Introduction

From November 20 to 26, 2010, the House of Commons Standing Committee on International Trade (hereafter the Committee) conducted a fact-finding mission in Europe. The mission had two main objectives: to give the members of the Committee a fuller understanding of the benefits and challenges associated with the current negotiations on a comprehensive economic and trade agreement (CETA) between Canada and the European Union (EU), and to highlight Canada’s priorities for the negotiations. To achieve these objectives, the Committee met with European parliamentarians, representatives of national governments, and stakeholders that are involved or that have an interest in the negotiations.

The Committee’s decision to travel to Europe also reflected the desire to strengthen political relations with Europe, which is a priority market in the Government of Canada’s Global Commerce Strategy.

As part of its fact-finding mission, the Committee met in Strasbourg with members of the European Parliament, particularly with members of the European Parliament’s Committee on International Trade and of its Delegation for Relations with Canada, members of the Progressive Alliance of Socialists & Democrats in the European Parliament, and members of the European Conservatives and Reformists group. These meetings enabled Committee members to familiarize themselves with the European parliamentary process and the mechanism for ratifying international agreements in the EU. The discussions also clarified the positions of various political groups on international trade, and more particularly on the CETA.

The Committee also travelled to three countries within the EU—the United Kingdom (London), Italy (Rome) and Hungary (Budapest)—to gain a better understanding of what is at stake for these countries in the CETA negotiations. Given their size, geographic location, industrial profile and influence within European institutions, meetings held in these countries enabled the Committee to assess the degree to which EU member states support a possible agreement, as well as the three countries’ offensive and defensive objectives in the current negotiations.

In London, the Committee met with the Prime Minister’s International Trade Advisor, the House of Lords EU Subcommittee, members of the Canada-United Kingdom Chamber of Commerce, and representatives from War on Want, a social advocacy organization. In Rome, meetings were held with members of the Italian Senate, representatives of the Confindustria industrial association, a senior Development Ministry official who is also a trade policy expert, and spokespeople for the Agriculture Ministry and the Italian Trade Commission. In Budapest, the Committee met with the Deputy Speaker of the Hungarian Parliament, members of parliamentary committees on EU affairs, foreign affairs, and the economy and information, members of the Hungary-Canada Interparliamentary Friendship Group, experts on economic and trade integration both in Hungary and regionally, representatives of the Foreign Ministry and business people, including members of the Canadian Chamber of Commerce in Hungary.

The Committee also benefitted from logistical support and briefings provided by the Canadian High Commission in the United Kingdom, Canada’s Mission to the EU, and the Canadian embassies in Italy and Hungary.

Trade Relations between Canada and the European Union[1]

A. General

One of the main messages that the Committee heard during its mission is that Canada and the EU have a special trade and investment partnership. In 2009, the EU was Canada’s second-largest trading partner, while Canada was the eleventh-largest trading partner for the 27 EU member states.

The historic links and close relationship between Canada and Europe were also cited often, enabling Committee members to conclude that increased trade between the two parties is seen positively by the Europeans with whom they spoke.

B. Merchandise Trade

In 2009, Canada’s bilateral trade with the 27 EU member states totalled $75.0 billion, comprised of $29.8 billion in Canadian exports to the EU and $45.2 billion in Canadian imports from the EU.

The EU is an increasingly important trading partner for Canada. From 2004 to 2009, Canadian exports to the EU rose at an average rate of 5.3% a year while Canadian overall exports declined by 2.7% annually.

Raw materials, led by a rapid growth in exports of gold as well as of uranium and iron ores, comprise an expanding share of Canada’s exports to the EU. The other main products exported to the EU are diamonds, aircraft and aircraft parts, pharmaceutical products and oil. Canada’s main imports from the EU include pharmaceutical products, crude oil and refined petroleum products, motor vehicles, aircraft and aircraft parts, and wine.

C. Services and Investment

In 2008, the EU was Canada’s second-largest trading partner in services. Exports of services to the EU totalled $12.6 billion that year, representing 18% of all Canadian service exports worldwide. Imports of services from EU countries were valued at $15.7 billion in that year, or 17% of total Canadian service imports.

