INTRODUCTION

Composed of 27 member states[1] with a total population of more than 500 million individuals and a gross domestic product (GDP) of more than $16 trillion in 2010, the European Union (EU) is the world’s largest single market. As an integrated bloc, the EU is Canada's second-largest trading partner in goods and services, as well as its second-largest source of, and destination for, foreign direct investment. Furthermore, Canada and the EU have long-standing cultural, linguistic and historical links.

In May 2009, Canada and the EU announced the launch of negotiations toward a comprehensive economic and trade agreement (CETA). The first formal round of negotiations took place in October of that year; since then, formal negotiating rounds have taken place quarterly. According to Canadian and EU officials, the two sides aim to conclude negotiations in 2012.

In addition to trade liberalization, the Canada-EU CETA negotiations include a number of other subjects with the potential to increase economic integration between the two parties, such as investment protection, government procurement and labour mobility.

Committee mandate and procedure

On September 27, 2011, the House of Commons Standing Committee on International Trade (hereinafter the Committee) decided to conduct a study on the Canada-EU CETA negotiations. The Committee’s primary objective was to ensure that an agreement, once signed and implemented, would be in the best interests of Canadians.

Against this background, the Committee held hearings in Ottawa in October and November in order to obtain input from Canadian stakeholders with regard to the principal issues in these negotiations. Half of the Committee members then travelled to Brussels and Paris in December to meet with European parliamentarians, representatives of national governments, and stakeholders that are involved or have an interest in the negotiations. The objective was to gain a broader understanding of the benefits and challenges associated with the negotiations, and to highlight Canada’s priorities in the negotiations.

Committee members who travelled to Europe benefited from briefings and logistical support provided by Canada's Mission to the EU as well as by the Canadian embassies in Belgium and France.

Structure of the Report

This report summarizes the issues under consideration in the Canada-EU CETA negotiations, describes the Committee’s meetings in Brussels and Paris, and makes recommendations to the government. The report covers two major themes: the negotiation process and the expected outcome of a Canada-EU CETA. In terms of the expected outcome, the following topics are examined: trade in goods, trade in services and labour mobility, investment protection, government procurement and intellectual property rights.

BACKGROUND

Trade relations between Canada and the European Union[2]

The EU is Canada’s second-largest trading partner, after the United States. In 2010, Canadian exports of goods and services to the EU totalled $49.1 billion and Canadian imports from the EU totalled $55.2 billion.

The EU is growing in importance as a trading partner for Canada, particularly as an export destination. From 2005 to 2010, the value of Canadian exports to the EU rose at an average rate of 6.7% per year, a rate higher than the average annual decline of 1.8% in Canadian exports worldwide.

In 2010, Canada's top exports to the EU included gold, aircraft, diamonds, uranium and iron ore, while the main imports into Canada from the EU were pharmaceutical products, crude and light oil, motor vehicles and wine.

Ontario and Quebec were the two largest provincial exporters to the EU in 2010, with total exports valued at $17.2 billion and $7.9 billion respectively.

With regard to trade in the services sector, Canada-EU services trade in 2010 totalled $28.0 billion, comprised of $12.9 billion in Canadian services exports to, and $15.1 billion in services imports from, the region. Canada was a net importer of travel services as well as of transportation and government services from the EU in 2010. However, in the same year, Canada had a trade surplus with the EU in the commercial services sector.

As is the case with trade in goods and services, the EU is Canada’s second-largest source of, and destination for, foreign direct investment, after the United States. The stock of Canadian direct investment in the EU totalled $145.7 billion in 2010, accounting for 23.6% of all Canadian direct investment abroad. Similarly, the stock of direct investment in Canada from the EU was valued at $148.7 billion in 2010, which represented 26.5% of all foreign direct investment in Canada.

In terms of trade in goods and services as well as investment, the United Kingdom remained Canada's most important partner within the EU in 2010. Two-way trade in goods and services between Canada and the United Kingdom totalled $35.3 billion, while two-way direct investment totalled $112.3 billion, in that year.

Negotiation history

At the 2007 Canada-EU Summit in Berlin, the two parties agreed to conduct a joint study examining the costs and benefits of pursuing a closer economic partnership, with special attention to the potential impact of eliminating the existing barriers, particularly non-tariff barriers, to the flow of goods, services and capital between Canada and the EU.

The results of the joint study were released on October 16, 2008 in a report entitled Joint Study on Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership. Because the joint study demonstrated that a Canada–EU trade liberalization agreement would benefit both sides, Canada and the EU began identifying the specific subjects to be covered in formal negotiations. The results of that scoping exercise were released in March 2009 in the Canada-European Union Joint Report: Towards a Comprehensive Economic Agreement. The joint report outlined a broad CETA negotiating agenda that included trade liberalization and other measures promoting increased economic integration between the two parties.

On May 6, 2009, at the Canada-EU Summit in Prague, Czech Republic, Canada and the EU announced the launch of formal negotiations toward a CETA. Since then, nine negotiating rounds have taken place.

Although the scope of trade agreements negotiated by Canada has not in the past included sub-national governments, a Canada-EU CETA would likely change this approach if the two parties reach an agreement. In fact, the EU has insisted from the outset that the Canadian provinces[3] and territories be covered by the agreement.

