Introduction

On 18 October 2013, following four years of negotiations, Canada and the European Union (EU) announced that they had reached an agreement in principle on a comprehensive economic and trade agreement (CETA). On 20 October 2013, a Technical Summary of Final Negotiated Outcomes (hereinafter “the technical summary”) was presented to the House of Commons.

The technical summary outlines the commitments made by Canada and the EU to liberalize trade. It also addresses other issues that are likely to encourage economic co-operation and activity between the two parties, such as investment protection, government procurement and labour mobility.

On 29 October 2013, the House of Commons Standing Committee on International Trade (hereinafter “the Committee”) decided to conduct a study on the CETA between Canada and the EU. The Committee’s primary objective was to assess the extent to which such an agreement, once signed and implemented, would be in the best interests of Canadians.

In this context, the Committee held hearings in Ottawa, Halifax and Vancouver from November 2013 to March 2014 to obtain input from Canadian stakeholders about the technical summary and the expected outcomes of a ratified CETA between Canada and the EU.

This report outlines the Committee’s findings. It presents information on the issues under consideration, summarizes the evidence presented to the Committee and makes recommendations to the federal government. The report addresses five major themes: 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^[1]

The EU is Canada’s second-largest trading partner, after the United States. In 2013, Canada’s merchandise trade with the EU totalled more than $86.1 billion, comprised of $33.0 billion in Canadian exports to, and $53.1 billion in imports from, the EU. Figure 1 in Appendix A shows the merchandise trade balance between Canada and the EU from 1993 to 2013.

As indicated in Table 1 in Appendix A, in 2013, Canada’s highest-valued exports to the EU were gold, diamonds and iron ore, while the highest-valued imports into Canada from the EU were medicaments, motor vehicles and non-crude petroleum oils.

Ontario and Quebec were the two largest provincial exporters of Canadian goods to the EU in 2013, with total exports valued at $16.7 billion and $6.9 billion, respectively. These two provinces were also the largest provincial importers of goods from the EU, with total imports valued at $22.9 billion and $18.7 billion, respectively.

In 2013, Canada–EU trade in services totalled $32.1 billion, with services exports to the EU accounting for $14.5 billion and services imports from the EU representing $17.6 billion. Canada was a net importer of travel services, transportation services and government services from the EU in 2013. That same year, Canada had a trade surplus with the EU in the commercial services sector. Figure 2 in Appendix A shows the services trade balance between Canada and the EU from 1993 to 2013.

As is the case with trade in goods and in services, the EU is Canada’s second-largest source of, and destination for, foreign direct investment, after the United States. The stock of EU direct investment in Canada totalled $150.4 billion in 2010, the most recent year for which data are available. The stock of Canadian direct investment in the EU was valued at $168.7 billion in 2010. Figure 3 in Appendix A shows the stock of Canadian investment in the EU and EU investment in Canada from 1991 to 2011.

Consultations

During the course of the study, witnesses discussed the federal government’s consultation process in respect of its negotiations with the EU for a CETA. Some witnesses expressed their satisfaction with the process, saying that the federal government had been proactive and inclusive in its approach. For example, John Masswohl, Director of Government and International Relations, Canadian Cattlemen’s Association, said that his association was “consulted closely on every one of [the] decisions during the negotiations. Any time there was a trade-off or a decision to be made, [the Association was] consulted and supported those decisions.”

Jim Keon, President, Canadian Generic Pharmaceutical Association, confirmed that representatives from his association had met with Canada’s negotiators on a number of occasions, and that they had also presented several written submissions to them.

However, other witnesses expressed their view that the consultations were not sufficiently broad. Jerry Dias, National President, Unifor, said: “[W]e've been critical of the way this deal has been negotiated, without the full and meaningful participation of trade unions, environmental [non-governmental organizations], and other groups in Canada's civil society.”

Unlike the scope of trade agreements negotiated by Canada’s federal government in the past, which have not included subnational governments, the Canada–EU CETA is expected to include a “broad coverage of government procurement at the federal, provincial and municipal levels,” according to the technical summary. Regarding the participation of the Canadian provinces and territories in the CETA negotiations, witnesses explained that provincial and territorial representatives were involved at every stage of the negotiations. Steve Verheul, Chief Trade Negotiator, Canada–European Union, Department of Foreign Affairs, Trade and Development, described the relationship between the federal government and the provincial and territorial governments as follows:

[W]e had briefing sessions with the provinces before every negotiating session so that they could understand what would be expected and what our strategy was. … We had a debriefing session every evening after the negotiations were finished to tell them exactly what had been achieved, to get their reactions, and to make sure we had their support on an ongoing basis. On many issues we would take them into the room and have a debate on what Canada’s position should be. When we first went to Brussels, there were up to 60 provincial and territorial representatives who came with us.… We met them individually if they had one-on-one concerns. Over time, and bear in mind this has been more than four years, we’ve developed a very cohesive and constructive team….

Given the potential impact of a Canada–EU CETA on subnational procurement, Canada’s municipalities were consulted. In particular, federal and provincial negotiators worked with the Federation of Canadian Municipalities (FCM) and its members during the negotiations. Mike Savage, Mayor, Halifax Regional Municipality, stated: “I want to emphasize that municipalities have appreciated the opportunity to provide their views through the [FCM] and the Department of Foreign Affairs and International Trade Canada working group, and to be kept informed of negotiations by our federal and provincial counterparts.”

Derek Corrigan, Mayor, City of Burnaby, shared a different opinion, telling the Committee that the Canada–EU CETA negotiations took place without properly consulting Canadian municipalities or drawing on their experience.

Regarding the dissemination of information about the Canada–EU CETA, Her Excellency Marie-Anne Coninsx, Ambassador, Delegation of the European Union to Canada, praised the communication materials developed by Canada’s federal government, and mentioned that she had been using them herself.

Entry into Force of the Comprehensive Economic and Trade Agreement Between Canada and the European Union

While an agreement in principle has been reached by Canada and the EU, technical discussions are ongoing between the parties. The legal text of the CETA cannot be finalized until these technical discussions are concluded.