In 2009, the EU was the second-largest destination for Canadian foreign direct investment (FDI), while Canada was the seventh-largest destination for European direct investment. Canadian direct investment in the EU was $148.9 billion during that year, representing 25% of total Canadian FDI. The total value of EU direct investment in Canada was slightly higher in 2009, at $163.7 billion, corresponding to about 30% of total FDI in Canada.

Comprehensive Economic and Trade Agreement

A. General

As mentioned above, Committee members were frequently told that, because of the shared values and special historic links between Canada and the member states of the EU, negotiations for a CETA between Canada and the EU are generally supported. The Committee was told that Canada is viewed as a strategic trading partner, and that a trade agreement would be beneficial for both parties. The Committee also learned about trade irritants between Canada and the EU, and about challenges and obstacles that will need to be overcome in the current negotiations. Given what the Committee members were told while in Europe, these obstacles do not, however, appear to be insurmountable.

The timing of the Committee’s mission was notable, occurring as it did while CETA negotiations are under way rather than after negotiations have been concluded. By being proactive, the Committee was able to gain an understanding of the progress of negotiations and the main challenges that must be resolved, and to table a report in the House of Commons before the negotiations conclude. In addition, members of the Committee were able to present Canada’s interests in certain areas that are not covered by the negotiations but that could have an impact on ratification of an agreement by the European Parliament and the parliaments of EU member states. The Committee heard that Canada must develop a better communications strategy on sensitive issues like the seal hunt and the visa requirement for nationals of certain European countries. Although these irritants are not part of the CETA negotiating agenda, they could affect ratification of any future agreement.

B. Treaty of Lisbon and New Powers for the European Parliament

The Committee learned that the European Parliament’s role and powers in the areas of foreign policy and adoption of trade agreements were expanded under the Treaty of Lisbon. First, the European Parliament must now be kept informed about the progress of trade negotiations throughout their duration, which gives it more influence over the determination of negotiating objectives. Second, the European Parliament has been given “co-decision” power (now called the “ordinary legislative procedure”) with respect to issues falling under the Common Commercial Policy, i.e., any legislation involving international trade. As a result, the European Parliament’s consent is now required for the ratification of all trade agreements.

The integration of the European Parliament into the process for formulating and enacting trade legislation also means that the process will be longer and more complex than in the past. In cases where the Council of the European Union and the European Parliament do not initially agree on a bill to implement a free trade agreement, the process could be very lengthy. Many participants in the Committee’s discussions said that, because of the structure of the European Parliament and the diversity of its members, the search for a compromise becomes vital in order to have the legislation enacted.

With the increased powers of the European Parliament, and given the political agendas that divide political groups, some issues that are not covered by the CETA negotiations could become considerations once legislation to implementing a trade agreement with Canada is considered by the European Parliament. The example of environmental standards was identified at the Committee’s meetings with members of the European Parliament.

C. Role and Influence of Sub-Central Entities in the Negotiations

Because international trade is a matter of federal jurisdiction in Canada, international trade agreements are negotiated and enacted by the federal government. That being said, as a number of participants noted during the Committee’s mission, the CETA is proving an occasion for increased provincial/territorial involvement in the negotiating process. Given that certain issues fall partly or wholly within provincial/territorial jurisdiction (e.g. government procurement), some participants mentioned how important it is that the provinces and territories be included in the negotiations and covered by any future agreement. One participant highlighted the difficulties Canada must face in obtaining the cooperation of all provinces and territories during the negotiations.

The EU faces a similar situation, with the European Commission having a mandate to represent the interests of 27 different countries. All representatives of national governments with whom Committee members met during their fact-finding mission said that they have been adequately consulted by the European Commission during the current negotiations and that the Commission’s mandate to negotiate had been approved by all 27 member states. On the other hand, European civil society representatives spoke about the limited consultation undertaken by the European Commission and about the fact that their views are receiving almost no attention in the current negotiations.

