What are the advantages of CETA?
CETA stands for “Comprehensive Economic and Trade Agreement” and is an agreement on business and trade between the EU and Canada. The idea behind this agreement is to deepen economic relations between the two markets. Market access for industrial goods, agricultural products, and services, and in the field of government procurement, is significantly improved.
CETA is a modern free trade agreement between industrialised countries and provides for far-reaching market liberalisation taking into account sustainability, workers’ rights and the maintenance of public services. Companies and employees in the export business will benefit directly from CETA, and these benefits will feed through into other areas.
In 2016, Canada ranked 25th amongst destinations for German exports (exports of €9.4 billion and imports of €4.0 billion), and is thus a mid-sized trading partner, alongside countries like Thailand and Portugal. According to estimates by the Bundesbank, the stock of German direct investment in Canada amounted to €14.8 billion in 2015; the stock of Canadian investment in Germany stood at around a billion euros.
Tariffs on almost 98 per cent of all goods being traded between the EU and Canada will be completely eliminated. For the vast majority of such goods, this will be the case as soon as the agreement takes effect. No previous agreement by the EU has provided for this. Transitional periods will apply on both sides, particularly for cars and shipbuilding.
According to calculations by the European Commission, the tariff reductions will save European exporters around €590 million a year.
CETA will facilitate trade in services. European companies will be granted access to the Canadian market, particularly in key sectors like financial services, telecommunications, energy and maritime transport.
The European Commission believes that the EU’s GDP could expand by up to €5.8 billion a year as a result.
The European Commission has achieved a major success in the negotiations on public procurement. The draft of CETA provides for a major step towards market liberalisation, particularly because Canada will in future have to open up not only its national procurement to European suppliers, but also that of its provinces and municipalities. The bulk of public contracts are awarded at regional or municipal level. Germany has long been open to foreign bidders for government contracts, and CETA means that the same will apply to German firms in Canada.
It is estimated that, in 2013, bids were invited in Canada for contracts worth a total of between 129 and 163 billion Canadian dollars (around €87-109 billion), or around 32% of Canada’s public-sector expenditure. Of this, the public contracts awarded at federal level only amounted to 16-21 billion Canadian dollars.
Europe’s companies are the first foreign ones to obtain such comprehensive access to public contracts in Canada. Not even NAFTA offers such far-reaching business opportunities. The possibility for public contracting authorities to impose social and environmental standards in line with the law is not restricted by the agreement.
CETA provides for enhanced cooperation on the removal of technical barriers to trade. Recognition of conformity assessment between the contracting parties is improved. It is estimated that this can generate annual GDP growth of up to €2.9 billion for the EU.
CETA is also bringing Canada closer to the rules on intellectual property in the EU.
Europe’s pharmaceutical industry will benefit from longer-running patents in Canada.
Also, European innovations, works of art and brands will enjoy better protection against illegal copying. Finally, farmers and food-production companies will profit from the new protection for geographical indications which Canada has committed to in CETA.
On the basis of the coalition agreement, the Federal Government is working to ensure that EU trade agreements give consideration to compliance with the core labour standards of the International Labour Organization (ILO) so that the freedom to trade does not open the floodgates to wage dumping and social dumping.
CETA explicitly rejects wage dumping and social dumping. Canada had ratified six out of eight ILO core labour standards before the CETA talks. The parties agree in the draft of CETA that they will endeavour to ratify the ILO core labour standards where this has yet to happen. This provision has already had an effect before CETA takes effect: Canada has since ratified a seventh ILO core labour standard and is working on the ratification of the eighth and last one.
Negotiations and issues
The EU Member States issued a mandate to the European Commission to negotiate a comprehensive trade agreement with Canada in April 2009. Following the transfer of competence for foreign direct investment to the EU by the Lisbon Treaty, the CETA mandate was broadened in September 2011 to include investment protection.
The negotiations with the Canadian government on the agreement were conducted by the European Commission, the lead responsibility resting with DG Trade, on the basis of the responsibilities set out in the EU treaties and with an authorisation from the Member States for issues lying within their field of competence. In the relevant Council bodies, the EU Member States were regularly informed by the European Commission about the progress being made on the talks, and they had opportunity to comment.
