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European Parliament Approves CETA: Path Paved for Increased Canadian Competition on EU Market

On 15 February 2017, after nearly five years and four months of negotiations, the European Parliament gave its final approval to the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada. With 408 votes in favour and 254 against, the free trade agreement was overwhelmingly backed by the Members of the European Parliament.

CETA is likely to mark the beginning of a new era in the EU-Canada relationship. Not only will CETA remove tariffs on most traded goods and services (with the exception of public services, audio-visual and transport services and a few agricultural products), the deal also provides for the mutual recognition of certification for a wide range of products, ranging from electrical goods to toys.

In addition, CETA replaces the current form of investor-state dispute settlement (ISDS) that exists in many bilateral trade agreements negotiated by the EU with a new and improved Investment Court System. The new mechanism will be more transparent and will no longer be based on ad hoc investment tribunals.

Supporters of the trade deal say that CETA will boost the EU and Canadian economies, raise international standards and create new jobs and business opportunities. The agreement would be of particular interest to small businesses, which will save time and money by avoiding duplicate testing requirements, lengthy customs procedures and costly legal fees.

Opponents of the deal, however, argue that CETA will result in a loss of jobs, while undermining the EU’s environmental, labour and consumer standards and giving too much power to multinational corporations. In an attempt to relieve such concerns, the EU and Canada have recognised – both in the preamble to the agreement and in its attached joint declaration – the importance of the domestic right to regulate.

Despite the conclusive vote on 15 February 2017, CETA is not yet a done deal. As CETA was declared a “mixed” agreement by the European Commission in July 2016, national governments were granted the power to approve or reject the agreement. As a result, CETA will only be able to take full effect once it has been ratified by all national and regional parliaments of the EU Member States, in accordance with their domestic constitutional requirements. In this regard, it should be noted that 14 Member States have the possibility of putting the deal to a referendum vote.

While no EU Member State has ever stopped a trade agreement from entering into force by refusing to ratify a final deal, the fact that CETA has – in several countries – drawn wide attention and sparked protest movements raises concerns that a national parliament might still reject the deal. Moreover, as admitted by trade experts, there is uncertainty with regard to the legal consequences of a parliament rejecting the deal. While some argue that the entire deal would fall apart, others are of the opinion that certain provisions could still have legal effect.

Regarding the full implementation of CETA, there is no set timeline by when the national and regional parliaments of the EU Member States must vote on and, subsequently, ratify CETA. The EU trade agreement with South Korea was, for example, ratified by the national parliaments four-and-a-half years after the provisional application of the deal. Latvia was the first EU Member State to ratify CETA, doing so on 23 February 2017.

The final consent of the European Parliament, given on 15 February 2017, has, nonetheless, paved the way for the provisional application of CETA, for which the ratification by all EU Member States is not necessary. In theory, CETA can provisionally apply as of the first day of the second month following the date on which the EU and Canada notify each other of the fact that all necessary internal procedures have been completed. This is expected to happen, at the earliest, on 1 April 2017. In practice, the EU and Canada are making good progress on the domestic approval of CETA. The Canadian House of Commons approved Bill C-30, the “CETA Implementation Act”, which was recently introduced in the Senate.

The approval of CETA is likely to be of interest to Hong Kong traders. Once CETA provisionally enters into force, the amount of Canadian exports to the EU market is expected to increase significantly. This will create more competition on the EU market, which Hong Kong traders should be aware of. In 2015, exports from Hong Kong to the EU amounted to $15,794,829,349. In comparison, Canada exported goods to the EU worth $31,086,516,608 in 2015, a figure that is expected to rise by 20% once CETA is implemented in full.

The CETA negotiations were launched at the EU-Canada summit on 6 May 2009. While the EU and Canada agreed on the content and general strategy in June 2009, the signature of CETA was only proposed to the Council of the EU by the European Commission in July 2016. After the agreement was approved by the Council, CETA was formally signed by the EU and Canada on 30 October 2016. The European Parliament's Committee on International Trade approved the deal on 24 January 2017, and the European Parliament’s final consent was given at the plenary session on 15 February 2017.

The EU is currently negotiating 25 other trade agreements, including with the United States (TTIP), Japan, Thailand, India and Indonesia.

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