According to Mr. Verheul, the outstanding issues can be divided into three categories. First, the negotiators have to agree on the wording of some of the items in the agreement in principle. Second, technical details have to be settled in certain areas, particularly rules of origin and the scope of reservations in the services and investment chapters. Third, the negotiators have to decide on the overall structure of the text, determining the provisions that will be included in chapters and those that will be included in annexes.

While the Honourable Ed Fast, Minister of International Trade, said – during his appearance before the Committee on 7 November 2013 – that it would be too difficult to give a firm date in relation to the completion of the next steps leading to the signing and ratification of the agreement, he said that he expected the technical discussions to be settled in “a number of months.”

If Canada and the EU succeed in completing the technical discussions and in reaching an agreement, the two parties will submit the latter for legal review, which Mr. Verheul anticipated will take five to six months. Once completed, the English version of the text will be initialled by the negotiators for both parties and translated into all of the official languages of Canada and the EU: French for Canada and 23 languages for the EU. The two parties cannot officially sign the CETA until it has been translated, at which point the ratification process for each party can begin.

Ms. Coninsx informed the Committee that the English version of the CETA would be made available as soon as it had been initialled, which will occur after the legal review of the text. In her opinion, this step should be completed within six months. She anticipated that the final text of the agreement will be ready to be signed in 2015. The ratification step will follow, at which point the European Parliament and the EU Council will have an opportunity to vote on the agreement.

Both Mr. Verheul and Ms. Coninsx told the Committee that it would take about two years from the time the technical discussions are concluded for the Canada–EU CETA to enter into force.

The Committee was told that a mixed agreement that addresses areas in which jurisdiction is shared between the EU and its 28 member states will also require ratification by the member states. However, witnesses explained that the EU Council can authorize the provisional application of a trade agreement in the areas under shared or exclusive jurisdiction of the EU, so that certain provisions of such an agreement can enter into force before being ratified by the member states. Mr. Verheul said that the EU Council would be in a position to apply, on a provisional basis, 98% or 99% of the provisions of the CETA once the EU-level ratification process is completed.

Implementation of the Comprehensive Economic and Trade Agreement Between Canada and the European Union

Some witnesses pointed out the need for Canada’s federal government and the private sector to implement strategies to help Canadian companies, particularly small and medium enterprises (SMEs), benefit from the provisions of the Canada–EU CETA. To that end, Cristina Falcone, Vice-President, Public Affairs, UPS Canada, shared the following recommendation:

[T]his will take additional investment from the private sector and from government, but we know that the results can be worthwhile. The bottom line is that companies and countries that best understand how to leverage the provisions in [the] CETA can take the right actions to gain the most benefit. Our exports will grow if we inform and empower our businesses to do this.

Cam Vidler, Director, International Policy, Canadian Chamber of Commerce, expressed a similar opinion, saying that “[m]any Canadian companies are already exporting to Europe or investing there … and they will quickly be able to take advantage of the framework that CETA puts in place. Others, however, particularly small and medium-size enterprises, will require assistance to understand marketplace opportunities, regulatory regimes, and political and legal institutions.”

Similarly, while recognizing the positive impact that the Canada–EU CETA could have for Atlantic Canada, Joyce Carter, Chair, Halifax Gateway Council, said that it was imperative that the Government of Canada create a marketing fund so that non-profit organizations, such as the Halifax Gateway Council, can promote this agreement within the EU.

Witnesses also emphasized the key role of the Canadian Trade Commissioner Service, as well as other trade promotion organizations, such as Export Development Canada, in helping SMEs establish a presence in the European market. According to James Maynard, President and Chief Executive Officer of Wavefront Wireless Commercialization Centre Society, the presence of a network of trained trade commissioners in the major European countries is a huge asset that Canadian SMEs can leverage to access the European market.

Expected impact of the Canada–European Union Comprehensive Economic and Trade Agreement

Overall Impact

Most of the witnesses agreed that, generally speaking, the Canada–EU CETA would be beneficial for Canada’s economy. Jock Finlayson, Executive Vice-President and Chief Policy Officer, Business Council of British Columbia, expects the agreement to be positive on various levels, particularly over the medium and longer term. He said that the Canada–EU CETA would increase Canada’s gross domestic product, stimulate job creation, reduce costs for Canadian taxpayers, promote two-way investment flows between Canada and the EU, and help Canadian businesses increase their presence in the European market.

Jayson Myers, President and Chief Executive Officer, National Office, Canadian Manufacturers & Exporters, a leading advocate for Canada’s export sectors, supported what he characterized as “the most extensive economic trade agreement ever concluded by Canada.” He believed that the Canada–EU CETA would give Canadian businesses preferred access to a market of more than 500 million consumers where they can find opportunities for “partnerships and technology, development in technology licensing, manufacturing, distribution, and investment opportunities.”

Ailish Campbell, Vice-President, Policy, International and Fiscal Issues, Canadian Council of Chief Executives, shared a similar view and referred to an analysis by her organization that shows the CETA is “an ambitious, far-reaching agreement that will boost economic growth, create jobs, and expand opportunities across the board for firms of all sizes, including small and medium-sized enterprises in virtually every sector.” She further believed that the Canada–EU CETA would enhance competition, giving Canadian consumers and businesses better access to European products, parts and services.

Bruce Banman, Mayor, City of Abbotsford, also highlighted the positive impact of the Canada–EU CETA for Canadian consumers. In his view, while some Canadian industries would face increased competition from their European counterparts, Canadian companies should still continue to thrive if the agreement is implemented in a way that ensures an efficient economic transition. He pointed out the following:

While [the] CETA will give all of us more choice in consumer products, which will invariably result in lower prices and better service, the industries that have benefited from tariff barriers in the past will now have to compete with lower-cost imports. With that in mind, I am confident that a well-balanced agreement, along with a successful economic transition plan, will most certainly open the door for those industries to continue to thrive.

Several witnesses, including Ms. Campbell and John Jung, Chief Executive Officer, Canada’s Technology Triangle Inc., informed the Committee that the implementation of the Canada–EU CETA would ensure that Canada is well positioned in the international marketplace. In particular, these two witnesses emphasized that the CETA, together with the North American Free Trade Agreement (NAFTA), would give Canada priority access to between 800 million and 900 million of the world’s richest consumers.