The Committee learned that the EU procedure for ratifying an eventual CETA with Canada will depend on the agreement’s scope. If the agreement deals solely with matters over which the EU has exclusive jurisdiction, ratification will follow the normal legislative procedure under which a bill must be passed jointly by the European Parliament and the Council of the EU, the latter comprised of ministers from the 27 member states. In the event of what the EU calls a “mixed agreement” (one with some provisions falling under EU jurisdiction and some under member state jurisdiction), ratification using the ordinary legislative procedure described earlier and by each of the 27 EU member states will be required. The member states would thus have greater influence on the outcome of the negotiations in the second scenario. On that note, the Committee heard a divergence of opinion among European participants on the ratification process for international treaties concluded by the European Commission on behalf of the EU.

Negotiation Issues

A. Merchandise Trade

Because merchandise trade represents a significant proportion of the trade between Canada and the EU, the CETA would include a number of measures designed to improve the movement of goods between the two regions, including elimination of customs duties. According to the people with whom the Committee met during the fact-finding mission, however, non-tariff barriers—not customs duties—constitute the main obstacle to merchandise trade between Canada and the EU. A number of participants referred to the difficulty that firms experience in complying with regulations that differ between the two regions.

1. Agricultural Sector

As with most international trade agreements, agriculture is a key component of the negotiations for a CETA between Canada and the EU. Among the main issues of concern to European parliamentarians and other European representatives are the use of genetically modified organisms (GMOs) and the application of a system of geographical indicators in Europe, the latter of which is discussed later in the context of intellectual property rights. During the mission, issues related to farm subsidies, which are not covered by the CETA negotiations, and marketing methods for certain products led to discussions focused mainly on the EU’s Common Agricultural Policy and Canada’s supply management system. Canadian and EU Parliamentarians voiced support for the approaches used within their countries.

With respect to the use of GMOs, the Committee was told that Canada and the EU countries differ in the legal treatment of products containing such organisms, and that there is no consensus in Europe as to their use. While some of the people with whom the Committee met indicated that they support the use and marketing of GMOs, others spoke about the risks that GMOs could pose for ecosystems. The representatives of European national governments said that the issue of GMOs is primarily political and that European public opinion is firmly opposed to the marketing of such products for human consumption. The Committee was told that GMOs must be tested scientifically and that it must be proven that they represent no danger for humans before they can be used.

It should be noted that EU markets were recently opened to some GMOs, such as potatoes for the production of starch used in papermaking. Some participants also spoke about the advantages of GMOs in ensuring global food security and in energy production. A few participants voiced support for greater flexibility regarding the use of GMOs in Europe.

The allowable level of adventitious presence of GMOs (i.e., their accidental or unintentional presence) in food products intended for human consumption or livestock feed, which is set at 0.9% in the EU, was also the subject of a number of discussions. Some participants found this level to be reasonable while others find it to be too low.

Given the controversial nature of GMOs and certain other agriculture-related issues, representatives of the European civil society told Committee members that they would prefer to see the agricultural sector excluded from the CETA negotiations.

2. Non-Agricultural Sector

While agricultural issues dominated some of the discussions, trade relations between Canada and the EU in a number of other sectors were also mentioned, including the automotive, energy and cultural sectors. The link between culture and the promotion of a stronger Canadian brand was also highlighted.

Discussions about the automotive sector focused on the volume of trade in automobiles and parts between Canada and the EU. According to participants, the interdependence of trade in this sector, and the presence of Canadian manufacturers in Europe and European manufacturers in Canada, are signs of the desire to maintain this strong trade relationship and encourage new opportunities for investment on both sides.

The energy sector was also discussed during the Committee’s mission. The fact that Canada is a major producer of raw materials, particularly petroleum, was well known to European participants. Some European parliamentarians expressed the hope that the CETA would encourage responsible extraction and use of these raw materials, and said that both parties should be required to guarantee a high level of environmental protection. Other European parliamentarians said they are confident that Canada will do just that, considering the evolution in extraction methods, which are today more efficient and more respectful of the environment than in the past.

