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European Commission

MEMO

Brussels, 26 September 2014

EU-Canada agree deal to boost trade and investment

The EU-Canada summit taking place today in Ottawa marks the end of the 5-year talks for a Comprehensive Economic and Trade Agreement (CETA). Canada is one of the most advanced non-European countries with which the EU has ever negotiated a trade agreement. The EU has much to gain from closer trade ties with a like-minded partner: Canada is a sizeable market, an important destination for European investment and a country rich in natural resources. Also, this agreement will allow EU companies to compete with US exporters on the Canadian market on a level playing field, as the US and Canada have already liberalised their trade under the North American Free Trade Agreement (NAFTA). Once implemented, the agreement is expected to increase EU-Canada trade in goods and services by 23% and boost EU GDP by about €12 billion a year. It will create major opportunities across all areas of the economy.

CETA will…

1. …end customs duties

CETA is going to eliminate all industrial duties saving European exporters around €470 million a year.

Duties will be eliminated quickly. Most of them will be removed as soon as the agreement enters into force. Seven years later, there will be no more customs duties between EU and Canada for any industrial products.

A far reaching elimination of customs duties will apply also to the farming and food sector. Nearly 92% of EU agriculture and food products will be exported to Canada duty-free.

Opening agricultural markets has the potential to keep prices down and provide consumers with more choice. As a major producer of high-quality food, the EU will benefit from improved access to the Canada high-income market. The outcome of the negotiations is especially promising for processed agricultural products (PAPs), which is one of the EU’s main export interests. With nearly all Canadian duties for these products eliminated, the EU food-processing industry is expected to considerably gain from CETA. As regards wines and spirits, tariff elimination is complemented by the removal of other relevant trade barriers which will significantly improve access to the Canadian market.

For a handful of sensitive products such as beef, pork, sweetcorn on the EU side and dairy in Canada, the preferential access is limited to quotas. Poultry and eggs will not be liberalised on either side. The EU entry-price system is maintained.

Thanks to tariff elimination the EU processing industry will have better access to Canadian fish. Sustainable fisheries will be developed in parallel, in particular with regard to monitoring, control and surveillance measures, and the fight against illegal, unreported and unregulated fishing.

2. …let EU businesses bid for Canadian public contracts

With CETA, EU companies will be able to bid for public contracts in Canada at all levels of government. This includes the provincial authorities, responsible for a large public spending.

An EU-Canada Joint Study (2008) demonstrates that the overall value of contracts awarded by the federal government in Canada was estimated at C$ 15 to 19 billion per year. The value of contracts at other levels of government greatly exceeds this. For example, in 2011 procurements by Canadian municipalities were estimated at C$ 112 billion (approx. €82 billion) or almost 7% of Canadian GDP.

European businesses will be the first foreign companies to get that level of access to Canadian public procurement markets. No other international agreement concluded by Canada offers similar opportunities.

Canada will also create a single electronic procurement website that combines information on all tenders to ensure that the EU companies can effectively take advantage of these new opportunities.

3. …step-up regulatory cooperation

The chapter on technical barriers to trade (TBT) contains provisions that will improve transparency and foster closer contacts between the EU and Canada in the field of technical regulations. Both sides also agree to further strengthen links between the relevant standard setting bodies. A separate protocol will improve the recognition of conformity assessment between the parties. By reducing the cost of complying with technical regulations, standards and conformity assessment procedures (including marking and labelling provisions) CETA will facilitate trade and benefit industry generally. According to estimates, this could amount to GDP gains of up to €2.9 billion a year for the EU.

4. …protect European innovations and agricultural products from a specific geographical origin

CETA will create more of a level playing field between Canada and the EU as regards intellectual property rights. For instance, the EU pharmaceutical sector can see tangible benefits thanks to developments in the Canadian patent system. Also, European innovations, artworks and brands will be better protected against being unlawfully copied.

The rules agreed in CETA will also benefit EU farmers and small businesses involved in food production. CETA recognises the special status and offers protection on the Canadian market to numerous European agricultural products from a specific geographical origin. The use of geographical indications (GIs) such as Grana Padano, Roquefort, Elia Kalamatas Olives or Aceto balsamico di Modena will be reserved in Canada to products imported from European regions where they traditionally come from. The agreement also provides for the possibility to add other products' names to the list in the future. In addition, thanks to the agreement, some prominent EU GIs such as Prosciutto di Parma and Prosciutto di San Daniele will finally be authorised to use their name when sold in Canada, which has not been the case for more than 20 years.

