Canada Gazette, Part I, Volume 151, Number 37: CANADA-EUROPEAN UNION COMPREHENSIVE ECONOMIC AND TRADE AGREEMENT
September 16, 2017
Canadian Statement on Implementation
|Part One – General||4|
|Part Two – Provisions of the Agreement||5|
|Chapter One – General Definitions and Initial Provisions||6|
|Chapter Two – National Treatment and Market Access for Goods||9|
|Protocol on Rules of Origin and Origin Procedures||22|
|Chapter Three – Trade Remedies||37|
|Chapter Four – Technical Barriers to Trade||39|
|Protocol on the Mutual Acceptance of the Results of Conformity Assessment||42|
|Protocol on the Good Manufacturing Practices for Pharmaceutical Products||45|
|Chapter Five – Sanitary and Phytosanitary Measures||47|
|Chapter Six – Customs and Trade Facilitation||51|
|Chapter Seven – Subsidies||54|
|Chapter Eight – Investment||55|
|Chapter Nine – Cross Border Trade in Services||80|
|Chapter Ten – Temporary Entry and Stay of Natural Persons for Business Purposes||86|
|Chapter Eleven – Mutual Recognition of Professional Qualifications||92|
|Chapter Twelve – Domestic Regulation||94|
|Chapter Thirteen – Financial Services||97|
|Chapter Fourteen – International Maritime Transport Services||104|
|Chapter Fifteen – Telecommunications||106|
|Chapter Sixteen – Electronic Commerce||111|
|Chapter Seventeen – Competition Policy||113|
|Chapter Eighteen – State Enterprises, Monopolies, and Enterprises Granted Special Rights or Privileges||114|
|Chapter Nineteen – Government Procurement||117|
|Chapter Twenty – Intellectual Property||125|
|Chapter Twenty-One – Regulatory Cooperation||141|
|Chapter Twenty-Two – Trade and Sustainable Development||143|
|Chapter Twenty-Three – Trade and Labour||146|
|Chapter Twenty-Four – Trade and Environment||150|
|Chapter Twenty-Five – Bilateral Dialogues and Cooperation||155|
|Chapter Twenty-Six – Administrative and Institutional Provisions||157|
|Chapter Twenty-Seven – Transparency||159|
|Chapter Twenty-Eight – Exceptions||160|
|Chapter Twenty-Nine – Dispute Settlement||164|
|Chapter Thirty – Final Provisions||169|
Part One – General
This Statement on Implementation for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA or Agreement) sets out the role of CETA in the context of the Government of Canada's general approach to trade policy, the Government's interpretation of the rights and obligations contained within the Agreement and reflected in the Canada–European Union Comprehensive Economic and Trade Agreement Implementation Act (CETA Implementation Act), and measures the Government will pursue to implement CETA as part of its efforts to ensure that Canadians will benefit to the maximum extent possible from Canada's participation in CETA.
Most of the Agreement is expected to be provisionally applied as of September 21, 2017 (as discussed in more detail under Article 30.7, the areas not provisionally applied are primarily certain parts of the Investment and Financial Services Chapters). Provisional application will yield immediate benefits for Canadians. Those provisions take effect as of the date of provisional application. Therefore, where they refer to timelines from time of entry into force of the Agreement, it is the date of provisional application that will be relevant. Parts of the Agreement that are not provisionally applied will enter into force only once CETA is ratified by Canada and the European Union and its Member States.
The Government has approved the Agreement and the implementing legislation because it is satisfied that the Agreement will benefit Canadians, will create jobs, strengthen economic relations with a major partner and boost Canada's trade with the world's second-largest market. CETA is a progressive free trade agreement which covers virtually all sectors and aspects of Canada-EU trade in order to eliminate or reduce barriers.
CETA is also a major landmark in the development and global articulation of a Progressive Trade Agenda – an agreement that will improve free and fair trade between the EU and Canada and includes high standards for consumers, workers, and the environment. Progressive trade means ensuring that all segments of society, both in Canada and abroad, can take advantage of the economic opportunities flowing from trade and investment –with a particular focus on women, Indigenous peoples, youth, and small and medium-sized businesses. It means ensuring that trade agreements include strong provisions in important areas such as labour rights, environmental protection, and gender equality; and reinforces the continued right of governments to regulate in the public interest. In that regard, CETA is the most ambitious and progressive trade agreement Canada and the EU have ever negotiated.
Purpose of the Statement on Implementation
This Statement provides the Government's understanding of the rights and obligations set out in the CETA. For each chapter, the Statement sets out what the Agreement says and how Canada has implemented the Agreement in domestic law and other actions the Government will undertake to ensure that Canadians will benefit from the Agreement. As a legal document dealing with complex matters the text of the Agreement can be difficult to understand, owing in part to the fact that the Agreement's rights and obligations will be implemented within different legal traditions and contexts. The intent of this statement is to simply and succinctly express the basic rights and obligations in the Agreement in order to ensure that Canadians have a clearer understanding of what is involved. As such, the Statement seeks not only to explain the basic contours of CETA and inform Canadians on its substance, but also lets Canada's trading partners know in clear and concise language how Canada interprets the Agreement and intends to pursue the rights and obligations it contains.
Part Two – Provisions of the Agreement
1. CETA Provisions
The Preamble is the introductory statement in the Agreement that outlines the joint commitments and aspirations of Canada and the European Union (the Parties), and provides the political context in which they negotiated CETA. It reflects Canada, the European Union (EU) and its Member States' commitment to free and fair trade and the Parties' shared values.
The Preamble of the Agreement should be read together with the Joint Interpretative Instrument (see footnote 1) that was released at the time of the signature of CETA and that elaborates on the Parties' intent in negotiating the Agreement.
The Preamble affirms the commitment of the Parties to promote trade and investment while recognizing the importance of other values, including sustainable development, environmental protection, human rights, and labour rights. The Preamble also recognizes the Parties' right to regulate in the public interest as reflected in the provisions of the Agreement that preserve the Parties' right to regulate in the public interest within their own territory to achieve legitimate policy objectives, such as the protection and promotion of public health, social services, public education, safety, the environment, public morals, social or consumer protection, privacy and data protection, and the promotion and protection of cultural diversity.
The Agreement's objectives are also referred to in Part 1, section 7 of the CETA Implementation Act and will guide the interpretation of the Act.
The Government will implement CETA in a manner that is consistent with the Agreement and its underlying principles and objectives.
Chapter One – General Definitions and Initial Provisions
1. CETA Provisions
This Chapter defines the terms used throughout the Agreement. In addition, individual chapters contain definitions that have specific application to the obligations of that chapter, including some which may modify or replace the definitions set out in this Chapter.
Article 1.1 sets out definitions of general application that are used throughout the Agreement in more than one chapter.
Article 1.2 establishes party-specific definitions that are unique to Canada and the EU. For instance, the definition of “central government” is different for Canada and the EU, due to the unique structure of the European Union.
Article 1.3 sets out the geographical scope of application of the Agreement, which specifies that the Agreement applies to the land, air, internal waters, and territorial sea of Canada; to the exclusive economic zone of Canada, as determined by Canadian domestic law; and to the continental shelf of Canada, as determined by Canadian domestic law. For the EU, the Agreement applies to the territories in which the Treaty on European Union and the Treaty on the Functioning of the European Union are applied and under the conditions laid down in those Treaties. At the time of royal assent of the CETA Implementation Act, the Member States of the EU included Belgium, Bulgaria, the Czech Republic, Denmark, Germany, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Hungary, Malta, the Netherlands, Austria, Poland, Portugal, Romania, Slovenia, Slovakia, Finland, Sweden, and the United Kingdom of Great Britain and Northern Ireland. Further, with respect to provisions concerning the tariff treatment of goods, the Agreement also applies to the areas of the EU customs territory that are not covered by the above-noted Treaties. The reference to the “territory” of a Party throughout the Agreement means what is covered by the geographical scope of application of the Agreement.
Article 1.4 declares the establishment of a free trade area in conformity with Article XXIV of the General Agreement on Tariffs and Trade 1994 (GATT 1994) and Article V of the General Agreement on Trade in Services (GATS). Article XXIV of the GATT 1994 sets out principles and requirements under the WTO for establishing a free trade agreement and requires that Canada and the EU notify WTO Members that a free trade area has been established. The establishment of a free trade area between Canada and the EU translates into real benefits for Canadians. For instance, on the day that CETA enters into force, 98 percent of EU tariff lines will be duty-free for Canadian goods, and an additional one percent will be eliminated over a seven-year phase out period.
Likewise, Article V of the GATS sets out principles and requirements for establishing an agreement that liberalizes trade in services and requires that Canada and the EU notify the Council for Trade in Services that such an agreement has been established. Liberalizing trade in services means that Canadian service providers will have more business opportunities in the EU. For instance, as a result of CETA, Canadian firms and independent professionals will have greater certainty when establishing branches in the EU, bidding on EU service contracts, and providing installation and maintenance services for goods sold in the EU market.
Article 1.5 states the relationship between the Agreement and the WTO Agreement and other agreements. Under the Article, the Parties reaffirm their existing rights and obligations with respect to each other under the WTO and other agreements to which both are party.
Article 1.6 clarifies that when the Agreement refers to, or incorporates by reference, other agreements or legal instruments, those references include related annexes, protocols, footnotes, interpretive notes and explanatory notes, as well as successor agreements to which the Parties are party or amendments that are binding on the Parties, except where the reference affirms existing rights. For instance, references to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) will include related waivers adopted by the Council for TRIPS and interpretative statements, such as the Doha Declaration. This allows the treaty to be a living document, avoiding a situation where the CETA refers to out of date legal obligations that apply between the Parties.
Article 1.7 similarly confirms that when the Agreement refers to laws, the reference is to the laws as they may be amended, unless it is otherwise indicated.
Article 1.8 commits each Party to observing all provisions of the Agreement and to ensuring that all necessary measures are taken in order to give effect to the provisions of the Agreement. This includes the observance by all levels of government. For Canada, this means observance by the provinces and territories, as well as the federal government. For the EU, this means observance by the EU, its Member States and lower levels of government within Member States. In Canada, the provinces and territories are responsible for making any necessary amendments to their statutes, regulations and policies and are committed to implementing their CETA obligations.
Article 1.9 confirms that water in its natural state is not a good or a product and that the Agreement, with the exception of two chapters, does not apply to natural surface or ground water in liquid, gaseous, or solid state. Only Chapters Twenty-Two (Trade and Sustainable Development) and Twenty-Four (Trade and Environment) will apply to water. These chapters, however, do not impose any trade related obligations with respect to water but rather deal with environmental protection. The Article further affirms that each Party has the right to protect and preserve its natural water resources and that the Agreement does not oblige Canada or the European Union to permit the commercial use of water if they do not wish to do so.
Article 1.10 provides that each Party must ensure that a person who has been delegated authority (regulatory, administrative or other governmental) abides by the obligations set out in the Agreement when exercising that authority. As a result, consistent with customary international law on state responsibility, the state will be responsible for violations of the Agreement by such persons.
2. Canadian Legislation
Section 3 of the CETA Implementation Act provides that the Act and any federal law that implements or fulfills the Agreement will be interpreted in a manner consistent with the Agreement. This clause is consistent with Canada's treaty obligations under the Vienna Convention on the Law of Treaties and is intended to remove any ambiguity that might exist in domestic law regarding the interpretation of the implementing measures.
Section 4 reaffirms that nothing in the CETA Implementation Act or the Agreement, with the exception of Chapters Twenty-Two and Twenty-Four of the Agreement, applies to natural surface or ground water. This clause mirrors Article 1.9 of the Agreement.
3. Intended Government Action
With the passage of the CETA Implementation Act and related regulatory and administrative action, the Government of Canada will have taken the steps necessary to implement the Agreement in Canada at the federal level.
Chapter Two – National Treatment and Market Access for Goods
1. CETA Provisions
One of Canada's principal goals in the CETA negotiations was to achieve increased and improved market access for exports of Canadian goods to the EU. This goal, among others, was achieved in the National Treatment and Market Access for Goods Chapter – most notably through obligations by the Parties to reduce or eliminate tariffs, to not apply restrictions or prohibitions on the import or export of goods, and to treat imported products no less favorably than similar domestic goods. Additional information on tariff elimination and the tariff schedule is included below under Annex 2-A.
Article 2.1 sets out the general principle that the Parties shall progressively liberalise trade in goods over a transition period.
Article 2.2 defines the scope of Chapter Two as applicable to trade in goods of a Party.
Paragraph 1 of Article 2.3 ensures that a Party provides non-discriminatory treatment to the goods of the other Party by incorporating Article III of GATT 1994 (National Treatment on Internal Taxation and Regulation) into CETA. National treatment is the obligation for a Party to treat imported goods no less favourably than domestic goods. This means, for instance, that a good imported into a Party cannot be subject to more burdensome conditions, such as higher internal taxes, stricter product regulation or restrictions on its sale, than those to which a like domestic good of that Party would be subject. The national treatment obligation is an essential part of any free trade agreement that eliminates trade barriers because it prevents a Party from replacing border measures with domestic measures that in practice favour domestic goods over imported goods in that Party's market.
Paragraph 2 of Article 2.3 clarifies the manner in which CETA's national treatment obligation applies to measures maintained or adopted by sub-national jurisdictions: for Canada this applies to provincial and territorial governments and municipalities, while for the EU this applies to a government of or in a Member State. More specifically, for the EU this would apply to, for example, the national government of France or the governments of the federal states and municipalities of Germany. For these government jurisdictions, national treatment means treatment for imported goods that is no less favourable than the most favourable treatment that that government accords to like, directly competitive or substitutable goods of Canada or the EU Member State, respectively. In the Canadian context, this means that in regard to the treatment provided by any individual province, national treatment is in respect of how that given province, and not another province, treats imported goods versus Canadian goods.
Under paragraph 3 of Article 2.3, as in its past free trade agreements, Canada maintains an exception to the national treatment obligation with respect to Canadian excise duties on certain industrial-use ethyl alcohol. This exception allows Canada to maintain its existing special excise duty on imports of such alcohol.
Article 2.4 provides for the elimination of Canadian and EU tariffs on goods traded between the Parties that qualify as originating under the rules of origin set out in the Agreement. In each Party's tariff schedule, the relevant staging category for each tariff line is identified, including the base rate for interim staged rates where a good is subject to a gradual phase-out of its tariff. These staging categories are outlined below under Annex 2-A. This Article also ensures that each Party applies to originating goods the lesser of the rate between the customs duty in its tariff schedule and its applied Most-Favoured-Nation (MFN) rate (such as following unilateral MFN tariff elimination by a Party). Finally, this Article allows Parties to consult on accelerating and broadening the scope of tariff elimination and provides that a decision by the CETA Joint Committee on the acceleration or elimination of a customs duty shall supersede any duty rate or staging category specified in a Party's tariff schedule, once approved by each Party in accordance with its applicable legal procedures.
Article 2.5 establishes rules on the use of duty drawback programs and similar programs in trade between the Parties. Duty drawback, duty deferral, and duty suspension on an imported good are prohibited if it is a condition for the duty relief that an imported good, or an identical equivalent or similar substitute, be used as a material in the production of another good that is subsequently exported and if that good also benefits from the preferential tariff of the CETA upon importation into the other Party. This prohibition takes effect on the third anniversary of the CETA entering into force. Drawback, duty deferral and duty suspension programs that do not have as a condition that an imported good be incorporated into a good that is exported are not affected by the CETA.
Article 2.6 prohibits duties, taxes, or other fees and charges on exports to the other Party that are in excess of those that would apply to a good if they were sold domestically.
Under Article 2.7, Parties agree not to increase their tariffs on goods qualified as originating by either Party except in the following cases: (1) to modify a tariff on a good for which there is no preference under CETA; (2) to re-establish a customs duty, following a unilateral reduction, to its level as set out in its schedule in Annex 2-A; or (3) as authorized elsewhere under CETA or any agreement under the WTO Agreement. This provision provides certainty to traders that tariffs on qualifying imports from the other Party will not increase.
Under Article 2.7, among the Parties to the Agreement, only Canada retained the right to use the agriculture special safeguard under Article 5 of the WTO Agreement on Agriculture. This is specifically denoted on over-quota supply managed tariff lines in Canada's tariff schedule to Annex 2-A.
Article 2.8 allows an importing Party to suspend preferential tariff treatment for a good if an exporter is found to have systematically committed breaches of legislation in order to falsely obtain the benefit of the CETA preferential tariff for that good. It also allows suspension of preferential tariff treatment if an exporter has systematically and unjustifiably refused to cooperate with investigations into breaches of customs legislation and objective information provides reasonable grounds to conclude the exporter has committed systematic breaches of legislation in order to falsely obtain the benefit for the CETA preferential tariff for that good, provided certain conditions are met. Before preferential tariff treatment is suspended, Parties are first required to hold consultations to ensure that this provision is not used as a disguised barrier to trade.
Article 2.9 prohibits a Party from applying fees and other charges connected to the import or export of goods from or to the other Party, unless those fees or charges are commensurate with the cost of service provided. This effectively prevents a Party from using those fees or charges as an indirect barrier to trade, ensuring that the tariff elimination outcomes of CETA that have been negotiated are not undermined. Article 2.9 is applied in accordance with Article VIII of GATT 1994 (Fees and Formalities connected with Importation and Exportation).
Article 2.10 provides for the duty-free re-importation of goods, regardless of their origin, that are temporarily exported to the other Party and undergo repairs or alterations in that other Party, and then are re-imported into the original Party. This Article also specifies that Canada may nonetheless apply to the value of the repair or alteration of specified vessels, regardless of their origin, the rate of customs duty that would apply to the vessel itself in accordance with the Tariff Schedule of Canada under the CETA.
Paragraph 1 of Article 2.11 incorporates Article XI of GATT 1994 (General Elimination of Quantitative Restrictions) in order to ensure that a Party may not maintain or adopt prohibitions or restrictions on the import or export of any good from or to the other Party, except where provided under CETA or under Article XI of GATT 1994.
Paragraph 2 of Article 2.11 provides that to the extent that a Party maintains an import or export prohibition or restriction in respect of a good (such as dangerous materials) of a non-Party (in other words, a third country), that Party may continue to do so. This applies to cases where a Party restricts or prohibits imports of goods of the non-Party that may be shipped via the other Party, as well as exports intended for a non-Party that would have been shipped indirectly through the other Party.
Paragraph 3 of Article 2.11 sets out that if a Party applies a prohibition or restriction on the importation of goods of a non-Party, the other Party may request discussions with a view to avoiding that prohibition or restriction negatively affecting the sale of the goods in the requesting Party.
Paragraph 4 of Article 2.11 sets out that, for Canada, the provisions on import and export restrictions under CETA do not apply to measures concerning:
- the export of logs. However, if Canada stops requiring export permits for logs destined for a third country, Canada will permanently stop requiring export permits for logs destined for the EU;
- the export of unprocessed fish from Newfoundland and Labrador for a period of three years following the entry into force of CETA;
- the ability of Canada to impose excise duties on certain industrial-use ethyl alcohol are protected both under this provision and paragraph 3 of Article 2.3; and
- the importation of used vehicles that do not meet Canada's safety and environmental requirements
Article 2.12 sets out that each Party shall endeavour to ensure that an imported good from the other Party that is sold in one location in that Party may also be sold throughout its territory. This provision is designed to facilitate the sale of goods throughout the free trade area created by CETA.
Article 2.13 sets out the functions of the Committee on Trade in Goods which include addressing, at the request of either Party, all issues pertaining to trade in goods, including issues arising in the implementation and application of the Agreement. The Committee on Agriculture which is also established under the Agreement will operate as a forum where issues related to agricultural goods can be raised as they arise so that Canada and the EU can work to address them in a timely manner. This institutional mechanism allows Canada to monitor and discuss any issue as they relate to agriculture.
Tariff Elimination and Tariff Schedules
Annex 2-A contains general provisions regarding tariff elimination obligations for goods considered originating under the rules of origin set out in the Protocol on Rules of Origin and Origin Procedures. Annex 2-A also outlines staging categories for tariff lines subject to tariff elimination in stages as well as detailed information on tariff rate quota outcomes. Customs duties on all originating goods imported from the other Party that are not listed in a Party's tariff schedule must be eliminated immediately upon entry into force of the Agreement.
The CETA will eliminate almost all tariffs on originating goods traded between Canada and the EU over seven years, with 98% of Canadian and EU tariff lines being duty-free on the day that the CETA enters into force. Tariffs on an additional 1% of tariff lines must be eliminated over transition periods of three, five, or seven years. Canadian tariffs subject to a transitional phase-out include motor vehicles, ships, barley and malt, refined sugar, potato starch, and flowers. Tariffs subject to a transitional phase-out by the EU include those on motor vehicles, some fish and seafood products, raw and refined sugar, and certain grains.
Tariff lines that are not subject to full tariff elimination include:
- Canada's over-quota tariff lines for supply-managed goods (dairy, poultry, and eggs) are completely excluded from any tariff reduction, with the exception of milk protein substances; Canadian tariff rate quotas are established for cheese;
- EU tariffs on certain poultry and egg tariff lines are completely excluded from any tariff reduction;
- EU tariff rate quotas are established for certain beef, veal, bison, pork, and sweetcorn tariff lines; and
- For certain fruit and vegetable products the EU must eliminate as of entry into force, the ad valorem tariff component of the duties, but can maintain any specific duty component resulting from the applicable entry-price system.
Certain goods are subject to tariff rate quotas, as outlined below. Paragraph 1 of the Annex establishes the timing of tariff reductions. Unless otherwise specified, the first reduction occurs on the day that the CETA enters into force, and subsequent reductions occur on each subsequent January 1.
Paragraph 2 of the Annex allows for more concise schedules of tariff commitments, given that tariffs on 98% of tariff lines are duty-free upon entry into force of the CETA. Only tariff lines that are subject to a transitional phase-out of customs duties on originating goods, that are subject to tariff rate quotas, or that are exempt from tariff elimination, are listed in each Party's schedule.
Paragraph 3 of the Annex sets out each of the staging categories for tariff elimination.
Paragraph 4 of the Annex establishes that when a tariff is subject to a transitional phase-out (as opposed to immediate elimination), the rate of customs duty to use as the basis for calculating the rates during the phase-out of the tariff is the MFN rate of customs duty applied on June 9, 2009. Paragraph 5 sets out rounding provisions for these interim staged rates of customs duty.
Tariff Rate Quotas
Tariff rate quotas are mechanisms that allow a specified volume of goods to enter at a preferential tariff, while requiring imports in excess of that volume to pay a higher tariff.
Paragraph 6 sets out the provisions for determining the volume of the CETA tariff rate quotas during the first year of the Agreement (from the date of entry into force until December 31 of that calendar year). The volume of the tariff rate quota (TRQ) that will be available during year 1 will be proportional to the period remaining in that calendar year from the date of entry into force to December 31. This will be calculated by discounting the volume corresponding to the period between January 1 and the date of entry into force from the total tariff rate quota volume for year 1.
Paragraph 7 outlines the tariff rate quota for Canadian exports of shrimp to the EU. The tariff rate quota applies to frozen and not-frozen shrimp in packages exceeding a net content of 2 kg and to prepared or preserved shrimp. The EU must eliminate its tariff on shrimp within 7 years after entry into force (8 equal annual cuts). However, for years 1 through 7, a quota of 23,000 metric tons annually of shrimp qualified as originating in Canada can enter the EU duty free. Canadian shrimp exports exceeding the quota during years 1 through 7 will be subject to the preferential tariff of the corresponding year. The EU is responsible for administering the tariff rate quota on a first-come first-served basis and cannot apply end-use restrictions as a condition for preferential access under the TRQ.
Paragraph 8 outlines the tariff rate quota for Canadian exports of frozen cod fillets to the EU. The EU must eliminate its tariff on frozen cod fillets 7 years after entry into force (8 equal annual cuts). However, for years 1 through 7, a quota of 1,000 metric tons annually of frozen cod fillets qualified as originating in Canada can enter the EU duty free. Canadian frozen cod fillets exports exceeding the quota during years 1 through 7 will be subject to the preferential tariff of the corresponding year. The EU is responsible for administering the tariff rate quota on a first-come first-served basis and cannot apply end-use restrictions as a condition for preferential access under the TRQ.
Paragraph 9 outlines the transitional tariff rate quota for Canadian exports of low and medium quality common wheat to the EU. The EU must eliminate its tariff on low and medium quality common wheat over 7 years. For each year of the 7 year tariff phase out, a transitional duty-free tariff rate quota of 100,000 tonnes per year for low and medium quality common wheat will be established, with the annual volume to be available commencing January 1 of each year. After 7 years following entry into force, common wheat will be duty-free, quota-free. This duty-free tariff rate quota will also incorporate Canada's existing 38,853 tonne allocation of the EU's WTO tariff rate quota.
Paragraph 10 outlines the duty-free tariff rate quota for Canadian exports of prepared and preserved sweetcorn to the EU. Once fully implemented, a volume of 8,000 tonnes per year will be made available for Canadian exports of prepared and preserved sweet corn to the EU. This tariff rate quota volume is phased in over 5 years, in 6 equal installments, beginning on entry into force and is administered on a first come, first served basis, with the annual volume to be available commencing January 1 of each year. The sweet corn tariff rate quota includes frozen sweet corn during its tariff elimination phase out period of 7 years.
Paragraph 11 outlines the duty-free tariff rate quota for Canadian exports of bison to the EU. The EU must establish a duty-free quota of 3,000 tonnes per year (measured in carcass weight equivalent) for bison. The full volume of the tariff rate quota is available beginning at entry into force and is administered on a first-come first-served basis, with the annual volume to be available commencing January 1 of each year.
Paragraph 12 outlines the duty-free tariff rate quota for Canadian exports of fresh or chilled beef and veal to the EU. Once fully implemented, a volume of 35,000 tonnes per year (measured in carcass weight equivalent) will be made available for Canadian exports of fresh or chilled beef and veal to the EU. Starting at the beginning of year 1, the total annual volume of this tariff rate quota includes Canada's share, 4,160 tonnes measured in carcass weight equivalent (3,200 tonnes product weight), that arose from the EU's autonomous hormone-free MFN tariff rate quota opened following the WTO hormones dispute (WTO case reference DS 48). This tariff rate quota volume is phased in over 5 years, in 6 installments, beginning on entry into force and is administered using an import licensing system as outlined in the Declaration on Tariff Rate Quota Administration or as otherwise agreed to between the Parties, with the annual volume to be available commencing January 1 of each year (subject to the terms of the Declaration).
Paragraph 13 outlines the duty-free tariff rate quota for Canadian exports of frozen or other beef and veal to the EU. Once fully implemented, a volume of 15,000 tonnes per year (measured in carcass weight equivalent) must be made available for Canadian exports of frozen or other beef and veal to the EU. This tariff rate quota volume is phased in over 5 years, in 6 equal installments, beginning on entry into force and is administered using an import licensing system as outlined in the Declaration on Tariff Rate Quota Administration or as otherwise agreed to between the Parties, with the annual volume to be available commencing January 1 of each year (subject to the terms of the Declaration).
Paragraph 14 outlines the EU's commitment to eliminate the tariff on within quota access for high quality fresh, chilled and frozen meat of bovine animals originating from Canada under the EU's existing 11,500 tonnes product weight WTO tariff rate quota that Canada shares with the United States. Canada's exports into this tariff rate quota are duty-free beginning at entry into force.
Paragraph 15 outlines the duty-free tariff rate quota for Canadian exports of pork, including fresh, chilled and frozen, to the EU. Once fully implemented, a volume of 80,549 tonnes per year (measured in carcass weight equivalent) will be made available for Canadian exports of pork to the EU. Starting at the beginning of year 1, the total annual volume of this tariff rate quota includes the EU's 5,549 tonnes measured in carcass weight equivalent (4,624 tonnes product weight) country-specific WTO tariff rate quota for Canada for pork. This tariff rate quota volume is phased in over 5 years, in 6 installments, beginning on entry into force and is administered using an import licensing system as outlined in the Declaration on Tariff Rate Quota Administration or as otherwise agreed to between the Parties, with the annual volume to be available commencing January 1 of each year (subject to the terms of the Declaration).
Paragraph 16 outlines the duty-free tariff rate quota for EU exports of cheese to Canada. Once fully implemented, a volume of 16,000 tonnes per year will be made available for EU exports of cheese to Canada. This tariff rate quota is phased in over 5 years, in 6 equal installments, beginning on entry into force and is administered using an import licensing system as outlined in the Declaration on Tariff Rate Quota Administration or as otherwise agreed to between the Parties, with the annual volume to be available commencing January 1 of each year (subject to the terms of the Declaration).
Paragraph 17 outlines the duty-free tariff rate quota for EU exports of industrial cheese to Canada. Once fully implemented, a volume of 1,700 tonnes per year will be made available for EU exports of industrial cheese to Canada. This tariff rate quota volume is phased in over 5 years, in 6 equal installments, beginning on entry into force and is administered using an import licensing system as outlined in the Declaration on Tariff Rate Quota Administration or as otherwise agreed to between the Parties, with the annual volume to be available commencing January 1 of each year (subject to the terms of the Declaration).
Paragraph 18 outlines Canada's commitment to shift 800 tonnes of Canada's 20,411,866 kilogram WTO tariff rate quota for cheese to the EU beginning in year 1 of CETA.
Paragraph 19 outlines the under-fill mechanism for the EU's tariff rate quotas for beef and veal, and pork and Canada's tariff rate quotas for cheese. Under-fill is defined as less than 75 percent of the annual aggregate quantity actually imported into the Party under the tariff rate quota in a given year. Should under-fill occur, the Parties shall meet, upon the request of a Party, under the CETA Committee on Agriculture in order to promptly address the issues causing the under-fill or any other questions affecting the efficient operation of the tariff rate quotas. If under-fill occurs for three consecutive years, and if it is not linked to scarce supply or demand for the relevant product, the administration of the quota for the following year(s) must be changed to first-come first-served. If, following the under-fill period, there is 90 percent or more fill of the tariff rate quota for two consecutive years, the Parties may consider returning to an import licensing system for the relevant tariff rate quota following consultations.
Paragraph 20 outlines the review clause mechanism for the EU's tariff rate quotas for beef and veal, and pork and Canada's tariff rate quotas for cheese. The Parties shall review the operation of the relevant tariff quota administration system both at the mid-term and at the end of the phase-in period or at any other time upon the request of a Party. This review is intended to ensure that CETA tariff rate quota administration operates in a manner that is as conducive to trade as possible, does not impair or nullify negotiated market access commitments, is transparent, predictable, minimizes transactional costs, maximizes fill rates and aims to avoid potential speculation.
For Canada's tariff rate quotas for cheese, the review must include the allocation method allowing for new entrants. For the EU's beef and veal, and pork tariff rate quotas, the review must include the impact of any tariff rate quota administration system agreed to between the EU and a third country. The review must also include the possibility of providing the option to Canada of transitioning to the quota administration approach agreed to in that other agreement. Any review of the EU's beef and veal, and pork tariff rate quota administration must also consider the conditions of competition in North America (such as with the United States).
Paragraph 21 sets out the conversion factors that are to be used to convert product weight to carcass weight equivalent with respect to the EU's tariff rate quotas for beef and veal, bison and pork.
