalency (1998), Competition with Cooperation (1999), Wine and Spirits (2004), Civil Aviation Safety (2009) and Comprehensive Air Transport (2009). 1 The joint committees establishedundertheseagreementshaveprovidedtheopportunityformeetingsof both parties in both formal and informal venues. In addition, the 1998 European Canada Initiative (ECTI) established a framework for future negotiations to enhancecooperationontraderelatedissues,bothmultilaterallyandbilaterally. TheCETAnegotiationsrepresentthesecondattemptinlessthanadecadebythe EU and Canada to expand their economic relations. 2 Since 2000, cooperation in mutualfieldsofendeavorsuchasfisheries,environmentandenergyhasincreased. In 2004 Canada and the EU undertook an ambitious agenda to deepen social, economic and political ties through a Trade and Investment Enhancement Agreement (TIEA) with its stated purpose being the elimination of nontariff barriers to the movement of goods and services, in addition to resolution of traditional market access issues such as tariffs and freer movement of capital. However,TIEAnegotiationsweresuspendedin2006,officiallytoallowthestalled WorldTradeOrganization(WTO)Doharoundofnegotiationstocomplete,but practically due to the EUs insistence that the agreement include Canada's
Watson Goepel LLP

provinces and territories since barriers to market access in areas such as public procurement are in large measure within provincial jurisdiction. Reciprocally, Canada would be able to penetrate the EUs local national and sub national markets through increased EU trade and commercial liberalization. Some in the Canadiangovernmentsawthatagendaasbeingtooambitioustodeliverandthe Europeans were loathe to continue discussions excluding domestic public procurement. Nevertheless, the Canadian government motivated by its trade liberalizing agenda acted domestically by engaging provincial and territorial governmentstosupportaCETAthatwouldincludebindingcommitmentsontheir part as well as mounting a vigorous lobbying campaign aimed at various EU member states to convince them of the merits of a bilateral trade pact between CanadaandtheEU. The other factor contributing to the abandonment of the TIEA negotiations was thatsuchanagreementcouldimperilrelationsandcommitmentswithCanadian andEUtradingpartnersintheDoharoundprojectedtoconcludeby2007.Doha did not come to fruition, rekindling interest in a CanadaEU trade pact, culminating in the commitment to negotiating a comprehensive economic trade agreementbetweenCanadaandtheEU. This fortuitous convergence of Canadian and European strategies to liberalize tradeandincreasethecompetitivenessoftheirrespectiveeconomiessetthestage fortheOctober2008CanadaEUJointStudy,AssessingtheCostsandBenefitsofa CloserEUCanadaEconomicPartnership(theJointStudy) 3 .Botharecommitted to building stronger and more competitive economies by securing favourable market access terms, attracting foreign investment, innovation and expanding their international commercial networks to provide support for their multinationals to exploit foreign business opportunities. The Joint Study laid the groundworkforthecommencementofnegotiationstowardCETA. CanadaandtheEUhavedifferingmotivesforenteringintotheCETAnegotiations. SomeauthorspointtotheEuropeandesiretodiversifyintodifferentsectorsofthe Canadian economy, especially in services and government procurement. Canada may be trying to level the playing field visvis third country producers who alreadyhavepreferentialaccessintotheEuropeanmarket. 4 There has been some suggestion that Canadian disillusionment with the North American Free Trade Agreement (NAFTA) and stalled multilateral initiatives such as Doha and FTAs with the Americas and AsiaPacific region have also provided incentive for CETA negotiations. Europe is seen as a partner to counterbalance American influence and reduce Canadian dependence on the United States, especially in light of the effect of the US economic crisis on Canada. 5

Watson Goepel LLP

2.

JointStudyandScopingReport

ThedecisiontolaunchCETAnegotiationswasbasedontheJointStudyandtheir scope was defined in the March 2009 CanadaEuropean Union Joint Report: TowardsaComprehensiveEconomicAgreement(theScopingReport) 6 .TheJoint Study, a costbenefit analysis, concluded that increased trade with the EU, Canadassecondlargesttradingpartner,wouldgeneratesignificantneweconomic opportunitiesacrossanumberofsectors.Itdeterminedthatanagreementinthe form of the comprehensive economic trade agreement would enable Canada to increase its export of goods and services to the EU by $12.5 billion (8.5 billion), while EU exports destined for Canada would increase by $25 billion (17 billion). Thestudyshowedthereareimportantbenefitsforbothsidestopursuingacloser economicpartnership.AnagreementcouldbenefitmanysectorsoftheCanadian economy,includingaerospace,chemicals,plastics,aluminum,woodproducts,fish andseafood,automotivevehiclesandparts,agriculturalproducts,transportation, financial services, renewable energy, information and communication technologies, engineering and computer services, among others. The study also illustrated the potential for enhancing the relationship in areas such as investment, labour mobility, regulatory cooperation, environment, and science andtechnologythroughremovalofnontariffbarriers(NTBs). The Scoping Report concluded that a maximum degree of benefit to both sides wouldresultfromamaximumdegreeofliberalization. TheJointStudyoutlineda broad and ambitious negotiating agenda, including: trade in goods and services; investment; government procurement; regulatory cooperation; intellectual property; temporary entry of business persons; competition policy; labour mobility;andenvironment. TheJointStudyreliesonempiricaldatathatpredatesthe2008financialcrisisand the2010debtcrisis,andassumesthesuccessfulcompletionoftheDoharoundof WTO negations. Nevertheless, it provides a solid economic basis on which to conduct highlevel trade negotiations. 7 The extent of mutual gains under CETA accruing due to cost reductions from liberalization of services and reduction of NTBs depends on the openness of the final agreement and some exogenous factors. 8 Theseexogenousfactorsincludethosedrivingforeigndirectinvestment (FDI) such as GDP and business cycles, factors related to prices of domestic currenciesandnaturalresources,andfactorsrelatingtotheperformanceoftheUS economy. 9 Another factor that potentially limits the accuracy of the gains predictionsintheJointStudyisthepost2008riseinprotectionism,anexampleof whichistheUSBuyAmericancampaign. 10