5. …streamline trade in services

Around half of the overall GDP gains for the EU are expected to come from liberalising trade in services. CETA will bring new opportunities for European companies by creating access to the Canadian market in key sectors such as financial services, telecommunications, energy and maritime transport. Overall, output gains for the EU could amount to €5.8 billion per year once the agreement is fully implemented.

The agreement will also facilitate the temporary movement of key company personnel and service-providers between the EU and Canada. This is particularly important for firms with overseas operations. Certain categories of professionals will also have easier access to temporarily supply services such as consultancy in a variety of sectors like accounting, architecture or engineering, in that latest case simplifying the fulfilment of after-sales maintenance and monitoring commitments.

The agreement provides a framework for a future mutual recognition of qualifications in regulated professions. At the moment, the lack of coherent requirements for professionals remains a stumbling block, especially for providing cross-border services. Under CETA, the relevant professional organisations or authorities in the EU and Canada will be able to further work together on the technical details for recognising diplomas

6. …promote and protect investment

CETA is the first EU trade agreement that brings broad benefits to EU companies investing outside the EU. This is made possible by the new competence that the EU gained on investment under the Lisbon Treaty.

CETA removes and alleviates barriers for investors to enter the Canadian market. Moreover, the agreement ensures that all European investors in Canada are treated equally and fairly. To improve the investment climate and offer more certainty to all investors, the EU and Canada have committed to key principles, such as non-discrimination between domestic and foreign investors. Canada and EU also commit that they will not impose any new restrictions on foreign shareholding.

Both the EU and Canada have strong legal systems and investors can, in effect, turn to the domestic judiciary with any concerns they may have. However, this may not always guarantee foreign investors will be adequately protected, for example, from discrimination. For example, a government could expropriate a foreign investor without proper compensation. An investor could also face restrictions to bring its case to the domestic court. Rules governing international arbitration that allow investors to raise such concerns have traditionally been covered by EU Member States in their bilateral investment treaties. CETA now builds upon EU Member States' practices and traditions. Most importantly, the EU has introduced strong additional guarantees to make sure that the investment protection provisions fully preserve the right of governments to regulate, implement public policy objectives and avoid any abuse of these rules.

7. … reform and improve the investment-to-state arbitration (ISDS) system

Investment-to-state arbitration or ISDS is a system of international arbitration designed to protect foreign investors from discrimination or unfair treatment by governments.

The fact that a country has a strong legal system does not always mean the law will protect foreign investors from discrimination by the government. Although the EU and Canada are developed economies, companies can still come across problems affecting their investments which their domestic courts systems are not always able to deal with effectively. This view was also supported by the EU's Member States who gave the European Commission a mandate to negotiate on investment protection in CETA.

Ideally, all investors and traders should be treated equally and fairly by all governments and by the domestic courts of every country. International trade and investment agreements – and the availability of international dispute resolution to enforce them – help guarantee this.

Most of the problems encountered by foreign investors in countries with developed legal systems are administrative. They are about how the authorities treat an individual investor in the context of a particular license, permit, or promise extended by government officials.

The host state might take or apply a decision in a way that is unfair or discriminates against foreign producers. For example, it might allow a domestic company to produce a certain product whilst banning the same product produced by a factory owned by a foreign company.

The authorities might deny a foreign investor the right to appeal, which is a breach of a fundamental right. If investors are prevented from going to local courts or local courts cannot deal with a claim effectively, then they have nowhere to go to review their concerns.

In such situations, ISDS provisions in CETA will provide investors with the possibility of legal redress.

Including measures to protect investors does not prevent governments from passing laws, nor does it lead to laws being repealed. In the past decades, the EU's Member States have signed some 1,400 such agreements with many countries around the world and this has not stopped them from passing new laws. The same applies to Canada and the US under their 1994 North America Free Trade Agreement. At most, ISDS arbitration can lead to compensation being paid to the investor who has – for example – had their property confiscated.

In the past decades, the EU's Member States have signed some 1,400 such agreements with many countries around the world and this has not stopped them from passing new laws. The same applies to Canada and the US under their 1994 North America Free Trade Agreement.