Annex 2-B: Declaration on the Administration of Tariff Rate Quotas
In Annex 2-B, Canada and the EU have developed certain principles for their respective administration of certain tariff rate quotas established under CETA. The general principle is that tariff rate quota administration should be as conducive to trade as possible. More specifically, it must not impair or nullify the market access commitments negotiated by the Parties and it must be transparent, predictable, minimise transactional costs for traders, maximise fill rates and aim to avoid potential speculation.
Section A outlines the EU's quota administration obligations under CETA on its tariff rate quotas for beef and veal as well as pork. Provisions under Section A detail the structure of the import licensing system, eligibility criteria and securities for import licenses.
Section B outlines Canada's quota administration obligations under CETA on its tariff rate quotas for cheese. Provisions under Section B detail the structure of the import licensing system, eligibility criteria and the use of import allocations and import permits.
2. Canadian Legislation
To implement Canada's obligations under Chapter Two of the CETA, amendments were required to the Customs Tariff, the Customs Act, and the Coasting Trade Act. These amendments are set out in sections 82 to 108 of the CETA Implementation Act.
The Customs Tariff is a fiscal statute that establishes the rules for determining the tariff treatment and rate of customs duties accorded to imported goods. It also provides for matters such as the prohibition of the importation of specific goods as well as the imposition of additional duties as a result of safeguard actions. The tariffs or rates of duty that apply to all goods upon their importation into Canada are set out in the Schedule to the Customs Tariff. The rules of origin made under the tariff regulations provide the basis for determining whether goods qualify for a particular tariff treatment. The Customs Tariff also provides for various duty relief measures including duty relief.
To implement the elimination of customs duties under the CETA, section 97 of the CETA Implementation Act introduces the “Canada-European Union Tariff” for goods produced in the EU and certain other CETA beneficiaries such as overseas territories of EU Member States. It also provides that goods are entitled to this preferential tariff treatment under this tariff only when the rules of origin are met and proof of origin is provided, and sets out the various tariff phase-out categories or “staging categories” in domestic law.
Section 108 of the Act establishes in domestic law the rate of customs duty for each good in the Canadian tariff classification. Paragraph 108(1)(c) of the Act establishes in domestic law that the CETA preferential tariff shall be 0% (or “Free”) as of the date of entry into force for all items in the Canadian tariff classification system, other than for tariff items specified in Schedules 4 and 5 to the Act. Schedule 4 sets out those tariff items that are excluded from a preferential tariff under the CETA (over-access supply-managed goods; tariff items unique to other FTAs, such as a country-specific TRQ for sugar for Peru and Honduras; and prohibited importations) and establish this in domestic law by setting the CETA preferential tariff as “N/A”. Schedule 5 sets out those tariff items that are subject to a CETA preferential tariff that is gradually reduced to 0 percent (as opposed to being immediately set at 0 percent upon entry into force) and fixes in domestic law the phase-out schedule.
Section 102 of the Act implements CETA Article 2.5 by amending the domestic framework to prohibit duty drawback, duty deferral and other duty relief programs that have as a condition that an imported good be used as a material in the production of another good that is subsequently exported and where that good benefits from the preferential tariff of the CETA upon importation into the EU or other territory applying the CETA preferential tariffs. Related consequential amendments are included in sections 98, 100-101, and 103-105.
In addition to the legislative provisions outlined in the previous section, several regulations are being created under the authority of the Customs Tariff to implement the provisions of Chapter Two:
- A regulation is being created to define the term “EU country or other CETA beneficiary” with a listing of countries that will benefit from the CETA preferential tariff;
- An order-in-council is being passed to assign the CETA preferential tariff to the list of countries or other beneficiaries as defined by this term; and
- A regulation is being updated to reflect changes to coasting trade for foreign ships or non-duty paid ships, as they will no longer need a coasting trade licence, if they meet certain activity and ownership requirements under CETA.
3. Intended Government Action
The robust market access provisions for trade in goods between Canada and the EU set out in Chapter Two and Annexes 2-A and 2-B will provide Canadian manufacturers, producers and exporters with access to the largest common market in the world within which to pursue new export opportunities. The Government intends to ensure that each Party fully implements CETA according to the text that was negotiated and agreed to between the Parties.
The Government will also monitor closely the implementation of this Chapter by the EU, especially on issues related to trade in goods, including agricultural goods, encountered by Canadian exporters to the EU and its Member States. This intended action is to ensure that issues are monitored, raised and addressed in a timely manner through the appropriate mechanisms available. Canada will ensure that commitments made by the EU materialize into real market access.
In support of this objective, the FTA Promotion Task Force of Global Affairs Canada and the Canadian Trade Commissioner Service, and Agriculture and Agri-Food Canada will help ensure that Canadian businesses are informed of new opportunities and how these opportunities can be realized.
Protocol on Rules of Origin and Origin Procedures
1. CETA Provisions
Rules of origin and origin procedures are an essential part of any free trade agreement (FTA). They provide the basis for traders and customs officials to determine whether a good is entitled to receive preferential tariff treatment under the agreement. Under CETA, the rules of origin ensure that only goods that have undergone sufficient production within the Canada-EU free trade area are eligible for preferential tariff treatment. Goods that do not satisfy the CETA rules of origin are considered non-originating and are not eligible for preferential tariff treatment under CETA. Canada and the EU aimed for rules of origin that are clear, are as simple as possible and leave little room for administrative discretion. The rules of origin are also intended to reflect Canadian and EU supply chains and production processes to enable to the fullest extent possible eligibility for preferential tariff treatment, while advancing each Party's respective sectoral interests.
The Protocol on Rules of Origin and Origin Procedures describes the rules for determining whether a good imported from Canada or the EU is originating and therefore eligible for preferential tariff treatment under Article 2.4 of the Chapter on National Treatment and Market Access for Goods.
The origin procedures are used by the customs authorities to administer the rules of origin and enable the trading community to take advantage of the preferential tariff treatment afforded under CETA. The procedures are created to ensure only goods that meet the rules of origin and are therefore entitled to preferential treatment, receive preferential tariff treatment.
CETA's origin procedures contain obligations for importers, exporters and customs authorities on areas such as certification of origin, record keeping, origin verifications, advance rulings, appeals, penalties and cooperation. Accordingly, the Protocol prescribes the processes necessary for importers and exporters to take full advantage of the Agreement, while at the same time providing customs authorities with an applicable methodology to ensure that only qualifying goods enjoy the benefits of CETA.
CETA's origin procedures support today's trade environment, provide for paperless processes, and limit the administration costs to traders. This is achieved through electronic processes, voluntary compliance, risk assessment and reduced government intervention. At the same time, the procedures demonstrate an appropriate balance between ensuring compliance and facilitating trade.
The CETA rules of origin reflect a compromise between the provisions found in other Canadian and European FTAs and are an effort to incorporate best practices from these agreements. The CETA origin procedures include procedures that Canada is accustomed to and already has in place with its current partners. The procedures most closely resemble those in the Free Trade Agreement between Canada and the States of the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland).
Section A of the Protocol on Rules of Origin and Origin Procedures contains general provisions. The CETA rules of origin are set out in Section B of the Protocol and the origin procedures are set out in Section C of the Protocol. The Protocol has eight annexes.
Section A – General Provisions
Article 1 provides definitions for certain terms used within the Protocol.
Section B – Rules of Origin
Article 2 of the Protocol sets out three basic rules for determining whether a good is originating:
- Goods are originating if they are “wholly obtained”, such as goods that are grown, raised, caught, or extracted in Canada or the EU;
- Goods are originating if they are produced in Canada or the EU entirely from originating materials; or
- Goods are originating if they are produced in Canada or the EU from some non-originating materials that undergo sufficient production in Canada or the EU such that the resulting good satisfies the applicable product-specific rule of origin (PSRO) set out in Annex 5.
All of the CETA PSROs in Annex 5 describe the required changes to tariff classification for a good to be considered originating. For many goods, the PSRO provides two options: 1) a PSRO that requires a change to the tariff classification of the good, but that excludes the use of certain non-originating materials, and 2) an alternative PSRO that allows for the use of those non-originating materials, provided that a value requirement is fulfilled. To assess if the value requirement is met, the value of the excluded non-originating materials, expressed as a percentage of the transaction value or ex-works price of the good, is determined and must not exceed a threshold specified in the PSRO.
For example, the World Customs Organization's Harmonized System often classifies specific machines in the same heading as parts that are solely or principally intended for use in producing the machine. In these instances, the CETA typically includes a PSRO whereby origin is conferred when all of the non-originating materials used in production are classified in a different heading from the final good. In the case of machinery, originating status can be obtained using the alternative PSRO that includes a value requirement. Under this scenario, if the value of all of the non-originating machine parts classified in the same heading as the final good is less than the threshold specified in the PSRO, the machine good qualifies as originating. Article 3 provides for both the cumulation of production and originating materials at the option of the exporter. Under this provision, a material that satisfies the CETA rules of origin based on production undertaken in a Party is treated as originating when it is used to make goods in the other Party. The value that was added to the non-originating materials during production in either Party can be counted when determining the originating status of the good. If a claim for preferential tariff treatment is made on the basis of the accumulation of production, the exporter must possess a statement from the supplier with information on the non-originating materials.
This Article also includes provisions under which Canada and the EU can agree to treat materials from other countries with which they each have an FTA as originating, subject to any conditions the Parties may establish. This is known as cross-cumulation. In addition, if the EU and the United States enter into an FTA, producers will be entitled to count US materials toward the originating status of Canadian or EU goods of Chapter 2 or 11, heading 16.01 through 16.03, Chapter 19, heading 20.02 or 20.03, or subheading 3505.10, subject to agreement by Canada and the EU on the applicable conditions.
Article 4 sets out the conditions that must be met for a good to be considered wholly obtained, such as minerals extracted in the territory of a Party, agricultural goods harvested in the territory of a Party, animals born and raised in the territory of a Party, and goods derived from those animals. Other wholly obtained goods include fish and shellfish caught in the territorial sea of a Party, or beyond the territorial sea of any State by a vessel that meets the requirements of Article 4.2 regarding registration, ownership, flag and authorization to fish. Goods that are made using wholly obtained materials are also considered wholly obtained.
Article 5 provides that goods that fulfil the conditions set out in the PSROs in Annex 5 are considered sufficiently produced. In addition, this Article makes it clear that a non-originating material that has undergone sufficient production must be treated as originating when used in the subsequent production of another good.
Under the tolerance rule contained in Article 6, goods made using a small amount of non-originating materials, that fail to meet the requirements of Annex 5, may be considered originating. In most of Canada's other FTAs, tolerance is referred to as de minimis. Under the CETA, the value of non-originating materials cannot exceed a tolerance threshold of 10% of the transaction value or ex-works price of the good. A separate tolerance rule, based on the weight of non-originating materials, applies to textile and apparel goods and is set out in Annex 1.
The CETA rules of origin ensure that only goods that have undergone sufficient production in Canada or the EU are treated as originating and eligible for preferential tariff treatment. Article 7 identifies a list of operations that, by themselves, are insufficient to confer origin to a good. Operations such as the simple assembly of non-originating materials, the packaging of non-originating materials, or the simple assembly and packaging of non-originating materials are deemed to be insufficient. This Article ensures that goods that have only undergone minimal production in Canada or the EU do not benefit from preferential tariff treatment under the CETA, even if they satisfy the applicable PSRO.
The Article on insufficient production only applies to goods made entirely from non-originating materials. If any material used in the production of a good is originating, any good made using that material is considered to have sufficient undergone production, and therefore that good would not fall under the scope of the article on insufficient production.
Article 8 specifies that the CETA rules of origin are based on the Harmonized System and provides guidance on the classification of certain types of shipments. If a shipment consists of a collection of components or parts classified under a single heading or subheading (such as a disassembled good), those components or parts taken as a whole (in other words an assembled good) constitute what is used to classify the good and determine whether it is originating. For example, a box containing all the parts necessary to make a chair is classified as a chair. If a shipment consists of many identical goods (such as a shipment of apples) classified under the same heading or subheading, each good is considered separately.
Article 9 provides that the origin of packing materials and containers used in the packing of a good for shipment is not taken into consideration when determining if the good itself is originating. For example, boxes, cellophane, bubble wrap, and pallets that are used to protect a good and facilitate its shipment during transport are not taken into account for the purposes of determining if that good meets the rules of origin.
An exception is made for cases and other packaging that are specially shaped or fitted to contain a good, such as a camera case or a musical instrument case, when they are traded with the good itself. The origin of these types of cases and other packaging is taken into account when determining the origin of the good.
Article 10 applies to fungible materials and goods, which are defined as materials or goods that are of the same kind and commercial quality and which cannot be distinguished from one another for origin purposes. In cases in which originating and non-originating fungible materials may be stored together, the CETA allows producers to use an inventory management system to determine the proportion of materials that are originating for the purposes of ultimately determining the originating status of goods made using such materials. Similarly, for goods, an inventory management system can be used to demonstrate that certain goods are originating, even if those goods are stored in a manner that led to the commingling of originating and non-originating goods. While Article 10 applies to all fungible material used in production, it only applies to goods of Chapters 10, 15, 27, 28, 29, and headings 32.01 through 32.07 or 39.01 through 39.14 of the Harmonized System.
Under Article 11, accessories, spare parts and tools that are shipped with a good are disregarded for origin purposes if the good is subject to a tariff shift PSRO, provided that the accessories, spare parts, and tools are invoiced with the good and the quantities and value are customary for the good. However, if a good is subject to a PSRO with a value requirement, the value of non-originating accessories, spare parts and tools is taken into account in determining whether the good is originating.
Article 12 addresses goods that are traded as sets. If at least one of the components of the set is non-originating but at least one of the component goods or all of the packaging material and containers are originating, then three conditions must be fulfilled in order for the set to be considered originating:
- the value of the agriculture/agri-food component goods cannot exceed 15% of the total value of the set;
- the value of the component goods that are not agriculture/agri-food cannot exceed 25% of the total value of the set; and
- the value of all the non-originating component goods in the set cannot exceed 25% of the total value of the set.
To illustrate: if a set included both agriculture/agri-food and other component goods, such as a set consisting of a bottle of originating wine, non-originating crackers, originating wine glasses and a non-originating corkscrew, the value of the crackers cannot exceed 15% of the total value of the set, the value of the corkscrew cannot exceed 25% of the total value of the set, and the value of the crackers and the corkscrew taken together cannot exceed 25% of the total value of the set.
Under Article 13, neutral elements, such as energy, fuel, lubricants or tools used in the production of a good are disregarded for origin purposes.
Article 14 specifies that goods that qualify as originating under the CETA rules of origin may transit through a non-Party provided that they do not undergo any production outside Canada or the EU, other than unloading, reloading, or an operation necessary to preserve them in good condition or to transport them to the other Party. In addition, to retain their originating status, goods that transit through a non-Party, or are stored outside of Canada or the EU, must be under customs control at all times.
Under Article 15, an originating good that is exported to a non-Party that is subsequently returned will lose its originating status unless it can be demonstrated that the returned good is the same as that exported and did not undergo any production outside Canada or the EU beyond that necessary to preserve it in good condition.
Article 16 establishes parameters for the calculation of the net weight of any non-originating sugar used in the production of a good. There are numerous product-specific rules of origin in Annex 5 that contain specified maximum thresholds, typically in the form of net weight, for non-originating sugar that can be used in the production of an originating good. An exporter may calculate the net weight of non-originating sugar used in production by either:
- using the total net weight of all mono-saccharides and di-saccharides contained in a good or in the materials used in production; or
- using the net weight of non-originating sugar classified in headings 17.01 and 17.02 (with certain exceptions) or specific non-originating sugar-containing materials that are used as such in the production of a good.
Article 17 defines the key terms associated with the net cost method. The net cost provisions may also be relevant if the EU and the US reach agreement on an FTA that would provide for the net cost method. In a footnote to certain PSROs for Chapter 87, it is specified that “the discussions on the applicable conditions will include consultations to ensure consistency between the calculation method agreed between the European Union and the United States and the method applicable under this Agreement for this good, if necessary”. The intent of this text is to make clear that if net cost applies to the PSRO for motor vehicles and parts in an FTA between the EU and US, this same flexibility will be provided to Canadian producers in the CETA. Currently, the CETA PSROs in Annex 5 do not allow for the use of the net cost method; this approach is only permitted under the origin quota for automobiles (Section D of Annex A-5).
Section C – Origin Procedures
Article 18 deals with proof of origin. Usually, Canada's free trade agreements refer to the required proof of origin as the “certificate of origin”. However, CETA's proof of origin is referred to as the “origin declaration”. The origin declaration is an exporter self-certification process, whereby the exporter declares the good as meeting the rule of origin by placing a prescribed simple statement on the invoice or any other commercial document. The statement is set out in Annex 2 of the Protocol.
Articles 19 through 26 primarily contain obligations for importers and exporters if the importer wants to take advantage of the reduced or free rate of duty offered on importations of goods under the CETA. These provisions include record maintenance, shipping documents, exemptions from origin declarations, refunds, and validity of the origin declaration.
Article 19 sets out obligations regarding exportations. If an exporter decides that a good is originating and chooses to complete and sign an origin declaration in order for the importer to claim the preferential tariff treatment, the exporter must provide supporting documentation demonstrating that the good is originating to its own customs authority upon request. Upon request by the customs authority of the importing Party, this documentation is forwarded to the importing Party in order for the importing Party to determine whether the good meets the rule of origin and is entitled to the preferential tariff treatment. Article 19.3 establishes flexibility with respect to the completion of the origin declaration. Where exporters in Canada provide the Business Number or exporters in the EU provide the Registered Exporter (REX) number in field 2 of the origin declaration, then field 5 may be left blank. Also, if the exporter becomes aware of any incorrect information contained on the origin declaration affecting the originating status of the good, the exporter is expected to comply by immediately providing notice of the correction to the importer. If the exporter fails to comply with any requirement of the Protocol, such as failing to provide supporting documentation, the customs authority may deny the preferential tariff treatment.
Article 20 requires the Party of import to provide a minimum validity period for an origin declaration of 12 months after it has been completed by the exporter and allows a longer period of validity in accordance with a Party's laws. Canada will go beyond that minimum requirement and allow a validity period for an origin declaration of four years. This is the same period of validity used by Canada under all of its free trade agreements.
Article 21 sets out obligations regarding importations. If an importer chooses to claim the preferential tariff treatment, it must provide the exporter's origin declaration certifying that the good is originating, including a translation if required, to the importer's customs authority upon request. The importer is expected to comply by immediately notifying their customs authority of any incorrect information contained on the origin declaration affecting the originating status of the good, and pay any duties owing. If the importer fails to comply with any requirement of the Protocol, such as failing to provide the origin declaration, the importer's customs authority may deny the preferential tariff treatment.
Article 21 also provides that the importer of the good may apply for a refund of duties paid as a result of the importer not having an origin declaration at the time of importation. The Party of import must provide a minimum period of three years for the importer that did not claim the CETA preference at time of importation to file a refund. Canada will go beyond that minimum requirement and allow four years from the date of accounting for importers to claim a refund.
Article 22 specifies the documents required by the importer to demonstrate that a good meets the shipping conditions found in Article 14. These documents include carrier documents and customs control documents. Importers are required to provide that documentation to their customs authority upon request.
Article 23 requires a Party to provide for use of a single origin declaration presented at the importation of the first instalment for imports of specified dismantled or non-assembled goods. This Article is relevant if a Party requires the origin declaration to be presented at the time of importation. As Canada does not require this to be done, the need for this Article is removed in Canada.
Article 24 provides that the Party of import may waive the requirement to present an origin declaration for originating goods that are low value or form part of the personal luggage of a traveler. Therefore, in order to determine whether a good is exempt from requiring an origin declaration in order to benefit from the preferential tariff treatment, traders are encouraged to contact the customs authority located in the country of import. The Canada Border Services Agency (CBSA) does not require the origin declaration to be presented at time of importation for any good, but rather upon request. In Canada, the prescribed origin declaration is waived for commercial goods valued at CAD 1600 or less. However the importer is required to have a commercial invoice with a statement that the good is originating. In Canada, for casual goods, meaning non-commercial goods that are not intended for resale that are acquired in the EU, the requirement to have the origin declaration is waived.
Articles 25 and 26 relate to record keeping. They establish the type of documentation and records, and time period for their maintenance, for both the exporter relating to proving the originating status of the good and the importer with respect to claiming the preferential tariff treatment under the CETA.
Articles 27 through 34 establish the means by which the customs authorities of the Parties will administer the rules of origin. This includes provisions detailing required cooperation by the customs authorities, a method of verifying that a good meets the rule of origin, providing review and appeal rights to exporters and importers, penalties, confidentiality and procedures regarding the issuance of advance rulings.
Article 27.1 provides that slight discrepancies between statements in the origin declaration and in the documents submitted to the customs authority at time of import do not make the origin declaration invalid. This provision is relevant if the customs authority requires the origin declaration to be presented at time of import along with the importing documentation. As the CBSA does not request the origin declaration at the time of import, the need for Article 27.1 is removed in Canada. Article 27.2 provides more broadly that obvious formal errors on an origin declaration shall not cause the document to be rejected if the errors do not create doubts concerning the correctness of the statements it contains.
Articles 28, 29 and 34 are a main component of the origin procedures, as they identify the methodology to be applied by the customs authorities in the verification of the origin of the goods. In order for Canada and the EU to ensure that only qualifying goods receive the reduced or free rates of duty under the CETA, origin procedures include a methodology to verify whether a good meets the rules of origin. As was done by Parties to the Free Trade Agreement between Canada and the States of the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland), Canada and the EU have agreed to assist each other, through the customs authorities, to perform origin verifications on each other's behalf. The CETA requires the customs authority of the exporting Party to conduct origin verifications at the request of the customs authority of the importing Party. This is unlike Canada's customary approach, for example as found in the North American Free Trade Agreement (NAFTA), in which the customs authority of the importing Party performs origin verifications by communicating directly with foreign exporters. In other words, CETA requires the CBSA to conduct origin verifications of Canadian exporters on behalf of and upon the request of an EU Member State's customs authority. Considering this, the Parties make a strong commitment under these Articles to ensure proper application of this Protocol. This involves dedicated cooperation by the customs authorities that includes a commitment to resolve differences as well as discuss the overall operation and promote the uniform administration and interpretation of the rules of origin during verifications. Furthermore, under the auspices of the CETA Joint Committee, the Joint Customs Cooperation Committee (JCCC) shall endeavour to address issues and recommend amendments to the Protocol.
Article 30 requires each Party to grant substantially the same rights of review and appeal of determinations of origin and advance rulings issued by its customs authority to importers in its territory and to those requesting such determinations or advance rulings under the Protocol. Article 30 also requires a Party to provide access to at least two levels of appeal or review, including at least one judicial or quasi-judicial level.
Article 31 requires each Party to maintain measures imposing criminal, civil or administrative penalties for violations of its laws relating to this Protocol.
Article 32 reflects the confidential nature of all business information collected for the purposes of administering the rules of origin by placing obligations on the Parties with respect to the handling of the information and by limiting the disclosure and use of the information. For example, the information collected cannot be used for purposes other than the administration and enforcement of determinations of origin, except with the permission of the person or Party who provided the information. If the Party receiving or obtaining the information is required by its laws to disclose the information, that Party shall notify the person or Party who provided the information.
Article 33 requires the customs authorities of a Party to adopt or maintain procedures for the issuance of advance rulings on whether a good qualifies as originating under the Protocol. Advance rulings are issued before importation of a good and, unless one of four specified circumstances arise, remain in effect and must be honoured. There are also specified circumstances in which a Party may decline or postpone the issuance of an advance ruling. There is a procedural difference between the EU and Canada with respect to the advance ruling application process by exporters. A Canadian exporter that wishes to submit a request for an advance ruling to the customs authority of an EU Member State must have a representative in that Member State present the application on the exporter's behalf whereas a European exporter may apply directly to the CBSA for an advance ruling.
Annexes to the Protocol on Rules of Origin and Origin Procedures
Annex 1 (Tolerance for Textile and Apparel Products) sets out the tolerance rules for textiles and apparel goods. In general, non-originating textile inputs that fail to meet the requirements of the PSRO Annex (Annex 5) may be used in the production of an originating good provided that their weight does not exceed 10% of the weight of the good. For certain textile materials, higher amounts (for example 20%) of non-originating materials may be used to produce an originating textile or apparel good.
Annex 2 (Text of the Origin Declaration) provides the text of the origin declaration, which is required in order for importers to claim preferential tariff treatment under the CETA for goods that meet the rules of origin.
Annex 3 (Supplier's Statement for Non-Originating Materials Used in the Production of Non-Originating Products) sets out the statement for suppliers of non-originating materials to attest that their goods are used in Canada or the EU in the production of a non-originating intermediate good. This Statement may be requested if an origin claim is based on the accumulation of production undertaken on non-originating materials in the other Party.
Paragraph 2 of Annex 4 (Matters Applicable to Ceuta and Melilla) provides that Canadian originating goods will be subject to the same customs regime, including preferential tariff treatment, as EU originating goods when imported into Ceuta or Melilla. It also provides that Canada will subject originating goods of Ceuta or Melilla to the same customs regime, including preferential tariff treatment, as EU originating goods when imported into Canada. The rules of origin, origin procedures and provisions on cumulation of origin set out in the Protocol apply to Canadian exports to Ceuta and Melilla, and to exports from Ceuta and Melilla to Canada.
Annex 5 (Product-Specific Rules of Origin) sets out the PSROs for all goods classified under the Harmonized Commodity Description and Coding System. It also includes a small number of notes that apply to specific goods and set out additional conditions that, if fulfilled, result in an originating good. For example, the Annex includes notes that specify that organic and inorganic chemicals produced in Canada or the EU through a process that involves a chemical reaction will be considered originating.
Annex 5-A (Origin Quotas and Alternatives to the Product-Specific Rules of Origin in Annex 5) sets out less restrictive alternatives to the main PSROs in Annex 5, thereby allowing for the use of more non-originating materials in the production of originating goods. The goods included in Annex 5-A can qualify for preferential tariff treatment under these alternative rules of origin, subject to an annual volume limit set under the origin quota. The volume limit for all of the origin quotas is subject to a growth mechanism, except vehicles. Canadian producers can take advantage of origin quotas for high-sugar containing goods, sugar confectionery and chocolate preparations, processed foods, dog and cat food, fish and seafood goods, textiles, apparel goods and light passenger vehicles. These origin quotas apply to EU imports from Canada, except those for textiles and apparel goods which apply to both EU imports from Canada and Canadian imports from the EU. The origin quota for vehicles specifies that the rule of origin can be calculated using either the transaction value or net cost method.
As well, Annex 5-A includes a provision under which, in the event of an EU-US FTA, US auto parts would be treated as originating for the purposes of determining whether a vehicle classified under 8703.21 through 8703.90 of the Harmonized Commodity Description and Coding System that is produced in Canada or the EU will be considered as originating.
Annex 6 (Joint Declaration Concerning Rules of Origin for Textiles and Apparel) specifies that the rules of origin for textiles and apparel are set out in Annex 5, and alternative rules of origin, subject to quantitative limitations, are in Annex 5-A. This Annex also notes that under some of the alternative rules of origin the dyeing of fabric is considered equivalent to the printing of fabric.
Annex 7 (Joint Declarations Concerning the Principality of Andorra and the Republic of San Marino) provides that Canada will treat goods of Chapters 25 to 97 of the Harmonized Commodity Description and Coding System originating in Andorra, and all goods originating in San Marino covered by its customs union with the EU, as originating under CETA so long as the customs unions between the EU and those countries remain in force. The CETA Protocol on Rules of Origin and Origin Procedures shall apply, with changes as necessary, to determine the status of goods originating in Andorra or San Marino.
2. Canadian Legislation
To implement Section B of the Protocol, three regulations are being created under the Customs Tariff to establish in Canadian law the rules of origin for goods to qualify for the CETA preferential tariff. The CETA Rules of Origin Regulations will implement, in Canada, the rules of origin negotiated by Canada and the EU that will be used to determine when the goods have undergone sufficient production to qualify for preferential treatment. The CETA Rules of Origin for Casual Goods Regulations will establish the conditions under which goods acquired in the EU by travellers are considered originating and therefore entitled to preferential tariff treatment. The CETA Tariff Preference Regulations will allow eligible goods that are not shipped directly between the EU and Canada to retain their eligibility for preferential tariff rates provided the goods remain under customs control in third countries.
To implement Section B of the Protocol, the Export and Import Permits Act (EIPA) has been amended by the CETA Implementation Act to administer, monitor and, in certain instances, allocate the goods that benefit from origin quotas in the CETA, both for import and export. In particular, new provisions have been added to authorize the Minister of Foreign Affairs to determine and allocate within-quota export quantities and to issue export allocations for goods added to the Export Control List for the purpose of implementing EU origin quotas under the Agreement or ensuring the orderly marketing of goods subject to a limitation on importation by another country or customs territory. In addition, certain existing regulations under the EIPA will be amended, including the addition of certain origin quota goods to the Import Control List and Export Control List, and new regulations under the EIPA will be created.
To implement Section C of the Protocol, the Customs Act has been amended by the CETA Implementation Act to address provisions relating to the proof of origin under the CETA, the refund of duties for CETA eligible goods and the origin verification procedures, including the method of verification, notice requirements, any redetermination of origin and possible withdrawal of preferential tariff treatment.
Regulatory changes will also be necessary in order to implement Section C of the Protocol. Six existing regulations under the Customs Act will be amended to address CETA provisions relating to certification of origin for exported goods, proof of exportation for certain goods, advance rulings, proof of origin for imported goods and refund of duties. The six regulations to be amended include the Certification of Origin of Goods Exported to a Free Trade Partner Regulations, Exporters' and Producers' Records Regulations, Free Trade Agreement Advance Rulings Regulations, Tariff Item Nos. 9971.00.00 and 9992.00.00 Accounting Regulations, Refund of Duties Regulations and the Proof of Origin of Imported Goods Regulations. Two new regulations under the Customs Act will be developed concerning verification of origin under the CETA, including the CETA Verification of Origin of Exported Goods Regulations and the CETA Verification of Origin of Imported Goods Regulations. These regulatory amendments and new regulations will not be completed by the date from which Canada and the EU agree to provisionally apply the CETA. Therefore, prior to this date, the CBSA will publish a Customs Notice on its web site announcing the proposed regulatory amendments and new regulations made under the Customs Act. This Customs Notice is published in order to satisfy the requirement of paragraph 167.1(b) of the Customs Act. Paragraph 167.1(b) of the Act allows regulatory changes that have previously been the subject of a public announcement to have a retroactive effect to the date of the announcement. As a result, the proposed regulations will be deemed to have come into force on the same date as the provisional application of CETA commences, allowing the CBSA to begin administering the regulations as though the regulatory changes announced in the Customs Notice were already in force.
3. Intended Government Action
The CBSA will cooperate with EU customs authorities as required by various provisions of the Protocol. As well, the Parties have agreed to work together through the Joint Customs Cooperation Committee.