Watson Goepel LLP

TheJointStudyisonlyanillustrationofthepotentialimpactofCETA.Theactual outcome is impossible to predict in light of the stalled Doha negotiations, the assumptionthatalltariffsandtariffratequotaswillbeeliminated,includingthose insensitiveagriculturalandindustrialsectors,anddoesnotconsidertheeconomic impactofopeninggovernmentprocurementmarketsandchanginglevelsofFDI. 11 However,thestalledDohatalksandothermultilateralagendacanalsobeseenas a motivating factor for bilateral agreements such as CETA. 12 The Scoping Report recommends that in the areas under negotiation, the parties aim to go beyond currentWTOprovisions. 13 Againstthisbackdrop,theGovernmentofCanadaandtheEuropeanCommission (EC) concluded an agreement to initiate negotiations for a comprehensive economictradeagreementattheMay6,2009CanadaEUsummitinPrague. CanadaandtheEUhavecompletedtheninthroundofnegotiationstowardCETA. They are committed to building on the success of negotiations thus far, where significantprogresshasbeenmadeacrosstheboard,includingtheareasofgoods, services,investment,governmentprocurementandmanyothers.Thenegotiating text is said to be welladvanced, with many chapters closed or parked pending furtherdevelopment,andissuesintheremainingchaptersnarroweddowntokey differenceswheresolutionsarebeingactivelyexplored.

3.

CurrentCanadaEUTrade

CanadaandtheEUhavealonghistoryofeconomiccooperation.Composedof27 Member States with a total population of over 500 million and a GDP of nearly $16.8trillionin2010,theEUistheworldslargestsinglecommonmarket,foreign investor and trader. As an integrated block, the EU represents Canada's second largesttradingpartneringoodsandservices.In2010,Canadiangoodsandservices exportstotheEUtotaled$49.1billion,andimportsfromtheEUamountedto$55.2 billion. Canada and the EU already share strong trading bonds. Canada is the EUs eleventhlargest partner for trade in manufactured goods and the EU is second largesttradingpartnertoCanada.Fortradeinservices,Canadaaccountsfor2.2% oftheEUtotal,andtheEUfor16%oftheCanadiantotal.AccordingtoStatistics Canada,theEUisthesecondlargestsourceofFDIinCanada,withtheEUsFDI totaling $148.7 billion at the end of 2010. In 2010, Canada's EU FDI amounted to $145.7 billion, 23.6% of Canadian direct investment abroad. Eurostat identified Canada as the EUs third largest FDI destination and its fourth largest source of FDI in 2009. Bilateral economic relations with the EU are very important to Canada, and this economic relationship is a high priority for the Government of Canada.

Watson Goepel LLP

These statistics notwithstanding, many studies characterize the CanadaEU trade relationship as "underperforming". One of the findings of the Joint Study is that the CanadianEU economic relationship is significantly undertraded. Comparing totaltradein2006,tradebetweentheEUandCanadawasroughlythesamelevel as trade between EU and India, despite Canadas economy being 1.5 times larger than Indias. A comparison between Canada and South Korea shows a similar situation: Canadas total trade with the EU in 2006 was 25% lower than South Koreas,howeverCanadasGDPwas1.5timesthesizeofSouthKoreas. 14 Canada and the EU have in common the United States as their most important tradingpartner,eventhoughCanadaismorereliantonUStrade(80%versus16% for the EU). Canadian trade dependence on the US, and its consequent vulnerability,particularlyintimesofeconomiccrisis(asexperiencedtheselastfew years), makes the rationale for diversifying international markets a business imperative. The American Recovery and Reinvestment Act, restricting foreign participationinUSinfrastructureprojectsimmediatelyleapstomind.Withanew trade agreement in place between Canada and the EU, US businesses will doubtlesslyexperienceanerosionoftheircompetitivenessinEuropeandCanada, aswellasareversalofthetradediversioncreatedbyNAFTAattheexpenseofthe EU. The privileged relationship between Canada and the US framed by NAFTA will,inmanyways,beovershadowedbythenew,farreachingagreementwiththe EUwhichcouldconceivablyopenthedoortonegotiateexpandedagreementswith theUnitedStates,bothforCanadaandtheEU. Moreover, Canada and the EU share a public commitment to improving the business environment for small and medium enterprises (SMEs). Institutional changestakingplaceintheEUasaresultoftheLisbonTreaty,theTreatyofthe European Union (TEU") and the Treaty on the Functioning of the European Union (TFEU") contain provisions aimed at reinforcing democracy, transparency and dissemination of information in all its dimensions. The Lisbon Treaty also strengthened the framework for the design of policies targeted specifically for SMEsculminatingintheEUsadoptionoftheSmallBusinessActin2008,asetof principles guiding the design and implementation of policies to promote SME growth,bothatEUandnationallevels. Inaddition,theEUSingleMarketActiswellonitswaytoachievingharmonization of regulations and standards governing industrial production of goods and services, labour mobility, access to finance, recognition of professional qualifications, and unitary patent system and broadening access to public procurement. This augurs well for Canada in that Canadian businesses and in particularSMEswillfindmarketpenetrationeasierinanEUsinglemarkethaving todealwithasinglesetofharmonizedregulationsandstandards.

