CETA What Does It Mean? Positive developments for businesses, professionals and employees – but not all

Susan
By Susan March 1, 2017 22:09

CETA What Does It Mean? Positive developments for businesses, professionals and employees – but not all

What is CETA, and what does it mean?

CETA, the “Comprehensive Economic and Trade Agreement”, is the new Canada – EU trade deal that has taken eight years to hammer out. It opens up many doors for Ireland to sell into this growing, culturally similar, developed country, and this was made possible by the trading clout of the European Union. It’s particularly welcome for small business, employees, the professions, exporting companies and those who believe international trade is good for our economic, political and social development. Let’s examine the deal in more detail.

 

What is CETA?

 

“CETA” stands for “Comprehensive Economic and Trade Agreement”. It is a free trade agreement between Canada and the EU. The European Parliament has voted to accept the deal with a wide margin of 408, 254 against and 33 abstentions. The next stage is to put forward this free trade agreement for ratification in all national parliaments.

 

What does CETA mean in practice?

 

CETA eliminates up to 99% of tariffs for business between the EU’s 508 million people and Canada’s 35 million citizens. According to the summary of results, based on 2009-2011 data, if CETA is fully implemented, EU exporters would save on average duty payments on industrial goods of €470 million annually; for Canada this figure would be €158 million.

However, one major peeve of CETA opponents is that, they say, the deal would lower and endanger European standards of consumer protection. The reality is CETA offers greater choice while upholding European standards, as only products and services that fully respect all EU regulations will be able to enter the EU market: the import regulations still stand.

The EU is Canada’s second biggest trading partner after the US and it is the fourth largest foreign investor in Europe. Overall, the EU economy has the potential to grow by about €12 billion a year, if CETA is fully implemented” says MEP Brian Hayes.

According to the European Commission, “Canada is a large market for Europe’s exports and a country rich in natural resources that Europe needs. CETA is also progressive. It goes beyond just removing customs duties, by taking people and the environment fully into account. By doing so, it’ll set a new global standard for future trade agreements.” Is everything wonderful then? Let’s examine the implications for Ireland.

 

What does CETA mean for Ireland?

 

Currently, Ireland sells €2.3 billion to Canada which includes €880 million of goods and €1.4 billion of services per year. In trading with Canada, we have several advantages: we are native English speakers and enjoy close cultural ties with Canada, we have a good relationship with the U.S., their own largest trading neighbour, and we are their closest geographical neighbour within the EU.

Irish airports offer direct flights to Canada; we can also offer an existing, reliable enterprise and diplomacy infrastructure with Enterprise Ireland, IDA Ireland and Consulate. 400 Enterprise Ireland client companies currently export to Canada. Canadian companies operating in Ireland that are clients of IDA Ireland employ some 2,800 people across a range of sectors. This is reinforced by strong business networks, including Ireland Chamber of Commerce in Toronto, Ireland Canada Business Association and others.

The Irish Exporters Association agrees that Ireland has a lot to gain from CETA, emphasising that Ireland is the 5th largest recipient of FDI from Canada, with over 80 Canadian companies operating in the country, while over 50 Irish companies have invested in Canada. According to the IEA, “We estimate that when [CETA is] fully implemented we will see a 25% increase in trade with Canada .’’

 

What does CETA mean for SMEs?

 

CETA has mostly been represented as a tragedy for European citizens and enterprises, as if the only possible outcome of CETA was for European SMEs to be steamrolled out of existence by Canadian mega-corporations. This is a very skewed view of things.

In fact, the agreement will overwhelmingly benefit smaller companies who can least afford the cost of duplicate testing requirements, lengthy customs procedures and costly legal fees. Larger companies are more likely to have the resources to overcome these inconveniences. Small businesses however can save a lot of time and money with such a development. CETA would remove those issues and would open up Canada for European SMEs to expand their geographic reach and their client books.

Very importantly, CETA opens up Canadian public procurement to EU firms, to a greater extent than any of its other trading partners, in terms of both federal and municipal tenders (these being double the size of federal tenders). All of Canada’s public tenders would be published on a single procurement website – this would be a goldmine for enterprising EU businesses.

According to the EU Commission, “Access to information is one of the biggest obstacles for smaller companies in accessing international markets, so this will be a boon for smaller businesses in Europe.” On foot of all of the above, I would expect governments, industry bodies and chambers of commerce to start planning trade missions to Canada immediately on ratification of the agreement.