NEGOTIATION PROCESS

A trade liberalization agreement between two or more states can be a complex process that may take a number of years to complete, especially if the agreement covers a wide range of issues, as is the case with the discussions aimed at reaching a CETA between Canada and the EU. In this context, many with whom the Committee met in Ottawa and Europe agree that, under the circumstances, the ongoing negotiations are progressing at a fast pace. Although the deadline for reaching an agreement was initially set for late 2011, it has been changed to 2012. With regard to the deadline, Steve Verheul (Chief Trade Negotiator, Canada-European Union, Department of Foreign Affairs and International Trade) said:

On the deadline of finishing negotiations by 2012, we do feel this is quite realistic. We had a discussion in Brussels last week with my counterpart, and he is of the same view. The Europeans want to move very quickly on this negotiation to finish it, as do we. So after the October round, we will be entering into an even more intensive phase of the negotiations, aimed at reaching agreement on most of the major issues by the first couple of months of next year.[4]

Throughout its meetings in Europe, the Committee heard that the current sovereign debt crisis in Europe is unlikely to have an adverse effect on the negotiations under way to reach a CETA with Canada. In fact, a number of participants told Committee members that trade is a key element in the strategy for recovering from the crisis and that a trade liberalization agreement with Canada would be a major achievement in implementing such a strategy. The Committee also learned that Denmark, which has held the six-month rotating Presidency of the Council of the European Union since January 1, 2012, has made the signing of bilateral trade agreements with key partners, including Canada, a priority for stimulating growth and employment in the EU.

Consultations

The issue of stakeholder consultations regarding the ongoing Canada-EU CETA negotiations was raised on a number of occasions at meetings in Ottawa and in Europe. While there is no consensus, the majority of witnesses heard by the Committee agree that the Canadian government's consultation mechanism is inclusive. They feel that they are regularly consulted and that their views are given sufficient consideration. On the issue of consultations, Jacques Pomerleau (President, Canada Pork International) stated: “We really appreciate having been consulted since the very beginning of the negotiations and being kept appraised of all the latest developments pertaining to our products.”[5]

The participation of Canadian provinces and territories in the negotiations to reach a CETA with the EU was discussed on a number of occasions. Although Canada's Constitution gives the federal government sole jurisdiction over the regulation of trade and commerce, the negotiation of trade agreements that are more comprehensive than those signed in the past makes it more likely that commitments will be made in areas of shared federal–provincial or territorial jurisdiction or in areas of provincial or territorial jurisdiction.

Greater participation by the provinces and territories makes the negotiation process more complex because of the level of coordination involved in developing the Canadian position. That said, cooperation should make it possible to avoid a situation in which a province or territory is opposed to the text of an agreement and would jeopardize the implementation of some of the clauses in the agreement.

Because European negotiators want a CETA with Canada to include government procurement at the provincial, territorial and municipal levels and have made it a priority, consultation with the various levels of government in Canada is of even greater importance. Don Downe (Chair, Standing Committee on Finance and Intergovernmental Relations, Federation of Canadian Municipalities) is of the view that the Canadian government understands the position of Canadian municipalities regarding the CETA negotiations with the EU. According to Mr. Downe, municipalities support free and fair trade between Canada and its trading partners, but any trade agreement with the EU must respect and protect municipal autonomy and decision-making.

On that point, the Minister of International Trade told the Committee that he attended a meeting with the National Board of Directors of the Federation of Canadian Municipalities (FCM) in Nelson, British Columbia to discuss the Canada-EU CETA negotiations and assured them that he was very sensitive to their particular concerns.

In his testimony, Stuart Trew (Trade Campaigner, Council of Canadians) told the Committee that some Canadian municipalities have nonetheless adopted a more critical stance toward Canada-EU CETA negotiations.

During its meetings in Europe, the Committee noted that the EU faces a similar situation, as the European Commission has a mandate to represent the interests of 27 different countries. The representatives of national governments with whom Committee members met said that they have been adequately informed by the European Commission during the ongoing negotiations and explained how the Trade Policy Committee operates: the representatives of the Directorate General for Trade of the European Commission provide weekly updates for the 27 member states on matters relating to trade.

That said, the EU member states are not involved directly in the negotiations because they have authorized the European Commission to negotiate on their behalf. The Committee noted that the Canadian provinces and territories play a more proactive role than do the EU member states in the ongoing negotiations toward a CETA between Canada and the EU.

Ratification and implementation of a comprehensive economic and trade agreement

The issue of the ratification and implementation of any CETA, both in Canada and in the EU, was raised several times during the Committee's meetings in Europe. In terms of the process in the EU, the Committee learned that the ratification of a 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, which is comprised of ministers from the 27 member states.

In the event of a “mixed agreement” (one with some provisions falling under EU jurisdiction and some under member state jurisdiction), in addition to the normal legislative procedure at the European level described above, ratification of the agreement by each of the 27 EU member states will be required. The EU member states would thus have a greater influence on the outcome of the negotiations in the second scenario.

Some of the European participants raised the possibility that the issues between Canada and the EU that are not covered by the negotiations could nonetheless have an impact on the ratification of an agreement in the European Parliament or by the parliaments of European member states. The seal hunt, genetically modified organisms (GMOs) and Canada's imposition of visas on nationals from certain European member states were cited as examples. That said, members of the European Parliament (MEPs), including some members of the European Parliament Committee on International Trade, said that such issues are unlikely to affect the ratification of a Canada-EU CETA by the European Parliament.