Watson Goepel LLP

Many EU member states have extensive bilateral economic relationships with Canada,mostnotablytheUnitedKingdomandFrance,baseduponcenturiesold historicaltradition.VirtuallyallEUmemberstateshavebilateralagreementswith Canada in areas of social and economic cooperation such as social security, avoidance of double taxation and prevention of tax evasion, air transport, promotionandreciprocalprotectionofinvestments,etc. SeveralCanadianprovincesandterritoriesenjoyformalizedculturalandeconomic relationships with EU member states and in some instances, regions within EU member states through memoranda of understanding and agreements on cooperation in cultural, social and industrial, technological and scientific cooperation arrangements are projects with projects. Predictably, Qubec has developed a strong and broadreaching cultural and economic relationship with Franceoverthelast50years.

4.

Scope

CETA moves beyond traditional free trade arrangements such as NAFTA which emphasize tariff and customs duties reduction and/or elimination. It is being toutedasasecondgenerationtradeagreementfocusingonremovingobstructive NTBs such as domestic regulations, standards and procedures that impede the flow of goods and services between countries. Negotiations cover 22 areas straddling both tariff and will follow NTB issues. Topics for areas of negotiation includethefollowing: tradeingoods; sanitary and phytosanitary issues (food safety, animal and plant health measures); technicalbarrierstotrade; tradefacilitation; customsproceduresandrulesoforigin; crossbordertradeinservices,includingmutualrecognitionofprofessional qualifications; investment; centralandsubcentralgovernmentprocurement; regulatorycooperation(lawsandprocedures); intellectualproperty; temporarymovementofbusinesspersons; competitionpolicyandrelatedmatters(monopoliesandstateenterprises); institutionalarrangementsanddisputesettlement;and sustainabledevelopment. 15
Watson Goepel LLP

The core areas for negotiation are market access for agricultural and non agricultural goods, trade in services, investment protection, government procurement, NTBs to trade and regulatory cooperation, intellectual property protection,labourmobilityanddisputesettlement. 16 TariffbarriershavebyandlargebeeneliminatedbytheGeneralonAgreementon Trade and Tariffs (GATT) and the WTO. Current tariffs a relatively modest. CanadiangoodsexportedtotheEUaresubjecttoanaveragetariffof2.2%while those from the EU entering the Canadian market face an average levy of 3.5%. While generally low, even minimal tariffs constitute a competitive disadvantage and can divert trade. 17 Tariff peaks exist in some sectors that effectively prohibit trade. Peaks for the Canadian dairy market reach up to 200%, with peaks for animalproductsandcerealsat33%and20%respectively.FortheEU,peaksreach 56%fordairyandfrom20%to30%fordrinks,cereals,andanimalproducts. 18 The Joint Study concluded that the largest proportion of gains expected from CETAcomenotfromthereductionoreliminationoftariffs,butfromliberalization of trade in services and FDI. The extent of the benefit will depend on the exact contentsofCETAsprovisions. 19 Each round of CETA negotiations alternates between Ottawa and Brussels. The first round took place in October 2009 in Ottawa, the second round of CETA negotiationstookplaceinBrusselsinJanuary2010,athirdroundinOttawafrom 19to23April,aforthroundinBrusselsfrom12to16July,afifthroundinOttawa from18to22October2010,asixthroundinBrusselsfrom17to21January2011,a seventhroundinOttawafrom11to15April,aneighthroundinBrusselsfrom11to 15JulyandaninthroundinOttawafrom17to21October2011. 20 No draft agreements have been officially released or published. Copies of documents purporting to be leaked texts have been posted on various websites. The leaked documents seem to reveal that negotiations are advancing and that all,ifnoteverythingisonthetable. 21

5.

CurrentObstacles

Trade and investment between Canada and the EU faces a number of structural impediments. Some of theses area natural consequence of the federal/provincial division of powers in Canada that produces a fragmentation of jurisdiction over tradeandinvestmentissues.

Watson Goepel LLP

5.1

ProvincialRegulations

AmongthemoreprominentformsofNTBsareprofessionalqualificationsthatare governed by provincial legislation in most Canadian provinces and territories. Licenses and accreditation are frequently granted by selfregulating professional bodies such as law societies, associations of professional engineers, medical colleges,etc. Mutual or reciprocal recognition and accreditation of professional qualifications and designations would go a long way to eliminating this nontariff barrier by enhancing the ability of professionals to move between jurisdictions, thus facilitatingtheflowofgoodsandservicesbetweenCanadaandEU. Trade in goods is also affected by provincial regulatory differences. For example, the provincially regulated retail and wholesale of alcoholic beverages can be a source of trade distortion. 22 Federal and interprovincial/territorial differences in corporateregulations,healthandsafetystandardsandvalueaddedtaxesnotonly constitute internal trade barriers within Canada 23 but also create inefficiencies andimpedimentsinfortradegoodsandservicesandFDI.

5.2

PublicProcurement

GiventhemagnitudeofgovernmentprocurementinCanadaandintheEU,itisno surprise that liberalization of public procurement has ascended to the top of the agenda. It represents great untapped potential for both Canadian and EU exporters, and perhaps more so for European exporters in that many EU companies are world leaders in areas such as transportation equipment, public worksandutilitiesandinfrastructuredevelopment.Areasofparticularinterestwill be power generation, public transportation, waste management and water treatmentplants.Canadatoo,hasitsshareofpotentialexportersofinfrastructure services and goods, albeit on a somewhat smaller scale than EU exporters. From the outset the EU has made it a priority to obtain broad access to Canadian governmentprocurement,bothonthenationalandprovinciallevel. EU companies are at a disadvantage when responding to calls for tenders from provincialandterritorialgovernmentsoninfrastructureandotherprojects,aswell asinwhathascometobeknownasthe"MASH"sector,municipalities,academic institutions,schoolsandhealthandsocialservicesorganizations. Canada, as a signatory to the WTO Agreement on Government Procurement ("GPA) is generally amenable to opening its public procurement process to foreignsuppliers.However,asweallknowCanadascommitmentundertheGPA