The CBSA will publish a Customs Notice on its web site, announcing the date from which Canada and the EU have agreed to provisionally apply the CETA and providing the necessary information for trading to begin under the CETA on that date. For importers, the information provided will pertain to claiming the preferential tariff treatment when accounting for goods imported under the CETA, information concerning the proof of origin requirements to support this claim, any shipping requirements the goods must meet in order to be eligible for the CETA preferential tariff treatment as well as information pertaining to the refund provision for CETA eligible goods. For exporters, information will be provided concerning how to complete the proof of origin required by the importer in order to claim the CETA preferential tariff treatment. Additionally, this Customs Notice will direct readers to the CBSA Border Information Service (BIS) for further information pertaining to the origin procedures contained in the CETA. The BIS is an automated telephone service that answers incoming calls and provides general information on CBSA programs, services and initiatives through recorded scripts, as well as providing access to a live CBSA officer. CBSA officers will have general information relevant to the origin procedures contained in the CETA and will be able to field questions from the public concerning the import or export of goods under the Agreement.
Chapter Three – Trade Remedies
1. CETA Provisions
The Trade Remedies Chapter reaffirms Canada's and the European Union's WTO rights and obligations concerning anti-dumping, countervailing and global safeguard measures. This Chapter also provides some additional rights and obligations designed to support the transparency of anti-dumping, countervailing and global safeguard measures and to minimize the effects of these measures on bilateral trade.
Article 3.1 reaffirms the Parties' WTO rights and obligations under Article VI of GATT 1994, the Anti-Dumping Agreement and the SCM (Subsidies) Agreement. These agreements set out detailed obligations and procedural requirements that Parties are required to follow with respect to anti-dumping and countervailing measures. Article 3.1 also provides that the CETA Protocol on rules of origin and origin procedures does not apply to antidumping and countervailing measures.
Article 3.2 requires that the Parties apply anti-dumping and countervailing measures in a fair and transparent manner. It also requires that Parties fully and meaningfully disclose all the essential facts that form the basis of a decision whether to apply final anti-dumping or countervailing measures, subject to the rules on the disclosure of confidential information contained in Article 6.5 of the Anti-Dumping Agreement and Article 12.4 of the SCM Agreement. Article 3.2 also provides that each Party must allow interested parties, as defined in Article 6.11 of the Anti-Dumping Agreement and Article 12.9 of the SCM Agreement, a full opportunity to defend their interests in an anti-dumping or countervailing investigation, provided that this does not result in unnecessary delays.
Article 3.3 requires each Party to consider information provided during an anti-dumping or countervailing duty investigation as to whether imposing an anti-dumping or countervailing duty would not be in the public interest. Each Party may then, in the light of such information, consider whether to impose the full amount of antidumping or countervailing duty or a lesser amount of duty.
Article 3.4 reaffirms the Parties' WTO rights and obligations under Article XIX of GATT 1994 and the Safeguards Agreement. These agreements set out detailed obligations and procedural requirements that Parties are required to follow with respect to the imposition of safeguard measures. Article 3.4 also provides that the CETA Protocol on rules of origin and origin procedures does not apply to global safeguard measures.
Article 3.5 requires the Party initiating a safeguard investigation or intending to adopt provisional or definitive global safeguard measures to immediately provide, upon the request of the exporting Party, certain information listed. This includes the information and evidence set out in Article 12.2 of the Agreement on Safeguards, which normally must be notified to the WTO Committee on Safeguards. In addition, it includes the public version of the safeguard complaint and the public report containing the findings and conclusions of the safeguard investigation. The Party initiating the safeguard investigation is required to offer to hold consultations to review this information with the exporting Party.
Article 3.6 requires a Party adopting global safeguard measures to try to minimize their impact on bilateral trade between Parties and to hold consultations with the exporting Party to review how this may be accomplished. It also requires that no global safeguard measures be adopted until at least 30 days after the offer to hold these consultations was made.
Article 3.7 excludes anti-dumping, countervailing and global safeguard measures from dispute settlement under Chapter Twenty-Nine of CETA.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Three.
3. Intended Government Action
The Government will be vigilant in monitoring transparency procedures and due processes, and will ensure compliance with the obligations of the Chapter.
Chapter Four – Technical Barriers to Trade
1. CETA Provisions
Technical regulations, product standards, and conformity assessment procedures are employed by regulators to ensure the protection of human, animal or plant life or health, and protection of the environment. For example, electrical equipment must conform to safety regulations in order to prevent the possibility of fire or electric shock. However, as tariffs are eliminated, there is the potential that trading partners could use technical requirements relating to products as a means of blocking imports. These requirements are known as “technical barriers to trade” (TBT) measures. Some important terms used in the TBT area and their meaning are:
- Technical regulations - mandatory rules set by governments that govern the characteristics or related processes of products, their production methods and labelling. Technical regulations can sometimes include references to standards, which are created by standards bodies, organizations, industry or governments and are non-mandatory.
- International standards - criteria, usually determined by international organizations with broad and varied countries as members, that countries are encouraged to follow but are not required to. The use of international standards encourages the convergence of technical rules between trading partners, which facilitates trade by reducing the costs and administrative burden often imposed on exporters to meet different requirements in different markets. International standards form the basis for more than half of the National Standards of Canada, and federal government policy encourages regulators to determine whether international standards can form the basis of proposed regulations. One example of international standards helping to facilitate trade is found in the area of radio interference. Canada participates in international committees to develop radio interference standards covering electronic equipment such as electrical appliances, electricity supply systems, information technology equipment, and electric vehicles. Because of these common standards, Canadian companies can export their products more easily to other markets.
- Conformity assessment - any procedure used to determine that relevant requirements in technical regulations or standards are met. Product testing and certification is often a key component of conformity assessment. If a product has been certified by conformity assessment body to meet a particular regulation or standard, it typically bears the mark of the certification body that did the assessment.
Under the WTO Agreement on Technical Barriers to Trade (WTO TBT Agreement), Canada and the EU have already made a number of commitments with respect to TBT measures. This Chapter incorporates and builds on those commitments. In effect, this Chapter helps to ensure that market access gains made in other parts of CETA are not undermined by technical barriers to trade.
This Chapter ensures that TBT measures are applied equally to products and goods originating in both Canada and the EU. Where differences in regulations or standards arise, the provisions of the TBT Chapter seek to promote convergence of respective practices of the Parties where possible, while protecting each Party's right to regulate in its own best interests. Participation of the Parties is voluntary. Nothing in the TBT Chapter forces Canada or the EU to lower their safety standards and regulations.
Article 4.1 sets out the scope of this Chapter and the definitions that are used in it. The scope covers the same topics (technical regulations, standards, and conformity assessment procedures) as those covered by the WTO TBT Agreement, and as with that agreement, excludes Sanitary and Phytosanitary measures (covered in the next chapter) and technical criteria used by government in its procurement. For definitions, the Chapter largely relies on those used in the TBT Agreement incorporated in Article 4.2, but also references U.N. and international terms as appropriate. Paragraph 5 specifies that the federal government does not need to take special steps to try to force a sub-federal government (such as provinces, territories, and municipalities) to comply with some obligations related to technical regulations and conformity assessment. However, it is rare that those governments would pass laws or regulations that would qualify as technical regulations or conformity assessments, and if they do the obligation to comply with the obligation rests on the (federal) Government, as Party to the treaty.
Article 4.2 incorporates relevant provisions of the WTO TBT Agreement into the Agreement, ensuring that the rest of the Chapter builds on those obligations. Canada has included a chapter on Technical Barriers to Trade in all of its recent FTA negotiations. However, CETA follows a more recent approach by incorporating the key provisions of the WTO TBT Agreement and making them enforceable bilaterally. Incorporation effectively streamlines and speeds up the dispute settlement process, thereby minimizing trade disruptions. Recourse to dispute settlement creates an incentive to ensure technical regulations do not block imports from the other Party.
The obligations incorporated into the Agreement through Article 4.2 include key provisions related to TBT measures, such as requiring national treatment and most-favoured-nation treatment; avoiding creating unnecessary obstacles to trade; and basing technical regulations on appropriate international standards unless those standards would be ineffective or inappropriate for the regulatory purpose. In addition, procedural requirements related to TBT measures, such as notice and publication requirements, are incorporated into the Agreement. Other elements of the WTO TBT Agreement that are not applicable in a bilateral context are not incorporated, such as Article 13 of that Agreement that establishes the WTO TBT Committee.
Article 4.3 encourages cooperation between Canada and the EU with regard to TBT measures and related matters, including between relevant public and private organizations.
Article 4.4 builds on the obligations related to technical regulations incorporated in Article 4.2 to add a commitment to cooperate in seeking to ensure compatibility of their technical regulations. The Article establishes a mechanism for exchange of information to assist in those efforts.
Article 4.5 references two Protocols that are attached to the Agreement that the Parties will follow: the Protocol on the mutual acceptance of the results of conformity acceptance (Conformity Assessment Protocol) and the Protocol on good manufacturing practices for pharmaceutical products (Good Manufacturing Protocol). The content of those Protocols is summarized below in separate sub-headings.
Article 4.6 sets out agreed transparency procedures. Notably, it requires Parties to allow interested persons from the other Party to participate in the development of technical regulations and conformity assessment procedures, and sets out a variety of requirements for publication, provision of information, and receiving and responding to comments. It also encourages cooperation between standardisation bodies to exchange information and harmonizing of standards as appropriate.
Article 4.7 provides that the Committee on Trade in Goods will address matters arising in the area of technical barriers to trade and the Conformity Assessment Protocol. The Committee structure includes clear points of contact that will be responsible for addressing concerns of the other Party and facilitating the smooth implementation of TBT Chapter.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Four, from the Conformity Assessment Protocol or from the Good Manufacturing Protocol.
3. Intended Government Action
The Government will continue to comply with existing obligations from the TBT Agreement incorporated into this Chapter, and to those additional obligations and procedures described above. Specifically, the Government will continue to be bound by transparency obligations through incorporated provisions from the WTO TBT Agreement, and active participation in the committee responsible for the TBT Chapter or working groups created under CETA. In addition, Canada will implement through appropriate policy changes the enhanced notification, consultation, and information exchange mechanism set out in the Chapter. The Government intends to ensure that each Party fully implements CETA according to the text that was negotiated and agreed to between the Parties.
Protocol on the Mutual Acceptance of the Results of Conformity Assessment
The Conformity Assessment Protocol provides a unique mechanism to allow conformity assessment processes in the EU to be recognized in Canada, and vice-versa. It complements the TBT Chapter's provisions, which addresses conformity assessment in an effort to ensure similar practices, by providing a mechanism to reduce duplicative procedures in this area.
While Canada and the EU share similar goals with respect to protecting public health and safety, they have different approaches or requirements when it comes to product testing and certification, and therefore the results of a conformity assessment process in one may not be recognized in another. This can impose additional costs and delays for producers who wish to export.
This Protocol addresses these issues by creating a framework for Canadian businesses to bring certain products to the EU market without needing to have their products tested twice.
Article 1 sets out definitions specific to the Protocol. Key defined terms include:
- “Accreditation”, which refers to the granting of authorization to a conformity assessment body to perform conformity assessment activities.
- “Accreditation body”, which is a body that has the power to designate, monitor, and suspend conformity assessment bodies under its jurisdiction.
- “Conformity assessment body”, which is typically a testing facility or laboratory which conducts testing, calibration, and inspection services. Conformity assessment bodies typically certify products with respect to a particular set of technical regulations and standards.
Article 2 establishes in paragraph 1 the products (listed in Annex 1) that are initially covered under the Protocol, such as machinery and equipment, radio and telecommunications, and measuring devices. Paragraphs 2 through 4 establish a mechanism to continue discussions to expand the scope of coverage, and to continue confidence-building activities involving the recognition of accreditation bodies of the other Party. Categories of products specifically excluded from coverage are set out in paragraph 5.
Article 2 also confirms the Parties' general flexibility to regulate regarding conformity assessment, and notably their ability to refuse to recognize or accept technical regulations that are not equivalent to their own.
Article 3 of the Protocol sets out a framework for the Parties to recognize the assessments performed by the other Party's conformity assessment bodies by accrediting them, on a national treatment basis with various conditions.
Articles 4 and 5 of the Protocol sets out parameters for conformity assessment bodies to be accredited or designated, including building in flexibilities in appropriate cases.
Article 6 provides for a mechanism for a Party to object to the designation of a conformity assessment body.
Article 7 establishes the conditions under which a Party can challenge the competency of a conformity assessment body that it has recognized, and ultimately the conditions for that Party ceasing to recognize the conformity assessment body.
Article 8 requires the withdrawal or limitation of scope on a designation if the specified conditions apply. It also provides for requirements to notify and communicate with the other Party if this occurs.
While Articles 3 through 8 deal with processes for recognition, accreditation, and designation of bodies to perform conformity assessment, Article 9 deals with the results of that assessment by those bodies. It prohibits discrimination in acceptance of those results based on nationality.
Similarly, Article 10 addresses the results of conformity assessment performed “in house” (as defined in Article 1). It requires the EU to provide national treatment on certain conditions for the results of those assessments, and commits Canada to consulting with the EU if it develops procedures on the same topic.
Article 11 imposes obligations related to market surveillance or enforcement, methods used by governments to make sure that conformity assessment is correctly done. The obligations include prohibiting discriminatory practices in the way surveillance or enforcement is applied, and setting out considerations for requiring that a product be prohibited or withdrawn from the market.
Articles 12, 13, and 14 sets out a process to allow a Party to nominate an accreditation body established in the territory of the other Party as competent to accredit conformity assessment bodies, as well as processes for that recognition to cease or be challenged.
Article 15 sets out the special provisions relating to the recognition of accreditation bodies in the areas of telecommunications and electromagnetic compatibility. These provisions were included to accommodate the unique requirements of telecommunications regulators in Canada and the EU.
Article 16 deals with transitional provisions from an existing Mutual Recognition Agreement. Articles 17 and 18 deal with administrative matters related to the operation of the Protocol.
Protocol on the Good Manufacturing Practices for Pharmaceutical Products
Pharmaceuticals are among the most highly regulated products in the economy, reflecting a commitment by governments to maintain high standards of public health and safety. “Good manufacturing practices” (GMP) refers to the framework that manufacturers must adopt to ensure that their products do not pose a health and safety risk to consumers. In the context of pharmaceuticals, this means drugs that are consistently produced and controlled to meet the quality standards appropriate to their intended use. It is important to note that the Protocol does not relate to the drug approval process.
Canadian and EU regulatory agencies differ in terms of the specific requirements they place on pharmaceutical manufacturers, but share common regulatory outcomes. Accordingly, in 1998 Canada and the EU agreed to mutually recognize each other's GMP compliance certification processes for a pharmaceutical facility. The Good Manufacturing Protocol replaces and updates the 1998 agreement.
The Protocol's central objective is to reduce the number of duplicative visits and certification requirements faced by pharmaceutical manufacturers that sell their products in both Canada and the EU. As a result of the mutual recognition achieved under the Protocol, regulators in the EU will be able to rely on the certifications granted by Canadian regulators to attest the GMP compliance of a manufacturing facility, and vice versa.
Article 1 of the Protocol sets out definitions specific to the Protocol.
Article 2 identifies the objective of strengthening cooperation in ensuring appropriate quality standards.
Article 3 establishes the medicinal products or drugs (listed in Annex 1) to which GMP requirements apply in both Canada and the EU.
Article 4 in combination with Article 12 sets out the process for evaluating new regulatory authorities to ensure that they meet the necessary requirements for recognition under the Protocol. It also requires Canada and the EU to maintain lists of authorities they recognize as equivalent.
Article 5 provides that Canada and the EU will rely on the certificate of the GMP compliance issued by the equivalent regulatory authority.
Article 6 allows for the possibility of accepting GMP certificates for medicinal products not listed in Annex 1.
Article 7 requires acceptance of certificates for batches of covered medicinal products or drugs, on specified conditions.
Articles 8, 9, and 10 establish conditions, procedures and notification requirements for inspections and on-site evaluations of facilities.
Article 11 establishes, in paragraph 1, an official channel for timely and ongoing information sharing between Canada and the EU on critical issues that relate to the safety of pharmaceutical products, such as product recalls. Called the “two way alert programme”, this Article requires the Parties to communicate with one another when one of their regulatory authorities restricts or suspends authorization for the sale of pharmaceutical products by a manufacturer. The Article also, in paragraph 2 and the referenced GMP Administrative Arrangement, imposes transparency provisions in the form of information exchange requirements. This process, together with notification requirements included in other Articles, creates transparency in the regulatory process and enables Canada and the EU to comment on each other's proposed regulatory changes before the proposals come into effect. It also helps businesses comply with new or amended requirements with minimal disruption to trade. These provisions work in concert with cooperation provisions designed to encourage the Parties to work together and exchange information on regulatory initiatives and enforcement. Neither the EU nor Canada will have decision-making power over the legislation of the other; it remains an internal procedure to the Party. Rather, the Chapter ensures that partners are made aware of potential changes to the legislation in order to avoid unforeseen trade barriers.
Article 13 commits the Parties to regularly review each other's regulatory systems so as to maintain confidence in their mutual recognition of equivalency. This provision recognizes that changes over time may result in divergence between Canadian and EU approaches to the GMP compliance programme.
Article 14 imposes confidentiality requirements specifically to information received under the Protocol.
Article 15 establishes a Joint Sectoral Group on Pharmaceuticals, consisting of representatives from both Canada and the EU, to oversee the various administrative aspects of the Protocol. This includes the listing of regulatory authorities and pharmaceutical products that will be covered by the Protocol.
Article 16 specifies that fees charged by one Party in its territory for inspections or on-site evaluations should be consistent with charges on manufacturing facilities for similar activities.
Chapter Five – Sanitary and Phytosanitary Measures
1. CETA Provisions
CETA's Chapter on Sanitary and Phytosanitary Measures (SPS measures) supports and builds on the WTO Agreement on the Application of Sanitary and Phytosanitary Measures (WTO SPS Agreement). The Chapter maintains each Party's right to take the SPS measures necessary to protect against risks to human, animal or plant life or health, while requiring that those measures be science-based, transparent, and applied only to the extent necessary to protect human, animal or plant life, so as not to create unnecessary and unjustifiable SPS-related trade restrictions.
The Chapter incorporates, updates, and expands upon the Agreement between the European Community and the Government of Canada on sanitary measures to protect public and animal health in respect of trade in live animals and animal products (1998 Veterinary Agreement) and its Annexes to establish a technical framework to recognize equivalence of SPS measures maintained by the Parties to facilitate trade that is consistent with protection of human, animal and plant life and health. The Chapter also establishes a framework of cooperation on the full scope of SPS measures-food safety, animal health, and plant health. It contains detailed provisions with respect to adaptation to regional conditions, equivalence, trade conditions, audit and verification, export certification, import checks and fees, notification and information exchange, and emergency SPS measures. The Chapter also establishes a Joint Management Committee for Sanitary and Phytosanitary Measures (SPS JMC) to provide a forum for cooperation and to address specific trade issues between Canada and the EU. On the date of provisional application of CETA, the 1998 Veterinary Agreement will be terminated and replaced by the CETA SPS Chapter.
Article 5.1 sets out the definitions that apply to this Chapter. They include definitions in Annex A of the WTO SPS Agreement; as well as definitions of the Codex Alimentarius Commission, the World Organization for Animal Health, and the International Plant Protection Convention.
Article 5.2 sets out the objectives of this Chapter, which are to protect human, animal and plant life or health while facilitating trade; ensure that the Parties' SPS measures do not create unjustified barriers to trade; and support the implementation of the WTO SPS Agreement.
Article 5.3 defines the scope of this Chapter as applying to all SPS measures, as defined in the WTO SPS Agreement, which may directly or indirectly affect trade between the Parties.
In Article 5.4, the Parties affirm their rights and obligations under the WTO SPS Agreement. Furthermore, the Chapter is subject to bilateral dispute settlement procedures as set out in Chapter Twenty-Nine.
Article 5.5 provides for the recognition of zoning conditions for the animal diseases listed in Annex 5-B, in order to limit import restrictions to products from specific regions affected by certain pest or disease outbreaks in Canada or the EU, rather than the entire territory of the exporting Party.
This Article allows a Party to apply additional measures to achieve its appropriate levels of protection with respect to the diseases listed in Annex 5-B.
Article 5.6 establishes a framework for Canada and the EU to recognize each other's SPS measures as equivalent. The exporting Party must objectively demonstrate that its measures achieve the importing Party's level of protection. Annex 5-D sets out the principles to govern this determination of equivalence, and specific measures, once recognized, are set out in Annex 5-E.
Article 5.7 requires that the importing Party make its SPS import requirements for all commodities available to the exporting Party. Conditions and procedures for the approval of establishments or facilities for the import of commodities are listed in Annex 5-F. Annex 5-G sets out the procedures that Parties should follow for specific import requirements for plant health.
Article 5.8 on audit and verification indicates that a Party may carry out an audit and/or verification of the control program of the other Party. Annex 5-H will provide the principles and guidelines to conduct an audit or verification.
Article 5.9 on export certification requires Parties to use the model health attestation prescribed in Annex 5-I if an official health certificate is required to import a consignment of live animals or products, and if the importing Party has accepted the exporting Party's SPS measure as equivalent. This provision also permits Parties to use a model attestation for other products. Annex 5-I sets out principles and guidelines for export certification.
Article 5.10 sets out principles and guidelines for import checks and fees, including the frequency rate for import checks. This Article requires that an importing Party must, whenever possible, notify the importer of a non-compliant consignment (or its representative) of the reason for non-compliance and provide them with an opportunity for a review of the decision. In addition, the Article requires that action taken by an importing Party in the case of non-compliance not be more trade-restrictive than required to achieve the Party's appropriate level of protection, and be based on an assessment of the risk involved. Import checks and fees are found in Annex 5-J.
Article 5.11 requires a Party to notify the other Party without undue delay of a significant change to pest or disease status; the detection of a new disease; or a significant food safety issue. In addition, the Parties will try to exchange information on other issues that could advance the bilateral relationship, such as changes to SPS measures.
Under Article 5.12 a Party may request technical consultations if it has a significant concern with respect to food safety, plant health, or animal health, or an SPS measure that the other Party has proposed or implemented. The receiving Party should respond without undue delay. Each Party will also try to provide the information necessary to avoid a disruption to trade, with the objective of reaching a mutually acceptable solution.
Article 5.13 requires a Party to notify the other Party of an emergency SPS measure within 24 hours of its decision to implement the measure. Technical consultations must be held within 10 days, if requested. The Article also requires the importing Party to consider information provided through technical consultations when making decisions with respect to consignments that are being transported between Parties at the time of adoption of the emergency SPS measure.
The Joint Management Committee for Sanitary and Phytosanitary Measures, comprised of regulatory and trade representatives of each Party responsible for SPS measures, will monitor the implementation of the SPS Chapter; provide a regular forum to exchange information, and review the annexes to this Chapter. The Committee may decide to amend the annexes following its review. The Committee also serves as a forum for the regular exchange of information concerning the Parties' respective regulatory systems, aiming to avoid or resolve SPS-related trade issues, and promoting cooperation between Canada and the EU on SPS issues being discussed in relevant multilateral fora.
Following its initial meeting, the Joint Management Committee will meet as required, normally on an annual basis, and will report on its activities and work programme to the CETA Joint Committee. The Joint Management Committee provides a forum for both technical level discussions and for resolving trade issues. Unresolved issues may be referred to the CETA Committee on Trade in Goods (CETA Article 26.2.1(a)) or the CETA Joint Committee, as appropriate.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Five.
3. Intended Government Action
Canada maintains the right to maintain measures necessary to protect human, animal and plant life or health. At the same time, the Agreement provides a framework for reducing the improper use of sanitary and phytosanitary measures as barriers to trade, and the Government will make use of the bilateral SPS Joint Management Committee to monitor and discuss issues that could have an impact on trade, including equivalency and science-based risk assessment. The Committee will also promote the alignment and equivalence of SPS measures, and facilitate technical consultations including consultations regarding disputes that involve sanitary and phytosanitary measures.
The Government intends to ensure that each Party fully implements CETA according to the text that was negotiated and agreed to between the Parties. The CETA SPS Chapter provides a strengthened opportunity for Canada and the EU to work together to ensure that measures are based on assessment of risks and internationally agreed standards, are not arbitrary, and do not create unjustifiable barriers to trade, in an effort to realise real market access.
Chapter Six – Customs and Trade Facilitation
1. CETA Provisions
Trade facilitation is a component of broader trade liberalization and ensures market access gains can be reaped. Governments, with the support of their trade and business communities, increasingly recognize that the transaction costs associated with international trade can be reduced through the harmonization, modernization, simplification and standardization of customs and border procedures. Canada and the EU have been at the forefront of much of this work and the CETA Chapter on Customs and Trade Facilitation reflects their shared policy objectives in this area. The trade facilitative measures Canada and the EU have set out in the Chapter apply to all trade in goods.
Article 6.1 sets out the objectives and principles for the Chapter. Among other things, it commits Canada and the EU to cooperate to promote the application of and compliance with trade facilitative measures; to base their approach to import, export and transit requirements and procedures on existing international trade and customs instruments and standards, except if these are inappropriate or ineffective to achieve a legitimate objective; and to ensure that these requirements and procedures are no more administratively burdensome or trade restrictive than necessary to achieve legitimate objectives.
Article 6.2 specifies that Canada and the EU shall publish information relevant to the import and export of goods, maintain contact points to receive inquiries regarding customs matters and try to give the public information and an opportunity to comment on proposed changes to regulations and policies relating to customs matters.
The Parties agreed in Article 6.3 to establish and maintain procedures that will allow for the efficient release of goods based on simplified procedures that allow for the release of goods prior to the final determination of payment of duties, taxes and fees. Canada and the EU also agreed to provide for electronic submission of customs information and to work towards the establishment of a “single location for one-time documentary and physical verification of consignments” (in other words the single window system).
Article 6.4 sets out that the WTO Customs Valuation Agreement governs customs valuation applied to trade between Canada and the EU. The Parties also agreed to cooperate on reaching a common approach to issues relating to customs valuation.
Article 6.5 provides that goods traded between Canada and the EU are to be classified in accordance with the Harmonized Commodity Description and Coding System.
In Article 6.6, the Parties agreed to publish or otherwise make available information on the applicable fees and charges for customs administration, and agreed that a Party shall not impose new or amended fees or charges before they are published or otherwise made available.
Article 6.7 provides that each Party shall base its examination, release and verification procedures on risk assessment principles, while allowing for quality control and compliance reviews that can require more extensive examinations.
Article 6.8 specifies that each Party shall use information technologies to expedite its procedures for the release of goods and shall try to develop a single window system to facilitate the electronic submission of information required by all applicable governmental authorities (in other words, not limited to customs) for cross-border movements of goods.
Article 6.9 commits each Party to provide advance rulings on tariff classification upon written request, in accordance with its law, and to publish information on advance rulings that is relevant for understanding and applying tariff classification rules. Parties are also required to provide each other with regular updates on changes to their laws and implementation measures. There is a procedural difference between the EU and Canada with respect to the advance ruling application process by exporters. A Canadian exporter that wishes to submit a request for an advance ruling to the customs authority of an EU Member State must have a representative in that Member State present the application on the exporter's behalf, whereas a European exporter may apply directly to the Canada Border Services Agency for an advance ruling.
Article 6.10 commits Canada and the EU to provide for independent review and appeal of administrative actions or official decisions relating to the import of goods.
Through Article 6.11, Canada and the EU agreed that any penalties for breaches of a Party's customs laws must be proportionate and non-discriminatory and that their application must not result in unwarranted delays.
The Parties agreed under Article 6.12 to treat as strictly confidential all information obtained under the Chapter that is by its nature confidential or that is provided on a confidential basis and to protect that information from disclosure that could prejudice the competitive position of the person providing the information. Notification of the providing Party or person is required in the case of disclosure compelled by law or use in proceedings instituted for failure to comply with customs-related laws implementing this Chapter. Permission of the Party or person providing the information is required in order to use the information for purposes other than the administration and enforcement of customs matters.
Under Article 6.13, the Parties agreed to continue to cooperate in international bodies, including at the World Customs Organization with a view to achieving common objectives, including those set out in the WCO Framework of Standards to Secure and Facilitate Global Trade. The Parties also agreed to cooperate under their bilateral agreement on mutual assistance in customs matters and continue the provision of assistance under that bilateral agreement.
Article 6.14 establishes a relationship between the CETA and the Canada-EU Joint Customs Cooperation Committee (JCCC). The JCCC was established by the Agreement Between Canada and the European Community on Customs Cooperation and Mutual Assistance in Customs Matters, 1998 (Canada-EU CMAA). At that time, the JCCC was made up of the representatives of the customs authorities of the Contracting Parties and its purpose was to ensure the proper functioning of the Canada-EU CMAA and to examine all bilateral customs issues arising from its application.
The Parties agreed that the role of the JCCC should be expanded as provided for in the Customs and Trade Facilitation Chapter. The JCCC was granted authority to act under the auspices of the CETA Joint Committee as a specialised committee listed in Article 26.2.1 (Specialised committees). Its role has been expanded to ensure the proper functioning of the Customs and Trade Facilitation Chapter, the Protocol on Rules of Origin and Origin Procedures, Article 20.43 (Scope of border measures) and Article 2.8 (Temporary suspension of preferential tariff treatment). The JCCC shall examine issues arising from the application of those provisions in accordance with the objectives of the CETA.
Each Party shall ensure that its representation to the JCCC contains the relevant expertise to address the agenda. Article 6.14.4 foresees the JCCC meeting in specific named configurations to address rules of origin (JCCC – Rules of Origin) and origin procedures (JCCC – Origin Procedures).
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Six.
3. Intended Government Action
The Government intends to use the bilateral mechanisms provided in the Chapter to continue its cooperation and discussions with the EU on issues related to customs and trade facilitation.
Chapter Seven – Subsidies
1. CETA Provisions
The Subsidies Chapter reaffirms Canada's and the European Union's rights and obligations under the WTO Agreements that discipline subsidies. This Chapter also includes some additional rights and obligations designed to improve the transparency of subsidy measures and to minimize the effects of these measures on trade.
Article 7.1 adopts the same definition of a specific subsidy related to trade in goods as that set out in Articles 1.1 and 2 of the WTO Agreement on Subsidies and Countervailing Measures.
Article 7.2 seeks to ensure transparency by requiring the Parties to notify each other of the legal basis, form and amount of each subsidy it grants or maintains and to respond to any questions regarding the government support that it has provided. Current notification obligations under the WTO Agreement on Subsidies and Countervailing Measures meet this notification requirement.
Articles 7.3 and 7.4 impose disciplines on subsidies and on government support related to trade in services, as well as to agricultural goods and fisheries products. They allow a Party adversely affected by a subsidy or by government support to request consultations with the Party providing the subsidy or support. Both Articles 7.3 and 7.4 require the Party providing the subsidy or support to try to minimize or eliminate the adverse effects of that subsidy or support. Article 7.4 also notes the Parties' desire to work together to reach an agreement enhancing multilateral disciplines on agricultural trade and to develop a multilateral resolution to fisheries subsidies.
Article 7.5 requires the Parties not to grant an export subsidy on an agricultural good exported to the other Party after the other Party has fully eliminated the tariff on that agricultural good.
Article 7.6 states that Parties are not required to disclose confidential information under Chapter Seven.
Article 7.7 excludes subsidies and government support to audio-visual services for the European Union and to cultural industries for Canada from the scope of application of CETA.
Article 7.9 excludes provisions on consultations relating to subsidies and government support from the scope of dispute settlement under Chapter Twenty-Nine of CETA.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Seven.