Some witnesses believed that the CETA provides Canada with an opportunity to diversify its trade and reduce its dependence on the United States. Mr. Finlayson told the Committee that “increased diversification has been a strategic goal set by federal governments over recent decades. It’s a goal that’s also endorsed by most of the provincial governments and supported within the business community, so it’s something … most Canadians would like to see.”

However, Stuart Trew, Trade Campaigner, Council of Canadians, raised concerns about the extent and scope of the advantages that the Canada–EU CETA would have for Canadians. In his opinion, while the agreement would lead to significant benefits for some export sectors, it would not significantly increase trade between Canada and the EU, generally speaking.

In terms of job creation, John Curtis, Senior Fellow, C.D. Howe Institute and the International Centre for Trade and Sustainable Development, who appeared as an individual, pointed out that trade deals such as the Canada–EU CETA can lead to job creation in the long term, but that there is no automatic correlation between economic liberalization agreements and job creation. He said:

If trade deals—and I say this as a professional economist—increase productivity and competitiveness, that can lead to loss of jobs, if anything, at least in the short term. As an economy’s productivity increases, it needs less labour, by which we mean jobs, for the short term. If indeed there is ultimately more trade, both imports and exports—because there are jobs related to imports as well, through distribution and other services—it could lead to more jobs. Over time, probably that is the case as an economy grows and as your trading partner’s grows. But I could not make the case—and I wouldn’t want you to think—that it’s an automatic correlation between trade deals and jobs.

Trade in Goods

According to the technical summary, the EU has committed to eliminating 98% of its tariff lines at entry into force of the agreement, with transition periods of three, five or seven years for certain products, such as automobiles and certain agricultural, fish and seafood products; after seven years, 99% of EU tariff lines would be duty-free. Similarly, Canada has committed to eliminating 98.4% of its tariff lines at entry into force of the agreement, with transition periods of three, five or seven years for ships, automobiles and some agriculture products; after seven years, 98.8% of Canadian tariff lines would be duty-free.

In general, witnesses believed that the Canada–EU CETA would have a positive impact on both the agricultural and non-agricultural goods sectors. Witnesses representing the dairy sector, as well as the union representing employees in the automotive sector, expressed the most concerns about the CETA in terms of trade in goods.

Mr. Verheul told the Committee that reduced tariffs within the EU as a result of the CETA would give Canadian businesses a significant advantage over their U.S. competitors. He said that, “[i]n many cases, it’s going to be a 10% to 15% advantage, which is not huge but will make the difference in a lot of contracts. In other cases, it’s far, far larger than that, and we will be into markets that the U.S. will not be able to negotiate their way into.” He added that the entry into force of the CETA before an agreement is made between the United States and the EU^[2] would give Canadian businesses a head start in forming customer relationships in the EU before their U.S. competitors.

Witnesses representing export companies, such as Mr. Maynard, said that eliminating tariffs on Canadian products exported to the EU would make them much more competitive in the European marketplace. He gave an example from the ICT sector, indicating that:

On average, ICT exports to Europe are about $1.8 billion per year. These exports face tariffs often as high as 14%. Upon entry into force [the] CETA will immediately eliminate these EU tariffs on ICT products, making world-class products more competitive and creating conditions for increased sales.

According to other witnesses, such as Willy Janzen, Chief Financial Officer, Bühler Industries Inc., non-tariff barriers – such as conflicting regulations and standards – are bigger obstacles to trade in goods between Canada and the EU than are tariffs. Morgan Elliott, Senior Director, Government Relations, BlackBerry, explained to the Committee that the Canada–EU CETA would help his company with its commercial operations in the EU. He said:

Doing business in Europe can be fairly daunting. We’ve faced some pretty complex regulatory barriers. There are numerous product and testing certification procedures and other barriers that can make us slower to market and less competitive, so in BlackBerry’s analysis, [the] CETA certainly addresses a majority of the tariff, and more importantly, the non-tariff barriers to trade and investment.

According to witnesses, multinational Canadian businesses would not be the sole beneficiaries of the Canada–EU CETA. For example, Mr. Myers and Jason Langrish, Executive Director, Canada Europe Roundtable for Business, said that new export opportunities would be available to Canadian SMEs, given that the agreement would offer increased access to supply chains from European multinational businesses around the world.

Mr. Myers also commented that one of the key advantages of the agreement in principle is that it contains provisions guaranteeing that the EU would accord Canada most-favoured-nation status if the EU offers the United States more favourable treatment in relation to rules of origin, services liberalization and recognition of standards in any agreement they reach.

Given the integration of the North American market and the importance of continental supply chains, some witnesses emphasized the importance of recognizing this aspect of the North American market by incorporating flexible rules of origin in a Canada–EU CETA. Specifically, they wanted to ensure that goods produced in Canada are recognized as Canadian in the European market. The Committee heard that the agreement in principle has provisions to that effect for specific sectors, such as automotive.

Witnesses also drew the Committee’s attention to transportation infrastructure as it relates to trade in goods in Canada. According to the brief submitted by the Greater Halifax Partnership, it is important to ensure that Canada’s transportation and logistics infrastructure is ready for the opportunities that would result from increased trade with the EU.^[3]

More specifically, Jerry Staples, Vice-President, Air Service, Marketing and Development, Halifax International Airport Authority, believed that the elimination of tariffs on fresh commodities, such as live seafood, would increase the demand for air cargo. In his opinion, Halifax International Airport would benefit from this liberalization of trade in goods between Canada and the EU.

Similarly, Georges Malec, Vice-President, Business Development and Operations, Halifax Port Authority, said that the potential for increased trade with the EU, especially in seafood products, would be beneficial for the Port of Halifax. Michael Delaney, Director of the Atlantic Grains Council and Atlantic Director of the Grain Growers of Canada, also mentioned the benefits of this increased trade:

From an Atlantic exporter’s point of view, we also see new opportunities around the corner coming from [the] CETA. Any success we achieve will be tied to the strategic importance of the Halifax harbour and its supporting infrastructure, where there are 11,000 jobs, and where 1,500 vessels are handled annually. It’s also the closest shipping point to Europe, so we see the opportunity and potential for more business for the Atlantic economy.

Witnesses commented about the impact of the Canada–EU CETA on specific sectors, notably agriculture and agri-food, seafood, automotive and forest products. The following sections provide a summary of these statements.