The Committee also noted that the negotiations toward a CETA between Canada and the EU have the support of the main political groups represented in the European Parliament, including the Group of the European People’s Party and the Group of the Progressive Alliance of Socialists and Democrats, which together account for more than 60% of the members of the European Parliament.

Given Canada's level of social and economic development, the European MEPs with whom the Committee met believe that a CETA between Canada and the EU would obtain the consent of the European Parliament in due course. The EU-South Korean free trade agreement was cited as an example in this regard. That agreement was the first opportunity for the European Parliament to test its new legislative powers relating to trade policy since the Lisbon Treaty came into effect. Despite the initial differences of opinion on its content, that agreement was ultimately adopted by the European Parliament on February 2, 2011, with 465 votes in favour, 128 votes against and 19 abstentions.

On the subject of implementation of a Canada-EU CETA in Canada, the issue of the application of an agreement's clauses at the provincial and territorial level was raised on several occasions by European participants. On this point, the Committee noted that, under the Canadian Constitution, the federal government is fully responsible for the implementation and application of international treaties, but that when Canada incurs obligations in an agreement that fall under provincial or territorial jurisdiction, it is incumbent upon the provinces and territories to fulfill these obligations.[6]

The Committee pointed out to European representatives that, in the past, meeting the obligations that fall under provincial or territorial jurisdiction has not been a problem for Canada. Furthermore, an extensive consultation process has been established to ensure that provincial and territorial legislation is given due consideration in the development of Canada's negotiating positions.

EXPECTED IMPACT OF A CANADA-EU CETA

The majority of Canadian witnesses were in favour of negotiations toward a CETA between Canada and the EU, and held the opinion that the impact of an agreement would be positive. On the basis of the joint study on the costs and benefits of a CETA between Canada and the EU that was released prior to the commencement of negotiations, the Minister of International Trade noted that the agreement would have the potential to add $12 billion per year to Canada’s economy and to boost bilateral trade by $38 billion, an increase of 20%. The Minister also stated: “[...] a free trade agreement with the EU would mean an increase of almost $1,000 in the average Canadian family's income, not to mention the 80,000 new Canadian jobs that are expected to be created.”[7]

Furthermore, representatives of the Department of Foreign Affairs and International Trade (DFAIT) felt that the joint study likely underestimates the expected benefits for Canada because one of its assumptions is that the World Trade Organization (WTO) Doha Round negotiations will have been successfully concluded before a CETA between Canada and the EU came into effect. With those negotiations at an impasse, the benefits that Canada would derive from a CETA with the EU could be even greater, as Canada would have a greater advantage in the European marketplace in comparison with other trading partners that have not signed a preferential trade agreement with the EU.

The Committee was told that, of all the trade negotiations entered into by Canada, including the North American Free Trade Agreement (NAFTA), the Canada-EU CETA negotiations are likely to have a greater impact on Canada. According to Milos Barutciski (Partner and Co-Chair, International Trade and Investment Practice, Bennett Jones, Canadian Chamber of Commerce), who was involved in the NAFTA negotiations when he was employed as a federal public servant, a Canada-EU CETA would surpass NAFTA in its ambition and would have an even greater positive impact for Canada. Mr. Barutciski acknowledged, however, that certain sectors would face a more difficult transition than others following the entry into force of a CETA between Canada and the EU.

According to some of the Committee’s witnesses, a CETA with the EU would provide an opportunity for Canada to diversify its trade relationships. According to Roy MacLaren (Canadian Chairman, Canada Europe Roundtable for Business), the Canadian economy relies so heavily on exports that it is not advisable to be dependent on a single market, as Canada currently is on the United States market. That said, the Committee also takes note of the fact that DFAIT has affirmed the importance of the United States as Canada’s most important trading partner.

In the same vein, Jean-Michel Laurin (Vice-President, Global Business Policy, Canadian Manufacturers & Exporters) said:

The conclusion of the CETA has the potential to help Canadian manufacturers and exporters diversify their sales into new export markets, to increase their presence in Europe at a time when they are looking for new business opportunities, and to position Canada as a more attractive destination for manufacturing investment by giving Canadian companies privileged, duty-free access to the two largest markets in the world, that is, the European Union and the United States.[8]

The Committee was also told that, in light of the international economic situation, specifically the sovereign debt crisis in a number of European countries and the economic slowdown in the United States, there could well be a protectionist response in these regions. In that regard, Sam Boutziouvis (Vice-President, Policy, International and Fiscal Issues, Canadian Council of Chief Executives) said that successful negotiations between Canada and the EU toward a CETA could send a strong growth signal to investors and businesses in Canada and abroad.

While most of the Committee’s witnesses in Canada were optimistic about the benefits of a CETA with the EU, some of them felt that an agreement between Canada and the EU should not be concluded at the expense of the government's power to regulate. In this regard, the Minister of International Trade said:

[...] we're committed to preserving government powers and abilities to regulate. Canadian products, services, and commercial expertise are for sale. Our government's powers and ability to regulate are not. Foreign companies doing business in Canada, as always, must comply with all our laws and regulations.[9]

Other witnesses, however, were more pessimistic about the overall impact of a Canada-EU CETA. Scott Sinclair (Senior Research Fellow, Canadian Centre for Policy Alternatives) said that the average tariffs imposed by Canada and the EU on imports were already very low and that there were very few traditional trade barriers between Canada and the EU. He felt that reducing or eliminating these tariffs and obstacles would not result in much of a boost to the Canadian economy.

