European Union Centre of Excellence Policy Briefs University of Alberta. Number 1, 2014

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1 European Union Centre of Excellence Policy Briefs University of Alberta Number 1, 2014 The Canada-EU Comprehensive Economic and Trade Agreement: The Comprehensive Economic and Trade Agreement between Canada and the European Union was signed in principle in autumn 2013 and the text was finalized in October The deal will likely be ratified in The Comprehensive Economic and Trade Agreement is linked to a separate Strategic Partnership Agreement between Canada and the European Union. Lori Thorlakson, Ph.D.

2 The European Union Centre of Excellence has been co-funded with the assistance of the European Commission. The contents of this policy brief are the sole responsibility of the author and can in no way be taken to reflect the views of the European Commission. ISSN XXXX-XXXX Dr. Lori Thorlakson Edmonton, Alberta, December, 2014 European Union of Excellence University of Alberta HM Tory Building University of Alberta Edmonton, Alberta T6G 2H4, Canada

3 The Canada-EU Comprehensive Economic and Trade Agreement Lori Thorlakson, Ph.D. Director of the EU Centre of Excellence University of Alberta, Alberta, Canada Overview of CETA The agreement would eliminate tariffs and reduce non-technical barriers to trade in goods, services, investment and labour. After it is ratified, tariffs are scheduled to be phased out over a period of seven years. Almost all tariffs on goods would be lifted immediately. On others, the phase-out period for tariffs ranges between 3.5 to 7 years. The deal would eliminate 94 per cent of tariffs on agricultural goods. In its provisions for trade in services, the CETA uses a negative list approach in which all areas are covered unless they are specifically exempted. The EU is the world s largest single market, with a GDP of approximately 24 trillion dollars, or approximately 19.2 per cent of world GDP. The EU is Canada s second largest trading partner. About $41 billion worth of Canada s, just over 10 per cent of Canada s total exports, go to the EU, with most of this trade with Ontario and Quebec. Canada currently has a trade deficit with the EU of approximately $3.6 billion, although Canada s recent trajectory shows increasing market share for Canadian goods in the EU. This deal is projected to give a further boost to this momentum as well as stimulate sluggish growth in EU exports to Canada, which have occurred at below average compared to exports to other world markets the EU estimates that the deal will boost EU exports to Canada by over 24 per cent, or 17 billion euros. A Canada-EU joint study estimated that Canada s bilateral trade with the EU would increase by about 20 per cent as a result of the agreement. Of Canada s trade with the EU, trade in services, an area significantly liberalized by CETA, is particularly important, worth about 43.7 per cent of total trade, or $17.9 billion. A Canada-EU joint study predicted that CETA will boost Canada s exports to the EU by about 20 per cent (slightly less than the percentage increase in EU exports to Canada), or $12 billion, increasing Canadian GDP by 0.7 per cent. The Government of Canada estimates that these benefits would translate into approximately an extra $1000 in income per family and the creation of up to 80,000 jobs. A Parliamentary committee witness from the Canadian Chamber of Commerce estimates that the CETA will have greater impact on Canada than NAFTA, due to its greater scope. Key words: aid effectiveness, administrative reform/capacity building, EU accession, Albania European Union Centre of Excellence Policy Briefs Page 3

4 Who are the winners of this deal? Mining, oil and gas products: the big impact here is likely to be felt on manufactured goods exported by Canada, not on raw materials, which mostly enter the EU duty-free. Duties on Canadian forestry products will be eliminated. Agricultural exports (worth 5.4 per cent of exports to EU) currently face average tariffs of 13.9 per cent. Most of these tariffs (93.6 per cent) will be eliminated as soon as CETA enters force. Importantly for Canada, tariffs on Canadian wheat exports will be gradually phased out. Duty-free in-quota market access will be granted for hormone-free pork, beef and bison, and most tariffs on Canadian seafood exports will be eliminated. Commercial services: Canada currently has a trade surplus in the commercial services sector. CETA opens up the procurement market for business service contracts (including contracts with all levels of government, including EU institutions). Exceptions to opening access to services procurement contracts in Canada include national security, R&D, Aboriginal business, public education, social and publically-provided health services. Canadian firms are excluded from bidding on broadcasting, shipbuilding, postal services, ports and airports. Canada can continue to use grants, loans and tax incentives to give preference to Canadian companies, and can determine selection criteria. Canadian economy from a risk perspective: the deal gives Canada an opportunity to diversify its export markets, reducing the risk associated with over-dependence on a single market, the US. European Union Centre of Excellence Policy Briefs Page 4

5 Who loses from CETA? Wine and cheese: Canadian consumers are winners because they will benefit from increased quotas on EU cheese entering Canada and lower prices on EU wine. Canadian producers are wary of the deal because they will face increased competition from European imports. Canadian wine producers have an exemption that will allow them to exclusively sell their own products in on site and small off-site shops. Health consumers in Canada: the deal will lengthen the duration of patent protection for drugs, increasing the time it takes for generic drugs to reach the market, therefore increasing drug costs for consumers. The federal government has offered a side deal to the provinces to address these potential costs. European Union Centre of Excellence Policy Briefs Page 5

6 Other criticisms: Some critics have claimed that the CETA represents very little change. The Canadian Centre for Policy Alternatives has argued that traditional tariffs were already low, and non-tariff barriers to trade have been and may still remain a key trade impediment. The investor protection chapter, and its key instrument, the Investor-State Dispute Settlement Mechanism (ISDS) is one of the most controversial elements of the agreement. The ISDS provides independent arbitration tribunals with a role in dispute settlement. The investor protection measures, which are similar to those that are present in NAFTA, give foreign investors rights to challenge government regulations that negatively impact investments. There are concerns that this could limit social and environmental policy making by governments, or tie the hands of financial regulators. In August, 2014, the ISDS raised some eleventh hour problems with the Canada-EU negotiations. It was reported that Germany raised objections regarding the ISDS, arguing that the tribunals were unnecessary in agreements between countries with sound legal systems. European Union Centre of Excellence Policy Briefs Page 6