Watson Goepel LLP

10

is greatly diminished by the exemption of the subcentral (i.e. provincial, territorial,andmunicipal)andother(i.e.CrownCorporation)markets.Thelone exceptionisthe2010CanadaUSProcurementAgreementwhichprovidestheUS and Canada some reciprocal access to each other's public procurement market. Withinitsmemberstates,theEUhasmadeprovisionsforprocurementatthesub central and other levels, but has closed these sectors to Canadian firms on the basis of reciprocity. Consequently the EU has insisted that Canada include representatives from provincial and territorial governments in the CETA negotiationsoaccesstogovernmentprocurementcanbedealtwithconclusively. The balance to be found is between citizens demands for greater efficiency in public spending and subcentral governments desire to use public spending as a tooltoservepoliticalinterestssuchasboostinglocalproduction,orjobcreation. 24 A European Commission study of increased intraEU competition for foreign procurement showed price reductions of around 30%. 25 However, loss of governmentcontrolandpolicyspaceisanissue.Municipalitieswishtoretainthe flexibility to make strategic decisions about what is best for them in their own circumstances quality of infrastructure and products, standards, local jobs, environment,cost,taxpayervalueandthelike. Government procurement tends to follow strict guidelines and policies with respect to environmental stewardship. This will be the case even after a CETA withtheEUisimplemented. ThroughtheSingleMarketAct,theEUisseekingtoprovidesimplerproceduresto those who manage public procurement, and allow them to support socially responsibleandenvironmentallyfriendlyapproaches.TheEUalsoplacesemphasis on maximizing the acceptance and respect of European values and rules and relationships with its trading partners with the objective of reaching "reciprocal opening" of public procurement markets. The goal is to provide Canadian and Europeansupplierswithopen,transparentandnondiscriminatorymarketaccess to each others government procurement markets. Thus the EU has made the openingoftheCanadianmarketforpublicprocurementanessentialconditionof CETA. 26

5.3 SupplyManagement
The agricultural sector is strongly entrenched, socially and politically in both Canada and EU. Canadian agricultural goods enjoy export subsidies and supply management mechanisms such as marketing boards and dairy quotas. The EU CommonAgriculturalPolicy,ontheotherhand,isseenbyCanadianproducersas animpedimenttoCanadianexportstotheEU,particularlywine.Subsidiesarean
Watson Goepel LLP

11

area of concern as they distort competition and constitute a barrier to trade and investment. Agriculturalsubsidies,however,arenotatopicofCETAnegotiationsasthisisone area of considerable friction at the Doha negotiations. The EU position is that removal of subsidies is not an appropriate area of bilateral negotiation as their removalwouldbenefitallWTOmembers,notsimplythepartyontheotherendof abilateralnegotiation. 27 Ifconcessionsweremade,provisionswoulddelimitthe rightsandobligationsofthePartiesinrespectofsubsidies.

5.4

WTOSanitary&PhytosanitaryStandards

Sanitary and Phytosanitary standards (SPS) are the standards and regulations countries adopt visvis imports of plants and animals in order to prevent the introduction or spread of plant pests, pathogens or harmful additives that these products may contain. As such, these measures are designed to protect human, animal,andplantlife. SPSstandardscanfunctionasNTBsastheyoperatetodelayimportsandincrease costs by requiring certification or by barring importation completely. Canadian exportersintheagricultureandagrifood,fishandshellfishsectorsareconcerned aboutcurrentEuropeanNTBsintheguiseoftheseregulatorystandards.Thereis, however, significant concern in Europe about genetically modified organisms (GMOs)andthepracticeofaddinghormonestomeatproducts. ThereisdivergencebetweenCanadianandEuropeanapproachestoSPSmatters. Canada,muchliketheUS,usesasciencebasedapproachtoSPS,settingstandards for products or additives based on scientific evidence of harm. The EU on the other hand uses a societybased approach, setting standards based on public perception of harm. This approach stems from experiences where public health crises arose where there was no prior scientific evidence of danger, such as with BovineSpongiformEncephalopathy(BSE),ormadcowdisease. 28 In order to overcome these divergent approaches, CETA should at minimum affirm and enhance commitments under the WTO Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) and the continued use of the WTO dispute settlement procedures for any formal disputesregarding SPS measures. 29 Going beyond the WTO agreement, CETA should provide for harmonization or reciprocal recognition of each others standards and norms and eliminate exceptions.

Watson Goepel LLP

12

CETA should also create an SBS Committee to provide oversight. Consideration canbegiventotheestablishmentofabilateralmechanismtomanageSPSissues soastoavoiddisputes.

5.5

MarketAccess

As noted above, tariffs imposed by both the EU and Canada are generally low. However, existing tariffs can have a negative impact, especially on intrafirm or intraindustrytrade,wheretheyoperateasatax.TheJointReportnotesthatthese tariffs can be the equivalent to up to one half of industry profit margins. 30 The Scoping Report estimates that onequarter to onethird of the overall benefit to bilateral trade liberalization under CETA would come from the elimination of tariffs. 31 96 to 98% of tariffs will be removed on the day CETA is implemented, including 99% of industrial products. The timeline for phase out of agricultural and fish products remains to be determined (some speculate it may be seven years).Tradefacilitationprovisionstostreamlinecustomsprocessesandfacilitate the movement of goods will also improve market access, speeding up customs clearanceanddeliveryofgoodsandservicestoendconsumers.

5.6

RulesofOrigin

Theobjectiveofrulesoforiginistoensurethatthebenefitsofanagreementflow to goods originating in the territory of either party. Canada and the EU have differingapproachestorulesoforigin.Canada,withitsmanufacturingindustries integratedintotheUSunderNAFTA,preferslooserrulesoforigin.TheEU,onthe other hand, prefers astricter approach, with the aim of ensuringthat goods that aretechnicallyCanadianarenotinfactofUSorMexicanorigin. 32 TheScopingReportrecommendsthatCETAhaveprovisionsforrulesoforiginthat areclear,assimpleaspossibleandleavelittleroomforadministrativediscretion. 33 Thisshouldensurethattherulesoforiginareadministeredinafair,effectiveand transparent manner by customs administration and to provide the trading community with themeans to take advantage of thepreferential tariff treatment contemplatedunderCETA.