Stuart Trew was of the view that the CETA negotiations between Canada and the EU could compromise Canadian democracy. He said:

Since the negotiations began on this proposed Canada-EU comprehensive economic and trade agreement in 2009, we've come to understand CETA not as a simple trade deal but more broadly as an agreement on economic governance. CETA will set new legal limits on social and environmental policy in ways that compromise our democracy.[10]

In Europe, although the participants that the Committee met in Brussels and Paris shared their concerns about certain issues, they felt in general that a Canada-EU CETA would be advantageous for the EU.

The following sections provide a more in-depth discussion of the issues of particular interest for Canadians and Europeans raised during the Committee’s meetings on a CETA between Canada and the EU.

Trade in goods

Like all trade liberalization negotiations, those for a Canada-EU CETA involve a number of measures aimed at increasing the flow of goods between the two regions, including the elimination of customs duties. However, for some witnesses, non-tariff trade barriers, such as divergent standards and regulations, appear to pose an obstacle to trade in goods between Canada and the EU that is just as significant as, if not greater than customs duties.

Access to agricultural markets is generally one of the most contentious issues in bilateral or multilateral trade negotiations. In light of what Committee members heard on issues such as GMOs, supply management and rules of origin, negotiations to reach a CETA between Canada and the EU are no exception. The Committee noted that trade liberalization in respect of some specific agricultural products is a sensitive issue for both Canada and the EU.

Because customs duties on most non-agricultural products from Canada and Europe are already relatively low, questions about these products did not raise major concerns during the Committee’s hearing meetings in Ottawa and Europe.

The Canadian perspective

Because manufactured products[11] make up the majority of Canadian exports to,  and imports from, the EU, the Committee noted that a CETA must take into account both the offensive and defensive interests of Canada's. Jean-Michel Laurin pointed out that:

We also expect the agreement to be ambitious with respect to tariff elimination, and we expect that tariffs in more sensitive areas will be phased out over timelines that provide Canada-based manufacturers the time they need to build capacity to take advantage of more open access to the European market, but also to adapt to changes in the domestic market that would result from an agreement.[12]

Although DFAIT representatives expected that a CETA with the EU would promote job creation in a number of Canadian sectors, they felt it is likely that more employment gains would be made in the manufacturing sector because of the preferential access an agreement would provide Canadian companies in the European market in comparison with other supplier countries, including the United States.

Furthermore, a CETA between Canada and the EU could be favourable to competitive Canadian businesses throughout the world in growth sectors such as sustainable development technologies. According to Vicky Sharpe (President and Chief Executive Officer, Sustainable Development Technology Canada), the EU represents a very large market for green technologies and a CETA would help Canadian clean technology companies to penetrate and to strengthen their presence in the European marketplace.

In terms of the agriculture and agri-food sector, most of the representatives from this sector told the Committee that they hope to have greater access to the EU marketplace as a result of a Canada-EU CETA. In view of the size of its marketplace, consumers' purchasing power and their similar tastes in food, the EU is seen as an important strategic market for the Canadian agriculture and agri-food sector.

Representatives from the hog and cattle sectors told the Committee that access to the European market for beef and pork products is extremely limited at the present time. John Masswohl (Director, Government and International Relations, Canadian Cattlemen's Association) pointed out that, even though the Canadian beef sector is not opposed to the European regulations prohibiting growth promotants, a CETA should provide unlimited and duty-free access to the EU market for Canadian beef products. Mr. Masswohl also asked that the protocol for demonstrating that Canadian beef conforms with the European requirements be the same as that used for American breeders who export their beef to the EU market.

For his part, Jacques Pomerleau expressed the hope that Canada would be able to negotiate a tariff exclusion with a Canada-only tariff rate quota for Canadian pork, with simplified administrative procedures for its allocation in the EU.

Increased production of beef and pork products in Canada as a result of greater access to the European marketplace would also be advantageous to Canadian grain growers, because pork and beef producers are major users of feed grains. Representatives of grain growers also argued in favour of simplifying certification procedures for Canadian grains in the EU and for a reasonable policy on the threshold level for the adventitious (accidental and non-intentional) presence of GMOs in a shipment of grain.

Derek Butler (Executive Director, Association of Seafood Producers) voiced a similar opinion when he asked for a complete and immediate elimination of tariffs on Canadian seafood in the EU market. At the same time, he asked that Canada be vigilant in ensuring that the elimination of tariffs did not result in a commensurate rise in other trade barriers.

Some witnesses were strongly opposed to Canada's position on supply management. They felt that the system currently in place in Canada is costly for the Canadian economy, and that the federal government's negotiating position on supply management prevents Canadian negotiators from obtaining concessions from the EU in other sectors. However, Wally Smith (President, Dairy Farmers of Canada) told the Committee that the Canadian dairy industry is sustainable, creates rural activity, sustains jobs, and makes a contribution to the Canadian economy.

