THE TRANS-PACIFIC PARTNERSHIP ( TPP ) AND THE CANADA EU ECONOMIC AND FREE TRADE AGREEMENT ( CETA ): AN UPDATE AND COMPARISON

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1 THE TRANS-PACIFIC PARTNERSHIP ( TPP ) AND THE CANADA EU ECONOMIC AND FREE TRADE AGREEMENT ( CETA ): AN UPDATE AND COMPARISON For a TPP program at the American Bar Association International Section s Fall Meeting at the Tokyo Hilton Wednesday, October 19, 2016 Deloitte Tax Law LLP Daniel Kiselbach, Partner dkiselbach@deloittetaxlaw.ca

2 The information in this document is not legal advice. Customs and tax law rules relating to non-resident importers can be complex and must be interpreted and applied according to individual cases. Persons with specific legal issues should retain qualified legal counsel. 2 Deloitte Tax Law LLP

3 TPP Just a short time ago, TPP proponents were optimistic. On February 4, 2016, Ministers for the TPP countries signed the TPP. However, as US President Obama has noted, The politics of trade have always been complicated. US Presidential candidates & some US congressional leaders are not supportive. Even so, pro-tpp forces in the US have not given up. President Obama might have an opportunity to implement the TPP during his so-called lame-duck period. 3 Deloitte Tax Law LLP

4 Its Not Easy To Ratify A Trade Deal These Days The status of the TPP in the US, and world events such as Brexit, lead the inference that the forces that have driven towards the ratification of mega-trade deals and globalization may have stalled. A review of the status of the Canada EU Economic and Free Trade Agreement ( CETA ), cousin to the Transatlantic Trade and Investment Parliament ( TTIP ), supports the view. This brief outline: Reviews the status of CETA, Compares it with the TPP, and Provide observations relating to the future. 4 Deloitte Tax Law LLP

5 CETA Negotiated by Canada and the European Union ( EU ). CETA sets out modernized rules for the integration of two mature economies, including the trade in goods and services, investment, government procurement and regulatory cooperation. If and when CETA is ratified, Canada would secure access to the world s largest market with more than 500 million people in 28 countries, with a combined GDP of $20 trillion. 5 Deloitte Tax Law LLP

6 Criticisms The trade negotiation process and the substance of agreements such as CETA and TPP have been the focus of comment and criticism. Critics have included social democrats in Germany and Austria, some trade unions and civil society groups. Anti-CETA forces in Europe have organized large protests, putting political pressure on the EU Council before it gives final approval for signature. 6 Deloitte Tax Law LLP

7 Status On September 26, 2014, the Canadian Prime Minister and the EU President announced the conclusion of the CETA negotiation. On February 29, 2016, Canada and the EU announced the completion of the legal review. In connection with the review, Canada and the EU agreed on modifications related to investment protection and investment dispute resolution provisions. CETA must now undergo translation and ratification. As with the TPP, the CETA ratification process has proven to be much more complicated than expected. 7 Deloitte Tax Law LLP

8 Ratification Single Block European Commission president, Jean-Claude Junker, originally took the position that it was not necessary to engage the ratification process of the national parliaments of EU countries. He claimed that the EU has the power to negotiate trade deals as a single block. This would have avoided EU country-by-country approval. 8 Deloitte Tax Law LLP

9 Mixed Agreement Hopes for an easy path to ratification have been squelched. Following criticism by EU heavyweights in Berlin and Paris, Junker reversed his position, stating that it would be necessary to sign CETA as a mixed agreement. Each of the EU national parliaments must ratify the agreement. Some elected officials of some smaller EU member countries do not share a positive view of free trade deals such as CETA. Opposition of national or regional Parliaments could jeopardize the implementation of CETA. 9 Deloitte Tax Law LLP

10 Brexit Aside from the EU ratification process, there is another wrinkle. In the summer of 2016, UK citizens voted in a referendum to withdraw from the EU (the so-called Brexit referendum). If and when Britain exits the EU, Canada will lose access to a key market which was part of the CETA negotiations. 10 Deloitte Tax Law LLP

11 Provisional Implementation One option for dealing with the EU ratification process is the provisional implementation of CETA. It has been suggested that aspects of CETA can be put into operation now, whatever the outcome of the EU ratification process. Arguably, the approval of individual members of the EU Parliament and the EU Commission are not required to reduce or remove customs tariffs on goods. 11

12 Provisional Implementation (cont d) The Canadian government has indicated that the EU Council will approve CETA in Autumn The provisional implementation approach seems destined for controversy. 12 Deloitte Tax Law LLP

13 Interpretive Declaration To win more support, Canada and the EU have issued clarifications of CETA in a Joint Interpretive Declaration. It was issued on October 6, Arguably, an interpretive bulletin can impact the unambiguous meaning of words only where there is an applicable reservation or amendment. Greenpeace took the position that the declaration has the legal weight of a holiday brochure. 13 Deloitte Tax Law LLP

14 Next Steps Approval of the EU Council On October 20 21, 2016 the heads of the 28 members states are set to meet. If the EU council provides approval, the Canadian Prime Minister could head to Brussels for a signing ceremony the following week. But it not necessarily a done deal as it is not clear whether all heads of the EU member states are onside. Conclusion: Its not an easy time to do a mega regional free trade agreement. 14 Deloitte Tax Law LLP

15 Daniel Kiselbach, Partner Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Deloitte LLP and affiliated entities.