On October 30, 2016, Canadian Prime Minister Justin Trudeau, European Council President Donald Tusk, and European Commission President Jean-Claude Juncker signed the Comprehensive Economic and Trade Agreement between the EU and Canada (CETA). This signature came shortly after all 28 EU member states approved the deal. These European and Canadian leaders called the agreement “the most comprehensive, ambitious and progressive trade agreement ever negotiated by either Canada or the European Union.”
The agreement can be provisionally applied in December after the European Parliament ratifies it. Before it can be fully applied, it will need to be ratified by over 30 European national and regional parliaments. With so many opponents, many observers around the world have been speculating as to whether it will ultimately be ratified.
CETA will affect the ways companies do business and trade throughout Europe and Canada, and even around the globe. This article will explain the basics of CETA, how it affects business, and some of the arguments for and against it. Here is the official text of the agreement.
What is CETA?
CETA is an international trade agreement between the European Union and Canada. CETA is Canada’s biggest bilateral agreement since NAFTA. CETA is the first trade agreement between the EU and a major world economy. The agreement comes after seven years of negotiation. CETA aims to boost trade, strengthen economic relations, and create jobs. To this end, CETA will remove customs duties, end restrictions on access to public contracts, open up trade in services, promote investment, and protect intellectual property rights. The trade of goods between the EU and Canada is worth approximately €60 billion annually.
CETA negotiations were particularly difficult because of the number of parties involved. The most recent delay was because a region of Belgium objected to some tariff reductions that could hurt its pork and beef industry and to the investor-state dispute settlement mechanism. There has been a lot of opposition to the deal throughout Europe, forcing supports to cross their fingers each time a country was set to approve the deal.
Like all trade agreements, there are people on both sides with strong opinions in support of and against CETA. Indeed, CETA includes some very controversial provisions. As EU and Canadian leaders signed CETA, protesters stood outside in an attempt to stop the signing of the controversial deal.
Supporters says…
Supporters say CETA will increase EU-Canada trade by 20% and boost the EU economy by €12 billion per year and Canada’s economy by C$12 billion per year. Supporters claim CETA will create business opportunities and jobs for both European and Canadian companies.
The deal removes 99% of tariffs, which supporters say will cut over €500 million per year in tariffs. The deal will lighten restrictions on moving overseas (between the EU and Canada) for temporary work. CETA will allow EU companies to bid on Canadian government projects at the national and local levels, making EU companies the first non-Canadian companies to be able to do so. The deal will level the playing field by bringing Canada’s IP laws and policies in line with EU laws and regulations.
Opponents say…
Opponents argue that CETA will hurt consumers’ and workers’ rights and allow multinational corporations to push out small business. Opponents point out that the growth and money will only go to the top, to large corporations, not to the people or small and medium sized businesses. Many SMBs are against CETA and other trade agreements like CETA.
Opponents say that the tariff removal is all for show since trade between the EU, the US, and Canada is already almost tariff free.
One of the major arguments against CETA is the inclusion of an investor-state dispute settlement (ISDS) mechanism (touted as an improved Investment Court System (ICS)), also known as the “corporate court” mechanism, which allows foreign investors to sue governments over new laws and policies that might reduce their profits in the future. Belgium has already promised to take this “corporate court system” to the European Court of Justice, for a ruling on whether this special legal system is legal under the European constitution.
How will CETA affect business?
CETA will affect many aspects of business and trade between the EU and Canada. Like other trade agreements, CETA could affect business and trade of countries that are not a party to the agreement. The most obvious way is that the countries that are party to the agreement begin to take advantage of the agreement in a way that takes business or trade away from other countries that are not a party to the agreement. Because of CETA, Canadian companies will now also have the ability to take advantage of multiple trade agreements, such as CETA and NAFTA.
A Canadian company could use NAFTA to import materials from the US or Mexico to manufacture a product in Canada and then use CETA to export finished products tariff-free to the EU. Many companies might also choose to relocate distribution or storage centers to take advantage of a trade agreement. For example, a Canadian company that has a distribution center in the US might decide to close that center rather than continue to ship goods to the US and then pay to export them to the EU.
How the deal will play out is something we can only speculate about. Here are just a few of the ways CETA might affect business between the EU and Canada.
Removal of tariffs:
The removal of almost all tariffs will benefit companies trading between the EU and Canada. Although, as opponents point out, trade between the EU and Canada is already almost tariff free, this agreement will lift most of the remaining tariffs.
Open up new markets:
The opening of the markets will offer both EU and Canadian companies new business opportunities. Canadian companies will gain preferential access to the world’s largest market. The EU is the second-largest market for SMBs in Canada, which will help these companies become less reliant on the US market, which is now their largest market. Canada is the EU’s twelfth most important trading partner.
The lifting of restrictions on access to government contracts means EU companies will now have a new market.
Acceptance of conformity assessments:
The European Union and Canada have agreed to accept each other’s conformity assessment certificates in such areas as electrical goods, electronic and radio equipment, toys, and machinery. This provision may be especially helpful to small businesses where double testing can be prohibitive.
Fewer restrictions to moving overseas:
The deal will make it easier for companies to send staff overseas , between the EU and Canada to work temporarily.
Promote investment:
The deal aims to promote investment by removing investment barriers and providing a solid legal system for resolving disputes quickly and fairly. EU supporters tout the improved corporate court system, known as the Investment Court System in the agreement.
Although the outcome of CETA, and whether it even ultimately is ratified and applied, is unknown, speculation from both sides has been front and center this week as the agreement was signed. We will revisit the agreement and keep you up-to-date as the agreement progresses through the next step, the ratification process.
Globig is here to help with your business expansion needs around the world. Join Globig today for free business resources and expertise, and, through our Marketplace, access to vetted experts around the world.