DFAIT representatives said that Canada and the EU agreed that both parties could make proposals on any sector of interest. That said, the Government of Canada has stated that it strongly supports supply management and that it will defend the supply management system with the same vigour as in all previous trade negotiations.

Finally, representatives from the Canadian forestry sector stated that their sector would benefit if a Canada-EU CETA eliminated the tariffs that still exist on certain Canadian products, such as oriented strand board and plywood products, and if it made the EU government procurement process for forest products more transparent.

Regardless of whether the products under discussion are agricultural, the Committee notes that the negotiations on the rules of origin are likely to be problematic. The EU has already expressed concerns that the United States could use a CETA with Canada as an indirect way of entering the European marketplace tariff-free. In light of the integration of the North American market and the reality that Canada and the United States produce a number of products (such as automobiles) together, a number of witnesses told the Committee that this state of affairs must be taken into consideration in negotiating a Canada-EU CETA in order to avoid a situation where goods produced in Canada were not considered as Canadian in the EU market.

The European perspective

During its meetings in Europe, the Committee noted that improved market access for trade in goods is not a priority for most of the participants it met. Discussions with European participants focused primarily on issues such as government procurement and intellectual property rights. That said, representatives from one EU member state told the Committee that improved access for automobiles to the Canadian market was one of their primary objectives in the negotiations under way to reach a Canada-EU CETA. Other EU participants mentioned dairy products, primarily cheeses, as being of offensive interest for the EU and raised concerns about the manner in which dairy products are marketed as well as the high customs tariffs on dairy products in Canada.

The Committee also discussed European agricultural subsidies and the EU's Common Agricultural Policy (CAP) with European and French parliamentarians, as well as with representatives from the agriculture and agri-food sector. The Committee was informed that the amounts paid under the CAP are now almost entirely decoupled from farmers' production levels, and that European farmers need financial support from the state because of the additional costs associated with European regulations. With regard to European regulations, European participants told the Committee that they are working to ensure that a Canada-EU CETA would take the conditions of European farmers into consideration, and that Canadian exporters would have to be subject to the same regulations as them.

On the matter of GMOs, representatives from European national governments and from the French agriculture and agri-food sector 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 it is unlikely that this position will change in the near future, even though some of the participants showed openness toward the use of GMOs in Europe.

The issue of rules of origin was raised by some of the European participants. They stated that the current negotiations toward a CETA are between Canada and the EU and not between North America and the EU. Consequently, they wanted to ensure that Canadian products that would benefit from improved access to the EU market under a CETA would have sufficient Canadian content.

Trade in services and labour mobility

The Canadian perspective

The Committee noted that Canadian services associated with Canadian products that are exported abroad add value to supply chains and represent a growing share of the economic activity of Canadian companies. A number of witnesses pointed out the importance of facilitating service delivery between Canada and the EU as part of the negotiations toward a CETA, of facilitating the movement of business people and workers between Canada and the EU, and of recognizing professional qualifications.

The Committee was told that Canada is well positioned in terms of trade in services with the EU in light of its trade surplus with the EU in professional services, which include primarily legal, architectural and engineering services. Increased access to the European marketplace could help strengthen Canada's existing position.

Other witnesses were concerned that European companies were trying to obtain access to the Canadian marketplace to deliver public services, such as waste management, public transit and drinking water. Scott Sinclair said:

Unconditional access to government procurement, particularly at the provincial and local government levels, is the EU's top priority in these negotiations. The proposed restrictions would severely curtail governments' ability to use their purchasing power to enhance local benefits. The rules prohibit local development conditions, which are defined as offsets, even when contracts are competed for openly and do not discriminate against foreign suppliers.[13]

Mr. Sinclair also mentioned that he thought that municipalities, such as Toronto and some in the Province of Quebec, have applied local development criteria for some major contracts, including for public transit and green energy, that have been beneficial for their communities.

On that point, Don Downe informed the Committee that his understanding was that the right of municipalities to control public utilities under their jursidiction was not under consideration in the Canada-EU CETA negotiations. He stated:

The other issue is that there are some concerns out there that we would lose our right to control our own utilities. That's not part of the agreement as we understand it. We've brought that issue forward to the minister and it was clarified that this is not going to be part the negotiations. We are bringing our concerns forward, and at the end of the negotiations we will know what the outcome will be, but we have been able to voice our concerns very clearly to that level.[14]

While listing the seven principles of the Federation of Canadian Municipalities relatively to international trade[15], Mr. Downe also noted that Canadian and European negotiators appear to have agreed to a threshold of $8.5 million for construction-related procurements as part of the CETA negotiations. He felt that this threshold is reasonable, particularly considering that it is consistent with thresholds under the WTO Agreement on Government Procurement and the Agreement Between the Government of Canada and the Government of the United States of America on Government Procurement.

One major challenge facing CETA negotiators regarding labour mobility is provincial and territorial jurisdiction over the regulation of professional and trade occupations in Canada. In a number of occupations, there are significant impediments to inter-provincial and inter-territorial labour mobility, largely the result of differences between the provinces and territories in licensing requirements and in recognizing qualifications.

Finally, the Committee noted that, in terms of services trade commitments, Canada has taken a “negative list” approach in past trade agreements, including NAFTA, which means that all items are covered except for specific exemptions. To date, the EU has never used this approach, relying instead on a “positive list” method that involves agreeing to commitments in a specified list of areas. The Committee has learned, however, that the EU has agreed to take a negative list approach in the negotiations toward a CETA between Canada and the EU.