3. Intended Government Action
The Government will be vigilant in monitoring the notifications provided through the transparency procedures and in ensuring compliance with the obligations of the Chapter, including the Chapter's consultation mechanisms for subsides and government support.
Chapter Eight – Investment
1. CETA Provisions
The purpose of CETA's Investment Chapter from a Canadian perspective is to secure access to the market of the European Union for Canadian investors and protect the interests of Canadian investors established in the territory of the European Union. This is achieved through a set of obligations that are backed by dispute settlement mechanisms. Several of the obligations are subject to a rules-based mechanism for the resolution of disputes between investors and states. CETA's Investment Chapter is innovative and differs from investment chapters in other Canadian FTAs both in terms of structure and content.
Substantive obligations are situated in three separate sections: Establishment of investments, Non-discriminatory treatment, and Investment protection. The section on Establishment of investment and the section on Nondiscriminatory treatment contain disciplines that relate to market entry. The disciplines of the Non-discriminatory treatment section also contain measures affecting investments after they are established in the territory of a Party. The section on investment protection only applies with respect to investments that are established in the territory of a Party. The CETA is the first FTA in which Canada has structured the investment obligations in this manner. It accommodates the negotiated outcome of applying the investor-state dispute settlement mechanism to only those obligations applying to investments established in the territory of a Party; such mechanism does not apply to market entry measures of a Party.
The Investment Chapter should be read together with Annexes I and II which contain country-specific reservations with respect to certain obligations of the Chapter. In addition, certain general exceptions, such as the national security exception, apply to the obligations in the Chapter. This structure of reservations and exceptions is similar to past Canadian FTAs. One notable exception is that in the CETA Canada comprehensively listed provincial and territorial reservations in its Annexes, thereby identifying existing non-conforming measures at the provincial and territorial level, something it has not done in past FTAs. For its part, the EU comprehensively listed reservations for all of its Member States including at the sub-national level, also for the first time. The agreement by the Parties to list reservations at the EU Member State and sub-national level adds a significant degree of transparency to the Investment Chapter by setting out the areas of the Parties' legal frameworks where restrictions exist with respect to the obligations of the Chapter. It is also the first time that the Parties have, in an FTA, comprehensively listed market access restrictions.
In addition, an important outcome of the negotiation was that Canada agreed to liberalize its Investment Canada Act such that European Union investors, that are not state owned enterprises, will benefit from an investment review threshold of $1.5 billion in enterprise value. Canada's commitment is set out in its Annex I reservation and in Annex 8-F.
CETA's Investment Chapter includes a number of innovations. For example, in Article 8.9.1 the Parties reaffirm their right to regulate to achieve legitimate policy objectives. As a result, the Parties' obligations should not be read in a way that is incompatible with the Parties' right to regulate for legitimate policy objectives. Also for the first time, in CETA, the Parties have defined what constitutes a breach of the Fair and equitable treatment standard. Other clarifications regarding the substantive obligations have also been added. For example, CETA closes the door to provision shopping by clarifying that the provisions in the Parties' investment chapters with third-parties do not constitute treatment and thus cannot be brought into the Chapter through the Most-favored-nation treatment article.
In addition to the improvements the Chapter brings with respect to substantive obligations, it also contains an innovative investment dispute resolution mechanism. It establishes a permanent standing tribunal to resolve disputes, and a permanent standing appellate body. These improvements are intended to address the concerns that current investor-State dispute settlement mechanisms have led to an inconsistent body of international investment decisions and the perception that the current mechanisms are biased.
The CETA investment dispute settlement mechanism establishes clear and detailed rules of procedure to promote the efficient resolution of investor-State disputes, including:
- Enhanced consultations and new mediation provisions encourage early settlement of disputes without recourse to arbitration;
- Provisions setting out a highly transparent process, including making submissions to the tribunal public and generally opening hearings to anyone interested, and allowing amicus curiae interventions;
- Provisions to allow for the early dismissal of frivolous and stale claims to ensure that the process will not be abused.
SECTION A – Definitions and scope
Article 8.1 consists of definitions that are specific to Chapter Eight. Among those:
- the term “investment” is defined as including an enterprise, interests in an enterprise, interests arising from a concession or from specific types of contracts, claims to money or performance under a contract, intellectual property rights, and property and related rights. While the types of investments covered are not limited, to fit the definition an “investment” must have characteristics which include a certain duration, and others such as the commitment of capital, the expectation of gain or profit, and the assumption of risk.
- the term “investor” is defined as Party, or a natural person or enterprise of a Party. It clarifies that for an “enterprise of a Party” to qualify as an investor of that Party, it has to be constituted or organised under the laws of that Party and to either (1) have substantial business activities in the territory of that Party, (2) be ultimately owned or controlled by an enterprise of that Party that has substantial business activities in the territory of that Party, or (3) be ultimately owned or controlled by a natural person of that Party.
Paragraph 8.2.1 circumscribes the application of the Investment Chapter to a measure adopted or maintained by a Party relating to an investor of the other Party and to covered investments of such investors, with the exception of the Performance requirements Article which applies to all investments in the territory of the Party adopting or maintaining the measure. Paragraph 8.2.2 excludes measures relating to certain air services and to activities carried out in the exercise of governmental authority from obligations with respect to establishment and acquisition of investments. The exclusion regarding activities carried out in the exercise of governmental authority is meant to mirror the similar GATS exclusion. Paragraph 8.2.3 excludes measures relating to audio-visual services, for the EU, and measures relating to cultural industries, for Canada, from the application of the Investment Chapter's sections on Establishment of investments and Non-discriminatory treatment. For Canada, this means that a measure with respect cultural industries, as defined in Article 1.1, is not subject to the obligations of these sections. This protects Canada's existing measures related to cultural policy and provides Canada broad flexibility in the pursuit of its cultural policy objectives. Paragraph 8.2.4 explains that an investor may only submit a claim in compliance with the procedures set out in the Resolution of investment disputes between investors and states Section and in accordance with the provisions of its Scope Article, specifically Article 8.18. Paragraph 8.2.5 stipulates that the Investment Chapter does not affect the rights and obligations of the Parties under the air transport agreement in force between them.
Paragraph 8.3.1 stipulates that the Investment Chapter does not apply to a measure to the extent that such a measure is covered by CETA's chapter on financial services. A measure is covered by the Financial Services Chapter when it relates to a financial institution, an investment in a financial institution, or cross-border trade in financial services. Such a measure is then subject to the specific obligations of the Financial Services Chapter which incorporates certain obligations from the Investment Chapter. Paragraph 8.3.2 clarifies that the mere requirement by a Party that a service supplier of the other Party post a bond or a financial security as a condition for supplying a cross-border service does not render the Investment Chapter applicable; the Chapter would only apply if the bond or financial security qualified as a covered investment and the Party adopted a measure relating to that bond or financial security.
SECTION B – Establishment of investments
Canada and the EU agreed to include a market access obligation in the Investment Chapter that applies to the establishment of investments through acquisition or greenfield investment activity. The obligation applies to national and sub-national measures. The Parties may take reservations against this obligation. This is the first FTA in which Canada has taken on a broad-based market access obligation applying to investment market entry activities. Canada is subject to more limited market access commitments with respect to investment under the General Agreement on Trade in Services at the WTO and in some of its FTAs.
Pursuant to paragraph 8.4.1, Parties may not adopt or maintain a measure that limits the type of legal entity an enterprise can adopt in their territory, or that imposes specified quantitative limitations, such as the number of enterprises in a specific economic activity, numerical quotas or an economic needs test. Because of the broad application of the market access obligation and to avoid it being interpreted too broadly, the Parties clarified that certain types of measures such as zoning regulations, measures limiting ownership for competition reasons, and limitations on natural resource exploitation in pursuit of a conservation objective, are not inconsistent with the obligation.
Paragraph 8.5.1 prohibits the imposition and enforcement of a number of specified performance requirements, in connection with the establishment, acquisition, expansion, conduct, operation, and management of investments, such as those relating to export requirements or domestic content. Paragraph 8.5.2 prohibits imposing the performance requirements specified in subparagraphs 8.5.2(a) to (d), in connection with the establishment, acquisition, expansion, management, conduct or operation of investments, as conditions attached to receiving an advantage, including preferences for domestic content or restricting domestic sales by tying such sales to export performance. Paragraph 8.5.3 clarifies that the prohibition of paragraph 8.5.2 does not apply to requirements to locate production, provide a service, train or employ workers, construct or expand particular facilities, or carry out research and development in its territory. Paragraph 8.5.4 stipulates that subparagraph 8.5.1(f) – prohibiting the imposition to transfer technology, a production process or other proprietary knowledge – does not apply if such a transfer is ordered to remedy a violation of competition laws. Paragraph 8.5.5 stipulates that the Performance requirements Article does not apply to procurement by a Party (whether or not that procurement is “covered” within the meaning of the chapter on Government Procurement), and that the requirements linked to an export promotion or a foreign aid program are not inconsistent with the prohibitions listed in subparagraph 8.5.1(a). Paragraph 8.5.6 clarifies that the requirements to qualify for preferential tariffs or quotas are not inconsistent with the prohibitions to impose domestic content requirements or the purchase of domestic products as conditions attached to receiving an advantage. Paragraph 8.5.7 clarifies that the Parties commitments to each other under the WTO's Agreement on Trade-Related Investment Measures (TRIMs) are not affected by the provisions of CETA's Performance requirement Article.
SECTION C – Non-discriminatory treatment
Paragraph 8.6.1 sets out the national treatment obligation for investors and their investments with respect to the establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments. National treatment means that Canada will, in similar circumstances, treat investors from the European Union and their investments as favourably as it treats Canadian investors and their investments, that is, when the investors are in “like situations” with respect to the treatment at issue. The Article is intended to prevent nationality-based discrimination. Paragraph 8.6.2 clarifies what national treatment means at the sub-national level. For instance, a European Union investor established in Alberta is only entitled to the treatment offered to Canadian investors by Alberta in its territory. The investor is not entitled to the treatment offered to a Canadian investor in Manitoba. Paragraph 8.6.3 clarifies that the treatment accorded pursuant to Article 8.6.1 by a government of or in a Member State of the European Union must be no less favourable than the best treatment that government accords in its territory to investors of the European Union and their investments. This means, for example, that a Canadian investor established in Italy is only entitled to the treatment Italy offers to any investor of the European Union in its territory, and not to the treatment that Germany accords to investors in its territory. The term “treatment no less favourable than the most favourable treatment” used in paragraphs 8.6.2 and 8.6.3 is meant to account for a scenario where a sub-national government in Canada offered its own investors and investors from elsewhere in Canada differential treatment. In such a scenario, that sub-national government would have to accord foreign investors the best of those treatments. The same applies when a government of or in a Member State of the European Union offers different treatment to its investors and to other EU investors.
Paragraph 8.7.1 sets out the most-favoured-nation treatment obligation for investors and their investments with respect to the establishment, acquisition, expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of their investments. Most-favoured-nation treatment means that Canada will treat investors from the European Union and their investments as favourably as it treats investors of a third country and their investments when in like situations. Paragraph 8.7.2 clarifies that the treatment accorded pursuant to Article 8.7.1 by a government in Canada other than at the federal level and for a government of or in a Member State of the European Union must be no less favourable than the treatment that government provides in its territory to investors of a third country and their investments. Paragraph 8.7.3 establishes that paragraph 8.7.1 does not apply to a Party providing for recognition, including through an agreement providing recognition of either testing and analysis or repair and maintenance services suppliers as well as the certification of such services suppliers. Paragraph 8.7.4 clarifies that the most-favoured-nation treatment obligation does not extend to the procedures for the resolution of investment disputes contained in other international agreements. This means the different dispute settlement provisions of other agreements cannot be brought into CETA through the application of the most-favoured-nation treatment obligation. The provision also clarifies the Parties' understanding that the most-favoured-nation treatment obligation in CETA cannot be used to import “better” provisions from other international agreements, contrary to the interpretation adopted by certain arbitral tribunals with respect to most-favoured-nation obligations in other treaties.
Article 8.8 stipulates that a Party cannot impose requirements regarding the nationality of individuals appointed by an enterprise that is a covered investment to senior management or board of director positions. This provision is intended to permit investors under CETA to employ personnel and appoint directors of their choosing, subject to the immigration laws of the host Party. However, in Canada, the Canada Business Corporations Act (CBCA) requires twenty-five percent of directors of a corporation to be resident Canadian, as that term is defined by the CBCA. Where a corporation has less than four directors, at least one director must be a resident Canadian. Likewise, where sectoral restrictions are prescribed by the Canada Business Corporations Regulations (for example book publishing or distribution, or book sales) or by other federal statutes, a simple majority of the directors may be required to be resident Canadian. Some provincial corporate statutes also include director residency requirements. These above requirements are protected by Annex I reservations. Canada also preserves, among others, its right to impose foreign ownership restrictions as well as nationality requirements through an Annex I reservation for senior management and members of boards of directors when selling or disposing of its equity interests in, or the assets of, an existing government enterprise or an existing governmental entity.
SECTION D – Investment protection
Paragraph 8.9.1 reaffirms the government's right to regulate for legitimate policy purposes in areas such as public health, safety, the environment, public morals, social or consumer protection, and cultural diversity. The right to regulate entails the right to adopt and change regulations including with respect to investors. Paragraph 8.9.2 clarifies that a change in the regulatory framework of a Party does not, in and of itself, breach any obligation under the Investment protection Section, even if investor is negatively affected. Paragraph 8.9.3 clarifies that a Party's decision not to issue, renew or maintain a subsidy, absent any specific commitment otherwise or when taken in accordance with terms and conditions attached to the subsidy, does not constitute a breach of an obligation under the Investment protection Section. This does not necessarily mean that a Party's decision not to issue, renew or maintain a subsidy would otherwise constitute a breach. For example, a Party may, pursuant to paragraph 8.9.4, discontinue the granting of a subsidy, or request its reimbursement, even if a commitment was made, if such action is required in order to comply with international obligations between the CETA Parties such as to comply with a decision by the WTO that the subsidy was illegal or to comply with an order by a competent authority that the subsidy was granted contrary to the EU's state aid rules.
Paragraph 8.10.1 stipulates that covered investments shall be provided fair and equitable treatment and full protection and security. While the national treatment standard is relative in nature, Article 8.10 provides for an absolute minimum standard of treatment, informed by customary international law. Paragraph 8.10.2 defines the treatment that constitutes a breach of CETA's fair and equitable treatment obligation. Paragraph 8.10.3 provides that the Parties may over time agree that other types of treatment may breach the fair and equitable treatment owed to investments, in which case the Parties may amend the treaty to incorporate such additional standard of treatment. This ensures that the Parties, not the Tribunal, decide on any evolution of the standard. The Parties also specifically addressed the relevance of an investor's expectations in the analysis of the fair and equitable standard. Paragraph 8.10.4 notes that only an investor's expectations arising from a specific representation, usually a written and precise representation made directly to the investor by a competent authority, made to induce an investment, may be relevant in considering whether there is a breach of the fair and equitable treatment obligation. For example, in certain cases, and depending on the circumstances, frustration of such expectations may suggest that the Party acted in a manifestly arbitrary manner. Paragraph 8.10.5 clarifies that the full protection and security standard refers to, and is limited to, physical security. Paragraphs 8.10.6 and 8.10.7 clarify that a breach of another provision at international law or a breach of domestic law does not establish, in and of itself, a breach of the Treatment of investors and of covered investments Article.
Paragraph 8.11.1 requires a Party not to discriminate against investors of the other Party when it provides compensation for losses incurred during a conflict, civil strife, a state of emergency, or natural disaster in its territory.
Paragraph 8.12.1 stipulates that a Party may not directly or indirectly expropriate a covered investment, except for a public purpose, under due process of law, in a non-discriminatory manner, and on payment of compensation. Paragraph 8.12.1 should be read with Annex 8-A which: (1) defines what constitutes a direct and an indirect expropriation; (2) sets-out the legal test the Tribunal must apply in order to determine whether measures constitute an indirect expropriation; and (3) clarifies that the exercise of police powers does not amount to expropriation. Paragraphs 8.12.2 and 8.12.3 set-out the manner in which compensation and interests shall be calculated in the event of an expropriation. Paragraph 8.12.4 requires that investors have access to an independent mechanism, such as domestic courts, to review the value of the expropriated investment and compensation paid. Paragraph 8.12.5 stipulates that the Expropriation Article does not apply to the issuance of compulsory licences granted in relation to intellectual property rights when such issuance is consistent with the TRIPS agreement. Paragraph 8.12.6 is a safe harbour provision that makes clear that measures that are consistent with both the TRIPS agreement and CETA's chapter on intellectual properties, do not constitute expropriation. To avoid any doubt, the Parties have also clarified that a determination that a measure is inconsistent with the TRIPS agreement or CETA's chapter on intellectual properties does not establish an expropriation. Because of the important role that courts play in the determination of the validity of intellectual property rights, Annex 8-D cautions that the dispute settlement system set up under CETA is not an appeal mechanism for domestic court decisions. The Parties will review the relation between intellectual property rights and investment disciplines within three years of entry into force of the Agreement and address as necessary the relationship between intellectual property rights and investment disciplines in CETA.
Paragraph 8.13.1 stipulates that all capital transfers related to a covered investment to and from the host state of the investment shall be permitted without restriction or delay. Paragraph 8.13.2 prohibits a state from imposing on investors an obligation to transfer capital back to its territory. Paragraph 8.13.3 clarifies that a state may limit capital transfers when applying, in good faith, its laws relating to matters such as the protection of creditors, the dealing in securities, or the satisfaction of judgments.
Paragraph 8.14.1 stipulates that a Party or an agency of a Party, for example an export development agency, that makes a payment under an indemnity or guarantee it has provided to its investor or a contract of insurance it has entered into with its investor is entitled to the same rights as those enjoyed by that investor in the territory of the host Party to the investment. For example if EDC paid compensation to a Canadian investor for an expropriation it suffered in a EU Member State it may be entitled to seek compensation from that Member State under the CETA investment dispute settlement provisions.
SECTION E – Reservations and exceptions
Paragraph 8.15.1 contains certain reservations and exceptions to the Market access, Performance requirements, National treatment, Most-favoured-nation treatment, and Senior management and boards of directors' obligations. These obligations do not apply to existing non-conforming measures that a Party maintains at any level of government as listed and described in that Party's Schedule to Annex I. In addition, they do not apply to existing non-conforming measures at the local government level. Existing non-conforming measures of local governments are not listed but simply “grandfathered”. Moreover, the obligations will not apply to the continuation of listed non-conforming measures and grandfathered measures, to subordinate measures taken pursuant to the non-conforming measures (for example the exercise of a discretion set out in a legislation listed in a Party's Annex I) or to amendments to the non-conforming measures as long as the amendments do not make the measure less consistent with the obligations (this is referred to as the “ratchet” mechanism because it ensures that autonomous liberalization by a Party of a measure listed in Annex I is not reversed).
Canada has taken Annex I reservations, at the federal level, regarding the Investment Canada Act and other matters such as telecommunications, transport, business services, and energy. The provinces and territories have also listed reservations in Annex I.
Paragraph 8.15.2 stipulates that the market access, performance requirements, national treatment, most-favoured-nation treatment, and senior management and boards of directors obligations do not apply to a measure that a Party's adopts or maintains with respect to a sector, sub-sector or activity as set out in that Party's Schedule to Annex II. Canada has taken Annex II reservations regarding matters such as aboriginal affairs, agriculture, fisheries, social services, drinking water, and transport. Such reservations apply to measures of governments at any level in Canada. In those sectors, federal and provincial governments maintain broad policy flexibility. The provinces and territories have also taken certain additional reservations in Annex II, in particular with respect to market access. Paragraph 8.15.3 prohibits a Party from adopting a measure that requires that an investor, specifically because of its nationality, dispose of its investment, even if a Party has taken an Annex II reservation against the national treatment obligation.
Paragraph 8.15.4 stipulates that a Party may, with respect to intellectual property rights, derogate from the non-discrimination obligations and from the performance requirement obligation regarding technology transfer when such derogating measures are permitted under the TRIPS Agreement.
Paragraph 8.15.5 stipulates that the market access, national treatment, most-favoured-nation treatment, and senior management and boards of directors' obligations do not apply to procurement by a Party, to subsidies provided by a Party, or to government support relating to trade in services provided by a Party.
Article 8.16 allows a Party to deny the benefits of the Investment Chapter to an investor that is an enterprise if the enterprise is itself owned or controlled by an investor of a third country against which the Party maintains a measure, relating to the maintenance of peace and security, which prohibits transactions with such an enterprise. This ensures that the integrity of a Party's sanction regime is maintained and cannot be circumvented. Annex 8-E confirms, in relation to Article 8.16, the Parties' understanding that measures that are related to the maintenance of international peace and security include the protection of human rights.
Article 8.17 allows a Party to require routine information from an investor or its investment, provided that such a request is reasonable and not unduly burdensome.
SECTION F – Resolution of investment disputes between investors and states
Article 8.18 sets out the scope of the mechanism for the resolution of investment disputes. An investor may bring a claim in respect of its covered investment for a breach by a Party of the following substantive obligations:
- National treatment, most-favoured-nation treatment and senior management and boards of directors, but only with respect to the expansion, conduct, operation, management, maintenance, use, enjoyment and sale or disposal of a covered investment. An investor cannot bring a claim that relates to the establishment or the acquisition of an investment. Claims relating to the expansion of an existing investment may only be brought insofar as the measure relates to the existing business operations of a covered investment, for example if the expansion consists of adding a related business line to an existing investment. However, claims may not be brought in relation to a measure that affects the expansion of an existing investment if the expansion can be considered an establishment or acquisition, such as where the expansion is into a different activity or sector.
- Treatment of investors and of covered investments;
- Compensation for losses;
- Expropriation; and
In order to submit a claim, the investor must have suffered loss in relation to its covered investment as a result of the breach it alleges.
CETA addresses abuse of the investment dispute settlement provisions. An investor is precluded from making a claim if the investment is made through fraudulent misrepresentation, concealment, corruption or conduct amounting to an abuse of process. Moreover, because of the definition of “investors” in CETA, a claim against Canada by a so-called “shell” or “mail box” company in the European Union, that does not have business activities in the European Union, will not be possible as such companies will not be considered investors of the European Union. Similarly, Canadian companies that are not owned by Canadians and that do not have business activities in Canada will not be considered an investor of Canada and may not bring a claim against the European Union under this Section.
Certain limitations to the dispute settlement scope and special procedures apply to investment disputes arising from public debt restructuring and taxation measures. Restructuring of debt issued by a Party may only be submitted in accordance with Annex 8-B. In the case of negotiated restructuring only claims that a Party has breached national treatment or most-favoured-nation treatment may proceed to dispute settlement under Section F. Procedures related to taxation measures are set out in Article 28.7.
Decisions following a review under the Investment Canada Act are not subject to the dispute settlement procedures of this Section (or the government-to-government dispute settlement procedures in Chapter Twenty-Nine) as set out in Annex 8-C. Given the sensitivity of decisions under the Investment Canada Act, the exclusion from dispute settlement ensures that those decisions are not questioned by investment tribunals and arbitration panels. Dispute settlement is only possible under Chapter Twenty-Nine, if the EU brings a claim that Canada's measure is inconsistent with its Annex I reservation.
Disputing parties are encouraged to reach amicable settlement through consultations before initiating a claim under Section F, and Article 8.19 requires consultations be held within 60 days of a submission of the request for consultations. In order to foster productive discussions at this initial phase, the investor's request for consultations must set out basic details relating to the investor, the investment and the claim. The investor must further submit evidence establishing that it is an investor of the other Party and that it owns or controls the investment, including, if the investor is initiating a claim on behalf of a locally established enterprise, that it owns or controls such enterprise.
There is a clearly established three year time-bar to initiating a claim under Section F: consultations must be initiated within three years of the date that the investor knew or should have known of the alleged breach and that the investor or, if applicable, the locally established enterprise, incurred loss or damage as a result. The Tribunal will not have competence to hear claims that are outside this time period as the Parties wanted to avoid legal uncertainty over a prolonged period of time. At the same time, the CETA Parties wish to encourage investors to first pursue domestic remedies. Therefore, an investor that is first pursuing claims in the domestic courts of the Party is not prejudiced by the time-bar as it has up to two years after the domestic claims are ended and, in any event, up to ten years from the date that the investor had or should have had knowledge of the breach and damages to submit a claim under CETA. Moreover, to encourage settlement at any stage, Article 8.19 makes clear that settlement may be agreed at any time in the dispute settlement process, even after the claim has been submitted to arbitration under Article 8.23. If the disputing parties have chosen recourse to mediation, the deadlines under paragraphs 6 and 8 of Article 8.19 are paused from the date on which mediation is agreed to, to the date on which either disputing party notifies of its decision to terminate mediation by way of a letter to the mediator and the other disputing party.
Further, to avoid legal uncertainty and to ward against unreasonable delays and costs, a claim is barred from proceeding if an investor does not submit its claim under Article 8.23 within 18 months of submitting a request for consultations, unless there is agreement of the disputing parties to extend this deadline. Moreover, Article 8.35 makes clear that it is the investor that has a continuing obligation to take positive steps to pursue a claim under Section F throughout the procedure, or risk that the claim is deemed to be withdrawn. The Tribunal must take note of the discontinuance and issue an order terminating the dispute.
Given the architecture of the European Union, and that both the European Union and Member States may be respondents in investment disputes, Article 8.21 provides a mechanism for Canadian investors to determine and get certainty with respect to the respondent. If the European Union does not identify the respondent within 50 days of a request, a fall-back mechanism is provided by which the investor can determine the respondent and proceed with the claim in a timely manner. Regardless, neither the European Union nor a Member State can deny a claim on the basis that the Canadian investor did not properly determine the respondent. An investor must comply with certain conditions in order to secure a Party's consent to the Tribunal's competence over the claim. As such, Article 8.22 sets out the conditions precedent to submitting a claim under Section F, and unless these requirements are fulfilled the Tribunal must decline jurisdiction over the claim:
- The investor must deliver to the respondent its consent to the settlement of the dispute under Section F.
- The investor must allow 180 days from the time it submits a request for consultations and at least 90 days from the submission of the notice requesting a determination of the respondent. This time is intended to permit time to resolve the matter amicably, before invocation of dispute resolution proceedings.
- As it relates to Canadian investors' claims against the EU, the investor must fulfill all the requirements of the notice requesting a determination of the respondent.
- The investor must fulfill the requirements related to the request for consultations.
- The investor may not submit a claim to arbitration on a measure that is not identified in its request for consultations.
- The investor must withdraw or discontinue any existing proceeding before a tribunal or court under domestic or international law with respect to the measure alleged to constitute a breach referred to in the claim.
- The investor must waive its right to initiate any claim or proceeding before a tribunal or court under domestic or international law with respect to a measure alleged to constitute a breach referred to in its claim.
While CETA does not privilege recourse to the investment dispute settlement mechanism, and investors may choose instead to pursue available recourse in domestic courts, if they choose to bring investment disputes under CETA they can no longer pursue them in other fora. The last two conditions are designed to prevent duplicative claims and double recovery. To note, the waiver with respect to other fora does not apply if the claim brought under this Section does not proceed to the merits, for example because it is dismissed on jurisdictional or other preliminary grounds. In that case, the investor would then be free to proceed for recourse under the domestic law of the host Party or in another international forum. However, where a claim is decided on the merits under Section F, other claims or future claims on the same measure are prohibited.
Parties have also included provisions to ensure that the CETA's investment dispute settlement mechanism is more accessible to smaller investors. One such provision, under Article 8.23, is that an investor may propose when submitting its claim that the dispute proceeds under a sole Member of the Tribunal. The respondent must then give sympathetic consideration to this request especially if the investor is a small or medium-sized enterprise or the compensation or damages claimed are relatively low. Article 8.24 addresses the scenario where parallel proceedings are brought under CETA and another international agreement by different but related investors. When there is a potential for overlapping compensation or the other international claim could have a significant impact on the resolution of the claim brought under CETA, the Tribunal must either stay its proceedings or ensure that the proceedings brought under another international agreement are taken into account.
Article 8.26 sets out certain rules with respect to a growing phenomenon in investment disputes, funding of the dispute by a third party. Third party funding means any funding provided by a natural or legal person who is not a disputing party but who enters into an agreement with a disputing party in order to finance part or all of the cost of the proceedings either through a donation or grant, or in return for remuneration depending on the outcome of the dispute. The CETA does not prevent third party funding, as such funding may make international arbitration more accessible to those investors incapable of supporting the high costs of the process on their own. It however provides that information regarding such funding be disclosed as it may be relevant to conflict determinations amongst other things.
With Articles 8.27, 8.28, and 8.30 CETA establishes an independent, impartial and permanent investment mechanism for the resolution of investment disputes, inspired by the principles of public judicial systems in the European Union and its Member States and Canada, as well as international courts such as the International Court of Justice and the European Court of Human Rights. The mechanism includes a first instance Tribunal and an Appellate Tribunal.
Article 8.27 establishes a permanent first-instance Tribunal for the resolution of claims that are submitted under Section F. Upon full entry into force of the CETA, the CETA Joint Committee must appoint fifteen Members of the Tribunal: the Parties will each nominate five tribunal members of any nationality, though such nominations will be considered nationals of the Party making the nomination for the purposes of the constitution of the Tribunal divisions. The CETA Joint Committee must further nominate five nationals of third countries, and there is no discretion for the CETA Joint Committee to nominate nationals of the Parties, instead.
Tribunal Members are nominated to serve five-year terms, with the exception of seven of the initial members appointed immediately after the entry into force of the CETA. This is to ensure stability and continuity in the Tribunal. Vacancies will be filled, consistent with the nationality requirements set out above, as they arise. The Tribunal will hear cases in divisions of three members, one of whom is a national of each Party and the third one a national of a third country, with the non-national serving as the chair. The President of the Tribunal appoints the Members of each division within 90 days of a submission of a claim and must do so on a rotation basis to ensure randomness and giving each Member of the Tribunal an opportunity to serve.
The CETA contains an important fall-back mechanism if the CETA Joint Committee fails to make the required appointments to the Tribunal. The Secretary-General of ICSID is then tasked with the appointment of the division by random selection from the existing nominations to the Tribunal. If a Tribunal Member's term is set to expire while he or she is serving on a division of the Tribunal to avoid costs associated with replacing a Tribunal Member at a late stage of a process, he or she may continue serving on the division until a final award is issued.
For the dispute settlement mechanism to be effective, the Tribunal must be fully staffed with quality candidates whose competence and independence is without doubt. The Tribunal Members must therefore meet essential qualifications which include that they qualify in their respective countries for appointment to judicial office, or be jurists of recognised competence, and they must have demonstrated expertise in public international law. While not strictly necessary, expertise in international investment law, international trade law and dispute resolution under international investment or international trade agreements is desirable and the Parties should strive to nominate persons with these qualifications.
Members of the Tribunal must ensure that they are available and able to perform their duties as set out under the Chapter. Members of the Tribunal will be each paid a monthly retainer fee, the amount of which will be determined by the CETA Joint Committee. This retainer is in addition to those fees and expenses incurred while a division of a Tribunal is hearing a case. Such expenses will be as set out under Regulation 14(1) of the Administrative and Financial Regulations of the ICSID Convention in force on the date that the claim is submitted to arbitration, unless the CETA Joint Committee otherwise adopts a decision on the fees to be levied during such proceedings. Over time, the Parties contemplated that the retainer fee could be replaced by a permanent salary.
