An assessment of the implications of the Comprehensive Economic and Trade Agreement (CETA)

Summary

Points

Timeline

Expanded points

Summary

CETA (EU/Canada Comprehensive Economic and Trade Partnership) is the EU/Canada ‘free trade’ agreement, for which negotiations are already completed, with European Council and European Parliament ratification processes expected in autumn 2016.

In signing CETA, EU governments will greatly increase the rights and powers of transnational and Canadian corporations, as well as those of US and other corporations that have Canadian subsidiaries, while limiting their own governmental powers to regulate, all within an effectively-permanent international treaty framework.

This agreement will endanger UK democracy, public services and labour standards.

Although it is still not certain at this stage, CETA may also come before the UK and other member states parliaments for ratification. However, most of the agreement will have already been ‘provisionally implemented’ after the European Parliament vote, thus will already be in operation, even if this is the case.

CETA will establish a dangerous precedent for other ‘new generation’ so-called ‘trade’ deals like TTIP (US/EU Trade and Investment Partnership), and the EU/Singapore and EU/Japan agreements – all of which increase corporate power, including in law-making.

Because there has been no systematic analysis of the 1600 page CETA text carried out either for the European Parliament or for the UK parliament, CETA should not be signed by the UK government in the European Council or given assent by UK MEPs in the European Parliament or ratified by the UK parliament.

Points

1. The negotiated CETA text is already finalised, legally scrubbed, and is being translated and prepared for passage through the EU processes in 2016.

2. CETA will be the first of the new generation of trade agreements that are not about ‘trade’ but about increasing corporate power and decreasing governments’ right to regulate and ability to control corporations, with government complicity.

3. CETA will endanger UK democracy, public services and labour standards.

4. As with TTIP, protective regulations are seen by big business and negotiators as ‘trade barriers’.

5. Economic benefits forecast for CETA are minimal while the risks are great.

6. Like TTIP, CETA includes ISDS (Investor State Dispute Settlement), allowing foreign corporations to sue governments for the introduction of any regulation that doesn’t suit their corporate bottom line.

7. CETA will allow not only Canadian corporations but also US and EU corporations to sue EU governments via Canadian subsidiaries

8. It is still undecided whether member state MPs will have any semblance of involvement in ratifying the agreement.

9. Even if they do, the European Commission will ‘provisionally implement’ beforehand the parts of the agreement CETA for which it has competency, estimated at 90%.

10. CETA has a ‘negative list’ method for service liberalisation commitments so that all services are included, including any new services, unless they have already been specifically excluded.

11. The finalised CETA text lacks the protections that MEPs demanded (for public services and labour standards) in a July 2015 vote on TTIP.

12. The CETA ‘Sustainable Development’ chapter on environmental, social and labour protections lacks any enforceability.

13. Mode 4, allowing for cheap labour to be moved across borders to undercut workers, is included in the Services chapter of CETA.

14. Tar sands oil, even more polluting than other fossil fuels, is a main Canadian export and internal EU regulations have been weakened to allow its importation.

15. The Trade Commission states that with CETA, Canadian exports of beef, pork and cheese to the EU will increase while EU exports of beef, pork and cheese to Canada will also increase, without regard for the environmental externalities.

16. No UK protected-name products are included in the list of 173 Protected Geographical Indicators (GIs) for which the EU has negotiated protection.

Timeline:

– 2009 CETA negotiations launched

– Aug 12 2014 deal supposedly finalised

– Aug 24 2014 text leaked

– Sep 2014 ‘finalised’ deal officially presented

– Sep 2015 deal actually completed

– Dec 15 2015 Commission’s mandate to commence negotiating the deal (2009) finally made public

– Feb 2016, Investor State Dispute Settlement (ISDS) in CETA changed to match ICS (Investment

Court System) version that is now in TTIP.

– Sep 2016 expected – vote by member states in informal trade ministers’ meeting in Bratislava

– Oct (week of 17th-22nd) 2016 expected formal signing ceremony, during EU/Canada summit

– late 2016 or early 2017 – European Parliament vote (a vote of assent – or not, only)

Expanded points:

1. Whereas TTIP is still being negotiated, CETA negotiations are finalised. Critical attention to CETA is now urgently required because, with the deal finalised, legally scrubbed and being translated into the EU languages, according to the latest communication on this from Trade Commissioner, Cecelia Malmstrom, CETA is likely to be voted on at an informal Council meeting of member state trade ministers in September 2016 in Bratislava, with formal endorsement at an EU/Canada summit in October 2017.