The European perspective

Most of the European participants who spoke about trade in services and labour mobility expressed the view that a CETA should make it possible to reduce barriers in services trade between Canada and the EU and to facilitate the movement of business people and professionals.

According to interlocutors from BUSINESSEUROPE, which represents the interests of private companies in Europe, labour mobility is a particularly challenging issue with Canada because of the lack of harmonization of provincial and territorial rules. The example of European workers who had to return to Europe in order to complete the paperwork required to move from one Canadian province or territory to another was used to illustrate this issue.

Government representatives from some EU member states explained to the Committee how complicated it was for them to use the negative list approach for making commitments relating to the services sectors. In fact, they were required to examine each type of service in order to find out whether they would agree that liberalization commitments could be made on their behalf, an exercise that took a number of months to complete. However, the European Commission's chief CETA negotiator observed that, in hindsight, this analytical exercise carried out by the 27 member states will be profitable for them and will ultimately lead to a more ambitious services liberalization agreement.

On the issue of the inclusion of public services in a Canada-EU CETA, the representatives from two EU member states were concerned about the definition of public services in a CETA and the exclusions that would apply to public services. However, the European Commission's chief CETA negotiator explained that there was no question of a CETA forcing the different levels of government in Canada or in Europe to privatize their public services. That said, he considered that, in the event that privatization occurs, the rules should allow the suppliers of Canadian and European services to receive equitable treatment in terms of their prospects for winning contracts from these governments.

Finally, representatives from another EU member state expressed their hope that cultural services would be dealt with carefully during Canada-EU CETA negotiations and said that they understand Canada's position and the wish to include a cultural exclusion clause similar to the clause in the free trade agreements that Canada has signed with other trading partners. That said, they felt it would be worthwhile for the two parties to discuss the definition of a cultural service.

Quebec’s Delegate General in Brussels and the French parliamentarians who Committee members met in Brussels and in Paris pointed out the importance of cultural diversity and of protecting it in the CETA negotiations between Canada and the EU. According to them, this protection should apply to cultural products and to cultural services.

Investment protection

The Canadian perspective

A number of Canadian witnesses raised the issue of investment protection in the Canada-EU CETA negotiations. DFAIT representatives informed the Committee that initial discussions with the European negotiators on this issue took place in the autumn of 2011, and that discussions are still only in their early stages. That said, DFAIT representatives nevertheless described a number of investment protection issues on which Canada and the EU were in agreement, despite differences of opinions on other issues.

Business trade associations and industry associations called attention to the importance of direct investment in the economic relationship between Canada and the EU, and they were in favour of a CETA agreement that would help protect and promote investments between the two regions and that would address current barriers to investment.

Although there has been some evolution in content over the years, nearly all of Canada’s free trade agreements, and all of its foreign investment promotion and protection agreements, have wording and a structure similar to NAFTA’s Chapter 11, and include provisions that make it possible for investors and states to settle their disputes directly. In this regard, the Committee noted that the current Canada-EU CETA negotiations mark the first time the EU has obtained a mandate from the 27 member states to negotiate a chapter on investment protection on their behalf that could include investor-state arbitration provisions.

Some of the witnesses were concerned about including provisions for an investor-state dispute-resolution mechanism in a Canada-EU CETA. Scott Sinclair and Stuart Trew believed that such provisions grant special rights to foreign investors that enable them to bypass domestic court systems and to challenge social, environmental and economic regulations that affect their profitability. These witnesses felt that Canada and the EU had mature, highly regarded court systems and that there was no justification for including investor-state arbitration provisions in a CETA.

According to Jason Langrish (Executive Director, Canada-Europe Roundtable for Business), including investor-state provisions in a Canada-EU CETA is important because even though Canada is enormously reliant on foreign trade and investment, it does not have resources that are comparable to those of other countries, such as the United States or China. According to him, it is, therefore, unrealistic to expect Canadian businesses to petition their government to act on their behalf every time they have a problem that relates to a foreign investment.

Also according to Mr. Langrish, the NAFTA investor-state arbitration provision has been of benefit to Canada and the number of cases that have been brought forward under this provision is extremely small, considering the volume of trade and the flows of investment among the signatories to the agreement.

For other witnesses, the key to the Canada-EU CETA negotiations will be to find a compromise between promoting investment between Canada and the EU and preserving the government's authority to make regulations. Daniel Schwanen (Associate Vice-President, Trade and International Policy, C.D. Howe Institute) said:

Open international trade and investment, within accepted rules of fair competition, so long as governments do not relinquish the ability to regulate and set standards in the public interest or to help the disadvantaged, is beneficial for sustainable jobs, innovation, and economic growth.[16]

The European perspective

In its meetings in Brussels and Paris, the Committee noted that the investment relationship between Canada and the EU is considered as important in Europe as it is in Canada.

The Committee was made aware of the importance of addressing existing barriers to investment between the two countries. In this regard, the European Commission's chief CETA negotiator raised concerns about some of Canada's investment measures, primarily the Investment Canada Act, which affects the level of predictability that foreign investors need in certain cases.