The Parties have determined that the ICSID Secretariat will act as the Secretariat for the Tribunal and provide it with the appropriate support.
Article 8.28 establishes the standing Appellate Tribunal, for the review of the first-instance Tribunal awards, and the basis for its functioning. It provides that the Appellate Tribunal may uphold, modify or reverse the awards of the Tribunal. The standard of review for the CETA's Appellate Tribunal is also set out:
- (a) Errors in the application or interpretation of applicable law;
- (b) Manifest errors in the appreciation of the facts, including the appreciation of relevant domestic law;
- (c) The grounds set out in Article 52(1)(a) through (e) of the ICSID Convention, namely:
- • the Tribunal was not properly constituted;
- • the Tribunal has manifestly exceeded its powers;
- • there was corruption on the part of a Member of the Tribunal;
- • there has been a serious departure from a fundamental rule of procedure; or
- • the award has failed to state the reasons on which it is based.
Once the administrative and organizational matters regarding the functioning of the Appellate Tribunal are agreed by the CETA Joint Committee, the Appellate Tribunal will become effective. The Parties have agreed to work on this expeditiously.
Until then, the procedures for set aside, annulment or revision, as applicable, continue to apply. However, once the CETA Appellate Tribunal becomes effective, these other procedures would no longer be available and the Appellate Tribunal will have the sole responsibility for the review of awards rendered under Section F. Over time, the Appellate Tribunal will contribute to greater legal certainty and, together with the first-instance Tribunal, to a more coherent interpretation of the investment provisions of the Agreement. A disputing party will have 90 days to appeal an award of the Tribunal. No action for enforcement of an award may be sought until after the 90-day period to initiate an appeal has expired, an appeal was rejected or withdrawn, or 90 days have elapsed from the time the Appellate Tribunal makes its award and has not referred the matter back to the Tribunal. An award by the Appellate Tribunal is final.
Article 8.30 sets out the ethical requirements of the Tribunal Members. Strict ethical rules for these individuals have been set to ensure their independence and impartiality, the absence of conflict of interest, bias or appearance of bias: they must be independent and must not be affiliated with any government, although receiving remuneration from a government, for example in the case of university professors from publicly funded universities, does not in and of itself make an individual ineligible to serve on the Tribunal. The Tribunal Members must not take any direction from an organisation or government in matters related to the dispute, nor participate in the consideration of any disputes that would create a direct or indirect conflict of interest and must comply with the internationally recognized guidelines on conflicts of interest, the International Bar Association Guidelines on Conflicts of Interest. Article 8.30 also eliminates so-called “double-hatting” by requiring Tribunal Members to refrain from acting as counsel or party-appointed experts or witnesses in a pending or on-going investment dispute. Any failure to comply with these ethical requirements will result in the removal of the Tribunal Member by the President of the Tribunal. The Committee on Services and Investment is tasked with adopting a code of conduct for the Tribunal Members, and the Parties have undertaken that such code is adopted as quickly as possible after the entry into force of CETA.
In accordance with paragraphs 3 and 4 of Article 8.30, a disputing party may challenge a Member of the division of the Tribunal or Appellate Tribunal - if it considers that such Member has a conflict of interest. To do so, the disputing party must send a notice of challenge stating its grounds for the challenge to the President of the International Court of Justice (“ICJ”) within 15 days of the date of the composition of the division or the date on which the relevant facts became known if they could not have reasonably been known to the disputing party on the date of the composition of the Tribunal. The challenged Member of the Tribunal is free to resign upon the challenge of a disputing party, but if she or he has elected not to do so, the President of the ICJ will try to issue a decision and notify the disputing parties and other members of the division within 45 days of receiving the notice of challenge. Any resulting vacancy must be filled promptly by the President of the Tribunal in accordance with Article 8.27.
Article 8.31 sets out the applicable law for Tribunals tasked with the settlement of disputes under the Agreement as interpreted in accordance with the Vienna Convention on the Law of Treaties, and other rules and principles of international law applicable between the Parties. Paragraph 3 further sets out that any interpretation adopted by the CETA Joint Committee as provided for in Article 8.44.3(a) is binding on the Tribunal. This ensures that the Tribunal respects the intent of the Parties as set out in the Agreement. Canada and the European Union and its Member States will use these provisions to avoid and correct any misinterpretation of CETA by the Tribunal.
Moreover, Article 8.31.2 provides that the Tribunal may not make a determination on the legality of a Party's measure and indeed the Tribunal's competence is limited to determining breaches of certain investment provisions of the Agreement. Domestic law is only to be considered as a factual matter, for example with respect to the scope of certain rights, and the Tribunal will follow the prevailing interpretation of the domestic law by the courts or authorities of the Party. Any meaning given to the domestic law of the Tribunal is not binding upon the courts or authorities of that Party.
Articles 8.32 and 8.33 set up efficient procedure to resolve disputes where a claim is manifestly without legal merit or unfounded as a matter of law. As regards claims manifestly without legal merit, the respondent has up to 30 days after the division of the Tribunal is constituted, and before the Tribunal's first session, to file its objection that a claim is manifestly without legal merit. For example, this procedure could be invoked if based on the facts alleged in the request for consultation the claim is time barred. Upon receipt of such an objection, a Tribunal must suspend the proceedings on the merits and establish a schedule to consider the objection. The Tribunal must promptly issue a decision or award on the question, on the assumption that all alleged facts are true. The process and determination of whether the claim is without legal merit is without prejudice to the merits of the allegations. Moreover, it is without prejudice to the respondent's right to object to the Tribunal's jurisdiction at a later time and to request that the objection be addressed as a preliminary matter.
With respect to claims unfounded as a matter of law, the Tribunal may also consider on a preliminary basis that a claim, or any part of a claim, is not one that can be successful under Section F, even if the facts are alleged as true. For example, this procedure could be invoked if an investor alleges a breach of obligations in the chapter on cross-border services. An objection that a claim is unfounded as a matter of law must be submitted no later than the date the respondent must submit its counter-memorial. If an objection is raised under Article 8.33, the Tribunal will suspend any proceedings on the merits and establish a schedule for considering an objection that a claim is unfounded as a matter of law on a preliminary basis. If the Tribunal has already set a procedure and time frame to address other preliminary questions, such as objections to the Tribunal's jurisdiction, the Tribunal may address the issues in the same phase of the arbitration. If the Tribunal is also seized with an objection that the claim is manifestly without legal merit, it may exercise judicial economy and decline to address whether that claim is also unfounded as a matter of law.
Article 8.34 accords the Tribunal the power to order an interim measure of protection to preserve the rights of a disputing party or to ensure that the Tribunal's jurisdiction remains effective, including by issuing an order to preserve evidence. However, this does not include the power to order attachment or enjoin the application of a measure alleged to be in breach of the CETA.
Article 8.36 ensures that the UNCITRAL Transparency Rules in Treaty-based Investor-State Arbitration apply for proceedings under Section F, and further includes a non-exhaustive list of documents that will be subject to the publication requirements in s.3(1) of the UNCITRAL Transparency Rules, subject to the redaction of confidential or protected information in accordance with those rules. Hearings held under Section F are open to the public. Only those parts of the hearing that reference confidential or protected information may be held in private, and the Tribunal will make the appropriate arrangements for ensuring that information is not disclosed.
Article 8.36.6 makes clear that nothing in the Investment Chapter prevents a respondent from disclosing to the public information that it is required to disclose under its access to information laws. The respondent should make best efforts to apply its laws so as to ensure the protection of information that has been designated as confidential in the arbitration.
Article 8.37 includes certain rules related to the disclosure of protected information. A disputing party may disclose to other persons in connection with the proceedings, such as witnesses and experts, unredacted documents that it considers necessary in the course of proceedings under this Section. A respondent state may also disclose to officials of its other levels of government information that it considers necessary, although it must ensure that those officials protect the information.
Article 8.38 ensures that the Party that is not the respondent is made aware of the claims that are initiated under the mechanism for the resolution of investment disputes and reserves the right for the non-disputing Party to make submissions on the interpretation of the Agreement, should they wish to do so.
A final award against the respondent may only contain monetary damages and any applicable interest and / or restitution (though in the case of restitution, the Tribunal must provide an alternate possibility for the respondent to pay damages instead, based on the fair market value of the property). Article 8.39 requires that for claims made on behalf of locally established enterprises, any compensation be made to the locally established enterprise, not to the investor.
Article 8.39 further prohibits an award of punitive damages. The damages awarded by a Tribunal must be no greater than the loss suffered. In its calculation of monetary damages, the Tribunal must reduce the damages to take into account any restitution of property or repeal or modification of the offending measure as well as any other compensation that may have been paid.
The high costs of dispute settlement through investment arbitration can be prohibitive for smaller investors. To facilitate access to the investment dispute settlement mechanism under the CETA to those who may not be in a position to cover the costs of an unsuccessful claim, such as SMEs or natural persons that are not claiming a large amount or that have demonstrated limited resources, the CETA Joint Committee may set up additional rules aimed at reducing the financial burden.
Article 8.39 further aims to reduce long delays in resolving investment claims imposing some discipline on disputing parties and Tribunals to ensure a quick resolution to the dispute. Any Tribunal taking more than 24 months to issue its final award from the date the claim is submitted must explain the reasons for the delay.
Article 8.40 ensures that a respondent does not escape its legal responsibility to investors of the other Party through its assertion that the investor and / or locally established enterprise will receive an indemnity or compensation under insurance or other guarantee contract.
Article 8.41 establishes the binding and final nature of the award including for the purposes of the New York Convention, as well as for the purposes of the ICISID Convention, as applicable. Disputing parties will recognise and comply with the award without delay. Where a disputing party has determined to pursue revision, annulment or set-aside proceedings, under the applicable rules, those proceedings must be initiated within the timelines indicated. Once these proceedings for revision, annulment or set-aside are completed, the disputing parties must recognise and comply with the award without delay.
A Party may bring a dispute settlement claim under Chapter Twenty-Nine in respect of a claim submitted by its investor under Article 8.23 if the other Party has failed to abide and comply with the award. Any decision by an investor to bring a claim against the other Party is without prejudice to the ability to initiate dispute settlement under Chapter Twenty-Nine of CETA.
For efficient resolution of disputes initiated under Section F, when two or more claims have been submitted separately under Article 8.23 have a question of law or fact in common and arise out of the same events or circumstances, a disputing party or disputing parties, jointly, may seek the establishment of a separate division of the Tribunal under Article 8.43 and request that such division issue a consolidation order. The President of the Tribunal may constitute a new division to have jurisdiction over some or all of the claims, subject to the joint consolidation request. The award of a consolidating division of the Tribunal established under this Article in relation to those claims, or parts of those claims, over which it has assumed jurisdiction is binding on the division of the Tribunal appointed under the consolidation article as regards those claims or those claim's parts.
A Committee on Services and Investment is set up under the CETA to oversee this Chapter and to consult on difficulties which may arise as well as possible improvements to the Chapter, in addition to the particular tasks set out in paragraphs 2 and 3 of Article 8.44. Of particular importance, within two years of the entry into force of CETA, the Committee on Services and Investment is tasked with adopting a code of conduct for the Members of the Tribunal to be applied in disputes arising out of the Investment Chapter.
2. Canadian Legislation
Subsection 8(2) of the CETA Implementation Act sets out the general prohibition against an individual or entity bringing a claim against Canada for a breach of CETA. Subsection 8(3) provides an exception for investment dispute settlement under the Agreement. This ensures that only the dispute settlement provisions in the Agreement are available to resolve disputes under the Agreement.
Section 11 of the CETA Implementation Act authorizes the Minister for International Trade to propose the names of individuals to be included on the Tribunal and Appellate Tribunal under Section F and the Minister Finance to propose the names of individuals to act as tribunal members to be included on Canada's sub-list and sub-list of chairpersons for investment and state-to-state disputes in financial services.
Subsection 13(a) of the CETA Implementation Act provides the authority for the Government of Canada to pay its appropriate share of the costs, remuneration and expenses of the investment dispute settlement tribunals.
Section 90 of the CETA Implementation Act amends the Commercial Arbitration Act to ensure that investment dispute settlement claims under CETA are considered commercial arbitration for the purposes of that Act.
Section 80 of the CETA Implementation Act amends the Investment Canada Act (ICA) to raise the net benefit review threshold to $1.5 billion in enterprise value for non-state-owned enterprise investors from CETA partner countries, and other bilateral trade agreement partners, namely Chile, Colombia, Honduras, Mexico, Panama, Peru, South Korea, and the United States. Section 81 introduces a schedule to the ICA, which is needed to interpret the definitions of “trade agreement country” and “trade agreement investor” introduced into the ICA by Section 80. The schedule, together with the new definitions, identifies the relevant bilateral trade agreement partners receiving the $1.5 billion in enterprise value net benefit review threshold.
Amendments to the Coasting Trade Act are detailed under Chapter Twelve.
3. Intended Government Action
Investment agreements protect the interests of Canadian investors abroad and provide a rules-based approach to the resolution of disputes involving foreign investors in Canada. The investment dispute resolution mechanism will not be provisionally applied, but the mechanism will enter into force between the Parties once Canada, the European Union and its Member States have ratified the CETA and the treaty enters into force.
The CETA builds upon Canada's previous experience in investor-State arbitration, maintaining those procedures that continue to work well, while introducing innovative improvements to international dispute settlement. The CETA marks the first time that Canada sets up permanent tribunals for hearing and resolving investment disputes. It is anticipated that permanent tribunals will ensure consistent and high-quality decisions and awards. The Government will work with the European Union and its Member States to monitor the operation of all these investment rules, to address any shortcomings that may emerge, and to explore ways in which to continually improve their operation over time.
Moreover, the Government will ensure that the individuals proposed for the Tribunal and Appellate Tribunal possess the requisite characteristics to ensure an impartial process for the resolution of investment disputes.
Canada has further agreed to begin immediately further work on a code of conduct to further ensure the impartiality of the members of the Tribunals, on the method and level of their remuneration and the process for their selection. The common aim is to conclude the work by the entry into force of CETA.
Canada believes the CETA investment dispute mechanism introduces improvements to investor-State dispute settlement. Canada will also pursue together with the European Union the establishment of multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. While multilateral agreement on such a mechanism may take some time, it would eventually replace the CETA bilateral mechanism.
With respect to the applicable investment rules, the Government will, in conjunction with the European Union and on a regular basis, review the content of the obligations under the Investment Protection section, including the content of the obligation to provide fair and equitable treatment.
Chapter Nine – Cross Border Trade in Services
1. CETA Provisions
There has been a significant shift towards services in the Canadian economy since 2000. Services have increased from around 65 percent of Canada's gross domestic product (GDP) in 2000 to 71 percent in 2016. The percentage of workers employed in services also rose significantly, from 74 percent in 2000 to almost 80 percent in 2016. Between 2005 and 2016 employment in the services sector grew at an annual rate of 1.5 percent, while employment in the goods sector contracted at an annual rate of less than 0.4 percent.
Services differ from goods in that they involve the exchange of advice or expertise rather than tangible products. Services are, on balance, more knowledge-intensive than other sectors. Positions in services industries, such as financial, professional, scientific, and technical services consequently tend to be more highly paid than other industries.
Cross-border trade in services (CBTS) is an increasingly important component of Canada's international trade. CBTS refers to the production, distribution, marketing, sale, and delivery of a service abroad, including payment for and use of that service by a consumer. Cross-border exports of services from Canada totaled $107 billion in 2016, representing about 17 percent of Canada's total exports. Cross-border imports of services into Canada were worth $129 billion in the same year.
Provisions of Chapter Nine (Cross-Border Trade in Services) form the foundation for the liberalization of the services market under CETA. The Chapter establishes key obligations with respect to treatment of services suppliers of the other Party and establishes the framework for services market access under the Agreement. Through the certainty it provides, CETA facilitates greater cross-border trade in services sectors such as professional services (accounting, architecture, engineering, legal), consulting and advisory services, construction services, computer services, and research and development services.
Historically, Canada's approach to addressing CBTS in trade agreements has been based on the approach taken in NAFTA. The provisions of Chapter Nine in CETA build on the NAFTA approach, while incorporating the different architecture of past EU agreements in some areas. More broadly, the CETA approach to trade in services includes certain new elements (such as stand-alone chapters on Mutual Recognition of Professional Qualifications and Domestic Regulations) that reflect the efforts on both sides to pursue an ambitious and innovative outcome.
A major way that CETA differs from preceding bilateral trade agreements is that it requires the listing of non-conforming measures at, respectively, the provincial/ territorial level for Canada and the Member State level for the EU. Importantly, this scheduling is done on a negative list basis, meaning all services are covered by the obligations of the Agreement unless explicitly indicated otherwise. CETA represents the first time the EU has listed non-conforming measures on a negative list basis against all key obligations of the CBTS Chapter. This approach will benefits Canadian services providers by allowing them to easily see where the EU and/or Member States reserve trade restrictive measures that may impact their ability to export to those markets. In addition, it provides greater certainty that the EU and its Member States will not impose new measures that are more trade restrictive than existing measures, ensuring that market access for Canadian service providers is secured going forward.
Article 9.2 establishes the scope of the obligations of Chapter Nine as applying to any measure affecting cross-border trade in services by a service supplier of the other Party. This could include measures affecting production, distribution, marketing, sale, and delivery of the service; as well as payment for and use of that service. It then lays out a list of sectors and/or circumstances where the Chapter would not apply, including services provided under government authority, cultural industries (Canada only), audio-visual services (EU only), financial services, air services (unless specifically included in Article 9.2), government procurement, and any measure related to subsidies or government support. Note that financial services and government procurement are treated in other chapters of the Agreement, while most air services are governed by separate international agreements, including the Agreement on Air Transport between Canada and the European Community and its Member States.
It is noteworthy that the definition of cross-border trade in services in CETA excludes services supplied through the presence of a person of one Party in the territory of the other Party. This mode of services provision, referred to as mode 4, is covered in Chapter Ten and is subjected to the key CBTS obligations through a bridging clause (see Chapter Ten summary).
Further to the exclusion listed in Article 9.2.2(a), public services such as health, public education, the collection, purification and distribution of water, and other social services have been excluded from the obligations of CETA, ensuring that governments remain free to enact the policies and programs based on Canadian priorities and objectives.
Article 9.3 specifies the requirement to provide National Treatment (NT). This key obligation states that each Party must treat service suppliers of the other Party no less favourably than it treats its own service suppliers in like situations. Canada and the EU expressed their understanding on the application of Article 9.3 in the context of treatment accorded by a provincial or territorial government in Canada or by a government of or in a Member State of the EU in an annex to the Chapter. Annex 9-A is further discussed below.
Article 9.4 provides clarity that certain formal regulatory requirements are not considered to breach the NT obligation, provided such requirements are applied in a manner that does not constitute arbitrary or unjustifiable discrimination. Such requirements could include, for example, licencing and qualification requirements, requirements to have a local agent or speak the national language, or the requirement to post a bond or other form of financial security.
Article 9.5 sets out the Most-favoured nation (MFN) obligation. Under MFN, each Party must treat service suppliers of the other Party no less favourably than it treats service suppliers of a third Party, in like situations. This ensures that the Agreement continues to provide a level playing field for Canadian services providers as the conditions of trade further liberalize between the EU and its other trading partners. The Article clarifies that MFN does not require a sub-national government to provide foreign suppliers treatment on par with that provided by another sub-national government within the same country. It further specifies that MFN does not apply where a Party undertakes to recognize regulatory accreditation of a third Party.
Article 9.6, the Market access (MA) obligation, prohibits the imposition of certain types of regulatory measures that would restrict the supply of services. Specifically, this obligation prohibits numerical limits on the number of service suppliers; the total value of services transactions or assets; the total number of service operations or the total quantity of service output; or the total number of natural persons who may be employed in a certain service sector.
Article 9.7 specifies the ability for Parties to list reservations in the Schedules to Annex I or II. Annex I lists existing measures that do not conform with the key obligations of the Chapter. Each Annex I reservation is linked directly to a specific, existing measure. Annex II generally relates to future measures. It grants partial or full exclusion of specific sectors or activities from the key obligations of the Chapter, so as to preserve policy flexibility for a given service sector or activity. For example, Canada takes Annex II reservations for measures related to health, public education, aboriginal affairs, minority affairs, social services and the collection, purification and distribution of water.
A key feature of Article 9.7 is the negative list modality, meaning that any measure or policy area not specifically reserved in a Party's Schedule to Annex I or II is covered by the obligations of the Chapter. CETA is noteworthy among existing trade agreements in that the negative list is presented at the provincial/territorial level in Canada and the Member State and regional government levels in the EU. The result is an agreement with more transparent and comprehensive CBTS coverage.
Other key features of Article 9.7 are the standstill and ratchet mechanisms. The standstill mechanism ensures that neither Party will impose future measures that are new or more restrictive than those that were in place when the CETA came into force. The standstill mechanism only applies to measures listed in Annex I. The ratchet mechanism ensures that any future trade liberalizing changes to a Party's measures will automatically be locked-in under the Agreement and therefore cannot subsequently be made more restrictive. Like the standstill, the ratchet mechanism only applies to measures listed in Annex I.
Article 9.8 allows Parties to deny the benefits of the Chapter to an enterprise of the other Party if the enterprise is owned or controlled by a non-Party, or in cases where providing the benefits would require otherwise violating international sanctions.
There are three Annexes to Chapter 9, each confirming an understanding among the Parties. Annex 9-A confirms the understanding that Article 9.3 does not require the more favourable treatment deriving from the benefits of an internal agreement, for example for Canada the Agreement on Internal Trade and for the EU the Treaty on the Functioning of the European Union, to be extended to cross-border trade providers of the other Party. Annex 9-B confirms the understanding that Articles 9.3, 9.5, and 9.6 do not apply to a measure relating to a new service that cannot be classified under the standardized codes used in the annexes. Finally, Annex 9-C indicates that courier services are covered by the Agreement with certain exceptions.
2. Canadian Legislation
To conform with the obligations of the CBTS Chapter and the commitments with respect to domestic cabotage in Annex II-C-14 of Canada's reservations, the CETA Implementation Act will amend the Coasting Trade Act.
Annex II-C-14 includes certain commitments with respect to EU investment in and provision of certain types of cabotage activities in Canada, including the repositioning of empty containers between locations in Canada and private dredging using vessels of any registry, and feeder services between the Port of Halifax and the Port of Montreal using vessels registered in a Member State of the EU.
Given that CETA requires a real economic link with the economies of Canada or the EU in order for a firm to benefit from the Agreement, the recipients of the benefits under Canada's reservation are not intended to extend to “shell” or “mail box” companies that do not have substantive business operations in Canada or the EU. Therefore, for the purposes of providing the domestic maritime cabotage services contained in Annex II-C-14 by means of a foreign vessel, it must be operated by an enterprise of the EU, or operated by an enterprise of a third country owned or controlled by a national of the EU and that vessel must be registered in accordance with the laws of a Member State of the European Union and flying the flag of a Member State of the EU. In this regard, entities that have no contractual or lawful rights associated with the vessel but participate in decisions regarding the use of vessels would not be considered to be owners of a vessel within the scope of the Coasting Trade Act.
Section 3 of the Coasting Trade Act introduces changes which set out which vessels will be excluded from the requirement to obtain a coasting trade licence, under which conditions and with respect to which coasting trade activities. This section confirms that any law of Canada that imposes safety or pollution prevention requirements also applies to foreign ships and introduces new reporting requirements for owners seeking to engage in those activities that do not require a coasting trade licence.
Two new regulation making powers have been added which allow the Governor in Council to specify what territory is considered to be a part, or not, of the Territory of the European Union for the purpose of the Coasting Trade Act and which EU second or international ship registers may benefit from CETA undertake feeder services without a coasting trade licence.
Other than as set out above, the implementation of the CBTS Chapter will not require additional changes to Canadian laws, regulations or other measures now in effect.
3. Intended Government Action
Cross-border trade in services will be a key component of Canada's international trade profile going forward. The Government will monitor services trade activities, consult with stakeholders, and look for strategies to facilitate greater cross-border trade in services. If appropriate, Canada will engage EU counterparts through the specialized Committee on Services and Investment in order to pursue this objective.
Canada supports the achievement of a more efficient maritime regime that facilitates international trade. Providing users of maritime services with more logistics options than those that currently exist is one way of making the Canadian market more attractive, competitive and logistics-friendly.
This would also contribute to strengthening direct investment in the transportation sector, supporting broader Government of Canada objectives in respect of trade growth.
Chapter Ten – Temporary Entry and Stay of Natural Persons for Business Purposes
1. CETA Provisions
Provisions to support the temporary entry of business persons form an integral part of modern trade agreements due to the important role the mobility of highly-skilled business people plays in growing businesses and expanding trade. In addition, substantive obligations on temporary entry can act as enablers for gains achieved in other areas of a free trade agreement, including cross-border trade in services, investment, market access for goods, and government procurement.
Chapter Ten of CETA addresses administrative requirements such as numerical restrictions or economic needs tests that can impose time delays and administrative costs on prospective business entrants who are seeking to enter Canada or the EU on a temporary basis. The provisions of the Chapter are aimed at increasing transparency and predictability of these requirements. The obligations are tailored according to the different types of business persons the Chapter covers, including intra-corporate transferees, investors, contract service suppliers and independent professionals and business visitors. For example, the Chapter will facilitate short-term business visitors seeking to enter Canada or the EU to attend meetings or trade fairs by ensuring that they will not require work permits for such covered activities. For other categories of covered business persons, the Chapter includes obligations not to apply numerical restrictions or economic needs tests (such as labour market tests), subject to specific conditions and limitations. This means that the process of obtaining a work permit for covered business persons will be more predictable and transparent, and in some cases, faster and less expensive, which will benefit; for example:
- Investors who are supervisors or executives and are seeking to establish, develop or administer the operation of an investment,
- Intra-corporate transferees who are senior personnel, specialists, or graduate trainees who are being temporarily transferred within a company,
- Companies seeking to temporarily send employees as contractual services suppliers to provide services in order to fulfill contracts, and
- Independent professionals who are self-employed and seeking to temporarily enter to supply a service in order to fulfill a contract.
While the categories of business persons and substantive obligations in Chapter Ten are consistent with Canada's traditional approach to temporary entry in trade agreements, the structure of the CETA is novel as it reflects the combined approach of both Parties. As a result, the titles of categories of business persons and many of the conditions for temporary entry represent a hybrid of Canada's NAFTA-based approach and the differing approach the EU has generally taken in its past trade agreements.
It is also important to note that CETA temporary entry and stay provisions do not cover general labour or low-skilled jobs. As in Canada's other trade agreements, the provisions do not deal with permanent employment, citizenship, residency, or any visa requirements (visas are distinct from temporary work authorizations).
Article 10.1 defines the key terms used in Chapter Ten. Notably, this Article defines the categories of business persons that are covered by the Chapter, which are key personnel (business visitors for investment purposes, investors and intra-corporate transferees), contractual services suppliers, independent professionals, and short-term business visitors.
Article 10.2 establishes the objectives and scope of the obligations in Chapter Ten, and affirms the mutual objective of Canada and the EU to facilitate trade in services and investment by allowing the temporary entry of individuals for business purposes. At the same time, Article 10.2 reaffirms that the Parties have a right to apply measures in order to protect the integrity of their territories with respect to physical entry of persons (including with respect to visas) and by ensuring that laws and regulations regarding work and social security measures will continue to apply. It clarifies that the Chapter's provisions do not apply to measures regarding citizenship, residence, employment on a permanent basis or access to the employment market of a Party.
Article 10.3 sets out the general obligations of the Chapter, with each Party committing to grant temporary entry to business persons of the other Party in accordance with the provisions set out in the Chapter. Article 10.3 clarifies that business persons seeking temporary entry must comply with a Party's immigration measures applicable to temporary entry. It also obliges Parties to ensure that any fees for processing applications for temporary entry are reasonable and commensurate with the costs incurred.
Article 10.4 explains that Parties recognize the importance of transparency, and in this regard, commit to share explanatory material regarding the requirements for temporary entry to enable business persons to better understand the procedures. Parties have agreed to share data they collect with respect to temporary entry under Chapter Ten.
Article 10.5 sets out the contact points for Canada and the European Union (including Member State contact points, which are listed in Annex 10-A). These contact points will exchange information under Article 10.4, and will meet as required to consider matters relating to the implementation and administration of the Chapter.
Article 10.6 is a bridging provision that incorporates key obligations of Chapter Nine (Cross-Border Trade in Services) and makes them applicable with respect to services supplied through the presence of a person of one Party in the territory of the other Party (referred to as “presence” or “mode 4” under the WTO General Agreement on Trade in Services).
Specifically, in Article 10.6.2(a), the National treatment (NT) and Market access obligations of Chapter Nine, subject to the articles in the same chapter on Formal requirements and Scope (except for the carve-out related to financial services) are incorporated into Chapter Ten, and apply to the treatment of key personnel, as well as contractual services suppliers and independent professionals (for sectors listed in Annex 10-E and subject to the requirements set out in Article 10.8) who are present in the territory of the other Party.
Article 10.6.2(b) similarly incorporates the Most-favoured-nation treatment (MFN) obligation of Chapter Nine into Chapter Ten, subject to the articles in Chapter Nine on Formal Requirements and Scope (except for the carve-out related to financial services). However, the MFN obligation also applies to the treatment of short-term business visitors as set out Article 10.9, in addition to key personnel, contractual services suppliers, and independent professionals present in the territory of the other Party. For contractual services suppliers and independent professionals, the MFN obligation is not subject to sectoral limitations listed in Annex 10-E, meaning that the scope is broader than for the NT and Market access obligations.
Article 10.6.4 notably specifies that reservations set out by a Party in its Schedule to Annex I, II, or III also applies to this Article to the extent that the Party's reservation relates to the treatment of natural persons for business purposes present in its territory. For example, if a Party maintains reservations regarding residency requirements, these would apply to service suppliers from the other Party seeking to enter the market.
Article 10.7 sets out the commitments for temporary entry for the category of key personnel, subject to the reservations listed in Annex 10-B. Article 10.7.2 specifies that Parties shall not limit the total number of key personnel allowed temporary entry through numerical restrictions or economic needs tests. For business visitors engaged in investment-related activities, Article 10.7.3 commits Parties to grant temporary entry without a work permit or other similar prior approval procedures. The permissible lengths of stay for the sub-categories of key personnel are listed in Article 10.7.5.
Article 10.8 specifies the conditions and obligations for the temporary entry of contractual services suppliers and independent professionals, subject to reservations listed in Annex 10-E. Article 10.8.1 lists conditions for contractual services suppliers, including with respect to the length of the service contract, prior experience as an employee of the enterprise supplying the service, professional experience, education and professional requirements. For the education requirement, Annex 10-C provides for equivalent qualifications to the university degree requirement for engineering technologies and scientific technologists, subject to reservations in Annex 10-E. Article 10.8.2 lists conditions for independent professionals, which also includes limits on the contract length, and requirements for professional experience, education and professional qualifications. The commitment not to limit the total number of contractual services suppliers and independent professionals through numerical restrictions or economic needs tests is set out in Article 10.8.3, and the permissible lengths of stay are listed in Article 10.8.4.