Watson Goepel LLP

13

5.7

IntellectualProperty

The EU seeks stronger enforcement of the WTO Trade Related Intellectual PropertyRightsAgreement(TRIPS)and1970UnitedNationsWorldIntellectual PropertyRightsOrganization(UNWIPO).Theserepresentaminimumlevelof protection for intellectual property rights (IPR). Although IPR protection is strong in Canada, some European stakeholders are of the opinion that Canadian standards do not go far enough. EU stakeholders also complain that IPR enforcementinCanadaisdifficulttoactivate,beitthroughthecourts,customs,or police. The division of responsibilities between the Canadian Border Services Agency (CBSA) and Royal Canadian Mounted Police (RCMP) complicates matters. From the European perspective, harmonization would mean bringing Canadian standards up to European levels. A European IPR Enforcement Report released in 2009 identified Canada as a priority country due to issues with copyright, pharmaceutical patents and geographical indications. 34 For example, theEUispressuringCanadatoagreetoEUIPstandardssuchaslongereffective patent terms, more stringent data protection and right of appeal for research basedpharmaceuticals. However, IPR issues in other areas, particularly for pharmaceuticals, are more problematic. Canadas patent protection regime is criticized for not protecting brandname drugs enough; on the other hand, the much lower cost of generic drugsisimportanttoCanadaforcontrollinghealthcarecostswhicharespiraling out of control. This puts Canada in an interesting and delicate position with a thriving brandname pharmaceutical industry and a thriving genetic pharmaceuticalindustry.ThetalkswiththeEUhavehighlightedthisdivergence. Differences in the two parties legal systems create multiple standards and procedures for IPR registration, all of which is seen to constitute a significant collectionofallkindsofNTBs. 35 CETAaimstoharmonizestandards,providefor mutual recognition of IPR, and improve the transparency of both European and Canadian IPR regimes. The EU Single Market Act has identified adopting legislation establishing unitary patent protection and a unified patent litigation system throughout the EU as priorities. Although Canada is criticized for being weak in protecting intellectual property it is moving toward significant improvements to our Copyright Act * , which hopefully will bring Canada in line withinternationalstandards.
*

BillC11,AnActtoAmendtheCopyrightAct,receivedsecondreadingandreferraltoCommitteein theHouseofCommons13February,2012andCommitteereportpresented15March,2012.

Watson Goepel LLP

14

5.8

GeographicIndications

TheJointStudynotesthedifferingviewpointsongeographicindications(GI)put forward by Europe and Canada at WTO negotiations. The European Community pressed for a mandatory registry with legal effect, while Canada, among other nations,arguedforavoluntaryregistrywithnolegaleffect. 36 TheEUviewsGIas important in the context of the reduction of subsidies to largescale agricultural production. GI is seen as a method of protecting small producers in the global market. 37 Currently,certificationmarksrelatingtoGIcanberegisteredinCanadaunderthe federalTradeMarksAct,butonlyifnopriorregistrationhastakenplace.Thishas led to the infamous example of the European GI for Prosciutto di Parma being unregisterableinCanadaduetoapriorCanadianownedtrademarkforParma. 38 Alistof180goodsfocusedoncheese,meatandwine&spirits,wassubmittedby the EUforGI protection. This is a source of controversy because before Canada offers GI concessions it will want to know what the EU is prepared to offer in exchange.

5.9 Services

TheEU,astheworldslargestexporterofservices(30%oftheglobalshare) 39 ,hasa strongincentivetoliberalizetradeinservicesbeyondtheminimumstandardsset by the 1995 WTO General Agreement on Trade in Services (GATS). GATS distinguishesbetweenfourmodesofsupply: Mode 1: Crossborder supply is defined to cover services flows from the territoryofoneMemberintotheterritoryofanotherMember(e.g.banking orarchitecturalservicestransmittedviatelecommunicationsormail); Mode2:Consumptionabroadreferstosituationswhereaserviceconsumer (e.g.touristorpatient)movesintoanotherMember'sterritorytoobtaina service; Mode 3: Commercial presence implies that a service supplier of one Member establishes a territorial presence, such as ownership or lease of premises,inanotherMember'sterritorytoprovideaservice(e.g.domestic subsidiariesofforeigninsurancecompaniesorhotelchains);and Mode 4: Presence of natural persons consists of persons of one Member entering the territory of another Member to supply a service (e.g.
Watson Goepel LLP

15

accountants, doctors or teachers). The Annex on Movement of Natural Persons specifies, however, that Members remain free to operate despite measures regarding citizenship, residence or access to the employment marketonapermanentbasis. 40 GATS seeks to gradually liberalize trade in services across all four modes by establishingasystemofrulesbasedonprinciplesofnondiscrimination. Liberalization of trade in services is complicated by regulation of the various modes falling under the jurisdiction of both national and subnational governments. Including the provinces and territories in the CETA negotiations addressesthiscomplication. Other barriers include foreign ownership caps on commercial establishments, restrictionsonthetypesofcommercialpresenceandtypesofservicesthatcanbe offered, and discriminatory treatment giving advantages to domestic companies, suchasregistrationandnationalityrequirements. TheJointStudyacknowledgedthedifficultyinquantifyingpotentialgainsfromthe liberalization of trade in services. However, it cited an estimate of the additional costofcurrentbarrierstotradeinservicesas2452%ofservicesintoCanadaand 1842%ofservicesintotheEU. 41 TheEUSingleMarketActaffirmsthatservicesare amajordrivingforcebehindjobcreationinEurope.AccordinglytheEUidentified aneedforstandardizationwhichisessentialformakingproceduresmoreeffective, efficientandinclusive. The services provisions of CETA are broad, with improvements to be made the utilities, construction, trade, transportation, communication and information, financialservicesandsecuritiestrading,insurance,business,consumer,andpublic servicesareas. Canada is especially keen to gain access to Europe to deliver architectural, engineeringprofessional,distribution,environmental,andlogisticsservices.Both Canadian and European stakeholders raise concerns about the openness of each others telecommunications services markets, where cross border issues include billing systems, privacy, spectrum allocation, security, and licensing. 42 For financial markets, the lack of a national securities regulator in Canada creates inefficiencies. However, the incentive to liberalize financial services may still be low in light of the recent financial crisis. Barriers to labour mobility such as licensingrequirementsbothacrossandwithincountriesalsoadverselyaffecttrade inservices. CETAwillnotaddressanyregulatorychangesinthebankingsector.Otherlikely exemptionsincludeeducation,healthandpublicservices.CETAprovisionswould
Watson Goepel LLP