If there is a unanimous Council decision, CETA will then go to the European Parliament (EP) for a yes or no vote (without amendments) in late 2016 or early 2017.

2. CETA is the first of the ‘new generation’ of so-called ‘trade’ agreements to be signed and processed. As with TTIP (US/EU), the EU/Singapore free trade agreement and the Transpacific Partnership (TPP), CETA is not really about ‘trade’ but about deregulation, and giving rights to corporations to sue governments and to be involved in law-making and in setting global rules. Of course this only goes forward with the complicity of governments in signing the international treaty.

3. The rights that these deals give to multinational corporations will negatively affect democratic law-making, as the deals will give them key access to influencing the body that will be set up to assess the ’trade’ effects of regulation. They will also be able to sue governments for regulating, a threat that is shown to ‘chill’ the regulatory process.

‘Public procurement’, including public services, is a main target in these deals, with transnational corporations seeking guaranteed rights of access to public spending. Such access involves disallowing any ‘localisation’ procurement policies.

Undoubtedly some sectors will lose in the CETA deal and jobs will be lost. ‘Trade’ deals facilitate corporate access to cheapest labour for production and services, across a greater area.

4. CETA, TTIP, and the TPP (the 12-country Transpacific Partnership), rather than being primarily concerned with lowering tariffs, are mainly concerned with granting transnational corporations rights to challenge regulations as ‘trade barriers’, to take quasi but penalising legal action against governments and to participate in assessing the trade effects of regulations.

The language that those promoting these deals use names regulations – which are our protections from corporations – as ‘trade barriers’, ‘Non-Tariff Barriers’ or ‘Behind the Border’ barriers to trade. While CETA does include tariff reductions, most of the ‘gains’ are predicted to come from harmonising regulations – even though, unlike in TTIP, this is supposedly voluntary in CETA. ‘Harmonising regulation’ effectively means deregulating – to increase corporate profits.

There is a continuum of deregulation, across the international ‘trade’ agreements, the EU’s current ‘Better Regulation’ agenda and the UK’s Better Regulation and its Deregulation Act 2015. It is a continuum in which the UK government has had a lead role.

5. The predicted economic gains from CETA are variable and, even at best, not very significant.

The 2008 EU/Canada Joint Studyi predicts annual real income gains of approximately €11.6 billion for the EU and €8.2 billion for Canada within seven years following the implementation of an agreement. This then is an average of just €1.65b for the whole EU per year.

The CETA Sustainable Impact Assessment (SIA), completed in 2011ii, predicts economic gains from CETA in four scenarios.

In the least ambitious scenario, the gains predicted for the whole EU from CETA are less than US$2.9bn (0.02% increase in GDP) after 10 years, so averaging US$0.29bn for the whole EU per year.

In the SIA’s most ambitious scenario, the predicted gains are for US$3.4bn (0.03% increase in GDP), again after 10 years, so averaging US$ 0.34bn for the whole EU per year.

The UK Department of Business, innovation and Skills (BIS) claims that CETA will be worth £1.3bn each year to the UK economy. There is a big discrepancy between this and the predictions for the whole of the EU. The source of the BIS figures is neither readily identifiable or verifiable.

However, even these BIS figures are minimal, particularly considering what is being traded away eg the implications of the inclusion of ISDS and the chilling effects of this on regulation, and thus on democracy.

6. CETA will be the first EU agreement to include Investor State Dispute Settlement (ISDS), allowing foreign and transnational corporations to sue governments for any regulatory changes that negatively affect their expected corporate profits.

ISDS does not allow governments or citizens to sue corporations, only for corporations to sue governments.

Where ISDS is in place elsewhere, it is shown to lead to high penalty costs for governments, with high legal costs for them even if they do not lose. They cannot win. A high percentage of cases lead to ‘settlements’, which involve undisclosed pay-outs and/or withdrawal of the regulation, thus

are, in fact, wins for corporations. Importantly, ISDS also leads to ‘regulatory chill’, whereby governments are deterred from legislating because of the possibility of being sued.