Finally, many EU companies today are deeply concerned about Brexit and fear the impact of potential tariffs, of a sterling decline and a declining economy when the break takes place. Similarly, as they read about Trump’s protectionist policies and economic reports of anemic European economies, SMEs are looking for alternative markets: CETA could prove a timely opportunity for diversification and growth.

Some opponents refer to an opinion issued by the EU suggesting that 90 million jobs are at risk. I’ve since sourced that document and here is the specific text:

In the liberalized environment created by CETA, such SMEs will be exposed to the full force of competition from large North American transnational corporations thus endangering the 90 million jobs (67% of total employment) that they are providing.

Therefore the “90 million jobs” figure refers to all of the jobs created by SMEs across the EU. This refers to the fact that with more competition in the EU marketplace, there is going to be pressure on companies to compete in some areas. However, the reference to “North American transnational corporations” is slightly misleading: these companies already had the means, even before CETA, to overcome barriers to trade, due to their size. They opened subsidiaries in the EU and so SMEs will not be more threatened by them after CETA than they were before. Smaller Canadian companies will not necessarily be interested in expanding into Europe: a small café owner in Quebec isn’t going to open up a franchise of their business in rural Kilkenny due to CETA. Therefore, let’s take that 90 million figure for what it actually refers to: the total number of jobs in SMEs in the whole of Europe.

 

What does CETA mean for employees and professionals?

 

First and foremost, let’s bear in mind that SMEs represent 99% of all companies within the EU. SMEs employ two out of every three employees and produce 57c out of every €1 of value added in the EU. A better trade environment for SMEs is likely to lead to more sustainable enterprises and greater potential for employment, especially for those that choose to leverage the opportunities of this trade agreement.

There is another practical benefit, in that CETA would make it much easier for company staff and other professionals to work on the other side of the Atlantic, and for firms to move staff temporarily between the EU and Canada. According to the Irish Canadian Immigration Centre, 10,700 Irish people are welcomed to Canada each year on the IEC visa.

The CETA deal also establishes mutual recognition of professional qualifications in regulated professions such as architects, accountants and engineers. The relevant professional organisations in both the EU and Canada will have to collaborate to work out the technical details of recognition of their respective qualifications on the basis of the framework. The competent authorities in Canada and the EU will then approve their work and give it legal effect. As stories from Generation Emigration show, this lack of recognition for qualifications has until now been a real barrier to finding employment and settling into a new home (albeit a temporary one on the IEC working-holiday visa).

There are two other key issues above and beyond this. Canada has a lower unemployment rate (6.8%) than Ireland (7.1%), so there is opportunity to pursue employment there, which the Irish have been doing for decades. Moreover, working internationally or within an FDI organisation that gives international experience also has a tremendous impact on one’s CV and, hence, one’s wages. These companies empower people with a wider skillset, greater frames of reference, secondments, digital communication tools for collaborating with teams in multiple jurisdictions, geographic arbitrage and global training. This enables the individual to command a premium salary in their next role and reinforces a positive message that will attract to Ireland other companies in search of talent.

Further, there have been concerns voiced about workers’ rights. I have three key issues to point out here:

  1. Remember that a key tenet of CETA is that the importer’s country rules stands and hence, when Canada sells into the EU, then EU labour rights stand.
  2. The Investor Court Mechanism (see below) specifies that issues relating to protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity will remain within the remit of a country’s government.
  3. The aforementioned points about new opportunity creation imply the greater need for staff; considering the current “War for Talent”, workers and professionals will need to be treated well. This will only get stronger as exchanges become potentially more fluid between the two nations.

 

What is negative listing?

 

Negative listing refers to the practice of excluding certain sectors and subsectors from CETA general provisions which open all sectors to foreign service suppliers under the same conditions as for domestic service suppliers. These specific sectors or subsectors are excluded by inscribing reservations for all measures which are considered to run counter to the Market Access and National Treatment principles. For example, poultry and eggs are excluded from CETA.

I think this is a much more efficient way of progress as the size, scope and complexity of the products and services which could be positively included in this deal could be infinite and grind the agreement to a halt.

 

What about the Investment Court System (an incarnation of ISDS)?