Article 10.9 sets out the requirements for the temporary entry of short-term business visitors, and specifies that commitments apply to the activities listed in Annex 10-D, subject to reservations listed in Annex 10-B. In this Article, Parties commit to grant temporary entry without a work permit or other similar prior approval procedures for up to 90 days in any six-month period. Article 10.9.1 also specifies that short-term term business visitors cannot sell a good or service to the public, receive remuneration from a source in the country they are temporarily entering, or supply a service based on a contract (except as outlined in Annex 10-D).
There are six Annexes to Chapter Ten:
- Annex 10-A sets out the contact points in the Member States of the EU under Article 10.5.
- Annex 10-B sets out the reservations and exceptions for key personnel and short term business visitors by Member States of the EU under Articles 10.7 and 10.9. Except for reservations listed by the United Kingdom, all other reservations in Annex 10-B are subject to a ratchet mechanism listed in paragraph 2, which ensures that any amendments to measures listed in the reservations cannot be more restrictive.
- Annex 10-C provides equivalent education qualifications for engineering and scientific technologists for the education requirement for contractual services suppliers under Article 10.8.1(c)(i).
- Annex 10-D lists the permissible activities for short-term business visitors under Article 10.9.1.
- Annex 10-E sets out the sectoral commitments and related reservations of the Parties for the categories of contractual service suppliers and independent professionals under Articles 10.8.1 and 10.8.2. Paragraphs 1 through 10 provide important considerations and limitations that apply to the interpretation of Annex 10-E, and paragraph 11 lists the specific reservations by sector.
- Annex 10-F outlines the understanding between the Parties regarding spouses of intra-corporate transferees. It specifies that EU Member State that are subject to the EU ICT Directive of 15 May 2014 will extend the same temporary entry rights to Canadian spouses of intra-corporate transferees that are granted to spouses of intra-corporate transferees under the ICT Directive. Canada is obligated to treat the spouse of an EU intra-corporate transferee equivalently to how Canadian spouses of intra-corporate transferees are treated in the transferee's country of origin.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Ten.
3. Intended Government Action
The Government will publish guidelines laying out the eligibility criteria for admission to Canada under the temporary entry categories committed-to under this Chapter. This will allow for efficient and transparent processing by officers.
Canada's Immigration and Refugee Protection Regulations allow work permits to be issued, and to exempt business visitors from the work permit requirement, in accordance with the commitments made in the Chapter.
Specifically, Regulation 204(a) allows a work permit to be issued to a foreign national intending to perform work pursuant to an international agreement between Canada and one or more countries. This type of work permit is exempt from the requirement to seek a labour market assessment or opinion. These types of work permits are captured under various administrative categories and are applicable to contractual service suppliers, independent professionals, investors and intra-corporate/company transferees.
Regulation 186(a) and 187 is broadly applicable to both business visitors for investment purposes and short-term business visitors. These regulations allow for the work permit-exempt entry of business persons conducting the visitor activities described in this Chapter.
The government also committed to facilitating access to the labour market for the spouses of intra-corporate transferees. Canada already allows for this, along with facilitating the issuance of work permits for all spouses of all high-skilled temporary workers pursuant to Regulation 205(c)(ii).
Chapter Eleven – Mutual Recognition of Professional Qualifications
1. CETA Provisions
Mutual Recognition Agreements (MRAs) in relation to professional qualifications are undertakings through which relevant authorities, or designated professional bodies, set out terms by which each will recognize the qualifications of practitioners of regulated professions accredited in jurisdictions of the other Party. Regulated professions are professions which, by virtue of legislative, regulatory or administrative provisions, require the possession of specific qualifications, including for the use of a title or designation. Typical examples include accounting services, architectural services, engineering services and legal services. When successfully implemented, MRAs greatly facilitate the cross-border provision of regulated services.
In past trade agreements, Canada's approach has been to encourage bodies designated with authorizing the practice of the profession to work with counterparts to develop MRAs; however, any resulting MRAs would not form part of the trade agreement. Chapter Eleven of CETA modifies and expands Canada's approach to MRAs in its trade agreements by establishing a framework to facilitate a fair, transparent and consistent regime for the mutual recognition of professional qualifications by the Parties, setting out the general conditions for the negotiation of MRAs, and establishing a process by which MRAs may be adopted into the Agreement.
Article 11.2 sets out the scope of Chapter Eleven as applying to regulated professions across the jurisdictions of the Parties, including where professions are regulated in some or all of the provinces and territories of Canada, or Member States of the EU. It requires that a Party shall not accord recognition through a means that would constitute discrimination in the application of its criteria for the authorisation, licensing or certification of a service supplier, or that would constitute a disguised restriction on trade in services. In setting these conditions in the context of MRAs, this paragraph complements the broader provisions on the development and administration of licencing and qualification requirements found in Chapter Twelve (Domestic Regulation).
A key function of Chapter Eleven is establishing a mechanism through which MRAs may be adopted under CETA. The final paragraph of Article 11.2 states that, should an MRA be adopted under the process detailed below, that MRA shall apply throughout the territories of the Parties. This ensures that an MRA adopted under the Chapter must be effectively a Canada-EU agreement, and not an agreement among only some jurisdictions.
Note that existing MRAs between Canadian and European authorities can continue to exist and function outside CETA, as they always have. However, the process of adoption is available if the responsible authorities wish to pursue it. To pursue adoption, the authorities would present the MRA to the Committee, which may include agreed upon modifications, at which point it would go through the same process for review and possible adoption as in the case of a newly negotiated draft.
Article 11.3 sets out the process to develop and potentially adopt new MRAs, and establishes the role of the Joint Committee on Mutual Recognition of Professional Qualifications (MRA Committee) in relation to the negotiation of MRAs. The Article requires that Parties encourage relevant authorities or professional bodies to present recommendations to the MRA Committee on the potential value and feasibility of an MRA in their sector. The MRA committee would review both the recommendations, as well a draft MRA once negotiated, to ensure consistency with the Chapter and CETA more broadly. If there is consensus, the MRA Committee shall adopt the MRA, thus bringing it under the Agreement and allowing the Parties to benefit from the availability of Dispute Settlement provisions (Chapter Twenty-Nine).
Article 11.4 sets out rules with respect to recognition of professional qualifications provided on the basis of an MRA. Broadly, it states that a professional recognized under a MRA must receive treatment no less favourable than that provided to a locally recognized professional in like circumstances. Moreover, recognition under a MRA cannot be conditioned upon citizenship requirements, residency requirements, or a service supplier's education, experience or training having been acquired in the host Party's jurisdiction. MRAs may impose, for example, requirements that a candidate be registered and in good standing with the candidate's home jurisdiction authority and that he or she have a minimum number of years education, training and/or experience.
Article 11.5 sets out the structure and responsibilities of the MRA Committee, which include meeting within one year of the implementation of CETA, facilitating exchanges of information, and reporting to the CETA Joint Committee on the progress of the negotiation and implementation of MRAs. It is important to note that the MRA Committee shall be composed of and co-chaired by representatives of Canada and the EU that are different from the relevant authorities or professional bodies engaged in the negotiation of MRAs.
Article 11.6 refers to Annex 11-A, which contains guidelines to provide practical guidance to facilitate the negotiation of MRAs with respect to regulated professions. The guidelines are non-binding and do not modify or affect the rights and obligations of the Parties.
Article 11.7 indicates that each Party shall establish one or more contact points for the administration of this particular Chapter.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Eleven.
3. Intended Government Action
The Government will work with its counterparts in the EU and with domestic stakeholders, including professional bodies and relevant authorities at the provincial/ territorial level, in the implementation of the provisions in this Chapter. This will include working with the EU to establish the MRA Committee and undertaking any necessary facilitative work in order to fulfill the obligations set out in the Chapter.
Chapter Twelve – Domestic Regulation
1. CETA Provisions
In the context of trade agreements, Domestic Regulation historically refers to licensing and qualification requirements and procedures that regulatory authorities may use to grant permission to a natural person to supply a service. Even with full market access established, foreign services suppliers may find that domestic regulatory requirements and procedures are lengthy, complex and unclear, and thus act as restrictions to trade. Domestic Regulation provisions in a trade agreement provide greater certainty that such regulatory measures would not nullify or impair market access gains achieved through other areas of the agreement.
Chapter Twelve represents a new approach for Canada on Domestic Regulation in a trade agreement. Prior to CETA, Canada's practice in recent trade agreements has been to address Domestic Regulation issues through an article in the Cross-Border Trade in Services Chapter, affirming the corresponding provisions of the WTO General Agreement on Trade in Services (GATS) and calling for Parties to review and update the Domestic Regulation provisions (should WTO Members eventually agree on a comprehensive set of Domestic Regulation disciplines). The CETA, however, addresses Domestic Regulation issues in a stand-alone chapter, with provisions that apply to measures beyond just those affecting trade in services. The Chapter seeks to ensure that, with respect to any economic activity, licensing and qualification requirements and procedures are transparent, objective, fair, and timely.
Article 12.2 defines the scope of the Chapter as encompassing measures affecting all modes of trade in services: cross-border trade, through a commercial presence, and supply of a service by a natural person present in the territory of the other Party. With respect to supply through a commercial presence, the Chapter broadly applies to measures affecting the supply of a service, such as professional services, as well as measures affecting the pursuit of any other economic activity. This means that, unlike Canada's previous trade agreements, the Domestic Regulation provisions may apply to investments, including those unrelated to the supply of a service.
Article 12.2 excludes all measures under existing non-conforming measures set out Annex I of a Party's schedule of reservations, as well as measures related to a list of sensitive sectors as set out in a Party's Annex II schedule of reservations (for Canada, social services, aboriginal affairs, minority affairs, gambling and betting services, and the collection, purification and distribution of water) and those related to cultural industries for Canada and to audio-visual services for the EU. The Chapter applies to financial services to the extent set out in Article 13.2.6 and 13.2.7.
Article 12.3 lays out the substantive disciplines of the Chapter. It requires that, where a Party adopts or maintains licensing and qualification requirements and procedures, it shall ensure that such process and procedures are based on criteria that are clear, transparent, objective, established in advance, and made publicly available. Importantly, the criteria must be designed in such a way as to prevent situations where the authority vested with power to approve or deny an application may exercise that power in an arbitrary manner. The Parties recognized that Ministers may exercise discretion with respect to licencing or qualification requirement based on a public interest test.
Paragraphs 3 and 4 of Article 12.3 confirm that, except with respect to professional services, the exercise of Ministerial discretion is not inconsistent with the requirement that licensing and qualification requirements and procedures are established in advance and made publicly available, as long as the exercise of such discretion:
- is consistent with the object of the applicable law;
- is not arbitrary; and
- not otherwise inconsistent with the Agreement.
The remainder of Article 12.3 sets out disciplines with respect to the administration of the measures within the scope of the Chapter. Among other things, these disciplines require the Parties to ensure requirements and procedures related to licensing and qualification are accessible, simple, timely, and that associated fees are reasonable; that competent authorities are impartial, independent and responsive; and that a mechanism is maintained for the review of administrative decisions. Where an application is rejected, it is required that the competent authority provide reasons and a timeframe for review of the decision.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Twelve.
3. Intended Government Action
The provisions in Chapter Twelve reflect Canadian administrative law and regulatory best practices in place at the federal and provincial territorial level in Canada. The Government intends to ensure that Canadian service providers and investors in the EU are also treated in accordance with the disciplines in this Chapter.
Chapter Thirteen – Financial Services
1. CETA Provisions
Canada and the EU enjoy a strong and well-established relationship when it comes to the financial services sector. Canadian financial institutions, including banks and insurance companies, have long been active across the EU, providing a diverse range of financial services through subsidiaries and branches, as well as cross-border operations. EU financial institutions are likewise active across all major segments of the Canadian financial services marketplace.
CETA builds on Canada's existing model for addressing trade and investment in financial services. It incorporates a standalone chapter on financial services, which includes tailored provisions on market access, national treatment, most-favoured-nation treatment and regulatory transparency. The Chapter also includes a number of special rules reflecting the unique nature of the financial services sector in the economy. These include: a robust prudential exception, which ensures that financial authorities can take reasonable measures for prudential reasons without violating the Agreement, for instance to protect the soundness of the financial system and the interests of consumers of financial services; and tailored dispute settlement provisions, which require the participation of financial services experts in the settlement of disputes arising under the Chapter and establish a filter mechanism to avoid unsubstantiated investment disputes from proceeding.
Canada's objectives in CETA were twofold. The first was to seek enhanced market access and legal certainty for Canadian financial institutions operating in the EU, going beyond the EU's financial services commitments in the GATS. In this respect, CETA will largely lock-in current market access and regulatory treatment for Canadian financial institutions, as well as capture future liberalisation undertaken by the EU. CETA will also provide Canadian investors in European financial institutions with enhanced investment protections, for example in cases of expropriation or discriminatory treatment.
The second objective was to advance an ambitious and specialised set of rules on financial services trade and investment that reflect the highly regulated nature of the sector. In this respect, CETA includes a chapter for financial services which facilitates the commercial operations of financial institutions while providing latitude for prudential regulation and establishing a dispute settlement framework tailored to the financial services sector.
Article 13.2 sets out the scope of the Chapter, which covers measures relating to financial institutions, investors and their respective investments in financial institutions and cross-border trade in financial services. It notes that, where a measure relates to an investor and its respective investment in a financial service supplier that is not a financial institution (in other words, a supplier that does not fall within the Chapter's definition of financial institution), the measure instead falls under Chapter Eight (Investment). Similarly, measures relating to investors and their respective investments in financial institutions – other than measures relating to the supply of financial services – are captured by the Investment Chapter and not by Chapter Thirteen.
Paragraph 3 of Article 13.2 brings specific core investment protections from Chapter Eight (Investment) into the Financial Services Chapter. These include, among others, protections against: expropriation, breaches of fair and equitable treatment, and limitations on the ability to transfer funds from abroad. Paragraph 4 then incorporates the investor-state dispute settlement framework established in Section F of Chapter Eight (Resolution of investment disputes between investors and states) into the Chapter.
Paragraph 5 of Article 13.2 specifies that the Chapter does not apply to measures relating to activities or services that form part of a public retirement plan or statutory system of social security, or that are conducted for the account of a Party, with the guarantee or using the financial resources of a Party. However, the Chapter applies to the extent that a Party allows such activities or services to be conducted by its financial institutions in competition with a public entity or a financial institution.
Article 13.3 incorporates the national treatment obligation from Chapter Eight (Investment) and tailors it to the Financial Services Chapter. It specifies that each Party must treat the financial institutions and the investors of the other Party and their investments in financial institutions no less favourably than it treats its own financial institutions and investments of its own investors in financial institutions, when they are in like situations.
Article 13.4 incorporates the most-favoured-nation treatment obligation from Chapter Eight (Investment) and, similar to the national treatment obligation, tailors it to the Financial Services Chapter. It notes that each Party must treat financial institutions and investors of the other Party and their investments in financial institutions no less favourably than they treat financial institutions and investments of investors in financial institutions of third countries, when they are in like situations.
Article 13.5 deals with the recognition of prudential measures. Specifically, it sets out the framework under which a Party may recognise a prudential measure of a third country. The recognition of a prudential measure of a third country does not obligate a Party to automatically extend such recognition on a most-favoured-nation basis to the other Party. However, a Party must provide adequate opportunity for the other Party to gain the recognition extended to the third country (for example by demonstrating equivalent regulation). Recognition may be accorded unilaterally, achieved through harmonisation, or based upon an agreement or other arrangement between the Party and the third country.
Article 13.6 prohibits a Party from imposing certain market access limitations on financial institutions of the other Party. These include limitations on the total number of financial institutions within a given territory, the total value of financial institution assets, the total number of financial service operations undertaken by a firm, the participation of foreign investment in a financial institution, the total number of employees of a financial institution, and the types of business ventures and legal entities a financial institution may operate.
Paragraph 3 of Article 13.6 clarifies that a Party may still impose terms, conditions and procedures for the authorisation of the establishment and expansion of a commercial presence, provided such requirements are consistent with the other provisions of the Chapter and do not circumvent the market access obligation under paragraph 1 of Article 13.6. A Party may also require a financial institution to supply certain financial services through a separate legal entity if, under the law of the Party, such financial services may not be supplied through a single legal entity. For example, a jurisdiction may require the separation of banking and insurance operations.
Article 13.7 commits Parties to allow financial service suppliers to provide services on a cross-border basis, subject to the market access, national treatment, most-favoured-nation treatment and the formal requirement articles in the Cross-border Trade in Services Chapter, as incorporated into the Financial Services Chapter. A limited list of financial services committed by Parties on a cross-border basis to the market access, national treatment and formal requirements articles, which includes reinsurance, auxiliary services and portfolio management services, is contained in Annex 13-A (Cross-border trade in financial services).
Paragraph 6 of Article 13.7 commits Parties to allow consumers of financial services to purchase financial services on a cross-border basis. However, financial service suppliers are not conferred any right to do business in the Party's territory or solicit cross-border. Paragraph 7 requires a Party to allow a cross-border financial service supplier of the other Party to supply a financial service through a new form of delivery (or to sell a financial product not sold in its territory) if the financial service is listed in Annex 13-A (Cross-border trade in financial services) and the Party permits its own suppliers to do so, under its law, in like situations. A Party may still require a request or notification to its regulator.
Article 13.8 limits a Party from requiring that any members of the senior management or board of directors of a financial institution of the other Party be of any particular nationality.
Article 13.9 commits Parties to negotiate disciplines on performance requirements, such as those contained in Chapter Eight (Investment), of specific application to financial services. These disciplines will apply to investments in financial institutions and be appropriately tailored to reflect the specialised nature of the financial sector. If Parties are unable to negotiate such disciplines within a certain period of time, the general disciplines from Article 8.5 (Performance requirements) may be incorporated into the Chapter at the request of either Party. However, following the incorporation of any disciplines on performance requirements into the Chapter, Parties may take reservations for existing measures.
Article 13.10 sets out the mechanics under which Parties take reservations for current and future measures falling under the Chapter. Paragraph 4 clarifies that where a Party has set out a reservation under one of the relevant provisions of Chapters Eight (Investment) or Nine (Cross-border Trade in Services), that reservation also constitutes a reservation under the Financial Services Chapter, to the extent that the measure is covered by the Financial Services Chapter. This provision avoids the duplication of reservations by Parties for measures that could also fall within the scope of the financial services chapter. Similarly, paragraph 6 of the Explanatory Notes to Canada's Annex III, which sets out Canada's reservations to it Financial Services Chapter obligations, provides that these reservations also constitute reservations against Chapter Eight (Investment), to the extent that a measure falls within the scope of that chapter.
Paragraph 5 of Article 13.10 clarifies that a Party may not adopt any future measure falling within the Chapter that would, on the basis of nationality, trigger divestment on the part of an investor of the other Party. Paragraph 7 carves out government procurement and subsidies (or government support relating to trade in services) from the core obligations of the Chapter, including market access, national treatment and most-favoured-nation treatment.
Article 13.11 requires Parties to make publicly available, in a prompt manner, all measures of general application that pertain to any matter covered by the Chapter. It also requires Parties, to the extent possible, to publish measures prior to adoption, provide a reasonable opportunity for stakeholders to comment, and allow reasonable time between the final publication and entry into force of the measures covered by the Chapter. All applications for financial institutions shall be resolved within a reasonable period of time, as qualified by the complexity of the application and the normal period of time established for processing such applications. For Canada, this period is 120 days, except where not practical, in which case applicants must be notified of the delay and regulatory authorities must endeavour to make the decision as soon as possible.
Article 13.14 provides financial institutions of a Party the right to supply new financial services in the other Party's territory, provided that the host Party permits its own financial institutions to do so, in like situations. The host Party retains the ability to determine the form through which the service is to be provided, and to require authorisation for the service. However, authorisation may only be refused for prudential reasons.
Article 13.15 establishes the right of financial institutions and cross-border financial service suppliers of a Party to transfer information in or out of the other Party's territory for data processing. The intent is to allow financial institutions and cross-border financial service suppliers to transfer data for processing required in the ordinary course of business. Article 13.15 also clarifies that, where the transfer of information involves personal information, the transfer must respect the applicable laws governing the protection of personal information in the territory of the Party from which the transfer originated.
Article 13.16 contains the prudential exception to safeguard the right of Parties to adopt or maintain reasonable measures for prudential reasons. These include measures to protect investors, depositors and policyholders, as well as measures to ensure the integrity and stability of the financial system. This Article must be read in conjunction with Annex 13-B (Understanding on the application of Articles 13.16.1 and 13.21), which sets out a series of high-level principles guiding the application of the exception, including in investment disputes where prudential measures are concerned. In conjunction, the Financial Services Committee may develop a common understanding on the application of the prudential exception, on the basis of discussions held in the Committee, as well as international prudential commitments common to the Parties.
Article 13.18 provides that the Financial Services Committee established under Article 26.2 (Specialised committees) is composed of financial authorities from both Parties. For Canada, the Committee representative is an official from the Department of Finance Canada or its successor. The Committee, meeting annually or as otherwise agreed, will supervise the implementation of the Chapter and carry out a dialogue on the regulation of the financial services sector (in accordance with the Understanding contained in Annex 13-C). For example, Canada and the EU have agreed to use the Committee to discuss, among other topics, issues with cross-border impact, such as cross-border trade in securities, respective frameworks for covered bonds and reinsurance collateral requirements, and issues related to the operation of branches. The Committee will also play a role in determining whether, and if so, to what extent the prudential carve-out applies in investment disputes falling under the Chapter.
Article 13.20 sets out the state-to-state dispute settlement process applicable to the Chapter, tailoring the general provisions under Chapter Twenty-Nine (Dispute Settlement) to the financial services context. In particular, a separate list of at least 15 arbitrators with financial services expertise or experience is established for disputes arising under the Chapter. The list may be reviewed by the CETA Joint Committee at any time to ensure its continued functionality. The Code of Conduct in Annex 29-B for arbitrators and mediators, which includes provisions establishing the responsibilities and duties of arbitrators and mediators, applies to disputes falling under the Financial Services Chapter.
Paragraph 5 of Article 13.20 sets out the process by which a Party may suspend benefits in the financial services sector (following the determination by an arbitration panel that a Party's measure is inconsistent with the Agreement). The suspension of benefits is limited to the sector affected by the measure in question (in other words, cross-sector retaliation into the financial services sector is not permitted).
Article 13.21 incorporates Section F of Chapter Eight (Resolution of investment disputes between investors and states) into the Chapter. If an investment dispute under CETA pertains to the Financial Services Chapter, or a prudential defense is invoked by a Party within 60 days of the submission of an investor claim under Section F of Chapter Eight (Investment), an arbitration panel will be composed from the list established under Article 13.20. If the list is not established under Article 13.20 at the time the claim is submitted, the Secretary-General of the International Centre for Settlement of Investment Disputes (ICSID) will select members of the panel from candidates proposed by one or both Parties, in accordance with the qualification requirements of Article 13.20.
Any dispute in which a prudential defense has been invoked by a Party must be examined by the Financial Services Committee, whose role is further clarified in Annex 13-B (Understanding on the application of Articles 13.16.1 and 13.21). The intent of this provision is for financial authorities to jointly determine if a measure is in fact consistent with Article 13.16 (the Prudential carve-out) and if so, prevent the challenge from going forward.
2. Canadian Legislation
The CETA market access offers of Canada and the EU largely bind one another's financial sector regulatory frameworks. In this context, CETA does not require any changes, legislative or otherwise, to Canada's financial sector regulatory framework.
3. Intended Government Action
The Government will use CETA as a means to actively support the commercial interests of Canadian financial institutions with operations in the EU. This will occur primarily through Canada's representation on the Financial Services Committee, which provides financial authorities with the opportunity to discuss matters of financial sector policy and regulation, including in accordance with the Understanding contained in Annex 13-C (Understanding on the dialogue on the regulation of the financial services sector).
Chapter Fourteen – International Maritime Transport Services
1. CETA Provisions
The Chapter on International Maritime Transport Services (IMTS) represents the first time that Canada has included a dedicated chapter on the IMTS sector in any bilateral or regional trade agreement. Recognizing the important role that maritime transport plays in global trade, handling over 80 percent of the volume of global trade and over 70 percent of its value (see the UNCTAD Review of Maritime Transport 2015), Canada and the European Union (EU) sought the inclusion of a separate chapter on IMTS to set out additional maritime transport provisions. IMTS refers to the transport of passengers and/or cargo between countries, including the direct contracting of suppliers of other transport services for the onward transport of international maritime cargo.
Canadian and EU IMTS services suppliers will benefit from the Agreement with respect to non-discriminatory access to ports and onward transport services as well as the use of maritime auxiliary services (such as cargo handling services, customs clearance services, freight forwarding services, storage and warehousing services). Canadian IMTS suppliers will also benefit from unrestricted competitive access to the sea-going maritime trade between European Union (EU) Member States, as well as between EU Member States and third countries.
Article 14.1 sets out definitions and terms that apply to the Chapter. The definitions include the beneficiaries of the IMTS obligations contained in the Chapter, specifically concerning vessel ownership and flagging.
As set out in Article 14.2, the Chapter applies to Canadian and EU measures that are also subject to the provisions of CETA's Investment and Cross-border Trade in Services chapters. The IMTS Chapter does not govern the domestic marine cabotage market (which are addressed in the reservation in Annex II-C-14), only the international maritime transport services market, which encompass obligations not to maintain discriminatory measures with respect to accessing and using ports, and the use of infrastructure and services of ports.
Article 14.3 sets out the central obligations of the IMTS Chapter. In particular, these obligations relate to:
- the ability to reposition owned/leased empty containers on a non-revenue basis, subject to a Party's reservations for non-conforming measures. In Canada, the repositioning of empty containers may be provided by EU entities under certain conditions;
- allowing feeder services for international cargo between ports in each other's territory, subject to a Party's non-conforming measures. In Canada, feeder services for international cargo may be provided by EU entities under certain conditions and only between the Ports of Halifax and Montreal;
- a prohibition on cargo-sharing arrangements with third countries, to ensure that Canadian ship operators will have the opportunity to carry cargo between EU Member States and third countries;
- unrestricted access to the carriage of international cargo, including between EU Member States; and
- the ability to contract directly with road and rail carriers for the provision of door-to-door multimodal transport operations, such that the ocean carrier has the right to choose the trucking or rail company of its choice in transporting the cargo to its final destination.
Article 14.4 provides that these obligations do not apply to existing non-conforming measures listed by the EU, national governments, provincial, territorial or regional governments as set out in each Party's Annex I or to existing non-conforming measures by local governments. It also provides that these obligations do not apply to sectors or activities in each Party's Annex II.
2. Canadian Legislation
No amendments to Canadian legislation arise as a result of the obligations of Chapter Fourteen. Changes to the Coasting Trade Act resulting from Canada's commitments in the Agreement were described in Chapter Nine.
3. Intended Government Action
The obligations of the IMTS provisions, including those related to cargo sharing agreements, carriage of international cargo and access to and use of ports, enshrine existing practices in Canada. Through those practices, the Government will continue to support an efficient maritime regime that facilitates international trade and investment, supports promoting competition, and contributes to reducing the landed price of Canadian and EU imports and exports.
Chapter Fifteen – Telecommunications
1. CETA Provisions
Telecommunications services is an important sector because of the valuable role these services undertake in support of national economies and international trade. Open markets for telecommunications encourage investment, leading to economic development and stimulating innovation and the availability of innovative services. Furthermore, telecommunications services are key inputs into domestic, regional and international trade, making it possible for goods and service providers in virtually every sector of the economy to penetrate local markets or around the globe. They are the backbone of the Internet and electronic commerce, enabling online procurement and the delivery of goods or services through electronic means.
The Telecommunications Chapter establishes obligations which define reasonable conditions of access and use of public networks. These include: the ability to lease private lines; pricing related to costs; the ability to operate private leased networks for intra-corporate communications; and the right to attach terminal devices to the network. Restrictions on access will need to be justified as necessary to safeguard the public service responsibilities of the network operator or to protect the technical integrity of the network.
This Chapter also seeks to enhance regulatory certainty for telecommunications service suppliers by including disciplines to ensure that telecommunications regulators act impartially, objectively and in a transparent fashion. In this way, the Telecommunications Chapter supports Canadian telecommunications service suppliers and investors by making the regulatory environment for telecommunications services more predictable and competitive.
Article 15.1 defines terms used in the Chapter. Telecommunications services are defined as the transmission and reception of signals by any electromagnetic means, which includes telecommunications facilities such as wire, cable, radio, optical or other electromagnetic system, or any similar technical system, for the transmission of signals. However, the definition of telecommunications services excludes broadcasting or other activities that involve the economic activity of the provision of content by means of telecommunications.
A public telecommunications transport service is defined as a telecommunications transport service that a Party requires, explicitly or in effect, to be offered to the public generally that involves the real-time transmission of customer-supplied information between two or more points without any end-to-end change in the form or content of the customer's information. This term is understood to mean all telecommunications services provided to the public, including services to transmit voice and data, telex, telegraphs, facsimiles, as well as private leased circuit service and mobile/personal communications services, among others, but does not include broadcasting services which is the transmission of information, or content, to the customer. If a particular telecommunications service is not offered to the public by a telecommunications service supplier, and the Party does not issue an order for the supplier to supply the service, that service is not considered to be a public telecommunications transport service as it is not required by the Party explicitly or in effect. Furthermore, a telecommunications service provided by a telecommunications service supplier at its discretion on an ad-hoc basis, but not offered to the public generally, is not considered to be a public telecommunications transport service.
Major suppliers are defined as a telecommunications service supplier which has the ability to materially affect the terms and participation in a relevant market (relating to price and supply) for public telecommunications transport networks or services as a result of control over essential facilities or use of its position in the market.
Article 15.2 establishes the scope of the Chapter to apply to measures relating to telecommunications networks or services. The scope of the Chapter is limited to the extent that a Party has taken a reservation listed in its Schedule to Annex I or II of the Agreement that reserves its right to restrict the supply of a service. This Article also ensures that a Party's measures affecting the broadcasting of radio or television programs that are transmitted for reception by the public will not be subject to the obligations of the Chapter. However, the rights and obligations of the Chapter continue to apply to the use of telecommunications services to transmit broadcasting signals that are not intended for reception by the public, such as to a programme production centre where post-production processing is undertaken.
Article 15.3 establishes one of the basic obligations of the Chapter, that enterprises will have access to and use of public networks and services on reasonable and non-discriminatory terms and conditions. In accordance with paragraph 5, no conditions are to be imposed on access and use of public networks unless they are necessary to safeguard the public service responsibilities of the network operators or to protect the technical integrity of the networks. Under this Article, firms may purchase, lease, or attach private equipment to the public telecommunications network and use these networks to move information within and across the borders of Canada and the EU, while permitting Canada and the EU to take action to protect security and confidentiality of telecommunications services and the privacy of telecommunications users.
Article 15.4 ensures that the Parties take appropriate measures to prevent anti-competitive practices by a major telecommunications service supplier that may abuse its dominant position in the market. In particular, such practices may include: anti-competitive cross-subsidisation, including for the purposes of impeding or preventing a competitor's entry into, or expansion in, a market; the use of confidential information obtained from competitors, such as through interconnection negotiations, for a competitive advantage; or not making available the necessary technical and commercially relevant information to other service suppliers.