The issue of the cultural exemption included in trade agreements negotiated by Canada in the past was raised during the mission. The Committee learned that, as in Canada, culture is a sensitive issue in the countries of the EU, which explains the EU’s desire to protect cultural identities. Participants said that it is possible to take an offensive or a defensive approach to protecting one’s culture and promoting it abroad. According to them, the current negotiations represent an opportunity for finding a compromise that meets the cultural objectives of both sides.

In Italy, some of the people with whom the Committee met raised the need for trade and investment discussions to allow consideration of each country’s distinctive social and cultural features. Similarly, participants in Hungary said that protection of their cultural identity was important. They also spoke about the importance of participating in interparliamentary cultural exchanges, for example through parliamentary associations and friendship groups. The Committee was also told that Canadian culture will be well-represented at the Venice Biennale in 2011, in which a number of Canadian artists are taking part.

Finally, Committee members were informed that Canada should promote its different cultural products and services more vigorously in Europe in order to consolidate its brand. Australia’s promotion of its cultural products in the United Kingdom was cited as an example that Canada could follow.

B. Services Trade

As with merchandise trade, regulatory barriers represent the main obstacles to trade in services between Canada and the EU. As a result, the people with whom the Committee met said that any future agreement would have to address regulatory barriers. The Committee was told about the complexity of the European regulatory environment, and was informed that greater harmonization of standards and regulations between Canada and the EU would be highly beneficial.

In earlier trade agreements, including the North American Free Trade Agreement (NAFTA), Canada has taken a “negative list” approach to its service trade commitments, which means that all items are covered except for specific listed exemptions. The EU has never used this approach, relying instead on a “positive list” method that involves agreeing to commitments only in a specified list of areas. In the course of the fact-finding mission, the Committee learned that—from the European perspective—the negative list approach could be a challenge, with some participants arguing that too wide a variety of services would be covered by such an approach. Other participants, however, argued for greater trade liberalization in the services sector. For example, the government of the United Kingdom is campaigning for the European Commission to be more aggressive in its efforts to include financial and professional services in the text of any future agreement.

C. Investment

Throughout the fact-finding mission, the Committee was told that direct investment is a key aspect of the economic relationship between Canada and the EU, and that the CETA is an opportunity to strengthen this relationship and tackle existing barriers to investment.

Unlike trade agreements negotiated by Canada, those concluded by the EU do not always include investment protection provisions. More specifically, the Committee was told that, to date, the EU has never included a mechanism in its trade agreements for settling disputes between foreign investors and host governments. Consequently, a number of participants said that the issue of whether to include such a mechanism in the CETA represents one of the biggest challenges faced by Canadian and European negotiators. While most participants said that they thought the question can be resolved in a way that suits both Canada and the EU, civil society representatives expressed concerns about the inclusion of such a mechanism in the CETA. This worry stems from their negative impression of the experience with Chapter 11 of the NAFTA, which deals with the settlement of disputes between investors and national governments.

D. Government Procurement

According to the people with whom the Committee met, access to federal and provincial/territorial government procurement is one of the EU’s primary interests in the current negotiations. More precisely, the involvement and consent of Canada’s provincial and territorial governments are seen by participants as crucial to the current negotiations.

Provincial and territorial involvement in the CETA negotiations is supported in Europe, because it would mean that at least some procurement at the provincial, territorial and municipal levels will be open to European bidders if an agreement is reached.

Representatives of European civil society warned the Committee that including provincial, territorial and municipal procurement in any agreement could significantly increase the competition faced by Canadian companies and limit flexibility in the awarding of contracts by Canadian provinces, territories and municipalities.

E. Intellectual Property

Unlike a number of other trade negotiations, discussions for a CETA include consideration of intellectual property protection. While most European participants reiterated their confidence in the Canadian judicial system, some pointed to challenges that will have to be addressed in relation to protection of intellectual property in Canada. During the fact-finding mission, the two topics that arose most often were the treatment of European geographical indications on food products and extending patent protection for pharmaceutical products.