Agricultural and Agri-food Products

According to the technical summary, the EU has committed to eliminating 93.6% of agricultural tariff lines, with a seven-year transition period for grains. In turn, Canada has committed to eliminating 92.0% of agricultural tariff lines when the CETA enters into force.

Most of the witnesses from the Canadian agriculture and agri-food sector commented on the advantages of the Canada–EU CETA. Some explained that, in terms of trade in agricultural and agri-food products, the European market offers tremendous growth potential for Canadian farmers and food processors. Martin Rice, Director, Canadian Agri-Food Trade Alliance, said that, “taken together, we believe the [Canada–EU CETA], when fully implemented, could result in $1.5 billion in new Canadian agri-food exports to the EU.”

Regarding meat products, the EU has committed to offering duty-free in-quota access for 50,000 tonnes of carcass weight of Canadian beef and veal,^[4] and 81,011 tonnes of carcass weight of Canadian pork,^[5] for export to the EU. According to Mr. Masswohl, the value of the beef market in the EU justifies the investment that Canadian producers would have to make to meet European standards, especially with respect to the ban on growth hormones. Moreover, given the expected prices for Canadian beef in the European marketplace, he said that the Canada–EU CETA should be worth more than $600 million to Canadian beef producers.

Similar economic benefits resulting from the Canada–EU CETA were identified for Canada’s pork sector. Jean-Guy Vincent, Chair, Canadian Pork Council, told the Committee that the agreement could increase Canadian pork exports to the EU by $400 million a year. He also said that such an agreement would give the Canadian pork sector the opportunity to position itself advantageously in relation to its American competitors until the United States concludes a similar agreement with the EU.

That said, representatives from the beef and pork sectors acknowledged that investments would have to be made in order to meet specific requirements of the European market. In this regard, Mr. Vincent said:

It is recognized that to address EU market demands, Canadian processing plants will need to invest in such areas as feed additives and disease testing. Today there are four Canadian pork plants that have achieved eligibility to export to the European Union. With the promise of larger quotas and with the resolution of quota administration barriers, the CETA will encourage additional plants to see certification.

Regarding the grains sector, witnesses spoke positively about the benefits in the agreement in principle. According to Jim Everson, Vice-President, Government Relations, Canola Council of Canada, the Canada–EU CETA would eliminate tariffs on Canadian canola oil within the EU, which would help increase Canadian exports by up to $90 million.

Similarly, Murad Al-Katib, President and Chief Executive Officer, Alliance Grain Traders Inc., told the Committee that eliminating the European tariffs that are applied on value-added products made from lentils, chick peas, beans and peas would allow Canadian producers to be more competitive in terms of distribution in the European marketplace. He believed that the CETA could also be beneficial for Canadian pasta exporters, which currently face punitive duties on their exports to Europe.

Mr. Rice also quoted the Western Grain Elevator Association, which believed that the CETA would both increase Canadian wheat sales within the EU and stimulate demand for grain in Canada for livestock feed to meet the increased EU demand for Canadian meat.

While welcoming the conclusion of the CETA negotiations, Gary McInerney, Vice-President, Sales and Marketing, GreenField Speciality Alcohols Inc., said that it would be difficult for some Canadian producers of industrial alcohol and of alcohol for human consumption to reach the EU market until Canadian and European regulations are harmonized.

Jan Dyer, Director, Government Relations, Canadian Canola Growers Association, and Mr. Everson also emphasized the importance of having secured, in the agreement in principle, a commitment to ensure the timely and efficient processing of canola trait applications at every step in the EU’s approval process. In commenting on this issue, Ms. Dyer stated:

In the longer term, [the] CETA will provide a more formal avenue to discuss long-standing issues that farmers face with the EU non-tariff trade barriers, particularly their regulations regarding genetically modified canola. The importance of establishing transparent, science-based regulatory policy can’t be overstated, and [the] CETA represents an important opportunity to advance access for biotech products in a meaningful way.

According to some witnesses, the issue of low level presence of genetically modified crops remains an outstanding issue between Canada and the EU, although they were optimistic that the agreement in principle’s provisions for co-operation in the area of biotechnology could lead to harmonization of the rules governing trade in genetically modified organisms. Mr. Everson said:

CETA includes provisions for cooperation in the area of biotechnology, and this is a significant development for our negotiators. CETA will enhance the existing forum for discussing issues around biotechnology and their impact on trade.… We are hopeful that these working group discussions on low-level presence policies will reduce the potential for low levels of approved biotechnology traits to cause trade disruptions. This has the potential to significantly reduce risk for exporters, and thereby increase returns producers earn from the market.

Regarding the alcoholic beverage sector, Jan Westcott, President and CEO, Spirits Canada, explained to the Committee that the CETA is an important step in the evolution of trade in alcoholic products between Canada and the EU. Mr. Westcott pointed out that Canada is well positioned to take advantage of new business opportunities in the EU, particularly in terms of trade in brown spirits, such as whiskey, which is becoming more popular in Europe.

Representatives from Canada’s dairy sector presented a mixed outlook about the possible effects of the Canada–EU CETA on their sector.

While indicating that his organization is not opposed to the agreement in principle, Yves Leduc, Director, International Trade, Dairy Farmers of Canada, called attention to the new access of 17,700 tonnes to the EU fine cheese market, which he said could result in a loss of $150 million for dairy farmers in Canada and $300 million for the Canadian dairy sector as a whole.

However, these figures do not take into account that, between 2002 and 2012, cheese consumption in Canada grew by 58,000 tonnes, an average annual growth rate of 1.5%. By the time the Canada–EU CETA is fully implemented, domestic cheese consumption is expected to have grown by more than 17,700 tonnes.^[6]

Mr. Leduc added that the agreement in principle would increase access for cheese from 5% to 9% of Canada’s total domestic consumption. He said: “There are no reasons to be pleased about supplying 91% of the Canadian market when compared with other countries. For example, the EU supplies 99% of its cheese market, and the U.S. supplies 97.5% of its cheese market.”