The provisions in CETA on investment protection and investor-to-state dispute settlement (ISDS) will replace the eight existing bilateral investment agreements between EU Member States and Canada. A single set of rules will make the situation clearer. It also provides the opportunity to introduce additional guarantees that the system cannot be used to successfully challenge legitimate laws and prevent any abuse of the investment protection rules and investor-state dispute settlement systems. The Commission has taken public concerns in this matter seriously.

  1. The improved ISDS system in CETA will:

  2. have a code of conduct for arbitrators

  3. ensure government control over arbitrators

  4. ensure full transparency of proceedings

  5. ban frivolous claims.

Firms will not be able to sue governments simply because profits might be affected. They will only be allowed to bring a claim in a limited number of well-defined cases that breach CETA and discriminate against the investor because of their nationality. A company would need to demonstrate that CETA's provisions had been breached in a specific way, so there will be no room for arbitrators to interpret the agreement freely.

For more information about CETA see the factsheet (bottom of the page).

8. …ensure good cooperation in the future

CETA creates a framework to resolve any future disagreements that may occur between EU and Canada about the interpretation and implementation of the Agreement. It applies to most areas of the agreement. The system is intended as a last resort should the parties fail to find a solution by other means. It proceeds along a fixed set of procedures and time-frames. Should parties fail to reach an agreement through formal consultations, they can request the establishment of a panel, made up of independent legal experts.

As an alternative to formal dispute settlement mechanism, the EU and Canada set also rules that will allow for mediation to tackle measures that adversely affect trade and investment between EU and Canada. This can be used on a voluntary basis.

9. …safeguard democracy, as well as consumer and environment protection standards

The agreement contains all the necessary guarantees to make sure that economic gains do not come at expense of democracy, consumer health and safety, social and labour rights, or the environment.

  1. CETA will not affect food-related or environmental regulations in the EU. Canadian products can only be imported and sold in the EU if they fully respect the relevant European regulations - without any exemption. For example, CETA does not affect the EU restrictions on beef containing growth hormones or GMOs. Nor does CETA put specific restrictions on future rulemaking. Both the EU and Canada will keep the right to regulate freely in areas of public interest such as environment, health and safety.

  2. In CETA, the EU and Canada have also reaffirmed their strong commitment to the principles and objectives of sustainable development. The CETA Trade and Sustainable Development chapter sets up effective mechanisms for involving representatives of EU and Canadian civil society for implementing and monitoring of the agreement and include a dedicated arbitration mechanism, including government consultations and a panel of experts.

  3. CETA will ultimately replace the 8 existing bilateral investment agreements between individual EU Member States and Canada. In this respect, CETA has provided the EU with the opportunity to introduce further guarantees to prevent any abuse of the investment protection rules and investor-state dispute settlement systems. The Commission has taken public concerns expressed on investment very seriously. The improved investor-to-state arbitration system will be based on clearer rules. Those also include a code of conduct, government control over arbitrators and full transparency of proceedings. With CETA, investors will not be able to successfully challenge genuine state regulatory action. The right of governments to regulate in the public interest will not be affected.

Next steps

The EU-Canada Summit on 26 September is the occasion to celebrate the end of the negotiations and make the text of the agreement public. This text will now be checked by the EU's lawyers and translated into all EU official languages. Subsequently, it will be sent to the Council for authorization for signature. The next step will be the consent vote in the European Parliament, and if necessary the approval of the parliaments of the Member States.

EU-Canada economic relation

The EU is second, after the US, among Canada's top commercial partners and accounts for nearly 10% of Canada's external trade. At the same time, Canada is the EU’s 12th most important trading partner.

The value of bilateral trade in goods between the EU and Canada is close to €60 billion a year. Machinery, transport equipment and chemicals are the EU's main exports to Canada. Commercial services exchanged in 2012 – mostly transport, travel, insurance and communication services – exceeded €26 billion.

The EU-Canada investment relationship is no less important than trade relationship. The EU is the second largest foreign investor in Canada and Canada the fourth largest foreign investor in the EU. In 2012, European investments in Canada were worth nearly €260 billion, while Canadian direct investment stocks in the EU amounted to more than €142 billion.

Canadian companies established in Europe create many jobs, share their know-how and export from Europe to foreign markets. The value of goods they produce in the EU largely exceeds the value of EU-Canada trade. This is why CETA aims not only on better conditions for traders, but also for investors.

For further information

Text of the agreement

Questions and Answer about CETA

Focus on CETA

Expected economic impact (Joint EU-Canada study)

Factsheet on investor–to-state dispute settlement (ISDS) in CETA

EU-Canada Relations


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