 

One of the most contentious issues within the CETA agreement is the Investment Court System. In effect, the Investment Court System is a mechanism that would give companies the right to sue governments in cases of abuse, misappropriation of assets, etc.

Some are worried that this might trigger the following scenario: if a country decides to implement new regulation that would be seen as beneficial to its citizens, but would prove harmful to business, companies that stand to suffer from these regulations would sue the government on the basis that their profits are being challenged, and such lawsuits would cost the taxpayers immense money and resources along the way.

For example, Philip Morris sued the Australian government regarding plain packaging in its national court (it lost its case) and then took it on through the Investor State Dispute Mechanism (and then lost again).

This is not new: Let’s really understand what this is about, in terms of the purpose of the mechanism, the provisions in the text for the scope of invoking ICS, past history of cases and what the sums of money involved really were.

The purpose of the ICS is that if an Irish company was to find itself in a position where it is being treated unfairly in Canada, then it has an international judicial mechanism to defend its position.

It’s important to point out the following direct points from the agreement:

Article 8.9

1. For the purpose of this Chapter, the Parties reaffirm their right to regulate within their territories to achieve legitimate policy objectives, such as the protection of public health, safety, the environment or public morals, social or consumer protection or the promotion and protection of cultural diversity.

2. For greater certainty, the mere fact that a Party regulates, including through a modification to its laws, in a manner which negatively affects an investment or interferes with an investor’s expectations, including its expectations of profits, does not amount to a breach of an obligation under this Section.

 

Article 8.10

Treatment of investors and of covered investments

1. Each Party shall accord in its territory to covered investments of the other Party and to investors with respect to their covered investments fair and equitable treatment and full protection and security in accordance with paragraphs 2 through 6.

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if a measure or series of measures constitutes:

  • (a) denial of justice in criminal, civil or administrative proceedings;
  • (b) fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings;
  • (c) manifest arbitrariness;
  • (d) targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief;
  • (e) abusive treatment of investors, such as coercion, duress and harassment;
  • or (f) a breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article.

 

There is a lot of emotion around this topic, so let’s examine the facts:

  • The mechanism for companies to sue governments in an international arbitration dates back to the 1960s.
  • 3000 existing international investment agreements (including NAFTA, North American Free Trade Agreement) and the Energy Charter Treaty contain these provisions and EU member states account for 1400 of these.
  • Since the creation of the mechanism up to the end of 2014, there has been a total of 608 known ISDS claims.
  • EU companies accounted for 327 cases, that is, over 50% of cases, while Canadian companies started two new cases in 2013 and three in 2014.
  • 1 in 4 investment cases were found in favour of the investor with monetary award given.
  • 8% of cases were taken by extremely large companies, 40% by medium and large companies, 22% were by very small companies or individuals.
  • According to EU figures, “the average inflation-adjusted damage claimed $622.6 million” but what was actually awarded (including settlements and where public records reflected a State transferring funds to the claimants) “was around $16.6 million”.
  • The average legal and arbitration costs for a claimant are around $8 million.

This type of mechanism has been around for a long time already. History has shown that it’s far more likely that an EU company will take a case against the Canadian government than vice versa. Remember that this is the right to sue, and the number of cases that are actually taken is quite small; the number of cases awarded to companies is lower again, with the monetary rewards resulting in a fraction of the amount claimed.

Also, let’s remember that companies can sue governments and governments can sue companies through the national courts. There have been details of tobacco companies suing Ireland and Ireland threatening to sue tobacco companies for years now.

All that said, criticisms of ISDS over the years have resulted in amendments to the system, including more transparent procedures, for example by opening up hearings and publishing documents submitted during cases. It has made crucial progress to prevent openings for abuses or excessive interpretations and creates an independent investment court system, consisting of a permanent tribunal and an appeal tribunal that will conduct dispute settlement proceedings in a transparent and impartial manner.

According to the EU Commission’s consolidated explanation:

 CETA replaces this with a new and better Investment Court System (ICS).

CETA:

  • contains measures to protect investments
  • enshrines the right of governments to regulate in the public interest, including when regulations affect a foreign investment.

The new Investment Court System will:

  • be public
  • not be based on temporary tribunals
  • have professional and independent judges
  • appointed by the EU and Canada
  • held to the highest ethical standards through a strict code of conduct
  • work transparently by
  • opening up hearings to the public
  • publishing documents submitted during cases.