In a brief submitted to the Committee, the Dairy Processors Association of Canada explained that it would not be possible for Canadian dairy processors and cheese makers to take advantage of export opportunities under the Canada–EU CETA, as the World Trade Organization considers dairy products that are a part of Canada’s supply management system to be subsidized goods.^[7]

Some witnesses told the Committee that European cheese and dairy producers are heavily subsidized, which makes it difficult for Canadian producers to compete with European products on the basis of price. To illustrate this point, Louis Arsenault, President, Association des fromagers artisans du Québec, stated: “The math is quite simple. At the end of the day, the average price for French exports around the world is 4.17 euros [per kilo], or around CAN$7.25, based on the exchange rate. For producers, processors and some semi-industrial producers in Quebec, that amount does not even cover the price of milk.”

Mr. Arsenault said that he would like the federal government to provide financial compensation to Canadian cheese producers. On that issue, Mr. Verheul said that cheese, and – to a lesser extent – milk protein substances, would be affected by the Canada–EU CETA. He indicated that the federal government would monitor the impact of the agreement on these sectors as it is implemented. As well, Mr. Verheul stated: “In its simplest terms, if revenues decline as a result of new imports, then we will compensate.”

Nonetheless, Debra Amrein-Boyes, President, Farm House Natural Cheeses, commented that she is not concerned with the Canada–EU CETA, as Canadian cheesemakers have a key advantage in the domestic market. According to her, “as a small business we’re close to the ground. We know and forge relationships with our consumers …. They want that connection.”

Lastly, Stan Van Keulen, Board Member, British Columbia Dairy Association, said that his organization would like to see the CETA’s dairy provisions implemented over a 10-year period, rather than seven years, in order to minimize the impact on the dairy sector.

Fish and Seafood

According to the technical summary, tariffs on the following items would be eliminated upon entry into force of the Canada–EU CETA: frozen, cooked and peeled shrimp; frozen and live lobster; salmon; and snow crab. Tariffs on processed shrimp and frozen fillets of cod would be gradually eliminated over a seven-year period. Therefore, seven years after entry into force of the agreement, 100% of the EU’s tariff lines on Canadian seafood would be exempt from tariffs, while 100% of Canada’s tariff lines on European seafood would be exempt on the agreement’s entry into force.

According to a number of witnesses, the Canadian seafood sector would benefit from the reduced tariffs on these products in the EU. In sharing his optimism for such an outcome, Patrick McGuinness, President, Fisheries Council of Canada, listed the fisheries that would benefit from the agreement, and stated:

The CETA is a game-changer for several Canadian fisheries, most notably Atlantic Canada's shrimp sector, particularly cooked and peeled shrimp; lobster processing, which would have significant positive spillover effects for live lobsters; our herring sector; and our mackerel sector. The positive impact on the British Columbia groundfish and salmon sectors, and the Northwest Territories and prairie walleye and pickerel sectors creates new marketing opportunities for these sectors.

Marc Surette, Executive Director, Nova Scotia Fish Packers Association, and Ruth Salmon, Executive Director, Canadian Aquaculture Industry Alliance, said that eliminating the European tariffs on Canadian seafood products would make them more attractive to the EU market, especially as these products are already recognized for their high quality. For example, Mr. Surette stated: “Reducing and eliminating the tariffs will certainly make our products more attractive to the European customer base. We have been there for a long time, and our products are known, but to be able to compete on that level playing field is going to add to our ability to make money.”

Regarding the shrimp and lobster sectors, John Risley, President and Chief Executive Officer, Clearwater Fine Foods Inc., also said that the elimination of European tariffs would have benefits. In his view, with this preferential access to the EU market, his business can process and export more of these products.

According to Mr. McGuinness, eliminating the EU tariffs on Canadian seafood, which currently range from 15% to 20%, would enable the Canadian fishing sector to implement its market diversification strategy, allowing the sector to reduce its dependence on the U.S. market.

However, some witnesses expressed concerns about the removal of the minimum processing regulations for seafood exports to the EU. Winston Fiander, Community Fisheries, who appeared as an individual, argued that the removal of the minimum processing requirements for seafood exports to the EU could lead to job losses in the seafood processing sector in Newfoundland and Labrador. On this issue, Mr. Verheul said he thought the impact of the removal of the minimum processing requirements would be minimal and “highly offset by the new opportunities [in] the EU fish and seafood market.”

Peter Connors, President, Eastern Shore Fisherman’s Protective Association, acknowledged that access to new markets is important to the fishing industry, but asked that Canadian trade negotiators carefully consider the possible consequences of provisions in trade agreements, such as the Canada–EU CETA, on local control of resources, as well as the economic and trade interests of “small fishermen” communities.

Automobiles

According to the technical summary, the EU committed to eliminate its tariffs on Canadian automobiles over a three-, five- or seven-year period; these duties currently average 11.2%. Canada committed to eliminate its tariffs of 6.1% on European automobiles gradually over a three-, five- or seven-year period. Canada and the EU also agreed on flexible rules of origin that take the integrated North American automotive sector into account. In this regard, Mark Nantais, President, Canadian Vehicle Manufacturers’ Association, noted:

While the timing of an EU-U.S. agreement remains unclear, the agreement in principle sets out a derogation of 100,000 units under which a more liberal rule of origin applies for non-originating materials. While it is our view that effective bilateral agreements should not be achieved through quotas, the derogation agreed to seems to provide sufficient levels of access until the EU-U.S. negotiations are concluded.

Similarly, Mr. Jung argued that the Canadian automotive sector is dependent on trade, and that the Canada–EU CETA should remove custom tariffs and incorporate flexible rules of origin for original equipment manufacturers and parts manufacturing companies to benefit from the agreement.

Mr. Myers said that the CETA would provide opportunities to co-operate on regulations, certifications and standards, which is a “very positive step ahead for the automotive sector.”

That said, Mr. Nantais suggested that Canadian negotiators could have reached an agreement on certain CETA provisions that, over time, would benefit the Canadian automotive sector, even though “[f]or the short term, the upside is going to be mostly on the Europeans.” He indicated that the details to be included in the CETA would be very important to the automotive sector, such as the language of the agreement, as well as the rules of origin provisions and methodology.

Mr. Dias was less optimistic, arguing that Canada produces vehicles for the North American market while the EU produces vehicles for the global market. In this context, he concluded that Canada’s trade imbalance with the EU in the automotive sector would worsen when the CETA enters into force. According to him, entry into force “will mean more lost sales and ultimately more lost jobs.”