ISDS adjudication is outside of national legal systems, in private courts. The arbitrators are trade lawyers and this is very lucrative work for all the legal people involved.

Judgements are made on the basis of what is the most ‘free trade’ without consideration of overall social welfare and environmental protection that is expected in systems of law.

Only foreign and transnational corporations with subsidiaries in the territory of the trading partner can utilise ISDS. Domestic firms cannot use it. Thus ISDS is discriminates against domestic firms.

Because of strong public opinion against ISDS, expressed in the 150 000 responses to the European Commission’s April-June 2014 public consultation on ISDS in TTIP, and in the three and a quarter million EU signatures against ISDS in TTIP and CETA, in September 2015 the Trade Commissioner proposed a tweaked version of ISDS for TTIP called ‘Investment Court System’ (ICS) a proposal that the US has not, to date, accepted.

This ICS version of ISDS has now been inserted into the CETA text, without reopening the agreement, in an attempt to overcome the resistance to ISDS in CETA and to address the inconsistency between the ISDS version in TTIP and that in CETA.

However, as was recognised by Labour MPs taking part on the December 10th 2015 backbench Commons debate on TTIP, ICS has the same core problems of allowing transnational and foreign corporations to sue governments, still discriminates against domestic companies and still has the same potential chill effect on states’ regulating.

Despite including retainers for ICS ‘judges’ and limiting their ability to simultaneously act as lawyers in other cases, the financial incentive to encourage ISDS disputes, for those involved, remains.

Although ICS supposedly provides for an appeals mechanism, there is, as yet no real provision or timetable for this or for the proposed ICS permanent court.

If the EU or the UK were to withdraw from CETA, ISDS (ICS) in the agreement would be legally binding for another 20 years.

7. CETA will give access to tens of thousands of US corporations with Canadian subsidiaries invested in the EU, to sue the EU and member states governments in ISDS disputesiii. Any EU corporations with Canadian subsidiaries, such as BP in the Canadian tar sands business, would also be able to sue their own or other EU governments too.

8. The ‘mixety’ of CETA, that is whether CETA is solely within the competency of the Commission or if competency is shared with member state parliaments, is still not agreed. The European Court of Justice was asked by the previous Trade Commissioner for a legal opinion on whether the EU/Singapore free trade agreement, which is at a similar stage, should be mixed or not. That decision is not expected till the end of 2016. The proposed timetable for CETA suggests that the European Council will vote on the decision before the ECJ decision on the EU/Singapore agreement, which will, in effect, mean member state governments ceding more power to the Commission.

9. If CETA is not considered to be mixed competency, it will be fully implemented after the EP vote.

If an agreement is mixed competency, the Lisbon Treaty allows the Commission, after the EP gives its assent and with the permission of the European Council, to provisionally implement those parts of the agreement for which it has competency. The UK Department of BIS estimates that, if CETA is to be mixed, then this will be at least 90% of the agreement.

In fact, with Council permission, the Commission can provisionally implement an agreement after it goes through the Council and before the EP vote. However, the fact that the Commission will eventually need the EP’s vote of assent is a deterrent to this.

Previous experience shows that the Commission uses this power as standard practise. The EU/South Korea and the EU/Peru-Colombia agreements were provisionally implemented soon after the EP’s votes of assent.

The Lisbon Treaty definitively gives the Commission competence for investment, which includes ISDS. ISDS legal obligations would be in place from the start of the period of provisional implementation and cases could be brought in relation to that period, regardless of the final ratification outcome. There are precedents for this, with other treatiesiv.

10. With CETA, big business has managed to get ‘negative listing’ for service commitments. The World Trade Organisation’s services agreementv and previous EU bilateral trade deals have ‘positive listing’, whereby countries nominate the services for which they will take service liberalisation commitments. With CETA’s ‘negative listing’ however, all services are included, including any new services, unless they were specifically excluded before the negotiations were finalised. Even TTIP and the plurilateral Trade in Services Agreement (TiSA), both currently being negotiated, have a hybrid (positive and negative) form of listing, so CETA is worse in this regard.

Negative listing is inherently much more coercive in increasing states’ service commitments.

11. An academic studyvi comparing the CETA text, which is public, with the EP’s demands in relation to the TTIP negotiationsvii was requested by a group of Socialist and Democrat MEPs.