The European Commission's chief CETA negotiator said the investment policies in the EU are predictable and transparent. According to him, some member states are also concerned that the EU appears to be generous in terms of its investment policies as compared to the market access and the opportunities that are open to European companies abroad.

Representatives from an EU member state told the Committee that they consider European investors to be well protected in Canada in view of the effectiveness and quality of Canada's judicial system. For this reason, they do not consider the CETA negotiations with Canada on investment protection to be a priority.

Government procurement

The Canadian perspective

The Committee was informed that opening up government procurement markets in Canada, particularly at the provincial, territorial and municipal levels, is one of the priorities for European negotiators. It appears that they will have to gain concessions from Canadian provinces, territories and municipalities for negotiations to succeed.

The Committee learned that the scope of trade agreements negotiated by the Canadian federal government in the past had not extended to provincial, territorial and municipal governments or to Crown corporations. That situation changed with the 2010 Canada–United States Agreement on Government Procurement, in which provinces, territories and certain Canadian municipalities agreed, for the first time, to temporary commitments allowing US corporations to bid on Canadian government contracts.

DFAIT representatives confirmed that, in the CETA negotiations, Canada has agreed to open certain markets. That said, DFAIT representatives do not expect that a Canada-EU CETA would significantly change the current situation as it relates to the Canadian procurement system. Steve Verheul stated:

With respect to government procurement, bear in mind that we will be opening up some markets to the European Union, but for the most part we're not anticipating any big changes. Our procurement system in Canada is largely open to begin with. Municipalities, provinces, and the federal government often have contracts with foreign suppliers, so we're not anticipating a huge change.[17]

It should be noted that the Canadian negotiators have the support of the provinces and territories for the inclusion of a chapter on government procurement in a Canada-EU CETA. In this regard, Steve Verheul said:

When we put an offer on the table with the EU on government procurement, it is fully endorsed by the provinces and the territories, which were a great help in constructing those offers. So the consultation process has been unlike any we've ever had before on these issues.[18]

While the issue of government procurement is often described as a subject on which Canada negotiates defensively, a number of witnesses told the Committee that many Canadian companies in a number of different economic sectors also have offensive interests in the EU government procurement market, which represents more than $2 trillion and to date has remained largely untapped by Canadian companies. Jean-Michel Laurin and Don Downe said that they hoped that greater access for Europeans to Canadian procurement markets would open the door for Canadians to make similar gains in the EU.

Speaking for Canadian municipalities, Don Downe also explained that the minimum thresholds above which government contracts would be affected by a Canada-EU CETA must be reasonable. Thresholds that are too low or too broad could force municipalities to tender projects when tendering is neither practical nor financially justified.

Some witnesses expressed their fears about the negative impact that liberalizing the rules for awarding government contracts could have on the capacity of the various levels of government in Canada to create employment, protect the environment and assist marginalized groups. For instance, Theresa McClenaghan (Executive Director and Counsel, Canadian Environmental Law Association) said that she hoped that a Canada-EU CETA would not open the door to privatizing certain public services or to private-sector involvement in services such as drinking water and wastewater. Ms. McClenaghan said that her association had consistently supported public ownership and governance of drinking water and wastewater systems because of accountability, safety and affordability issues. That said, as noted earlier, the Minister of International Trade told the Committee that the government's powers and ability to regulate were not up for sale as part of the Canada-EU CETA negotiations.

The European perspective

Through the meetings in Europe, the Committee was able to confirm that access to Canadian government procurement, specifically the involvement and consent of Canada's provincial, territorial and municipal governments, is one of the EU's primary interests in the CETA negotiations.

Representatives from an EU member state made a point of assuring the Committee that the goal of the Canada-EU CETA negotiations was to ensure fair competition and to avoid discrimination in the adjudication of public procurement, not to promote the privatization of any particular service. In their view, the issue of privatization is outside the scope of the current negotiations between Canada and the EU.

The European Commission’s chief CETA negotiator expressed the hope that the current negotiations will allow European companies to have guaranteed access to government procurement by Canadian provinces, territories and municipalities, especially since the EU member states are prepared to do the same. In fact, although the EU has included contracts issued by its sub-central government entities and Crown corporations in its commitments under the WTO Government Procurement Agreement, Canada is excluded from the list of beneficiary countries because of the lack of reciprocity.

The European Commission’s chief CETA negotiator noted that, despite the challenges that remained, he was confident that the two parties would find an accommodation on the issue of government procurement.

Representatives from the European Economic and Social Committee echoed the optimistic views expressed by the European Commission’s chief CETA negotiator when they stated that it was normal that the issue of government procurement would raise questions about its impact on the delivery of public services. Their experience showed that, ultimately, the issue could not really be viewed as a problem because the matter of privatization was not covered by the negotiations for an agreement such as a CETA.

Intellectual property rights

The Canadian perspective

The Committee noted that the issue of intellectual property rights is an element of the Canada-EU CETA negotiations in respect of which the EU is likely to have numerous demands. In addition to strengthening copyright protection, and recognizing a system for European geographical indications and the list of related products, it is expected that the EU will ask Canada to amend its intellectual property legislation with regard to patents awarded to pharmaceutical products.

Most of the evidence heard concerning intellectual property rights dealt with the issue of pharmaceutical patents in Canada. The Committee noted there were contradictory opinions on the potential impact of changing Canada's current legislation so that it more closely reflects the European model.

