Flags of the E.U. and Canada symbolise CETA - the Comprehensive Economic and Trade Agreement; Source: istockphoto.com/Ruskpp

© istockphoto.com/Ruskpp

Hardly any more tariffs on industrial goods, much better access for European firms to the Canadian market, lower costs for small businesses due to common rules: these are just three benefits of "CETA", a planned trade agreement between the European Union and Canada.

Canada is already an important partner for Europe - and vice versa. The EU is Canada's second most important trading partner behind the EU. The 28 Member States account for roughly 9.5 % of Canada's foreign trade. German small and medium-sized firms are already investing a lot in and exporting a lot to Canada - thereby safeguarding jobs and prosperity at home.

Expanding good and stable trade relations

A trade and investment agreement is intended to further strengthen these good relations. The main thrust of the agreement is as follows: market access for European industrial goods, for agricultural products and services, and in the field of government procurement, is to be significantly improved. The European Union has achieved a major success in the negotiations: under the envisaged agreement, Canada will open up tendering procedures of the provinces and municipalities to European bidders. This is important because the bulk of public contracts are awarded at regional or municipal level. Germany has long been open to foreign bidders for government contracts. Under CETA, this will also apply to German firms in Canada - particularly in key sectors like energy, telecommunications and services.

Cutting tariffs, opening up markets

CETA will cut more than 99 % of tariffs that still exist between the two economies. This will create new scope for selling goods and services on either side of the Atlantic: not only for manufacturers of industrial goods, but also for producers of agricultural produce, such as processed dairy products. With CETA, service providers will enjoy easier access to the postal and telecommunications sectors, for instance. Canada has also agreed to partially open up its maritime sector.

Making life easier for businesses

A joint agreement will generate a fresh stimulus for small and medium-sized firms: the European Commission estimates that CETA will boost bilateral trade in goods and services by some 23 % across the EU. The tariff cuts would save European companies some €470 million in expenses every year. All these measures would provide a fresh impetus for growth and jobs in Germany and across the European Union. The European Commission expects CETA to boost the EU's annual GDP by around €12 billion.

Scope for regulation retained

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. It ensures 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.

The agreement does not affect cultural diversity either. In fact, CETA confirms the right of the contracting parties to protect cultural diversity. Also, promotion of culture is safeguarded in several parts of the agreement. No market liberalisation commitments have been entered into for audiovisual services.

In the field of public services (e.g. waste and effluent disposal or local public transport), and in fields like education, health, social services and water supply, broad special rules have been introduced in order to preserve the scope to organise such services in future. CETA does not create any obligation to privatise public services, and it will remain possible to bring back such services under the aegis of municipalities in future.

It is quite clear that market liberalisation does not imply an end to the right to regulate. Trade accords like CETA do not prohibit countries from imposing general obligations, e.g. on the suitability of service providers. By way of 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.

Investment protection

Germany has always taken a critical stance on investment protection being included in the FTA with Canada. This is because the Federal Government holds the view that Canada has a reliable legal system in place which provides sufficient legal protection in independent national courts. If investment protection is covered, it is necessary to preclude any situation whereby general and appropriate regulation that has been introduced based on lawful, democratic decisions to protect the public interest could be undermined or circumvented.

A study produced in 2014 on behalf of the Federal Ministry for Economic Affairs and Energy has found that the protection enjoyed by Canadian investors under the substantive provisions on investment protection in CETA is lower than the protection afforded to investors by German constitutional law and the law of the European Union [study in German (PDF: 341 KB)]. In other words, CETA would not restrict the legislative scope needed to protect the public interest, including national security, the environment, and public health. Follow the link to read a summary of the expertise (PDF: 7 KB).

The German government wants the EU's proposals on modern investment protection for TTIP to be embraced in CETA. The European Commission has managed to persuade Canada of the advantages of the new EU approach in the context of the legal scrubbing of CETA. All of the main elements of the EU's new proposal have been included in CETA. In particular, CETA now provides for a publicly legitimised investment court with judges appointed by the contracting parties and an appellate body. Both courts will take their decisions in the context of transparent procedures: the hearings are public and the submissions will be published. Also, the legislature's right to regulate is confirmed in a separate article.

Where do we stand, and what are the next steps?

The technical negotiations on CETA ended in August 2014. The completion of the negotiations was marked at the EU-Canada summit in Ottawa on 26 September 2014. The legal scrubbing by the European Commission and by Canada, which took several months, was completed at the end of February 2016. Following this, the final text of the agreement was published by the European Commission here (PDF: 5,6 MB).

Given these circumstances, the next steps will probably be as follows:
Following the completion of the translation of the final text of the agreement into all official EU languages, the Commission will transmit the draft to the European Parliament and the European Council. The European Parliament cannot give formal approval until the Council has taken its decision, but it can commence scrutiny before this. A decision by the Council on signing and provisional application could be taken in autumn 2016. Following this, approval will be sought from the European Parliament. Provisional application cannot commence until this approval has been granted. This is not required by the Treaty on the Functioning of the European Union (TFEU), but is normal practice. This ensures democratic legitimacy, since the provisional application only refers to those parts of CETA for which the EU has exclusive competence, so that the relevant parliamentary authority is the European Parliament. This sequence has been followed in the case of all recent free trade agreements which are mixed agreements. For example, the agreements on tariff reductions and public procurement will be provisionally applied so that EU firms can benefit from them as quickly as possible. The question of which parts of CETA can be provisionally applied is still being examined by the European Commission and the Member States and will be stipulated in the Council’s decision. In the view of the German government, it is certainly the case that the provisions on investment protection and investor-state dispute settlement must be excluded from provisional application. In the case of CETA, provisional application could become effective in the first half of 2017.
The national ratification procedures are unlikely to commence until the European Parliament has given its approval.
Those parts of the agreement for which Member States are responsible cannot enter into force until all the Member States have ratified the agreement.

Federal Government regards CETA as a "mixed agreement": national parliaments must ratify

The Federal Government considers CETA to be a "mixed agreement" to which not only Canada and the European Union, but also the EU Member States are contracting parties. This would mean that the unanimous approval of all Member States would be required in the Council - and ratification of the agreement by the national parliaments.

The Federal Ministry for Economic Affairs and Energy commissioned a legal expertise (PDF: 309 KB) in this regard, and it confirms the view of the Federal Government. Federal Minister for Economic Affairs and Energy Sigmar Gabriel has written a letter (PDF: 1 MB) to all of the parliamentary groups in the Bundestag to inform them about the expertise and its findings. Follow the link to read a summary of the expertise (PDF: 9 KB).