While the study found the offensive demands of the EP in relation to Canada in CETA and to the US in TTIP to be similar, the protections that the EP is demanding from TTIP negotiators are lacking in the CETA text. These are demands for protection of public services and labour rights. The study also found that the CETA text lacked any reference to human rights.

If the EP were to assent to CETA while it lacks what the EP has stipulated for TTIP, this would be inconsistent, and this, in turn would undermine the EP’s demands for protections in TTIP.

12. The ‘Sustainability Chapter’ of CETA covers environmental protections and labour rights. However, unlike the strong rights and protections that CETA will grant to corporations, for instance in ISDS (ICS), these will not be enforceable.

13. Mode 4 of ‘services’ is about moving workers across borders. Mode 4 is generally the most secretive part of the EU’s trade deals and Trade Commission bureaucrats call it ‘sensitive’. The EU includes Mode 4 offers in all its trade agreements, stipulating ‘skilled’ labour. The City of London’s Liberalisation of Trade in Services (LOTIS) committee insisted that Mode 4 be included in this first ‘new generation’ ‘trade’ agreement

Trade agreements allow transnational corporations to utilise the cheapest labour, overall, both in facilitating the moving of work to cheaper labour areas, and, especially for service work, the moving of lower paid workers across borders as Mode 4 ‘service suppliers’.

As, according to the EU stipulation, the Mode 4 service suppliers will be skilled, this can mean unfair labour competition for host country workers, even where there is a national minimum wage in place. Host country skilled workers would expect to be earning above the minimum wage.

Economic needs tests are not allowed in relation to Mode 4, so whether workers from outside are actually needed cannot be considered or used to block Mode 4.

All main categories of Mode 4 are included in the ’Services’ chapter of CETA, with some member state reservations. Note that this is separate to the Sustainable Development chapter where labour standards are dealt with.

It is difficult to ascertain how Mode 4 in CETA will affect EU workers, potentially differently in different parts of the EU. However, where there are negative effects, there are no enforcement mechanisms within the sustainable development chapter where labour standard are supposed to be protected.

14. A major Canadian export is tar sands oil which, in its production, is more carbon intensive and thus more polluting than other fossil fuels.

The EU’s Fuel Quality Directive (FQD) was supposed to include a mechanism to grade the polluting effects of different fuels and this would have effectively disallowed the import of Canadian tar sands oil. However after lobbying by the Canadian and US governments (Canadian tar sands oil is exported via the US) the FQD was weakened in such a way that tar sands oil will not be differentiated in refineries’ reporting. This will undermine the EU’s climate change target commitments.

15. CETA will promote both the export and import of beef, pork and cheese to the EU. In prioritising ‘trade’ above all else, the environmental effects of this long distance transporting of similar goods, are not considered. Clearly this is a massive oversight that demands to be addressed.

16. In the EU, over 1400 regional food and drink names are protected. In CETA, the Trade Commission has negotiated protection for only 173 of these. This means the rest will now be unprotected, allowing Canadian firms to produce and market goods using those EU regional food and drink names.

No UK products are included in the list of 173 for which Geographical Indicator protection has been negotiated thus there is no protection in CETA for any UK regional food and drink names, from Canadian companies producing food and drink using those names.

i http://trade.ec.europa.eu/doclib/docs/2008/october/tradoc_141032.pdf ii http://www.eu-canada-sia.org/docs/EU-Canada_SIA_Final_Report.pdf iii http://corporateeurope.org/international-trade/2016/02/statement-against-investor-protection-ttip-ceta-and-other-trade-deals ‘four out of five US firms operating in the EU – that is a total of 41,811 – could already become eligible for an ISDS case against the EU and its members using the CETA agreement if investments are structured accordingly.’ iv A dispute brought by Russian oil companies, including Yukos, registered in the Isle of Man, against the Russian state, led to a $50bn award against Russia. This dated from a time when the Energy Charter Treaty was provisionally implemented. Russia never ratified the Treaty and eventually withdrew from it. v General Agreement on Trade in Services – GATS vi http://www.mariearena.eu/wp-content/uploads/2016/02/De-Ville-2016-CETA-report-bonne-version.pdf vii In the EP resolution of 8 July 2015