CETA will:

  • limit the grounds on which an investor can challenge a State
  • prevent public bodies from being forced to change legislation or pay damages.

In many EU Member States public debate is continuing about how to protect investments. So EU governments, supported by the European Commission, have agreed that they will only put the Investment Court System into practice once all EU countries have finished their national ratification procedures.

I don’t think it’s perfect by any means. However, I do believe that, for example, an Irish company should have a neutral platform to defend itself in an international setting if it was being treated unfairly.

 

Is CETA good for everybody then?

 

If only it was that simple! It’s a blindingly obvious point but it requires reiterating that this is a two-way street between Canada and the EU. As a result, we will see new offerings and businesses moving into the EU to pursue the benefits of this agreement: if EU companies can compete with Canadian companies on Canadian soil, the same is true for Canadian companies on EU soil.

One key sector that is worried is the Irish food and agri-sector. According to Bord Bia, “the food and agri-sector represents 7.6% of GVA (Gross Value Added), 12.3% exports and 8.6% of total employment”: it is a key contributor the economic, social, familial and physical fabric of rural Ireland.

Let’s focus on beef, a prized Irish export. According to Enterprise Ireland, “[on an annual basis] beef is, by far, the biggest category within the meat sector, accounting for 21% of food and drink exports from Ireland. Ireland is the fifth largest beef exporter in the world and the largest exporter of beef in Europe. Total beef production in Ireland stands at approximately 520,000 tonnes, with around 470,000 tonnes destined for export”.

As per ANNEX 2-A , there is a phased in schedule that allows Canada to increase the amount of Canadian beef to be sold into the EU market by 50,000 tonnes. Let me contextualize this by highlighting that the EU consumed 7,765 thousand tonnes of beef and veal meat in 2015. 50,000 tonnes of Canadian beef equates to about 0.6% of total consumption. Further, there will be a rise of 0.4% of pork imports as a percentage of consumption, whereas poultry and eggs are excluded (see negative listing above). So there will be an increase of less than 1% for each of two Canadian meat products – these are very small figures. On the other hand, there are no caps on what amount of meat the EU can export to Canada.

However, the agri-food industry is understandably concerned about this as it could displace some of their existing EU market and apply downward pressure on prices. The Commission has completed a study on the impact of future trade agreements on the Irish agricultural sector. The outcome highlights broadly positive results, particularly for dairy and pig meat, but there are certain vulnerabilities for beef and rice.

There are mixed views from different agricultural representatives; Darragh McCullough wrote in The Independent: “While Meat Industry Ireland (MII) was convulsed in ‘extreme’ disappointment three years ago, this time they urged the pesky Wallonians to give way so that the deal could be signed”. He also noted that “the Irish Dairy Industry Association openly welcomed the prospect of a deal last week [late October 2016], while the normally hard-to-please IFA were reported to be “happy” with the agreement.”

Mairead McGuinness, MEP, who has long been a voice for Irish agriculture, voted for the agreement and Michael Creed, Minister for Agriculture, was quoted in the Farmers Journal as saying “The fundamental principle is that we need to trade. We need to get 90% of what we produce off the island.” The Irish agri-food sector’s reliance on exports means that “if we do not trade, that industry dies,” he added. “In principle, therefore, our starting position must be pro-trade, in favour of the Comprehensive Economic and Trade Agreement, CETA, (…) and in favour of any other trade deal that, on balance, reflects our best interests.”

Of course, just like for SMEs, there are other markets to diversify into to circumvent challenges. Bord Bia estimates that the short- to medium-term opportunity for Irish beef in Japan is worth between €12 and €15m with potential for significant expansion beyond that over time… and the growth of beef imports into China is 20% per annum, with 75% of that going to the service industry. However, in an industry that is facing outzised challenges via Brexit, the overhang of legacy debt, pressure from factories and retailers on margins, this may prove scant comfort.

Overall, on balance, I believe that CETA offers some excellent opportunities to Ireland due to the nature of our existing relationship, language, social infrastructure etc. In particular, I’m heartened by the opening up of the procurement to EU companies and lifting of travel restrictions between the two areas. I think that small businesses who could previously ill-afford monetary and non-monetary tariffs are set to gain the most and I think it will serve Ireland particularly well to pour some collective government, business and international effort into making the best of the opportunity.

 

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Susan
By Susan March 1, 2017 22:09