Forest Products

According to the technical summary, the EU would eliminate all tariffs on Canadian forest products on entry into force of the Canada–EU CETA. Forestry stakeholders told the Committee that their sector would benefit from the agreement because it would eliminate existing tariffs on some Canadian products. For example, Catherine Cobden, Executive Vice-President, Forest Products Association of Canada, said:

Europe is the third-largest market for our sector. Last year the Canadian forest products industry exported more than a billion dollars’ worth of wood, pulp, and paper products to the EU member states. Upon [the] CETA’s coming into force, [Forest Products Association of Canada] members will benefit immediately from the elimination of existing tariffs on some of our wood products. Tariffs of between 3% and 10% exist today, for example, in the areas of plywood, panel, and board, so this is a significant improvement.

In addition to the removal of EU tariffs, Rick Jeffery, President and Chief Executive Officer, Coast Forest Products Association, also welcomed the commitment to greater regulatory cooperation between Canada and the EU in the forestry sector, as it would reduce non-tariff barriers that impede Canadian forest product exports to the EU. In providing the example of lumber grading to illustrate the importance of regulatory cooperation in the CETA, he said: “The EU has their own standards for lumber grading, so that remanufacturers trying to send some boards in there need to have the appropriate stamps, certifications …. If we don’t do that right, they’ll get buried under bureaucracy and not be able to capitalize on those markets.”

Trade in Services and Labour Mobility

A number of witnesses shared their views on the provisions of the agreement in principle that address trade in services. Minister Fast indicated that one of Canada’s key offensive interests in the Canada–EU CETA negotiations was “a robust outcome on services”.

Witnesses told the Committee that the priority given to the services sector in the Canada–EU CETA makes the agreement forward-looking. Lynda Leonard, Senior Vice-President, Information Technology Association of Canada, noted that, in her view, the agreement in principle shows that the two parties fully understand the importance of global trade in services and reflects “a trade context where a major Canadian export is brainpower.” Mr. Curtis explained the rationale for calling the Canada–EU CETA a “new-generation” agreement, and stated:

It’s a new-generation trade agreement and will move both Canada and the European Union into closer cooperation in many areas of domestic and international regulation. The regulation will not necessarily be the same, but it will be more closely aligned. There will be fewer differences between us. From what I have read, it is breaking new ground in areas such as recognition of professional services. That’s architecture, law, engineering, and many more. It will also mean more cooperation in temporary-entry provisions, movement of skilled labour, including CEOs. … It will affect, for example, how we regulate electronic commerce, which is such a major part of our economy in today’s world.

Ms. Campbell supported the agreement’s provisions that would provide Canadian businesses with improved access to various services in the EU, including engineering, professional and environmental services.

 Some witnesses focused on the advantages of the Canada–EU CETA for regional economies. Bill Tam, President and Chief Executive Officer, BC Technology Industry Association, said that one of the key benefits of the agreement is improved access to the European marketplace for the British Columbia services sector, especially professional, environmental, information technology and software services. Similarly, Mr. Jung told the Committee that the Waterloo region has a strong services sector, and that the CETA would allow this sector to continue to grow.

However, some witnesses expressed concern about the agreement in principle’s provisions that address trade in services. For example, Michael McBane, Executive Director, Canadian Health Coalition, was concerned that Canada might not include a general reservation in the final text of the CETA that would explicitly exclude health care services from the scope of the agreement. He believed that the federal government must insist that nothing in the CETA would be construed “to apply to measures adopted or maintained by a party with respect to health care, health services or health insurance.”

Robert Lewis-Manning, President, Canadian Shipowners Association, argued that the Canada–EU CETA would be good for Canada, but warned that aspects of the agreement’s implementation could potentially have unintended negative consequences for parts of the marine sector. Specifically, he was concerned that the Canada–EU CETA could lead to changes to the coasting regime by permitting foreign vessels to operate in the domestic short sea shipping industry, thereby potentially threatening the reliability and safety of that industry.

A number of witnesses said that trade in services and labour mobility are complementary, and expressed support for the measures in the technical summary that would facilitate labour mobility; these measures include mutual recognition of professional qualifications and the temporary entry of businesspeople. In this regard, Gordon McCauley, Chair, Board of Directors, LifeSciences British Columbia, said, “If you ask any biotech CEO – probably anywhere in the world, but certainly in B.C. and Canada – what their biggest challenge is after money, the answer is attracting talent. The temporary [entry] provisions of [the] CETA will facilitate the movement of talented individuals.”

Emechete Onuoha, Vice-President, Global Government Affairs, Canada, Xerox Canada, also noted that the CETA’s labour mobility provisions are critical. Citing the Xerox Research Centre of Canada, which employs researchers from 35 countries, he stressed the importance of implementing a framework that allows the settlement and integration of immigrant researchers and their families.

Martha Crago, Vice-President, Research, Dalhousie University, also spoke about the benefits that the CETA’s labour mobility provisions could have for research and education. In her view, the agreement would strengthen scientific research and innovation ties between the two parties. According to her, the recognition and harmonization of graduates’ credentials between Canada and the EU is important for the free flow of highly qualified individuals between the two parties.

However, Rick Clarke, President, Nova Scotia Federation of Labour, said that the labour mobility provisions in the agreement are a “major problem”, and was concerned that the mutual recognition of provincial qualifications included in trade agreements like the CETA might lead to the “lowest common denominator” becoming the standard. He also expressed concern about Canada’s and the EU’s commitments regarding the temporary entry of workers, arguing that these commitments might encourage employers to hire temporary workers from European countries, where the unemployment rate is relatively higher.

Investment Protection

According to the technical summary, the Canada–EU CETA would include commitments to treat investors from Canada and the EU “fairly and equitably and in [a] non-discriminatory manner” and would include investor–state dispute settlement provisions.

In commenting on the CETA’s investor–state dispute settlement provisions, Mr. Verheul said that these provisions would significantly differ from those in previous agreements negotiated by Canada. For example, he indicated that, in the Canada–EU CETA, there would be “no ability to overturn environmental decisions or restrict governments from regulating in the interests of [the] environment, or anything along those lines, whether it’s social services, health services, or others.” He also commented that the proposed provisions would be more transparent than those in other agreements in force in Canada.