1. Geographical Indications

The Committee was briefed during its mission on the European system of geographical indications (GIs). GIs designate a product as originating in a specific region, with the suggestion that certain characteristics of the product are attributable to its geographical origin. Once a GI has been registered in the EU, the designation may be used only for products meeting the specified criteria, including region of manufacture. Parmigiano Reggiano cheese, Prosciutto di Parma ham and Hungary’s Tokaji wine are examples of products enjoying this type of protection. Some Italian participants told Committee members that these food products, like agriculture in general, are part of their culture and must be protected. An Italian government agriculture spokesperson explained the desire to protect GIs by indicating that Italian farms are often small and cannot compete with multinational agribusinesses.

One suggestion made to the Committee is that Canada, through the CETA, should adopt a system similar to that in Europe. In that regard, an Italian participant said that he hoped Canada would pass laws providing criminal penalties as severe as those currently in force in Italy for companies that refuse to respect the GI system.

In Canada, exclusive rights to brand names are protected by trademark certification. Some participants complained that Canadian companies have acquired rights to certain Italian product names, thereby preventing Italian farmers from exporting products to Canada under their traditional names. That being said, participants conceded that some product names are too generic to be protected. One Italian participant noted that the name “mozzarella” is known throughout the world and that Italy has no desire to try to protect this name in particular, but rather the product designated by the name Mozzarella di Bufala Campana, which is characterized by a particular manufacturing process. Other Italian participants conceded that their country’s farmers do not have the capacity to meet world demand for all types of Italian products.

2. Pharmaceutical Patents

Another intellectual property challenge raised during the Committee’s mission was the duration of pharmaceutical patents which, according to some participants, could be extended by the CETA beyond the provisions in the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). Participants noted that the EU wants higher standards to be adopted than those included in the TRIPs Agreement.

According to these participants, extended patent protection would delay the marketing of less costly generic pharmaceutical products, thereby increasing health-care costs and restricting access to beneficial drugs. Other participants were less concerned, arguing that it was necessary to achieve a balance between equitable access to pharmaceutical products and increased protection for intellectual property, which fosters innovation.

F. Labour Mobility

Like intellectual property, labour mobility is not usually a part of negotiations for bilateral trade agreements. According to Canadian businesspeople in the United Kingdom and Hungary, mutual recognition of credentials and reduced requirements for the temporary movement of business people and professionals between Canada and the EU must be among Canada’s priorities in the current CETA negotiations.

Some of the U.K. participants expressed concern about the fact that the British government had suggested imposing stricter limits on the number of workers and immigrants admitted from non-EU countries.[2] They were worried that stricter limits would make it harder for companies doing business in the United Kingdom to recruit foreign workers. If the British government goes ahead with such measures, a compromise on the movement of foreign employees inside a firm would have to be sought in the current negotiations.

The Committee learned that, unlike the United Kingdom, Hungary supports CETA provisions encouraging labour mobility. Hungarian government spokespeople said that their country has a great need for qualified foreign workers to meet current labour shortages.

The Committee also heard that Europeans experience difficulties when they want to move to Canada, especially in achieving recognition of their professional credentials and academic qualifications.

Conclusion

Through the fact-finding mission, Committee members were able to gather a significant amount of information about the benefits and challenges represented by the negotiations aimed at reaching a CETA between Canada and the EU. The mission provided a unique opportunity to discuss, with European stakeholders, their perception of such an agreement. Through the efforts of the Department of Foreign Affairs and International Trade’s diplomatic personnel, Committee members had privileged access to a variety of European stakeholders and were able to discuss subjects about which it would have been difficult to obtain verifiable information in any other way. Also, Committee members were able to explain Canadian priorities and present the case for Canadian interests during current negotiations.

In light of the information gained during the mission, the Committee can conclude that the proposal for a CETA enjoys considerable support in Europe, with parliamentarians, government representatives and other stakeholders speaking in favour of a CETA, which would have advantages for Canada and for the EU. The Committee realizes, however, that the Canadian and European negotiators face many challenges.

Lastly, the Committee learned that, under the Treaty of Lisbon, the European Parliament has increased influence and power over foreign policy and the adoption of trade agreements. These new powers will most certainly have an impact on the final text of any future agreement and on the decision to ratify it. In the Committee’s view, the Government of Canada and the Committee must work on strengthening their relations with the various political groups represented in the European Parliament. This fact-finding mission was a step in this direction.