Article 15.5 ensures that telecommunications service suppliers will have reasonable and non-discriminatory access to the essential telecommunications facilities that are necessary to provide a competitive telecommunications service. Essential facilities include those telecommunications facilities that are exclusively or predominantly provided by a limited number of suppliers or those facilities that cannot feasibly be economically or technically substituted. Those facilities deemed essential may be determined by the Party and may include network elements, such as the local loop, operational support systems or support structures, such as poles and conduits, among others.
Article 15.6 provides commitments on the interconnection of telecommunications networks or services to allow the users of one telecommunications service supplier to communicate with the users of another supplier or access services supplied by another supplier. The Article provides that a telecommunications service supplier may interconnect its telecommunications network with a major supplier on reasonable and non-discriminatory terms and conditions and at cost-oriented rates that are transparent and sufficiently unbundled.
This Article also ensures that the procedures for interconnection are made publicly available and that the major supplier makes available either its interconnection agreements in force, a reference interconnection offer, or negotiate a new interconnection agreement. Furthermore, all information attained during the process of negotiating interconnection arrangements shall be used only for the purpose for which it was supplied and the confidentiality of the information shall be respected.
Article 15.7 provides a commitment that, where possible, an authorisation required to supply a telecommunications service should be based upon a simple notification procedure. This commitment does not apply to other telecommunications – related authorisations, such as license requirements for access to spectrum resources, satellite orbital slots, or the landing of an international submarine cable, that do not directly authorize the supply of a telecommunications service.
Article 15.8 permits a Party to apply any universal service obligation it wishes to maintain provided that it is administered in transparent and objective manner, including a non-discriminatory process for the selection of telecommunications service suppliers designated to meet the universal service objective.
Article 15.9 ensures that the procedures for the allocation of scarce resources, including spectrum frequencies, numbers and rights of way, are administered in a timely, non-discriminatory, and transparent manner. Furthermore, the current state of allocated frequency bands is to be made publicly available. This Article also clarifies that a Parties' spectrum and frequency management policies, which may limit the number of suppliers of wireless telecommunications service suppliers due to the scarcity of spectrum resources, shall not be considered to a violation of the market access obligations of Articles 8.4 (Investment) and 9.6 (Cross-border Trade in Services) that prohibit a Party from maintaining measures that limit the number of service suppliers.
Article 15.10 requires the Parties to ensure that telecommunications service suppliers provide number portability when a user switches between suppliers of telecommunications services on reasonable terms and conditions, and without impairment to the quality, reliability, or convenience of the service. Number portability is defined under the Chapter to only include the porting of numbers between the suppliers of like telecommunications services, such as between wireless service suppliers or between wireline service suppliers, and where the telecommunications service suppliers are at the same geographic location.
Article 15.11 requires a Party to provide for its telecommunications regulatory authority to be legally distinct and functionally independent from any telecommunications service supplier. All decisions and procedures by the regulatory authority must be transparent, timely, and impartial with respect to all market participants, including telecommunications service suppliers and other enterprises that may participate in the market. Furthermore, the regulatory authority must be granted sufficient jurisdiction to effectively regulate the sector, including the authority to collect necessary information from telecommunications service suppliers and enforce its decisions relating to the obligations of the Chapter though appropriate sanctions, which may include financial penalties, corrective orders or the suspension or revocation of licences, among others.
Article 15.12 ensures that enterprises, including telecommunications service suppliers, will have access to a dispute settlement mechanism in a timely manner to resolve disputes with a telecommunications service supplier regarding the substantive contents covered in Articles 15.3 through 15.6. The regulatory authority is required to issue a binding decision to resolve the dispute within a reasonable period of time, where appropriate. In circumstances where the dispute pertains to the access to essential facilities or the interconnection of networks with a major supplier, the regulatory authority shall resolve disputes regarding the appropriate terms, conditions and rates within a reasonable and publicly specified period of time. Paragraph 2 of the Article further ensures that an enterprise affected adversely by a determination or decision of the regulatory authority may obtain a review of the determination or decision by an impartial and independent judicial, quasi-judicial or administrative authority, as provided under the law of the Party.
Article 15.13 requires the Parties to make publicly available all measures affecting access to and use of public networks.
Article 15.14 recognizes that competitive markets are important for the achievement of the Parties' economic and social public policy objectives for telecommunications and permits a Party to refrain from applying a regulation when it is determined through an analysis of the market that effective competition has been achieved.
This Article does not however permit a Party to derogate from its commitments taken in the Chapter in circumstances where it has forborne from active regulation of a telecommunications service. A Party must still meet its obligations with respect to discrimination and anti-competitive practices.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Fifteen.
3. Intended Government Action
The Government of Canada will be vigilant in monitoring EU compliance with the obligations of the Chapter. The CETA provisions on telecommunications do not require further action on the part of the Government. Many of the conditions set out in the Chapter, such as the provisions on access to and use of public telecommunications networks, access to essential facilities, interconnection and resolution of telecommunications disputes are the kinds of provisions that are already fully captured in the Canadian telecommunications laws and regulations and will not require any further development as a result of the CETA.
Chapter Sixteen – Electronic Commerce
1. CETA Provisions
Today, electronic commerce forms an integral part of the daily experiences of businesses and consumers throughout the global economy as innovative information technologies, such as cloud computing, eliminate distances between suppliers and their customers. Furthermore, it has become an essential component to modern accounting, inventory management, marketing, distribution and sales.
In recognition of the growing importance of electronic commerce in the global economy, as well as the transformative nature of the technology that enables it, Canada and the EU have negotiated a stand-alone electronic commerce chapter within CETA. The Electronic Commerce Chapter includes measures to protect personal information and to facilitate cooperation on issues such as electronic signatures, the treatment of spam and the protection from fraudulent and deceptive commercial practices. The Chapter also includes a commitment to maintain the current framework of not applying customs duties on digital products transmitted electronically as a means to further enhance the transparent and predictable regulatory framework of electronic commerce.
Article 16.1 defines terms used in the Chapter. A delivery is defined as a computer program, text, video, image, sound recording or any other good or service that can be digitally encoded. Electronic commerce is defined as commerce conducted through telecommunications, alone or in conjunction with other information and communication technologies. This term is understood to include the distribution, marketing, sale or delivery of goods and services by electronic means.
Under Article 16.2, the Parties recognize the opportunities and economic growth attributable to electronic commerce and confirm the applicability of the WTO rules to electronic commerce. Furthermore, the Parties agree to promote the development of electronic commerce between them, in particular through cooperation under Article 16.6 of the Chapter. The Chapter does not impose an obligation to allow a delivery by electronic means except in accordance with a Party's respective market access commitments on trade in goods and services under the Agreement.
Article 16.3 prohibits a Party from applying a customs duty, fee, or other charge on a delivery that is transmitted by electronic means; in other words, by telecommunications. This commitment only applies to duties, fees or charges applicable to the importation or exportation of a delivery of a digital good or service and does not apply to an internal tax or other internal charge.
Article 16.4 includes a commitment for Canada and the EU to adopt or maintain a legal framework that may include laws, regulations or administrative measures for the protection of personal information of electronic commerce users. The Parties will take into consideration international standards of data protection of relevant international organisations, of which both Parties are a member, when formulating its privacy regime. This scope of the measures a Party can take under this Article are limited by the general exception under Article 28.3.2(c)(ii) of Chapter Twenty-Eight (Exceptions). The general exception permits a Party to take measures that are necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of the Agreement including those relating to the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidentiality of individual records and accounts, provided that these measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between the Parties where like conditions prevail, or a disguised restriction on trade in services.
Article 16.5 recognizes the potential of electronic commerce as a social and economic development tool and the importance of: maintaining a domestic regulatory regime that is clear, transparent, and predictable, interoperable, innovative, competitive; and facilitating the use of electronic commerce by small and medium-sized enterprises.
Noting the global nature of electronic commerce, the Parties agreed to maintain a dialogue in Article 16.6 to address international issues raised by electronic commerce, including on electronic signatures, liability to intermediary service suppliers that transmit or store information, the treatment of unsolicited electronic commercial messages, or spam, and the protections provided to electronic commerce users regarding their online personal information and against online fraudulent and deceptive commercial practices.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Sixteen.
3. Intended Government Action
The Parties agreed to maintain a dialogue on electronic commerce issues under Article 16.6. This dialogue will primarily take place through existing bilateral arrangements between Canada and the EU or at international organisations where both Parties are members, such as at the Organisation for Economic Co-operation and Development (OECD).
Chapter Seventeen – Competition Policy
1. CETA Provisions
Recognising that anti-competitive business conduct has the potential to distort the proper functioning of markets and could undermine the benefits of trade liberalisation, Chapter Seventeen contains competition policy provisions.
Article 17.2 requires Canada and the European Union to take appropriate measures to proscribe anti-competitive business conduct and further specifies that these measures must be consistent with the principles of transparency, non-discrimination and procedural fairness. The Article also requires the Parties to cooperate on competition enforcement in accordance with the Agreement between the European Communities and the Government of Canada Regarding the Application of their Competition Laws.
Article 17.3 requires that a Party's measures proscribing anti-competitive business conduct apply to enterprises of the Parties. In Canada's case, the Competition Act applies to all enterprises engaged in commercial activities in Canada, including federal and provincial enterprises. Similarly, the European Union's enterprises are subject to the European Union's rules on competition. In both cases, enterprises include state enterprises, monopolies and enterprises granted special or exclusive rights or privileges.
Article 17.4 provides that Chapter Seventeen is not subject to dispute settlement.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Seventeen.
3. Intended Government Action
Competition laws and policies are necessary to ensure that the benefits of trade liberalisation are not offset by anti-competitive business conduct. For example, competition law helps to ensure that cartels do not block market access gained through the trade agreement. In order to maximize the benefits of trade under the Agreement, the Government will continue to cooperate with the EU and its Member States to ensure effective enforcement of our respective competition legislation.
Chapter Eighteen – State Enterprises, Monopolies, and Enterprises Granted Special Rights or Privileges
1. CETA Provisions
CETA acknowledges the right of governments to grant enterprises special rights or privileges and to establish monopolies or state enterprises, but seeks to ensure that such entities do not unduly hamper the free flow of trade.
To this end, the Agreement sets out disciplines on the activities of monopolies, state enterprises and enterprises granted special rights or privileges based on the principles of commercial considerations and non-discrimination in the purchase and sale of goods or services in its territory.
Article 18.1 sets out definitions of terms that are used throughout the Chapter, including a ‘covered entity' for the purposes of the Chapter, which means:
- A Party authorises or establishes a monopoly (by contrast, a natural monopoly is not a covered entity as it falls under the purview of domestic law);
- A Party (i) authorises or establishes a small number of suppliers of a good or service; and (ii) substantially prevents competition among those suppliers in its territory;
- A Party grants special rights or privileges to supply a good or service, substantially affecting the ability of any other enterprise to supply the same good or service in the same geographical area under substantially equivalent conditions, and allowing the entity to escape, in whole or in part, competitive pressures or market constraints; or
- A state enterprise, which is defined under Article 1.1 as an enterprise that is owned or controlled by a Party. For Canada, this includes Crown corporations at the federal and provincial levels.
Article 18.2 sets the Chapter's scope of application. Paragraph 1 incorporates elements of the Parties' WTO rights and obligations regarding state trading. GATT Article XVII: 1 through XVII: 3 seek to ensure that state trading enterprises are not used as a mechanism by countries to bypass their obligations, while the Understanding on the Interpretation of GATT Article XVII aims to enhance notification and review. GATS Article VIII: 1 and VIII: 2 address monopolies.
Article 18.2.2 excludes from the Chapter procurement by a Party of a good or service purchased for governmental purposes. This is because the procurement commitments of the Parties are set out in Chapter Nineteen. Furthermore, the requirements in Articles 18.4 and 18.5 do not apply; among others, to activities carried out in the exercise of governmental authority, to certain air services and financial services, or to cultural industries for Canada and audio-visual services for the European Union. Finally, the rules do not apply to a measure of a covered entity if a reservation is set out in that Party's Schedule to Annex I, II, or III. These carve-outs ensure that the Parties maintain the right to use covered entities to fulfil certain policy goals and that in doing so the entities should be subject to the same non-discrimination obligations as the Parties but no more.
Article 18.3 affirms the right of a Party to designate or to maintain a monopoly, a state enterprise or to grant an enterprise special rights or privileges. Each Party is required under Article 1.10 to ensure that any such entity acts in accordance with the Agreement wherever the entity has been granted regulatory, administrative or other governmental authority. These are powers that private parties could not ordinarily exercise in the absence of a specific act of delegation by a Party, such as authority to grant import or export licences, approve commercial transactions or impose quotas, fees or other charges. Where an entity has been delegated such authority, it must observe the obligations of the Agreement in the same manner as the Party itself.
Article 18.4 requires each Party to ensure that in its territory any covered entity provides non-discriminatory treatment to investors and investments of Canada and the EU, and to goods and services providers of Canada and the EU, in the purchase or sale of goods or services. For instance, Canada Post may not charge for the same letter delivery service different prices to European firms than those charged to Canadian firms. However, a state enterprise or an enterprise granted special rights or privileges to supply a good or service that acts in accordance with commercial considerations shall be deemed to be in compliance with Article 18.4. In the case of a monopoly there would be no presumption that it is acting in a non-discriminatory way, but it could establish that it is the case, for example it could show that it charges different prices for the same service for commercial reasons such as geographic location.
Article 18.5 requires each Party to ensure that in its territory any covered entity acts in accordance with commercial considerations in its purchase or sale of a good or service except to fulfil the purpose for which the entity has been created or for which special rights or privileges has been granted. For example, a Crown corporation that has a public mandate to support public transportation could provide services on routes that are not commercially viable. However, that Crown corporation could not discriminate on the basis of nationality when selling tickets.
2. Canadian Legislation
In general, Canada's existing laws and practices relating to monopolies, state enterprises or enterprises granted special rights or privileges meet the obligations of this Chapter.
Section 25 of the CETA Implementation Act amends the Financial Administration Act by adding CETA to Schedule VII, which lists the free trade agreements subject to Section 89.7 of the Financial Administration Act. Section 89.7 permits the Governor in Council to issue a directive to any parent Crown Corporation for the purpose of implementing a provision of the Agreement.
3. Intended Government Action
The Government will work closely with the provinces and territories to ensure that monopolies and state enterprises in its territory will accord non-discriminatory treatment to the investments, goods and services suppliers of the EU and its Member States.
Chapter Nineteen – Government Procurement
1. CETA Provisions
Government purchases of goods and services account for significant levels of total economic activity in both Canada and the EU. The EU's overall government procurement market alone is estimated at approximately $3.3 trillion per year. Expanding access to this market for Canadian businesses constituted a key objective for Canada in the negotiation of the Agreement.
CETA builds upon the commitments in the WTO Agreement on Government Procurement (GPA) by opening up competition to a much wider range of government procurement activities and contracting entities. Canadian suppliers have, for the first time, guaranteed access to opportunities to supply their goods and services to EU regional and local governments, as well as a wide range of entities operating in the utilities sector. CETA maintains the ability of procuring entities in the EU and Canada to – in accordance with their respective legislation – use environmental, social and labour-related criteria in procurement tenders in a manner that is not discriminatory and does not constitute an unnecessary obstacle to international trade.
Article 19.1 provides general definitions applicable to the Government Procurement Chapter.
Article 19.2 prescribes the scope and coverage of application of the Chapter, as set out in the market access schedules of Canada and the European Union Annexes (see “Covered Entities” and “Covered Goods and Services” below). These annexes list the entities that the Parties have agreed will be subject to the procedural rules and obligations of the Chapter, including at the central government level and the sub-central government level (provinces, territories and municipalities). The annexes also set out the applicable contract-value thresholds (in other words, the value at which point the obligation is triggered) for each type of entity. The Chapter covers an extensive range of contracting entities including federal, provincial, and territorial government departments, municipal entities, Crown corporations and government enterprises. The other annexes list the goods, services and construction services to which the non-discrimination principle applies, as well as certain General Notes (for example exceptions to coverage for specific sectors such as cultural industries, shipbuilding and repair and aboriginal businesses) and the means of publication used for the Chapter. Article 19.2 also sets out rules governing the valuation of contracts in order to ensure that obligations under the Chapter are not unfairly avoided.
Article 19.3 provides general exceptions to ensure that a Party is not prevented from taking measures to protect, among other things, national security (for example not disclosing information that it considers necessary for protecting its essential security interests), public safety, the environment or intellectual property when fulfilling the obligations of the Chapter. These exceptions provide the Parties with the ability to take action that would otherwise violate their government procurement obligations in exceptional and specific circumstances. These exceptions are consistent with the WTO GPA, to which both Canada and the EU are Parties.
Article 19.4 sets out a series of general principles that apply to covered procurement, including non-discrimination, transparency and impartiality. These and the more detailed rules that follow provide assurance that Canadian and EU suppliers will be able to compete on an equal footing in the Canadian and EU government procurement markets. The non-discrimination provision requires Parties and their procuring entities to treat the goods, services and suppliers of the other Party no less favourably than the treatment it provides its own goods, services and suppliers. It also contains rules that prohibit Parties and procuring entities from treating suppliers less favourably than others based on the degree of foreign affiliation or ownership, as well as from discriminating against suppliers on the basis that the goods or services are those of the other Party. Such rules promote public accountability and give suppliers the confidence that the procurement process will be conducted fairly. In terms of the conduct of procurements, this Article requires that procuring entities conduct covered procurements in a transparent and impartial manner that allows for the use of methods such as open tendering, selective tendering and limited tendering, avoids conflicts of interest and prevents corrupt practices.
This Article also ensures that when procurements are conducted by electronic means, procuring entities use generally available information technology systems, while ensuring that the integrity of requests for participation and tenders is maintained. It also prevents Parties from applying rules of origin to goods or services that are different from those used in the normal course of trade and from seeking, imposing or enforcing any offset (any condition or undertaking that encourages local development or improves a Party's balance-of-payments accounts, such as the use of domestic content requirements). Finally, it clarifies that the non-discrimination provisions do not apply to measures other than the procurement covered by the Chapter.
Article 19.5 is a key transparency provision. It obliges a Party to publish information on its procurement system including laws, regulations, judicial decisions and administrative rulings of general application, such that it is widely disseminated and readily accessible to the public. The electronic or paper media in which the Party publishes this information – as well as information related to notices, multi-use lists, publication of awards and procurement statistics – is set out in Annex 19-8 of the market access schedule.
Article 19.6 is another key transparency provision. It requires that procuring entities publish information on specific procurement opportunities (in other words a notice of intended procurement for each covered procurement), except in cases of limited tendering. These notices of intended procurement shall be accessible by electronic means and free of charge through a single point of access, for which Canada may apply a transitional period of up to five years to implement for all covered entities (the EU already maintains an electronic single point of access). This Article also describes the type of information that must be included in a notice of intended procurement and requires procuring entities to publish summary notices for each case of intended procurement. Under this Article, procuring entities are also encouraged to publish notices of planned procurement as early as possible in the fiscal year for which the procurement occurs.
Article 19.7 provides that any conditions for participation must be limited to those that are essential to ensuring that a supplier has the ability and capacity to undertake the procurement. For example, procuring entities cannot require prior experience in the territory of the Party to be a condition of the procurement.
Article 19.8 allows Parties and procuring entities to maintain a supplier registration system in order to more efficiently complete procurement processes. The Article also prescribes conditions upon the use of selective tendering in order to ensure that these processes are carried out transparently and impartially. In addition, the Article enables Parties and procuring entities to maintain a multi-use list of suppliers, subject to certain conditions.
Article 19.9 identifies the information that procuring entities must provide in order to ensure that suppliers are able to prepare and submit tenders. This includes a description of the nature and quantity of goods or services being procured, conditions for the participation of suppliers and the evaluation criteria that will be used to select a supplier. The Article also states that the Parties, including their procuring entities, may prepare, adopt or apply technical specifications to promote the conservation of natural resources or protect the environment. It further provides that the evaluation criteria set out in the notice of intended procurement may include, among others, environmental characteristics. However, this Article prevents procuring entities from prescribing technical specifications or conformity assessment procedures for goods or services with the purpose of creating unnecessary obstacles to trade.
Article 19.10 requires procuring entities to provide suppliers with sufficient time to prepare and submit requests for participation and responsive tenders. Procuring entities have flexibility to use shorter timelines in certain instances, such as when electronic procurement tools are used or in the event of extenuating circumstances.
Article 19.11 confirms that procuring entities may conduct negotiations with suppliers as part of the evaluation process, provided that these negotiations are carried out in accordance with the evaluation criteria set out in the notice of intended procurement or tender documentation.
Article 19.12 allows procuring entities to use limited tendering, whereby the procuring entity does not follow the normal procurement procedures and limits the number of suppliers to one or more suppliers of its choice. This is only allowed under certain circumstances. These include, but are not limited to, cases where: no suppliers satisfied the conditions for participation; patents, copyrights or other exclusive rights must be protected; or purchases are made under exceptionally advantageous conditions, such as those arising from liquidation, receivership or bankruptcy.
Article 19.13 sets out the information that procuring entities must provide each participant if a covered procurement is conducted using an electronic auction, such as the automatic evaluation method that will be used in the automatic ranking or re-ranking during the auction.
Article 19.14 ensures that procuring entities treat all tenders fairly and impartially. For example, unless a procuring entity determines that it is not in the public interest to award a contract, it must award a contract to the supplier that is capable of fulfilling the contract and has submitted the most advantageous tender (or, if price is the sole criterion, the lowest price).
Article 19.15 is also a key transparency provision. The Article places requirements on procuring entities and Parties in order to ensure transparency of procurement information. For example, procuring entities must notify participating suppliers of contract award decisions and, upon request, provide an explanation to an unsuccessful supplier of the reasons why it did not select its tender. In addition, Parties must collect and report statistics on contracts covered by the Chapter to the Committee on Government Procurement.
Article 19.16 allows a Party to request information from the other Party in order to determine whether a procurement was conducted fairly and impartially, while ensuring that any collected information that could prejudice fair competition between suppliers in future tenders is not disclosed without the consent of the other Party. This Article further confirms that Parties are not required to disclose confidential information where, among other instances, such disclosure would be contrary to the public interest or where it would impede law enforcement.
Article 19.17 requires Parties to provide an administrative or judicial review procedure to allow suppliers to challenge any procurement decisions that they believe run contrary to the obligations of the Chapter. The Article further requires Parties to have measures in place that provide for rapid interim measures to preserve the supplier's opportunity to participate in the procurement, and, in cases where a review body determines that there has been a breach of the Chapter, measures that provide for corrective action or compensation for the loss or damages suffered.
Article 19.18 allows Parties to modify their market access commitments under its Annexes – provided that compensatory adjustments are offered to maintain a comparable level of coverage where necessary – and to rectify their Annexes in instances where the coverage is not affected. A Party must notify the other Party of these rectifications every two years, consistent with the cycle of notifications under the WTO GPA.
Article 19.19 outlines the responsibilities of the Committee on Government Procurement, including that it will meet as necessary to provide the Parties an opportunity to consult on any matters relating to the operation of the Chapter. At the request of a Party, the Committee shall meet to consider issues regarding government procurement; exchange information relating to government procurement opportunities; discuss any other matter related to the operation of the Chapter; and consider coordinated activities to facilitate access for suppliers to procurement opportunities in the territory of each Party. The Article also confirms the obligations outlined in Article 19.15 whereby Parties must submit statistics on procurements covered by the Chapter annually to the Committee on Government Procurement.
Annex 19-1 identifies the central government entities whose procurement is covered by the Chapter. For Canada this includes several federal departments and agencies, while for the EU this includes the EU Council, the European Commission and the EU Parliament, as well as numerous central government contracting authorities of EU Member States.
Annex 19-2 lists the sub-central government entities whose procurement is covered by the Chapter. For Canada this includes, inter alia, specified provincial and municipal departments, agencies and academic institutions. For the EU this includes all regional or local contracting authorities as defined by Regulation 1059/2003 (NUTS Regulation). ‘Regional contracting authorities' are those contracting authorities of the administrative units falling under NUTS 1 and 2, whereas ‘local contracting authorities' are those contracting authorities of the administrative units falling under NUTS 3 and smaller administrative units. For the EU this also includes contracting authorities that are bodies governed by public law, such as hospitals, schools and entities providing social services.
Annex 19-3 sets out other entities whose procurement is covered by the Chapter. For Canada this includes specified federal and provincial crown corporations, as well as mass transit entities and public utilities in the areas of drinking water, electricity, gas and heat. For the EU this includes mass transit entities and public utilities in the areas of drinking water, electricity, gas and heat, among others.
Covered Goods and Services
Annex 19-4 notes that the Chapter applies to all goods procured by entities identified in Annexes 19-1 through 19-3, unless otherwise specified. For example, certain goods that are procured by specified entities for the purposes of national security are excluded from coverage of the Chapter.
Annex 19-5 lists the services that are covered by the Chapter (based on their Central Product Classification (CPC) codes). For Canada and the EU this includes, engineering services, maintenance and repair services and consulting services.
Annex 19-6 identifies the construction services covered by the Chapter. For Canada and the EU this includes all construction services listed in Division 51 of the UN Central Product Classification (CPC), with limited exceptions. In addition, dredging services procured by Canadian federal entities are also covered, provided that the vessel is made in Canada or the EU (or has been predominantly modified in Canada or the EU and owned by a person in Canada or the EU for at least one year prior to the submission of the tender) and is registered in Canada or an EU Member State (and if registered in an EU Member State, has been granted a temporary licence under the Coasting Trade Act).
Annex 19-7 outlines a series of general notes that provide important qualifications to the scope of the Chapter. For example, it notes that certain goods and services are excluded from coverage under the Chapter, such as shipbuilding and repair, broadcasting and postal sectors. In addition, it indicates that certain Canadian provinces and territories retain the right to use government procurement to support regional economic development so long as the procurement is $1 million or less and will support small firms or employment opportunities in non-urban areas.
Annex 19-8 lists the means of publication used by Canada and the EU to publish notices of intended procurement, permanent lists of qualified suppliers in the context of selective tendering, applicable procurement rules and procedures, as well as the reports required under the Chapter.
2. Canadian Legislation
Consistent with Canada's other FTAs, the Canadian International Trade Tribunal Procurement Inquiry Regulations will be amended to give the Canadian International Trade Tribunal jurisdiction over bid challenges taken under the CETA GP Chapter.
Further, in order to implement the Chapter's commitments with respect to dredging activities, amendments were required to the Coasting Trade Act. More specifically, section 5 of the Coasting Trade Act has been modified to clarify that the requirement to obtain a coasting trade licence for federally-procured dredging activities will no longer be subject to the requirement that a suitable Canadian registered duty paid or non-duty paid vessel not be available for contracts valued at or above 5 million special drawing rights.
3. Intended Government Action
As Parties to the WTO GPA, Canada and the EU have already committed to rules regarding non-discrimination, impartiality and transparency in their procurement activities. As such, Canadian companies currently have access to government procurement opportunities tendered by EU-level institutions and EU Member States. However, the CETA provides Canadian firms with access to all levels of government procurement in the EU, including procurement by sub-national entities (for example regions and municipalities) and utilities. The Government will work closely with Canadian businesses to build upon Canada's commitments under the WTO GPA and maximize opportunities to secure contracts for goods and services in the EU, the world's largest government procurement market.
The Government of Canada will work to establish a single point of access (SPA) within five years from the entry into force of CETA, as per Article 19.6. The SPA will allow suppliers to quickly retrieve information about all opportunities in Canada covered under the Agreement. Furthermore, the Government will work closely with provinces, territories and other entities to ensure that the commitments of the Chapter are satisfied (for example requirements related to the publication of procurement policies and procedures).
Chapter Twenty – Intellectual Property
Because the Intellectual Property Chapter contains many separate sections that deal with different concepts in intellectual property (such as copyright, trademarks, geographical indications, and patents) or related themes (such as enforcement), the summary here deals separately with the general provisions and then each section on the different types of intellectual property covered in the Chapter.
1. CETA Provisions
Article 20.1 specifies the overall objectives of the Intellectual Property (IP) Chapter.
Article 20.2 indicates that the provisions of the IP Chapter complement the rights and obligations between the Parties under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). It specifies that each Party is free to determine the most appropriate means of implementing the provisions of CETA Agreement within its own legal system and practice. It also indicates that CETA does not require a Party to redistribute resources between enforcement of IP rights and law enforcement in general.
Article 20.3 recognizes the ability of WTO Members to issue compulsory licenses for exporting generic versions of patented drugs to developing countries that lack the capacity to manufacture essential medicines themselves. In particular, it refers to the Protocol amending the TRIPS Agreement that entered into force on January 23, 2017.
Article 20.4 concerns the exhaustion of intellectual property rights. Exhaustion is a limitation on the scope of intellectual property rights providing when the owner may no longer exercise some or all of its rights with respect to an IP-protected article. For example, after the sale of that article, the IP owner has generally no further claim over reselling of that article. The precise scope of exhaustion differs between countries and Article 20.4 clarifies that the Parties are free to determine the conditions under which exhaustion applies under their domestic law.
Article 20.5 specifies that none of the provisions of the Chapter require a Party to disclose information contrary to its laws governing access to information and privacy.
2. Canadian Legislation
No amendments to Canadian legislation arise from Section A in Chapter Twenty.
3. Intended Government Action
No other action is required by the Government to implement Section A of Chapter Twenty.
Copyright and related rights
1. CETA Provisions
Article 20.7 reflects within the CETA obligations from certain key international agreements on copyright and related rights. These include obligations with respect to the rights of authors in relation to their literary and artistic works. Works covered by copyright range from books, musical compositions, paintings, sculptures, and films and TV shows, to computer programs, video games, maps, and technical drawings.
Article 20.7 also reflects obligations in relation to “related rights”, also referred to as neighbouring rights. Related rights protect the legal interests of creative contributors such as performers, producers of sound recordings (also referred to as phonograms), and broadcasting organizations.
The agreements cited in Article 20.7 are well-established international treaties on copyright and related rights, namely: the Berne Convention; the World Intellectual Property Organization (WIPO) Copyright Treaty; the WIPO Performances and Phonograms Treaty; and the Rome Convention. Under these treaties, countries are required to give protection to copyright owners, such as the right to prevent others from making copies of their creations without permission. Canada and the EU and its Member States are already bound by these obligations, and their inclusion in CETA is a reinforcement of those pre-existing commitments.
Article 20.8 requires Canada and the EU to grant performers the right to allow or prevent public broadcasting of their live performances. This article also provides for a system for remunerating performers and producers for the use of their sound recordings in public broadcasts.
Article 20.9 requires the Parties to provide copyright owners with legal remedies against the circumvention of technological protection measures that prevent unauthorized access or copying of their work. For example, the ability to prevent the commercial sale of devices intended to “crack” software protection. Paragraph 6 specifies that Canada or the EU can make exceptions to these general prohibitions that are in the public interest.
Under Article 20.10 the Parties agree to also give copyright owners the right to protect certain electronic information that is used in association with their work in order to manage their rights, such as the identity of the copyright owner or any conditions on using the work, again with flexibility to provide exceptions.