The Federal Government kept the Bundestag and the Länder informed about the state of play. This took place in line with the Act on Cooperation between the Federal Government and the German Bundestag in Matters concerning the European Union, and the Act on Cooperation between the Federal and State Governments in Matters Concerning the European Union.
The draft treaty was published by the European Commission at the end of September 2014.
The legal scrubbing by the European Commission and by Canada was completed at the end of February 2016. Following this, the final text of the agreement was published by the European Commission and can be found here (PDF: 5,6 MB). Once the translations were completed, the entire was published in German on 5 July 2016.
The EU and Canada signed CETA on 30 October 2016. The European Parliament gave its assent on . The next stage is the process of ratification in the 28 EU Member States on the basis of the various constitutional rules. Experience shows that it takes roughly two to five years before all the Member States have ratified such an agreement. In Germany, the Basic Law provides that a ratification act (also known as a treaty act) must first be adopted by the Bundestag with the involvement of the Bundesrat.
CETA is a “mixed” agreement, meaning that the contracting parties on the European side are both the EU and all the Member States. It therefore needs to be ratified by the EU and the 28 Member States.
The provisional application of CETA has been given democratic legitimation via the approval of the Trade Ministers Council and the European Parliament. Only those parts for which the EU has competence may be provisionally applied.
CETA has been provisionally applied since 21 September 2017. This, however, applies to only to those chapters for which the EU undisputedly has sole responsibility. The entire agreement will only fully enter into force once all the national parliaments of the 28 Member States have approved it. In Germany, the agreement must pass the Bundestag and the Bundesrat for it to enter into force in full.
No. The starting point for every trade agreement and the course of the negotiations differ. In view of the special features of the respective negotiations, it is not possible to make general statements about the shape of specific agreements. A conclusive assessment is not possible until the negotiated text is available.
In general, the Federal Government advocates in all negotiations of trade agreements that general and appropriate regulation that is introduced based on lawful, democratic decisions to protect the national interest be retained and protected.
CETA will not impose any new public procurement obligations on the municipalities, and does not prescribe any terms and conditions for public procurement. Market liberalisation for the field of public procurement only means this: that when invitations to bid are issued, a supplier from Canada must be able to participate at the same conditions as a supplier from Germany, and vice versa.
So CETA does not impose any new requirements on invitations to tender. It remains the case that the decision as to whether a contract is put out to tender or a municipal company is entrusted with the work can still be taken in line with German law. It remains the case that the specifications of the tender can be stipulated by the municipality or other contracting entity. In particular, contracting entities can continue to impose social and environmental requirements in the specifications. So there will not be any changes to the public procurement system in Germany. After all, third-country (non-EU) suppliers can already bid for public contracts.
On the other hand, CETA does create much better market access for our companies to public contracts in Canada.
Suppliers from non-EU countries can already bid for public contracts in Germany. Under CETA, Canada now also commits to comprehensive market liberalisation in the field of public procurement, because for the first time the regional/municipal level will be included beneath the provincial governments.
So European companies will be able to bid for contracts, e.g. from municipalities or universities in Canada. It will not be so easy to give preferential treatment to regional Canadian companies as in the past.
This creates new opportunities, particularly for Germany’s export-oriented firms and its small and medium-sized enterprises. These provisions mean that CETA goes well beyond the obligations to which Canada has already committed itself via the international Government Procurement Agreement.
Welfare associations, health insurance funds and accident insurance funds are concerned that CETA could place a question mark over traditional service provision structures. However, CETA is neutral on this and contains no rules or obligations.
Basically, the same applies as to public services: CETA does not create any new obligations to put services out to tender.
But if they are put out to tender, bidders from Canada and Germany must be treated equally. The stipulation of the specifications remains a matter for the competent bodies. The organisational structure of social services is not affected.
Also, like all other EU trade agreements, CETA contains a general provision stating that subsidies to provide public services are admissible. This is important not only for social services, but for many other fields too.
Beyond this, special reservations have been included for health and social services so that all kinds of measures can be taken which are publicly financed or receive some form of support (mixed public-privately funded services). The same applies to the field of training.