Witnesses held varying opinions on the possible impact of the Canada–EU CETA’s investment protection provisions. On one hand, Mr. Finlayson and Mike Darch, President, Consider Canada City Alliance, said that the investment protection provisions should attract greater investment to Canada from Europe.

On the other hand, some of witnesses shared their concerns about the provisions in the technical summary that provide for the implementation of an investor–state dispute settlement mechanism. The mechanism would allow an investor to bring a claim against the host state before an arbitral panel for a breach of obligation and for damages arising from that breach. Howard Mann, Senior International Law Advisor, International Institute for Sustainable Development, and Graham Cox, Senior Researcher Officer, Canadian Union of Public Employees, argued that these types of provisions limit, for example, the ability of federal and provincial governments to adopt health and environmental regulations.

Mr. Trew and Mr. Cox also expressed concern that the potential for foreign investors to bring suits against the federal government for measures taken by various levels of government could discourage public authorities to bring services that had been privatized back into the public sector.

Gus Van Harten, Associate Professor, Osgoode Hall Law School, who appeared as an individual, questioned the inclusion of an investor–state dispute settlement mechanism in the Canada–EU CETA. He commented that Canada and the EU countries already have appropriate national courts to hear these types of disputes. He also noted the existing foreign investment promotion and protection agreements between Canada and several EU member states.

Similarly, Blair Redlin, Research Consultant, Canadian Union of Public Employees British Columbia, questioned the transparency of investor–state dispute settlement mechanisms like that proposed in the Canada–EU CETA. He said:

Canada needs to think very seriously about the implication of extending new rights to these European corporations and others to sue elected Canadian governments, suing them not in front of our long-established and respected courts, but instead at an unaccountable and secretive and non-appealable commercial arbitration panel.

Government Procurement

According to the technical summary, Canada and the EU would grant each other preferential access to a comprehensive list of goods and services to be procured by Canadian and European government entities. This access would vary depending on thresholds specified for various types of goods and services, which are listed in the technical summary and are presented in Table 2 in Appendix A.

Most of the witnesses who commented on the government procurement provisions in the Canada–EU CETA focused on the access that Canada would provide to EU companies for municipal government procurement markets. Marianne Alto, Councillor, City of Victoria and Mr. Trew expressed concerns that Canadian government entities, particularly municipalities, could lose the ability to include local content requirements in their procurement contracts. They believed that this inability would limit the extent to which municipalities can maximize economic benefits and create local jobs.

Mr. Corrigan agreed with Ms. Alto and Mr. Trew, and said that “the agreement will prohibit municipalities from using procurement as a local economic social development tool by requiring municipalities to remove any preference for local companies, goods, or services.” Stephen Ross, General Manager, Cherubini Group of Companies, and Mr. Clarke expressed similar concerns regarding the flexibility that various levels of government would have in promoting local benefits when putting out a call for tenders.

That said, in commenting on the ability of his municipality to compete against a market of 500 million people, Mr. Banman stated: “I take a look at the recent statistics that came out from the school board. We are in among the top 10 educated cities in Canada, or at least my area is. I can't speak for all of Canada. So ... I say, ‘Bring it on’.”

In speaking about the thresholds proposed in the Canada–EU CETA, Mr. Savage, said that these thresholds are somewhat lower than those sought by the Federation of Canadian Municipalities. He believed that the result could be delays in the bidding process, and said that “our procurement processes may take longer because of the requirement to put opportunities to market for a longer period to ensure EU suppliers have an opportunity to respond.”

Regarding the impact of the Canada–EU CETA on procurement processes, Ms. Alto commented that the provisions on public procurement could mean “significant litigation risks and increased administrative costs, as local governments are forced to report on and defend procurement choices and respond to legal or administrative appeals of those choices.”

However, witnesses also noted the benefits of the government procurement provisions included in the technical summary. For example, Mr. Finlayson argued that reciprocal access to government procurement would be advantageous to Canada because the EU’s government procurement market is much larger than Canada’s market.

In addition, Mr. Vidler argued that the government procurement provisions in the Canada–EU CETA would not only provide new opportunities for Canadian businesses in the EU, but also encourage competition among suppliers providing services. Similarly, Mr. Finlayson said that “taxpayers in Canada should welcome the prospect of greater competition in the whole domain of public sector procurement as this will tend to reduce prices, improve quality, and increase transparency.”

Intellectual Property

Some witnesses commented on the protection of intellectual property rights, with most focusing on patent protection for pharmaceuticals.

According to the technical summary, Canada would provide additional protection for pharmaceutical products protected by patents in Canada. The additional protection would include extending the period of protection by two years to compensate for lost time resulting from the regulatory procedures for approving pharmaceutical products. Canada also agreed to a general commitment to ensure that litigants are afforded effective rights of appeal.

Andrew Casey, President and Chief Executive Officer, BIOTECanada, said that, to attract investment capital to Canada in innovative sectors such as biotechnology, the government must assure investors that intellectual property is adequately protected in Canada.

Similarly, Russell Williams, President, Canada’s Research-Based Pharmaceutical Companies (Rx&D), argued that Canada lags behind its trading partners regarding intellectual property protection for life sciences. According to him, “[w]ith [the] CETA, Canada is taking one step towards establishing a more level playing field for life science investments, and sending a positive message to international investors that Canada is a market that supports innovation.” In a letter sent to the Committee, Mr. Williams also stated: “With respect to the [Canada–EU] CETA [intellectual property] changes and industry investment, we would draw your attention to a very recent and extensive study on this issue by the Conference Board of Canada, which concluded that these changes should make Canada a more attractive place for companies to make investments in research and development, while having no short- or medium-term impact on drug costs.”^[8]

In addition, Debbie Benczkowski, Chief Operating Officer, Alzheimer Society of Canada, and Durhane Wong-Rieger, President and Chief Executive Officer, Canadian Organization for Rare Disorders, told the Committee that the Canada–EU CETA would be an opportunity to improve the quality of life of people living with chronic or rare diseases, as the provisions amending the intellectual property regime for pharmaceutical products would promote research and innovation in new drugs in Canada.