16

provideforimprovedmarketaccess,transparencyandpredictabilityforCanadian and EU service providers. According to the Joint Study, liberalization of trade in serviceswouldaccountforalargeportionofprojectedGDPgains:50%ofthetotal gainsfortheEUand45.5%ofthegainsforCanada. 43

5.10 CooperationMechanisms
Cooperationmechanismsarenecessaryinareaswherejurisdictionalcompetencyis dividedbetweenthenational(federal)andsubnational(provincialandterritorial) levels. The Joint Study identifies the following areas as those with existing or potential for bilateral cooperation: science and technology, energy, environment, transportation,customscooperationandtradefacilitation,employmentandsocial affairs, movement of people, education and training, competition policy, and fisheries. MostEuropeanenvironmentalandemploymentstandardslegislationisgenerally seen to be more expansive and rigorous than Canadian laws. Where regulatory standardsdiverge,thesestandardsmustbeharmonizedsoasnottogiveoneside ortheotheranunfairadvantage.Again,thisisanareaofpredominantlyprovincial jurisdictioninCanadasuchthatprovincialparticipationisessentialtotheprocess. Despite differences in regulatory approaches in areas such as energy and environment,CanadaandtheEUfacemutualenergysecurityandclimatechange challenges.Thesecommonchallengeswillprovideimpetusforfuturecooperation. Cooperation in the energy sector goes back to EURATOM in 1959, whereas cooperationinenvironmentalmattersdatesfrom1975. In 2004 Canada and the EU entered into a broad Framework on Regulatory CooperationandTransparency,wherebytheregulatorsbothintheGovernmentof Canada and the European Commission are encouraged to cooperate. The framework aims to improve regulatory governance, establish good regulatory practices to create better regulations, facilitate trade and investment, promote competitiveness, and enhance the climate for innovation. 44 The framework is implementedbythe2007EUCanadaRoadmapforRegulatoryCooperation,which sets out sectorspecific areas for annual negotiation. The existing framework is limitedinthatitisnotlegallybinding,focusedonthegoodssectorandrestricted tothenationalgovernmentlevel.ACETAwouldaddresstheseshortcomings.

Watson Goepel LLP

17

5.11 LabourMobility&MovementofBusinessPersons
Barriers to labour mobility and the temporary movement of managerial, professional and executive personnel have been shown to exert a negative influence on trade in services and investment. Special visas for investors, professionals,intracompanytransfereesandotherssuchaskeypersonnelhaving special qualifications similar to those found in NAFTA are critical to well functioning business operations. Expedited work permits to permit the flow of skilledworkersonatemporarybasistofacilitatetradeingoodsandservicesthat observeinternationallyrecognizedlabourprinciplesandeffectiveenforcementof domesticlabourlawsarekeyfeatures.Fivecategoriesofbusinesspersonswillbe recognized:shorttermvisitors,intracompanytransferees,professionals,investors and management/graduate trainees. Expedited visas, spousal visas and entry for skilledtechniciansarealsoincluded. Mutual recognition of diplomas and qualifications and simplifying and modernizingrulesfortherecognitionofprofessionalqualificationsarealsounder discussion. Great enthusiasm exists for mutual recognition and accreditation of qualifications and credentials. Negotiators are building on an existing agreement betweenQubecandFrance(whichcoversabout80professions).

5.12 Investment
Therearenumerousfactorsthatinfluenceflowsofinvestment,some,suchasGDP fluctuationsandbusinesscyclesareexogenoustoCETAsmandate. 45 Barriersnot only encompass regulatory limitations to FDI, but also barriers to services and labourmovement(GATSmodes3and4).Forexample,aWTOstudyfoundthata 10% increase in movement of temporary workers produced an increase of 8% in inflowand7.1%inoutflowofFDI. 46 TheJointStudyidentifiesbarrierstoFDIas both specific (e.g. formal limits to foreign investment in particular areas) and general,basedonthewiderframeworkoftheregulatoryenvironment.FDIbarriers not only affect the ability of investors to acquire foreign businesses, but also preventbusinessesfromsettingupsubsidiariesinthetargetforeignmarket. A countrys overall openness to FDI is an important consideration. According to OECDdata 47 ,CanadahasimproveditsopennesstoFDIsincetheJointStudywas published.TheOECDrankscountriesopennesstoforeigninvestmentonascale of 0 (open) to 1 (closed). In 2006, Canadas rank was 0.375. In 2010, it was 0.15. Despitethis improvement, Canadas openness to foreign investment is limited in certain sectors. In Canada, for example, the media (o.7), fishing (0.6), telecommunications (0.35), and transport (0.27) sectors are restrictive. In

Watson Goepel LLP

18

individual EU member states, certain sectors are likewise restrictive, for example businessservices(Belgium:0.225),transport(Germany:0.275),fishing(Italy:1.0), electricity (Austria: 1.0), and media (France: 0.285). Even where there are no specific restrictions on a particular sector, different rules for foreign ownership acrossdifferentprovincesandterritoriesleadstojurisdictionshopping. 48 The EU seeks nondiscriminatory measures in respect of financial institutions, includingeliminationofownershipquotasandrestrictions.Europeaninvestment in Canadian telecommunications services is also hampered by limits on foreign ownership,asmandatedbythefederalTelecommunicationsAct.Improvementsin these areas would provide Canadian and EU investors with greater certainty and predictabilityaswellasenhancedconfidencetoinvestintheterritoryoftheother Party.