No. CETA does not affect cultural diversity and funding. As a bilingual country and an initiator of the UNESCO Convention on the Protection and Promotion of the Diversity of Cultural Expressions, Canada has no interest in doing any such thing. The European Commission, the EU Member States and the Canadian government are all pulling in the same direction.
Promotion of culture is safeguarded in many parts of CETA. The Preamble confirms the obligations of the contracting parties under the UNESCO Convention. Audiovisual services are excluded from the scope of the Services Chapter and from investment protection. Also, the Services Chapter includes clear exceptions for the cultural sphere which block market liberalisation obligations. Due to the general exception from the obligations for subsidies, funding in the cultural sector remains possible.
10. What does CETA mean for the reduction of tariffs and non-tariff trade barriers between the EU and Canada?
CETA provides for the reduction of tariffs between the two economic areas. With regard to most industrial goods, tariffs will be removed immediately when the agreement takes effect. Transitional periods are envisaged for cars and ships in particular.
There is a limited number of exceptions in the agricultural sector; tariff quotas are established for sensitive agricultural products. This will make doing business with Canada considerably simpler and cheaper for German and European exporting industries, and will open up new fields of business.
In order to prevent unnecessary non-tariff trade barriers from arising, the Regulatory Cooperation Chapter establishes the principle that both contracting parties can initiate regulatory cooperation on a voluntary basis. Here, both parties refer to the existing level of commitments stipulated in the relevant WTO agreements since 1994. There is no obligation to enter into regulatory cooperation. The cooperation is voluntary. Also, both parties have the possibility to distance themselves from an agreement on regulatory cooperation.
Further to this, a Regulatory Cooperation Forum is to be set up with a view to fostering regulatory cooperation. The aim here is not least to find the right interlocutors for the respective regulators on either side, to promote an exchange of views, and to encourage bilateral activities, e.g. with regard to the sharing of information on test procedures.
No. The precautionary principle is anchored in primary EU law (Art. 191 TFEU). It cannot be abolished by an international treaty like CETA. In fact, CETA strengthens the application of the precautionary principle. What is more: Canada itself applies the precautionary principle in many cases.
Firstly, Canada is party to multilateral environmental agreements which reflect the precautionary principle. These include the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer, which was a milestone in international environmental law and has also been ratified by Germany. Secondly, the precautionary principle is also anchored in Canada’s national environmental and sustainability legislation (Canadian Environmental Protection Act and the Federal Sustainable Development Act).
And CETA itself also contains important references to the precautionary principle: it refers to the obligations deriving from the SPS (sanitary and phytosanitary) Agreement of the WTO (Article 5.4 “Rights and obligations”). The precautionary principle is anchored in the SPS Agreement. This agreement is already binding under international law for all arrangements made as precautionary measures in the EU, irrespective of CETA.
CETA also contains a reference to Art. 20 GATT, which permits general trade-restricting measures to protect human life, health, animals and plants (Art. 28.3 “General exceptions”). CETA refers in its Sustainability Chapter to the Rio Declaration on Environment and Development, which also stresses the precautionary principle (Art. 22.1).
What does CETA not cover?
CETA contains a separate chapter on trade and labour in which the parties state that they wish to use their respective legal provisions to maintain and promote a high level of protection for workers. The parties also commit to work together in international fora focusing on trade and labour.
The answer is this: CETA does not place a question mark over binding legislation in the field of labour law, the right to strike or the minimum wage. This derives from the “labour market clause”, which the EU includes in all its trade accords
The labour market clause states that all the requirements in a contracting party’s laws and ordinances on labour and welfare protection remain in force and can be applied – including the provisions on the minimum wage and collective agreements. CETA explicitly rejects competition in the form of dumping.
EU trade agreements basically guarantee the right of Member States to regulate, and CETA is no exception. The WTO’s GATS Agreement (on trade in services) includes provisions stating that domestic regulation remains admissible and merely has to be transparent to outsiders, to be non-discriminatory and to provide legal protection. These requirements are also imposed by German constitutional law.
Example: if market access is granted to architects or engineers, foreign providers will naturally still have to comply with the same registration or qualification requirements as German providers.
Such rules remain in place and can be changed, as long as third-country nationals are not discriminated against. This is explicitly stated in CETA, as in other trade agreements.