Representatives from Canadian pharmaceutical research companies explained that they feel a Canada-EU CETA provides an opportunity for Canada to strengthen its intellectual property regime for the life sciences sector. More specifically, they asked that Canada make changes that would improve the right of appeal for innovators, extend data protection by two years and enable patent term restoration. According to Russell Williams (President, Canada's Research-Based Pharmaceutical Companies), intellectual property rights help protect and encourage innovation across all industrial sectors and, each time Canada has strengthened its intellectual property regime in the past, it has been good for Canadian patients, Canada’s healthcare system and the Canadian economy.

Mr. Williams also noted that intellectual property rights are protected more effectively in European countries than in Canada, and most of those countries spend less on healthcare as a percentage of GDP than does Canada.

Debbie Benczkowski (Interim Chief Executive Officer, Alzheimer Society of Canada) expressed her support for the position taken by Canadian pharmaceutical research companies and stated that her organization believed that reforming intellectual property standards for medicines in Canada would maintain knowledge-based investments with the potential to add $12 billion to the Canadian economy.

Representatives from the Canadian Generic Pharmaceutical Association did not share this view. According to an academic study commissioned by the association, the changes to the intellectual property regime governing pharmaceutical patents proposed by the EU in the CETA negotiations would delay generic competition for three and a half years on average, which would increase the cost of the Canadian healthcare system by $2.8 billion per year.

According to Barry Fishman (Chair, Canadian Generic Pharmaceutical Association), studies show that extending patent life does not increase R&D investment by brand-name pharmaceutical companies in Canada. In his view, the primary motivation behind the proposals from the pharmaceutical companies in relation to the Canadian intellectual property regime in the context of the Canada-EU CETA negotiations is to increase their profits, especially since many of them are based in Europe.

DFAIT representatives told the Committee that they are aware of the positions held by the various Canadian stakeholders on the issue of pharmaceutical patents. To date, however, Canada has made no concessions in this regard and it is possible that Canada will not make concessions on the issue before the end of the CETA negotiations.

Finally, representatives from the Canadian Manufacturers & Exporters as well as from the Dairy Farmers of Canada told the Committee that Canada must not give in to the EU's demands on the issue of geographical indications. According to them, Canadian farmers must not be impeded in their ability to name and promote certain common agri-food products, such as feta and Parmesan cheese.

The European perspective

The issue of the Canadian patent regime for pharmaceutical products monopolized the intellectual property rights discussions during the Committee's meetings in Europe.

Representatives from BUSINESSEUROPE and some EU member states pointed out that better protection for pharmaceutical patents in Canada was a critical EU priority in the Canada-EU CETA negotiations. They did not feel that greater patent protection would result in a noticeable increase in costs for the Canadian healthcare system. More importantly, they felt that Canada would benefit from increased protection because it is likely to mean an increase in research and innovation in Canada.

The EU expressed its concerns with regard to current copyright protection in Canada. The Committee noted, however, that a Canadian government bill on copyright modernization, introduced in the House of Commons in September 2011, is likely to respond to most of the EU's concerns.

The Committee also noted that the EU is attempting to obtain formal recognition of the EU’s system of geographical indications for certain food products, primarily cheeses.[19]

European and French Parliamentarians expressed their belief that Canadian and European negotiators would manage to find an accommodation on the issues involving intellectual property rights.

CONCLUSION

Committee members heard varied positions during their study of a Canada-EU CETA. While some witnesses raised concerns, the majority supported a CETA and felt that its effects would be positive for Canada. Similar comments were made in Europe, where almost all participants supported the ongoing negotiations and believed that a CETA would lead to greater economic integration between the two regions.

The Committee noted that the CETA negotiations between Canada and the EU are progressing rapidly when compared with what is normally the case at the international level for negotiations on trade liberalization agreements between two or more states. In light of its meetings with European participants, the Committee also concluded that the sovereign debt crisis that Europe is experiencing at the moment is unlikely to have a damaging effect on the negotiations under way.

The Committee welcomed the increased participation of Canadian provinces and territories in the negotiation process for an agreement that could be more comprehensive than any similar agreement negotiated by Canada in the past. This coordination of efforts among Canada's different levels of government should facilitate the implementation of a CETA, especially since it could include commitments in areas of provincial or territorial jurisdiction.

Consequently, the Committee recommends that:

Recommendation 1

Recognizing that the European Union is a historical and natural trading partner, the Government of Canada strengthen its ties with the European Union and, in 2012, conclude a Comprehensive and Economic Trade Agreement with the European Union  that is of net benefit to Canada.

Recommendation 2

In order to assist Canadian businesses and promote the opportunities within the European Union, the Government of Canada draw on stakeholder testimonials and consultations to encourage Canadian businesses to trade with the European Union.

Recommendation 3

In recognition that, under the Treaty of Lisbon, the European Parliament has increased influence and power over foreign policy and the adoption of trade agreements,  the Government of Canada and the Committee work on strengthening their relations with the various political groups represented in the European Parliament in order to ensure passage of the Comprehensive and Economic Free Trade Agreement with the European Union.

Recommendation 4

The Government of Canada develop a proactive plan to pursue more value-added development of Canadian exports in order to maintain market access for exports while capturing greater economic benefits at home and reducing environmental impacts.