However, Marc-André Gagnon, Assistant Professor, School of Public Policy and Administration, Carleton University, who appeared as an individual, opposed the argument that increased intellectual property protection for patented drugs in Canada would encourage pharmaceutical companies to invest more in research and development in the country. He argued:

From 2000 to 2012, patent drug industry revenues in Canada increased considerably. However, investment in research and development stagnated or even declined. The claim that the higher the industry's revenues, the more it will invest, is magical thinking. Indeed, in its last annual report published in October, the Patented Medicine Prices Review Board clearly stated that we had to stop believing that inflating drug prices would lead to an almost magical increase in investments. That logic is faulty; there is no cause and effect relation.

Representatives of the generic pharmaceutical industry presented a more moderate point of view on the possible impact of CETA’s provisions regarding intellectual property protection. While Mr. Keon was pleased that the agreement would not make the changes to the domestic data protection regime that were requested by the European Union, he was disappointed with the patent term extensions. He argued that the patent extensions would “cost Canada in the future”.

On that point, a number of witnesses indicated that the intellectual property provisions in the technical summary could lead to increased drug costs in Canada. Mr. Cox, Mr. Gagnon, Mr. Clarke, Mr. McBane, Mr. Trew and James Hutt, Coordinator, Nova Scotia Citizens Health Care Network, believed that the provisions in the technical summary extending patent terms for pharmaceutical products would delay the entry of generic drugs into the marketplace, which would mean increased drug costs for Canada.

Ms. Wong-Rieger said that, while she is aware of concerns about potential health care costs, she is confident that they would be outweighed by the long-term benefits of the Canada–EU CETA.

In the event that drug costs increase following implementation of the CETA, Minister Fast told the Committee that the federal government was prepared to compensate the provinces and territories. However, some witnesses expressed their skepticism regarding the real economic effects of any such compensation.

Witnesses also discussed geographical indications. The Committee was told that the federal government agreed to varying ways of addressing EU requests regarding 179 terms covering foods and beer.

Regarding the application of geographical indications in Canada, the Dairy Processors Association of Canada – in its brief submitted to the Committee – stated: “It is important that the application and staging of the implementation of Geographical Indications be developed in a manner and timeframe that will minimize the impact on the Canadian cheese industry and permit the market and consumers to adjust to these changes.”^[9]

Conclusion

After hearing from a large number of witnesses on the topic of the Canada–EU CETA, the Committee believes that a majority of Canadian stakeholders support the agreement and feels that the provisions in the technical summary of 20 October 2013 are, on balance, in Canadians’ interests.

The Committee is of the view that the CETA would give Canadian businesses preferential access to the world’s largest single market, which includes 500 million consumers. When combined with NAFTA, the CETA would give Canadian businesses preferential access to more than 800 million of the world’s richest consumers. Moreover, the Committee believes that the CETA should increase Canada’s competitiveness, allowing Canadian consumers and businesses to benefit from increased access to EU’s goods and services as well as its supply chains.

The Committee supports the participation of the Canadian provinces and territories in the negotiations for the Canada–EU CETA, and feels that the positive comments made by all provinces and territories following the announcement of the agreement in principle demonstrates that they have been consulted throughout the negotiating process and that the agreement is expected to benefit all regions of Canada.

However, the Committee is aware that, while an agreement in principle between Canada and the EU has been signed, many steps remain before the entry into force of the Canada–EU CETA; these steps include the conclusion of the technical discussions between the two parties, which are ongoing. The Committee believes that the CETA is likely to enter into force approximately two years after these technical discussions have concluded.

The Committee noted concerns expressed during the study about certain provisions in the technical summary, and about the scope and extent of benefits of the CETA for Canadians. In the Committee’s view, the main concerns were the potential impact of extended patent term protection for pharmaceutical products on drug costs in Canada and the impact of a higher import quota for fine European cheese on the Canadian dairy sector.

In this context, the Committee is mindful that the federal government is prepared to provide compensation to certain stakeholders or Canada’s provinces and territories, in the event that the CETA’s provisions have a negative impact on the dairy sector or with regard to the cost of generic pharmaceutical products.

The Committee also recognizes that it is important to encourage all levels of government, as well as the private sector, to implement strategies to help Canadian businesses, particularly SMEs, take full advantage of the provisions in the Canada–EU CETA.

Therefore, the Committee recommends:

Recommendation 1

That the Government of Canada publish the text of the comprehensive economic and trade agreement between Canada and the European Union as soon as it is initialed.

Recommendation 2

That the Government of Canada develop a communication plan to publicize the provisions of the comprehensive economic and trade agreement between Canada and the European Union. The communication plan should ensure that information is received by all Canadian stakeholders that will be affected by this agreement.

Recommendation 3

That the Government of Canada take all possible actions to ensure that the provisions in the comprehensive economic and trade agreement between Canada and the European Union enter into force as quickly as possible.

Recommendation 4

That the Government of Canada support Canadian businesses, including small and medium-sized enterprises, wanting to penetrate the European Union’s market following the entry into force of the comprehensive economic and trade agreement between Canada and the European Union.

Recommendation 5

That, to help Canadian exporters and importers, the Government of Canada immediately:

• begin negotiations with provinces/territories with a view to eliminating interprovincial/interterritorial trade barriers;
• study ways in which infrastructure could be improved to allow the movement of goods across Canada in a more efficient and less costly manner; and
• improve the customs process for goods traded between Canada and the European Union, perhaps through a priority process for these goods.

Recommendation 6

That, before the comprehensive economic and trade agreement between Canada and the European Union is ratified, the Government of Canada:

• establish geographical indicators with a view to protecting Canada’s products and brands; and
• ensure that certain recognized industry clusters, such as scientific, are maintained.

Recommendation 7

That the Government of Canada use the comprehensive economic and trade agreement between Canada and the European Union to move toward compatible approval processes for new technologies, products and services and remove non-tariff barriers to trade and investment.

Recommendation 8

That the Government of Canada continue to pursue additional comprehensive trade agreements to open new markets and provide opportunities for growth for Canadian businesses.

Recommendation 9

That the Government of Canada continue to negotiate strong investor-state dispute settlement and investment protection measures into trade agreements to provide predictability and stability for Canadian investors.