CETA does not impose any obligations to liberalise the provision of public services. The text is very clear on this. It contains the same reservation about obligations to liberalise that can be found in previous EU agreements and in the GATS (the WTO’s agreement on trade in services), dating back to 1995.
CETA contains a general exemption for municipal level. In other words, measures at municipal level do not have to be changed and specially listed, even if they are not compliant with the liberalisation obligations that CETA actually contains for the services sector.
Since there is a general exception for the provision of public services (cf. ), the municipalities will continue to be able to adopt new rules without any CETA-related restrictions.
Like other trade agreements, CETA contains no obligations to privatise public services, i.e. trade agreements in general are not a privatisation tool.
What is more important is the question of whether CETA blocks the way forward if privatised services, e.g. the water supply, are to be remunicipalised.
CETA does not block this, because Germany is not taking on any obligations under CETA in the field of public services (there are no standstill or ratchet clauses).
CETA and investment protection
CETA contains rules on investment protection. In place of the traditional investor-to-state dispute settlement (ISDS) with arbiters nominated by the parties to the dispute, CETA provides for a publicly legitimated investment tribunal for the settlement of investment protection disputes. This means that CETA is largely implementing the reforms towards a modern system of investment protection, as proposed by the EU for TTIP.
An investment protection agreement is an agreement under international law between two (or several) countries which assures investors from one of the parties (the home state) that they will enjoy a certain degree of protection in the other state (the host state).
For example, it deals with the protection of property and protection against expropriation, the free transfer of capital and profits and protection against discrimination.
In previous investment protection agreements, the agreed level of protection could either be enforced by the investor’s home state in a state-to-state dispute-settlement procedure, or by the investor himself in an investor-to-state dispute-settlement procedure (ISDS). CETA modernises the dispute-settlement process, introducing a publicly legitimated investment tribunal.
Older investment agreements only provided for state-to-state dispute-settlement procedures. In a legal dispute on the application of the investment protection agreement, therefore, the investor’s home state had itself to launch the state-to-state dispute-settlement procedure against the host state.
Investor-to-state dispute-settlement procedures were introduced in the 1980s in order to de-politicise investment disputes. The investor himself is permitted to appeal to an arbitration tribunal, where he can have the lawfulness of state measures examined on the basis of the investment protection agreement.
Unlike the previous tribunals, the investment tribunal agreed in CETA is a publicly legitimated court which can be approached by an investor claiming that the investment protection rules in CETA have been violated. This new approach taken by Canada and the EU responds to criticism made in the context of the public consultations on investment protection and ISDS in TTIP. The EU had first proposed the investment tribunal – not least at the initiative of former Economic Affairs Minister Gabriel – for TTIP. In addition to CETA, the investment tribunal to settle investment disputes has also been agreed in the EU’s free trade agreement with Viet Nam.
The German government does not see an absolute need for specific rules on investment protection in free trade agreements between countries with developed legal systems.
This is because investors are already protected under German law against disproportionate state intervention in their property and can if necessary demand appropriate compensation in German courts. Most other countries with developed legal systems also provide for effective legal recourse.
In the context of the CETA negotiations, the German government repeatedly expressed this view to the European Commission and the Council bodies. On the other hand, other EU Member States, Canada and the European Commission advocated rules on investment protection in CETA.
For this reason, the Economic Affairs Ministry called for a modern system of investment protection in CETA, as proposed by the EU for TTIP. And this policy has borne fruit: the European Commission and Canada agreed in the course of the legal scrubbing of CETA to include most of the EU’s TTIP proposal for modern investment protection in CETA.
CETA sets new standards in the field of investment protection by replacing the traditional investor-state dispute-settlement procedure by a publicly legitimated investment tribunal to settle disputes and by upholding the right of the democratically legitimised legislature to regulate. In particular, the following elements of modern investment protection were agreed in CETA:
- A specific article (Art. 8.9 CETA) confirms the right of the legislature to regulate for all legitimate policy goals.
- A new investment tribunal: in future, complaints by investors will be heard by a publicly legitimated investment tribunal. The parties to CETA will nominate the judges, who must meet high ethical standards and whose independence and impartiality must be beyond question. Once they have been nominated, they may not work in parallel as attorneys or experts appointed by parties in other international investment protection proceedings
- Transparent proceedings: all written documents and attachments, including the ruling, will be published. The hearings will be public; interested third parties can be involved in the proceedings.