5.13 RegulatoryCooperationandTechnicalBarrierstoTrade (TBT)

TBT operate to restrict trade despite the reduction of tariffs. These barriers are typicallynotintentional,butaretheresultofdifferencesintechnicalregulations, standards, or conformance assessment procedures. 49 In the telecommunications sector, for example, the Agreement will ensure that regulations governing public telecommunicationstransportnetworksandservicesdonotimpedemarketaccess commitments, as well as providing an open and competitive market for these services. Throughthebreadthofitsscope,CETAwouldpromotegreatercooperationinthe field of standardsrelated measures, address horizontal transparency issues, includingnotificationsandparticipationinconsultationprocesses,andestablisha mechanismtoprovidedirectiononidentification,management,andresolutionof issuesdealingwithstandardsrelatedmeasurestoavoiddisputes.Theconsultative mechanisms for the effective resolution of disputes would operate outside the formal dispute settlement framework. Such provisions could involve the establishment of specific committees and/or working groups. These provisions could also provide for a general exception allowing for the adoption and enforcement of measures to protect animal or plant life or health, and measures relatingtotheconservationofexhaustiblenaturalresources. The EU is moving in this direction and the Single Market Act which seeks to increasetheeasewithwhichpeople,goods,servicesandcapitalcancirculatefreely from one member state to another by simplifying procedures and reducing the

Watson Goepel LLP

19

regulatory and administrative burdens, in particular, for example, by simplifying accountingstandardsforbusinesses.

5.14 MonopoliesandStateEnterprises
TheTreatyofRomewhichcreatedtheEuropeanCommunitycontainscompetition provisions in the form of antitrust and state aid. In addition, the Commission regulationsprovideformergercontrolrules.Canadaregulatescompetitionviathe federalCompetitionAct.Bothpartieshaveahistoryofregulatingcompetition, Intheareaofstateaid,CanadaandtheEUhavedifferentapproaches.Individual EUmemberstatesmustcomplywiththeEUprohibitiononanysubsidiesorstate aidhavinganadverseimpactoncompetition.InCanada,stateaidisselfregulated atthefederalandprovincial/territoriallevels. 50 The Scoping Report refers to the 1999 Agreement between the Government of Canada and the European Communities regarding the Application of their Competition Laws as a good basis for cooperation and information exchange betweencompetitionauthorities.ThegrouprecommendedthatCETAaddressthe issuesofstateaid,designatedmonopoliesandstate/publicenterprisessothatthey do not distort competition or create barriers to trade and investment. 51 Such provisions ensure that anticompetitive business practices do not undermine the benefitsoftheAgreement.

6.

WhatsDifferentthisTime?

Modern trade negotiations recognize that the nature of international trade has evolved to the point where traditional free trade agreements with their focus on goods moving across borders are no longer sufficient. The liberalization of other aspectsofinternationaltradesuchastradeinservicesandFDIhasthepotentialto produce gains that eclipse the potential gains from a simple reduction of tariffs and goodsrelated NTBs. Agreements such as NAFTA and negotiations under GATT/WTOhaveaddressedorattemptedtoaddresstheseissues.CETA,however, aims to live up to its title and be truly comprehensive, going beyond past negotiations. Tostart,bothsidesagreethatCETAisextremelyambitiousinscopeandbothare committed to its successful conclusion as they have invested a great deal of

Watson Goepel LLP

20

political capital in it. Commitment of the parties is evident from the fact that negotiationshavecontinueddespitetheshocksofthe2008financialand2010debt crises. The provinces and territories are participating as full partners in negotiations alongsidefederalofficialsforthefirsttimeintheannalsofCanada'sforeigntrade policy. This is critical as the Provinces have to implement most nontariff barrier provisions(labour,environment,publicprocurement,etc.)astheyfallwithintheir jurisdiction. Consequently, the EU is insistent that provinces participate in negotiationstoassurecompliancewithCETA.Thisisthekeydifferencethatsets CETAapart. Anotherdifferenceisthenegativelistapproach,whichstartsfromtheposition that trade in all services will be liberalized except those specifically identified as exceptions. Prior to CETA, the EU had always insisted on a positive list, an approach that required a listing of specific services. The negative list is the approachusedbyNAFTAandforgovernmentprocurementundertheWTOGPA. Theadvantageofthisapproachisbroadercoverageofsectors. CETA, in short, recognizes the realities of twentyfirst century international commerce, with complex networks of valuechains and flows of people, services, andideasacrossborders.

7.

Future

CETA will be the first comprehensive trade agreement between the EU and an OECD country. It will be a model or prototype for a new generation of trade agreements which move beyond the elimination or reduction of tariff barriers to thedismantlingofNTBs. It is understandable that the EU is investing enormous energy in the CETA negotiationsasthiswouldcreateatemplateforfutureeconomicandtradepacts withothernationsorgroupsofcountries.Itcouldconceivablysetthestagefora Transatlantic trade agreement between the NAFTA countries and the EU. CETA mightalsocatalyzethenegotiationscurrentlyunderwayfortheTranspacifictrade agreementasothernationswillnotwanttobeleftbehindscramblingformarket accessormissingoutonattractinginvestment. OntheCanadianside,givenprovincialandterritoriallegislativecompetenciesare impacted, a CanadaEU deal could lead to harmonization of regulatory issues amongtheprovincesandterritoriesastheymovetocompliancewithCETA.