- The cost of the proceedings will be borne by the losing party. This will deter any abusive use of the tribunal.
- Appellate tribunal: there will be a genuine appeal mechanism with publicly appointed judges, which will also take decisions in a transparent manner.
- The parties to CETA have agreed to work towards a multilateral, publicly legitimated investment court to replace the bilateral investment tribunals.
- Also, CETA clearly defines the conditions under which an investor can be granted compensation. For example, the provision on “fair and equitable treatment” contains an exhaustive list of circumstances which can be regarded as violating this principle. Also, whilst upholding the right to regulate, CETA clearly defines indirect expropriation: non-discriminatory measures to attain legitimate policy goals (e.g. regarding labour, health or the environment) are not deemed to be indirect expropriation unless they are manifestly disproportionate. In the case of financial services, CETA highlights the right of the contracting parties to impose prudential measures where necessary.
- CETA offers Canadian investors uniform investment protection in all EU Member States. The agreement will also mean that the seven existing bilateral investment protection agreements between EU Member States and Canada which still apply investor-to-state dispute-settlement procedures will be replaced.
5. What impact do the rules on investment protection in CETA have on the legislature’s right to regulate?
The legislature retains its right to regulate under CETA. States retain the right to alter existing rules and laws. The investment tribunal must observe the right to regulate when it interprets investment protection standards in CETA – such as “fair and equitable treatment” of investors or protection for companies against expropriation without compensation by the state.
Apart from this, the right to regulate is not restricted more by the investment protection rules in CETA than it is already restricted by German constitutional and administrative law. This is confirmed by a brief study commissioned by the Economic Affairs Ministry on the draft of CETA.
Proceedings at the CETA tribunal will be more transparent than proceedings in national courts, the WTO or the ECJ.
The UNCITRAL Transparency Rules of 2014 apply to the conduct of proceedings at the investment tribunal. CETA further extends these transparency rules. In practical terms, this means that the public will gain far-reaching access to submissions, documents and rulings by the tribunal. All the submissions in the dispute-settlement procedure will be published online, including all attachments and documents. The only exceptions exist to protect personal data and commercial secrets. Basically, all the hearings will be public.
7. Does CETA enable companies from the United States with subsidiaries in Canada to file investment protection lawsuits?
CETA defines clearly which companies are entitled to investment protection. Legally dependent operations of U.S. companies in Canada, such as branches or representations, cannot file lawsuits via CETA. And even if the operations of U.S. companies are legally independent, they still face hurdles. This is because they only count as investors if they have their own substantial commercial operation in Canada or are owned or controlled by (natural) persons or companies from Canada which themselves have substantial commercial operations in Canada. This means that shell companies are certainly prevented from taking recourse to investment protection under CETA. Also, CETA prohibits abusive lawsuits. If an investor or a complainant deliberately relocates his investment to Canada (or the EU) merely in order to file an investment protection lawsuit, this lawsuit will have no prospect of success under CETA.
No. The EU Member States and Canada cannot be required by the investment tribunal to alter or revoke their laws. At most, the investor can be awarded compensation if he can demonstrate that an investment protection standard has been breached.
Also, CETA only protects investment which has been undertaken in line with existing law. So it is quite clear: an investor cannot demand compensation for laws and regulations which exist prior to his investment.
No. The provisions on investment protection and the settlement of investment disputes are excluded from the provisional application because the investment chapter (Chapter 8 of CETA) also includes competences of the EU Member States. The investment protection rules cannot enter into force until CETA has been ratified by the EU Member States (in the case of Germany by the Federal President following the adoption of a treaty act by the Bundestag and the Bundesrat).
No. Under CETA, the investment tribunal only applies the investment protection rules set forth by the agreement. The tribunal must apply EU law and national law as prescribed by the ECJ and the supreme national courts. This means that the admissibility of an action under national law will continue to be decided exclusively by national courts. This is in line with the standards applied by courts governed by international law, such as the European Court of Human Rights or the International Court of Justice. Apart from this, the contracting parties can prescribe the interpretation of the investment protection rules for the tribunal, also in ongoing proceedings.