Watson Goepel LLP

21

 It is important to realize the significance of the EU market media doom and gloom over recent fiscal problems is exaggerated. It underestimates the strength andresiliencyEuropeanshavedemonstratedinrecoveringfromthedevastationof twoworldwarsfoughtlargelyinEuropeaswellaslivingintheshadowoftheIron Curtain for over forty years. With a combined population of over 500million inhabitants,or7.3%oftheworldpopulation,theEUgeneratedanominalGDPof 16,242billionUSdollarsin2010,whichrepresentsanestimated20%ofglobalGDP when measured in terms of purchasing power parity. As the worlds largest economy it has grown from 6 member countries from its inception in 1958 to 27 today and still growing. There will be expanded opportunities as new member states join. Croatia is expected to become the 28th member of the EU on 1 July 2013. Iceland, Macedonia, Montenegro, Serbia and Turkey are all official candidatesforadmissiontotheEU.Turkeyalone,withitsemergentmiddleclass is an example of untapped market potential that exists for Canadian goods and services. Expandedtradethroughenhancedmarketaccessisseenasmanyobserversasthe way out of the economic woes that have befallen the advanced and developed economies since 2008. Financial restraint can accomplish only so much. Growth throughtradeistheothersideoftheequation.CETAandthevariousothertrade pacts currently being negotiated are seen as the solution by business as well as governmentstaskedwithcreatingconditionsconducivetoeconomicrecovery.In addition, by expanding and diversifying trade activities beyond North America, Canada will reduce its economic dependency on the United States, as well as becominglessvulnerabletoeconomicshockssouthoftheborder. Endnotes
Online: European Commission http://ec.europa.eu/trade/creating-opportunities/bilateralrelations/countries/canada/ [EC Bilateral Relations].1 Online: European Commission <http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/canada/ > 2 Alexandre Gauthier & Michael Holden, Canada-European Union Trade Negotiations p. 1. Overview of Negotiations, Library of Parliament, 2010 at 1 [Gauthier & Holden]. 3 EU Commission & the federal government of Canada (2008). Assessing the costs and benefits of a closer EU-Canada economic partnership. A Joint Study by the European Commission and the Government of Canada [Joint Study]. 4 Jonne Kregting, The EU-Canada Comprehensive Economic Trade Agreement: An Evaluation of the Public Policy Debate and Assessment of its Potential Results, (Master Thesis, Aarhus University, Aarhaus School of Business, 2011) at 22 [Kregting]. 5 Christian Deblock & Michle Rioux, From Economic Dialogue to CETA,(2010-1011) International Journal, Winter 2010-2011,39 at 40 [Deblock & Rioux]. 6 Joint Scoping Group, Joint Report on the EU-Canada Scoping Exercise, 2009 Online: http://trade.ec.europa.eu/doclib/docs/2009/march/tradoc_142470.pdf [Scoping Report]. 7 Kregting, supra note 4 at 30. 8 Ibid. at 32. 9 Ibid. at 55-56.
1

Watson Goepel LLP

22

Kurt Hbner, CETA: Stumbling Blocks in Ongoing Negotiations, Canada-Europe Transatlantic Dialogue: Seeking Transnational Solutions to 21st Century Problems, (Ottawa: Carelton University, 2010) [Hbner] p. 2. 11 Gauthier & Holden, supra note 2 at 2. 12 Hbner, supra note 10 at 2. 13 Scoping Report, supra note 6 at 3. 14 Joint Study, supra note 3 at 18. 15 Gauthier & Holden, supra note 2 at 3. 16 Ibid. at 4. 17 Joint Study, supra note 3 at 36. 18 Stephen B. Woolcock, The Canada-EU Comprehensive Economic and Trade Agreement (CETA) Towards a New Generation of FTAs?, in Kurt Hbner, ed., Europe, Canada and the Comprehensive Economic and Trade Agreement, (New York: Routledge, 2011) 21 at 30 [Woolcock]. 19 Kregting, supra note 4 at 11. 20 EC Bilateral relations, supra note 1. 21 Deblock & Rioux, supra note 5 at 53. 22 Kregting, supra note 4 at 26-27. 23 Ibid. at 58. 24 Hbner, supra note 10 at 3. 25 Joint Study, supra note 3 at 78. 26 Hbner, supra note 10 at 4. 27 Woolcock, supra note 18 at 31. 28 Ibid. at 33. 29 Scoping Report, supra note 6 at 3. 30 Joint Study, supra note 3 at 36. 31 Scoping Report, supra note 6 at 3. 32 Kregting, supra note 4 at 68. 33 Scoping Report, supra note 6 at 4. 34 Kregting, supra note 4 at 63. 35 Ibid. at 62. 36 Joint Study, supra note 3 at 87. 37 Woolcock, supra note 18 at 32. 38 Joint Study, supra note 3 at 87. 39 Ibid. at 41 40 Online: WTO GATS Objectives: <http://www.wto.org/english/tratop_e/serv_e/gatsqa_e.htm> 41 Joint Study, supra note 3 at 44. 42 Ibid. at 89. 43 Joint Study, supra note 3 at 55. 44 Ibid. at 119. 45 Kregting, supra note 4 at 48. 46 Joint Study, supra note 3 at 65. 47 B. Kalinova, A. Palerm and S. Thomsen (2010), OECD's FDI Restrictiveness Index: 2010 Update, OECD Working Papers on International Investment, 2010/03, OECD Publishing. http://dx.doi.org/10.1787/5km91p02zj7g-en 48 Kregting, supra note 4 at 65. 49 Woolcock, supra note 18 at 33. 50 Joint Study, supra note 3 at 143. 51 Scoping Report, supra note 6 at 7.

10

Watson Goepel LLP

23