Article 20.11 deals with liability of those who act as online intermediaries in relation to material that might be protected, such as internet service providers. The article requires that there be liability protection for those service providers, subject to various conditions listed in the Agreement. For example, each Party must provide limitations or exceptions in its law that cover the function of hosting content at the request of a user of the hosting service.
Article 20.12 provides that the Parties may put criminal penalties in place for unauthorized recording of films in a public theatre, commonly known as camcording. The Parties agreed that this Article will not be provisionally applied, and will come into force once the Parties have ratified the Agreement.
2. Canadian Legislation
Canada's current copyright legislation already meets all of the obligations in CETA. Following copyright modernization reforms in 2012, and the ratification of the WIPO internet treaties in 2014, Canada is currently party to all of the international agreements listed in Article 20.7 and Canada's Copyright Act is in line with these obligations. Articles 20.8 – 20.12 reiterate existing elements of Canada's copyright framework, including prohibitions in Canada's Criminal Code against camcording in movie theatres. Therefore no amendments to Canadian legislation arise from Section B, Sub-section A, of Chapter Twenty.
3. Intended Government Action
The Government will monitor EU compliance with the obligations of the Chapter. As Canada's current legislative framework and international obligations in relation to copyright are in line with CETA, the Government does not need to do anything further to implement Articles 20.7 – 20.12.
1. CETA Provisions
Trademarks are letters, words, sounds or designs that a business uses to distinguish its goods or services from those of others in the marketplace. Over time, a trademark often comes to stand not only for the actual goods and services a business sells, but also its reputation and brand.
Article 20.13 relates to international agreements, requiring the Parties to try to make attempts to comply with Articles 1 through 22 of the Singapore Treaty on the Law of Trademarks. That treaty provides a framework for the harmonization of administrative trademark registration procedures, making it easier for government Trademark Offices to standardize their requirements for registration. It covers all trademarks that can be registered under a country's law, including non-traditional visible marks, such as holograms and non-visible marks such as sounds.
Article 20.13 also requires Parties that have not already joined the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks to make attempts to do so (most EU Member States are already part of that Treaty, but not all are yet). That Protocol makes it possible to protect a trademark in a large number of countries by obtaining an international registration that has effect in each of them.
Article 20.14 requires each Party to provide certain standards relating to the registration of trademarks. These standards are intended to increase transparency and fairness. For example, if an application is rejected the applicant must have the right to know why and have the ability to appeal that decision. It also requires each Party to have an electronic database of trademark applications and trademark registrations.
Article 20.15 sets out the conditions on when a country's law can allow a trademark to be used by someone other than the owner on the basis of “fair use”. For example, in Canada this includes use in private study, education, parody, satire, criticism, review and news reporting. In particular, the Article requires that the right of the trademark owner and of other people (“third parties”) should be elements to take into account.
2. Canadian Legislation
No amendments to Canadian legislation arise from Section B, Sub-section B of Chapter Twenty.
3. Intended Government Action
No other action is required by Canada to implement Section B, Sub-section B of Chapter Twenty. The Government is currently in the process of undergoing legislative, regulatory, information technology and office practice amendments to accede to the Singapore Treaty on the Law of Trademarks, and the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.
1. CETA Provisions
A geographical indication (GI) is a sign used on products that come from a particular place with characteristics or qualities related to that place, such as the term “Roquefort” for a particular type of cheese from a region in France. GIs are much more prevalent in the EU; in Canada businesses more often protect their products by using trademarks.
Article 20.16 provides definitions used in this section, such as the term “geographical indication”, and also refers to the products that are covered by this section.
Article 20.17 provides that only geographical indications (GIs) for listed products falling in the product categories as set out in Annex 20-C are covered by the obligations in this section. This includes meats, dairy products, fruit, vegetables, beverages (including beer), pasta, mustard, and oils. Wine and alcoholic spirits are not covered by this section as obligations related to those products is dealt with in Article 30.8 that incorporates and amends existing treaties dealing with those products.
Article 20.18 sets out the list of GIs from the EU and Canada (found in Annex 20-A, Parts A and B of the Agreement) that are covered by the obligations in this section. Canada has not listed GIs in Annex 20-A, Part B, but can do so in the future through the process described in Article 20.22.
Article 20.19 sets out the protections for the GIs covered by the Agreement. Primarily, that protection is to stop the use of a GI for products that do not come from the place associated with the GI. The protection set out in this Article also prevents use of terms such as “Roquefort-style cheese”. This Article also includes provisions on enforcement by administrative action to the extent provided for by the law of each Party. Existing Canadian legislation and regulations include provisions related to food labelling which fully satisfy the enforcement by administrative action requirements in Article 20.19. No amendments to Canadian legislation are required to implement this commitment.
Article 20.20 sets out requirements for protection of homonymous GIs - which are GIs that are identical, but indicate two different geographical regions. For example, if there was a place in Canada called “Meaux” that wanted to produce Brie and call it “Brie de Meaux” (a protected GI from France under CETA), a decision on whether that would be allowed would need to take into account factors such as fairness between the producers and the potential that consumers would be misled. This Article also allows Canada to determine which conditions should be considered in making such a decision. Paragraph 2 also requires notification if there is a proposal in treaty negotiations to protect a homonymous GI.
Article 20.21 sets out various exceptions to the protections for the GIs set out in Article 20.19. For example, there is greater flexibility to use certain GIs listed with an asterix in Annex 20-A, including Asiago, Feta (both as “φ?τα” listed in Annex 20-A as well as “Feta”), Fontina, Gorgonzola, and Munster. Those terms may be used with terms such as “style” (for example “feta-style” cheese), and may also continue to be used even without terms such as “style” if used in relation to any business or commercial activity before October 18, 2013. As another example, paragraph 5 also protects trademarks that use GIs covered under this section if the trademarks were applied for, registered, or used before a set date (for example before the date of coming into force of CETA). These exceptions apply equally to domestic and foreign users active in the Canadian market.
Article 20.22 sets out the process for adding or removing GIs from coverage under this section. To add a GI, the process requires that both Canada and the EU agree, through the CETA Joint Committee, to do so.
Article 20.23 clarifies that the ability to have GIs protected through the listing process in the Agreement does not prevent the possibility of protection otherwise under the relevant law of Canada or the EU.
2. Canadian Legislation
The CETA Implementation Act includes a number of amendments to the Trade-marks Act to allow Canada to comply with the obligation in this section to protect certain agricultural products and foods products as GIs. Notably:
- Section 2 of the Trade-marks Act has been expanded to define “geographical indication” to include agricultural products and foods.
- Section 11.15 of the Trade-marks Act now meets the obligation in Article 20.19 to prohibit use of GI terms by agricultural products and foods that are not entitled to use the GI.
- Section 12(1) of the Trade-marks Act now provides that a trademark is not registrable if that mark contains a GI and the goods associated with the mark match the product category of the GI.
- A schedule of categories was also added to the Trade-marks Act of agricultural products and foods for which GI protection is available.
- Amendments were made to sections 11.15 to 11.17 of the Trade-marks Act that also provide exceptions to the rights of GIs as set out in Article 20.21 of CETA.
- Transitional provisions were included as section 68.1 of the Trade-marks Act and relate to the phasing out of certain grand-parented uses of the geographical indications “Beaufort”, “Nürnberger Bratwürste”, and “Jambon de Bayonne” in Canada.
- Section 11.18 of the Trade-marks Act has been expanded to cover exceptions for disuse, customary names, common names, and a specific exception for the term “county”.
- Section 20(2) of the Trade-marks Act was also changed to specify that certain GIs specified in the Trade-marks Act for agricultural products or foods covered can be used even if there is a trademark for the same term.
3. Intended Government Action
The Registrar of Trade-marks will put all geographical indications listed in the CETA on the Canadian Intellectual Property Office ‘List of Protected Geographical Indications'.
1. CETA Provisions
Designs, often called “industrial designs”, are the ornamental or aesthetic aspect of a good. It can include three dimensional features, such as its shape, or two dimensional features, such as patterns, lines or color.
Article 20.24 relates to international agreements and requires Parties that are not already a party to make attempts to accede to the Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs. That agreement sets up an international system, known as “the Hague System”, that allows industrial designs to be protected in multiple countries or regions with minimal formalities.
Article 20.25 indicates that designs can be protected under copyright law instead of separate legislation for designs. It also clarifies that each Party can decide under what conditions it will allow designs to be copyrighted.
2. Canadian Legislation
No amendments to Canadian legislation arise from Section B, Sub-section D, of Chapter Twenty.
3. Intended Government Action
No action is required by the Government to implement Section B, Sub-section D of Chapter Twenty. The Government is currently in the process of undergoing legislative, regulatory, information technology and office practice amendments to accede to the Geneva Act of the Hague Agreement Concerning the International Registration of Industrial Designs.
1. CETA Provisions
A patent is an exclusive right given for an invention that is new, useful and non-obvious. To get a patent, sufficient details about the invention must be disclosed to the public in the patent application so that a person skilled in the art is able to reproduce it. This section builds on existing international commitments.
Article 20.26 requires the Parties to try to meet the core obligations of the World Intellectual Property Organization Patent Law Treaty. That treaty harmonizes and streamlines procedures with respect to national and regional patent applications and patents and makes such procedures more user-friendly.
Article 20.27 requires the Parties to provide a period of additional protection of two to five years for eligible new patented pharmaceutical products. This protection is intended to address a portion of the patent term that is spent in research and development and regulatory review towards the approval of a pharmaceutical product that contain a new active ingredient or a new combination of active ingredients. This protection takes effect after the expiration of the term of the patent on which it is granted and gives the same rights as the patent but only as it pertains to the active ingredient or combination of active ingredients when used in a drug, subject to limits and conditions. The Article allows for an exception to the protection to enable export of generic versions of products that would otherwise infringe the protection during the period of protection. It also allows the Parties to limit the availability of protection in various ways, such as having deadlines for applying for the protection and limiting the circumstances when this protection can be sought.
Article 20.28 applies to a Party that relies on “patent linkage” mechanisms, which is a rule that requires that steps be taken by a generic manufacturer when seeking marketing approval for generic versions of pharmaceutical products during the term of certain patents that protect the originator pharmaceutical. These steps can provide an originator company with rights to challenge the generic market entry on the basis of alleged patent infringement. Canada presently has a patent linkage mechanism. Canada presently has a patent linkage mechanism. The EU does not. The Article does not require a Party to maintain such a mechanism. However, it requires that a Party that provides such a mechanism to make sure that both generic and innovative pharmaceutical manufacturers have equivalent and effective rights of appeal.
2. Canadian Legislation
Canada amended the Patent Act in 2014 to allow it to accede to the Patent Law Treaty once related regulatory, information technology and office practice amendments are complete.
The Patent Act implements the protection required by Article 20.27 through a 'certificate of supplementary protection' (CSP), which will be available for new medicinal ingredients or new combinations of medicinal ingredients that are contained in human and veterinary drugs approved after CETA is provisionally applied.
The rights of a CSP match those of the patent as they apply to a medicinal ingredient or combination of medicinal ingredients in a drug, while creating exceptions to allow generic drugs to be exported during the term of protection. The Patent Act now specifies the start date of protection and the formula for determining the period of protection. It also gives the ability to bring an action for infringement of a CSP in the same manner as for a patent. Criminal provisions prohibiting false representations regarding patents also apply to CSPs.
The Patent Act amendments that extend price-review powers of the Patented Medicine Prices Review Board (PMPRB) to include medicines protected by the new CSP regime will be brought into force together with corresponding amendments to the PMPRB-related regulations.
To implement Article 20.28, the Patent Act is amended to allow the Governor in Council to make regulations that will ensure that disputes brought under the Patented Medicines (Notice of Compliance) Regulations, which constitute Canada's pharmaceutical patent linkage regime, provides litigants with an equivalent and effective right of appeal by fully and finally resolving questions concerning the infringement and validity of any relevant patent.
3. Intended Government Action
Under the regulation-making authority created in the CETA Implementation Act, the Government will develop regulations to set out the scope and procedural requirements of the certificate of supplementary protection regime.
To implement the requirements of Article 20.28, the Government will amend the Patented Medicines (Notice of Compliance) Regulations to address a mootness issue that arises under the present regime as a result of the court not having an effective remedy after the issuance of the generic marketing authorization by the Minister of Health. The regime will also be amended to ensure effective resolution of disputes.
1. CETA Provisions
Data protection refers to a form of protection for test data or other related information that is provided in confidence to a government in order to get approval to sell a pharmaceutical or agricultural chemical (such as a pesticide). Article 39.3 of the TRIPs Agreement already requires that the Parties to the CETA protect that data from disclosure (unless disclosure is necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use) and against unfair commercial use. This section builds on that obligation to set out specific timelines and other elements of that system, mostly setting out elements that their systems already meet.
Article 20.29 requires a Party to protect against disclosure of safety and efficacy data submitted by pharmaceutical companies to regulators as part of the application process seeking marketing approval for a new pharmaceutical product, unless disclosure is necessary to protect the public or unless steps are taken to ensure that the data are protected against unfair commercial use. The Article also requires that a Party implement specific time periods for data protection [see 20.29(2)]. For six years following the marketing approval of a pharmaceutical product, other pharmaceutical companies may not rely on such data for the purposes of an application seeking marketing approval for another pharmaceutical product without the permission of the company that submitted that data. For eight years following the marketing approval of a pharmaceutical product, a Party may not grant marketing approval to another pharmaceutical product whose application relies on such data without the permission of the company that submitted that data.
Paragraphs 1 to 5 of Article 20.30 specify requirements for the protection of data related to plant protection products, which include commitments requiring each Party to determine safety and efficacy requirements before providing market authorization for a plant protection product, and to provide a period of data protection of at least ten years, which is consistent with the Canadian regulatory approach for pesticides.
Paragraphs 6 and 7 of Article 20.30 require the establishment of rules to avoid duplicative testing on vertebrate animals for studies necessary to register pesticides, and encourage sharing of tests and studies involving vertebrate animals.
2. Canadian Legislation
Article 20.29 was intended to reflect existing Canadian and EU law with respect to data protection for pharmaceutical products. So no amendments to Canadian legislation arise from Article 20.29.
With respect to paragraphs 6 and 7 of Article 20.30, amendments to the Pest Control Products Act (PCPA) provided for in the CETA Implementation Act are designed to expand the scope of information that applicants and registrants (data holders) can use or rely upon, if that information is necessary and relevant for new product applications, or re-evaluations or special reviews of older products.
This means that these changes to the rules for pesticides, along with existing domestic policies and guidelines on animal testing, will result in a more flexible regulatory environment where duplicating tests and studies on vertebrate animals can be avoided.
3. Intended Government Action
With respect to paragraphs 6 and 7 of Article 20.30, in addition to the statutory and regulatory changes described above, which will help to avoid duplicative animal testing, the Government is engaged in ongoing efforts to develop and implement testing methods that avoid the use of live animals and adhere to the Three Rs (reduce, refine, replace). The Three Rs are the guiding principles for more ethical use of animals in testing.
1. CETA Provisions
The International Convention for the Protection of New Varieties of Plants (known by its French acronym, “UPOV”) provides a special form of intellectual property protection specifically adapted for the process of plant breeding. The protection is designed to encourage the development of new varieties of plants.
Article 20.31 requires each Party to co-operate to promote and reinforce the protection of plant varieties on the basis of the 1991 Act of UPOV. This will support the Parties in encouraging the development of new varieties of plants.
2. Canadian Legislation
No amendments to Canadian legislation arise from Section B Sub-section G of Chapter Twenty.
3. Intended Government Action
The Government will cooperate with the EU on the promotion of plant varieties.
Enforcement of Intellectual Property Rights
This Section establishes core obligations related to the civil enforcement of intellectual property rights. Arrangements for the protection of rights are important for an intellectual property system because without them there is no way for owners of that intellectual property to enforce their rights effectively. With expanding technologies allowing a wide variety of ways of infringing protected rights, modernized intellectual property enforcement rules have been developed and reflected in CETA.
1. CETA Provisions
Article 20.32 sets up general requirements for enforcement of intellectual property rights, requiring that they be fair and not too slow or complicated. It highlights the need to balance various relevant factors in that process of enforcement, such as the seriousness of an infringement and the interests of third parties. It clarifies that the scope of this section is civil (not criminal) enforcement for all of the main categories of intellectual property set out in the TRIPS Agreement.
Article 20.33 specifies who can take advantage of the civil enforcement mechanisms set out in the Chapter, including owners of relevant intellectual property rights and other associated bodies that act on their behalf.
Most of the rest of this section (Article 20.34 through 20.41) requires that courts have various powers to be exercised under appropriate circumstances. Article 20.34 requires a power to order that relevant information be produced related to alleged violations of intellectual property rights. Article 20.35 requires a power to order that evidence be kept, including potentially physically seized. And Article 20.36 requires a power to order the defendant to provide certain information related to alleged violations.
Similarly, Article 20.37 requires that courts be able to issue injunctions to prevent infringements of intellectual property; and Article 20.38 ensures that courts have the authority to order destruction of infringing goods and certain things designed to produce them, while requiring a balance between the seriousness of the infringement and the measure ordered.
Article 20.39 also deals with injunctions, requiring that courts have the ability to order a defendant to stop infringing intellectual property rights. Paragraph 2 of that Article clarifies that the ability of the court to order an injunction may not apply to certain governmentally approved use of intellectual property that meets the requirements of the TRIPS Agreement. This would include, for example, government authorization for the production of patented drugs by another company in certain emergency situations.
Article 20.40 requires that court have the power to order reasonable damages against someone who infringed an intellectual property right. It specifically notes that profits of the infringer or damage to the person whose rights were infringed are the main criteria for assessing damages. Paragraph 2 allows ordering payment of a royalty or fee as an alternative to ordering damages. Similarly Article 20.41 specifies that courts have the power to order that the losing party pay the litigation costs of the winner.
Article 20.42 sets out that for copyright and related rights the name of the person listed as the author or creator is normally the person who can bring a lawsuit.
2. Canadian Legislation
No amendments to Canadian legislation arise from Section C of Chapter Twenty.
3. Intended Government Action
No action is required by the Government to implement this Section.
1. CETA Provisions
Intellectual property rights are often involved in imported or exported goods, such as children's toys decorated with an unauthorized cartoon character, knock-off of a name-brand clothing, or food products falsely using a protected geographical indication. This section deals with the enforcement of intellectual property rights at the border to restrict those activities.
Article 20.43, paragraph 1 sets out definitions relevant to the section. For example, it defines counterfeit trademarks, pirated copyright goods, and counterfeit geographical indications. These definitions clarify the scope of the obligations in this section. For example, when read with paragraph 2 the Article clarifies that it only includes goods that violate copyright and related rights, trademarks, and geographical indications for product classes listed in Annex 20-C. Paragraph 3 further clarifies the scope of the obligations regarding border enforcement.
Other paragraphs of Article 20.43 set out general provisions, such as an obligation to have in place procedures to allow competent authorities to detain suspected counterfeit or pirated goods either upon request from intellectual property owners, or on its own volition (paragraph 4 and 5). It also specifies flexibility to have arrangements with third countries (paragraph 6), to apply those rules to goods in transit (paragraph 7), and to avoid onerous and excessive application of the obligations by not applying those rules to small non-commercial shipments, such as a few items in a traveller's bag (paragraph 8).
Article 20.44 requires that procedures be in place to allow intellectual property owners to apply to have goods being imported or exported to be detained and specifies key elements of those procedures. Similarly, Article 20.45 sets out key elements of procedures for governments to request information from intellectual property owners about potential violations.
Article 20.46 specifies how governments can require an intellectual property owner to make sure that it will be able to pay damages if the owner mistakenly has goods seized that turn out not to be violating their intellectual property.
Article 20.47 mandates procedures for the competent authorities to determine whether suspected goods infringe an intellectual property right. Canadian procedures provide right holders the opportunity to seek a determination of infringement in Federal Court and obtain a court order prescribing the remedy granted.
Article 20.48 specifies that competent authorities are able to order infringing goods to be destroyed or otherwise be disposed of in a way that will not harm the owner of the intellectual property right.
Article 20.49 sets out ways Canada and the EU will cooperate to try to eliminate international trade in goods that violate intellectual property rights, including setting up contact points and exchanging information.
2. Canadian Legislation
The requirements of Articles 20.43-20.49 are largely reflected by the border regime introduced in Canada's Combating Counterfeit Products Act that came into force in 2015, with a single difference. Canada is required to expand its current regime, limited to counterfeit trademarks and pirated copyright goods, to include counterfeit GIs. As a result very few legislative amendments are required.
To provide the protection to GIs that is required under Section D, Section 51.02 of the Trade-marks Act is amended to expand the current border regime to include a GI found on the List of Protected Geographical Indications. This amendment will provide an officer, as defined in the Customs Act, with the authority to detain goods suspected of bearing a counterfeit geographical indication and will enable a responsible authority to enforce their rights in court. Section 51.03 of the Trade-marks Act is also amended to introduce a prohibition on importation and exportation of goods (wines, spirits, agricultural products, or foods) that bear a protected geographical indication where that good does not originate in the territory indicated by the indication or where that good does originate in the territory indicated by the indication but was not produced or manufactured in accordance with the law applicable to that territory. The exceptions to this prohibition are expanded accordingly. Other relevant sections of the Trade-marks Act are amended to accommodate the expanded border regime.
3. Intended Government Action
The Government will update operating policy and procedures, which include applications to allow for the detention of suspected goods with counterfeit geographical indications.
1. CETA Provisions
Article 20.50 indicates how Canada and the EU will cooperate in the area of intellectual property, including exchanging information on a variety of listed topics.
2. Canadian Legislation
No action is required by the Government to implement this section.
3. Intended Government Action
The Government will use the bilateral mechanisms provided in the Chapter to continue its cooperation and discussions with the EU intellectual property issues.
Chapter Twenty-One – Regulatory Cooperation
1. CETA Provisions
Canada and the EU have been cooperating in the area of regulatory development for some time. Since 2004, Canadian and EU regulators have been working through the Framework on Regulatory Cooperation and Transparency (the Framework) to promote best practices aimed at eliminating unnecessary barriers to trade and investment. The Framework set out a number of high-level objectives, and established a Canada-EU Regulatory Cooperation Committee (RCC) to oversee a program of work involving specific sectorial initiatives.
This Chapter replaces the Framework, building on it to strengthen cooperation in regulatory matters to promote forward-looking, early engagement between Canada and the EU as new measures are being developed. By facilitating discussions earlier in the regulatory development processes, the Parties intended to reduce the differences in regulatory approaches between Canada and the EU over time, resulting in fewer barriers to trade when regulations are implemented.
Article 21.1 establishes the intended scope of the regulatory cooperation, which includes a broad variety of measures related to goods and services, including those related to sustainable development, labour, and the environment.
Article 21.2 sets out the principles governing the cooperation. Notably, that they will ensure high levels of protection for human, animal and plant life or health, and the environment and that they recognise the value of regulatory cooperation with their relevant trading partners both bilaterally and multilaterally. The Article sets out an illustrative list of goals of that cooperation, and notes that the Chapter replaces the Framework.
Article 21.3 sets out more specifically the Parties' objectives of regulatory cooperation.
Article 21.4 commits Canada and the EU to identify potential joint cooperative activities in which Canadian and EU regulatory authorities can engage, providing an illustrative list of potential topics and activities, for example sharing proposed technical or sanitary and phytosanitary regulations.
Article 21.5 commits the Parties to consider, when appropriate, the regulatory measures or initiatives of the other Party on the same or related topics when they are making regulations. However, this obligation does not prevent Canada or the EU from adopting different regulatory measures or pursuing different initiatives. Ultimately, each Party will make its own regulatory choices.
Article 21.6 establishes the Regulatory Cooperation Forum (RCF) to facilitate and promote regulatory cooperation. The Article sets out the functions of the RCF and its composition. The RCF will meet annually and help to identify potential areas for cooperation, and facilitate discussions between regulatory authorities in Canada and the EU. In addition, the RCF will encourage cooperation between regulators and the sharing of information aiming to minimizing the differences in regulatory approaches.
Article 21.7 establishes mechanisms for additional cooperation between Canada and the EU, including through exchanges of information and officials. The Article in particular, in paragraphs 4 through 7, establishes a mechanism for the Parties to discuss further cooperation regarding consumer products. This will allow Canada and the EU to share more information about product safety issues, thereby facilitating the protection of public health and safety.
Article 21.8 highlights the possibility of the Parties, together or separately, consulting with a broad variety of stakeholders and interested parties.
Article 21.9 establishes Contact points to serve as a conduit for cooperation and other activities under this Chapter.
2. Canadian Legislation
While future Canadian legislative action may benefit from information and consultation achieved through this process, no amendments to Canadian legislation arise from Chapter Twenty-One.
3. Intended Government Action
The Regulatory Cooperation Forum will serve as the mechanism through which Canada and the EU undertake the cooperation activities provided for in the Chapter. While the mandate of the RCF will be to seek regulatory convergence where feasible, it is a voluntary mechanism. The Government will use that mechanism, recognizing that the goal is not regulatory harmonization, but rather, effective regulation that facilitates trade. The Government will retain complete control over its own regulatory process.
Chapter Twenty-Two – Trade and Sustainable Development
1. CETA Provisions
Together with CETA Chapters Twenty-Three (Trade and Labour) and Twenty-Four (Trade and Environment), this Chapter reflects shared Canadian and EU values in recognizing that economic, social and environmental objectives should be interdependent and mutually reinforcing components of sustainable development. These three Chapters build on the Parties' traditions of promoting sustainable development in the context of their FTAs and of incorporating provisions reflecting mutual supportiveness between trade and labour and trade and environment objectives.
By establishing shared commitments related to trade, sustainable development, labour, and environment, the Chapter helps ensure that trade liberalization under the Agreement does not occur at the expense of other important objectives.
While substantive commitments relating to labour and environment are found in the Trade and Labour and Trade and Environment Chapters respectively, this Chapter complements those Chapters by highlighting crosscutting principles and commitments on sustainable development.
Article 22.1 sets out the context and objectives of the Chapter. It refers to relevant internationally agreed commitments and principles related to sustainable development that the Parties have endorsed. It also reaffirms the commitment of the Parties to promote the development of international trade in a manner that contributes to the objective of sustainable development.
Article 22.1 also notes that the obligations undertaken in CETA's Trade and Labour and Trade and Environment Chapters are to be considered in the context of the Agreement. Therefore, the commitments under these Chapters should be interpreted within the trade-related and investment-related scope of CETA.
In addition, Article 22.1 describes how the Parties intend to support sustainable development objectives through their implementation of the Trade and Labour and Trade and Environment Chapters.
Article 22.2 emphasizes the importance of ensuring transparency to promote public participation and of making information available to the public. The Article complements other transparency-related commitments in the Transparency Chapter of CETA as well as in the Trade and Labour and Trade and Environment Chapters.
Article 22.3 highlights the value of international cooperation to achieve the goal of sustainable development. In this regard, the Parties agree to consult each other on trade-related sustainable development issues of shared interest. As well, this Article confirms the shared view of the Parties that trade should promote sustainable development and practices that contribute to environmental protection and decent work.
In addition, Article 22.3 recognizes the importance of assessing the potential economic, social and environmental impacts of possible actions and of taking into account stakeholder views to address specific sustainable development issues. In this regard, each Party undertakes to review, monitor and assess the impact of the implementation of CETA on sustainable development in its territory. The Parties also recognize the possibility of carrying joint assessments. The Article confirms that such assessments will be performed in a manner that is adapted to the practices and conditions of each Party and through the respective processes of the Parties or of those established under CETA.
Article 22.4 sets out institutional mechanisms for the implementation of the Trade and Sustainable Development, Trade and Labour, and Trade and Environment Chapters. The Article provides for a Committee on Trade and Sustainable Development composed of high-level government representatives of the Parties, responsible for matters covered by the chapters on Trade and Sustainable Development, Trade and Labour, and Trade and Environment, which may include the relevant Ministers, as appropriate. The role of this Committee will be to oversee the implementation of those three chapters, including the review of the impacts of CETA on sustainable development. With regards to the Trade and Labour and Trade and Environment Chapters, the Committee can also carry out its duties through dedicated sessions. The Committee will also address in an integrated manner any matter of common interest to the Parties in relation to the interface between economic development, social development and environmental protection. The first meeting of the Committee will be held within a year of CETA's entry into force. The timing of subsequent meetings is flexible and will be determined together by the Parties. The relevant contact points established in the Trade and Labour and Trade and Environment Chapters will coordinate the organization of Committee meetings or dedicated sessions.
Furthermore, unless the Parties decide otherwise, regular meetings of the Committee or dedicated sessions will include a session with the public to allow for discussion of matters relating to the implementation of the relevant chapters.
The Committee will further promote transparency and public participation including through the reporting and publication requirements as set out in this Article.
Article 22.5 commits the Parties to facilitate meetings of a joint Civil Society Forum, convened once a year, unless the Parties decide otherwise. Participation may also be facilitated by virtual means. This forum will be composed of civil society organizations established in Canada and the EU to conduct a dialogue on sustainable development aspects of CETA. The Parties will promote a balanced representation of relevant interests, including independent representative employers, unions, labour and business organizations, environmental groups and other civil society organizations, as appropriate.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Twenty-Two.
3. Intended Government Action
The Trade and Sustainable Development Chapter, together with the Trade and Labour and Trade and Environment Chapters, builds on and advances Canada's longstanding commitment to the principle that trade and labour and trade and environment objectives should be mutually reinforcing. The Government will work with the EU and its Member States to promote sustainable development through the implementation of the Trade and Sustainable Development, Trade and Labour and Trade and Environment Chapters of CETA. The Government will seek to advance the objectives and commitments set out in the Trade and Sustainable Development Chapter as described above, in favour of upholding labour and environmental protection in the context of trade liberalization and advancing sustainable development.
The Government will engage in dialogue with the EU and its Member States on trade-related sustainable development issues and continue to seek to encourage sustainable development practices by Canadians and Canadian businesses enterprises in areas such as corporate social responsibility. In addition, with the EU and its Member States, the Government will engage in the institutional mechanisms set out in the Trade and Sustainable Development Chapter to facilitate its implementation and that of the Trade and Labour and Trade and Environment Chapters. Through the mechanisms set out in the Trade and Sustainable Chapter, the Government will provide opportunities for Canadians to engage in its implementation. For example, this includes working together with the EU and its Member States to establish the Civil Society Forum and facilitating participation therein through virtual or other means.
Chapter Twenty-Three – Trade and Labour
1. CETA Provisions
Building on Canada's past practice of incorporating labour provisions in the context of its FTAs, the Chapter contains comprehensive labour rights obligations, reaffirms the Parties' commitments to respect and provide protection for internationally recognized labour principles and rights, and commits the Parties to effectively enforce their labour laws and not to relax these laws and standards to encourage trade or attract investment.
CETA's labour provisions provide additional assurances that the Parties will maintain high standards of labour protection and continue to foster good labour governance when CETA is implemented. The Chapter also helps to ensure that trade and protections of workers' rights are mutually supportive and reinforcing, and that the increased prosperity resulting from liberalized trade does not occur at the expense of high labour standards.
These objectives are supported by provisions that encourage and promote public participation, allow members of the public to raise trade-related labour concerns, and provide a framework for the Parties to cooperate on trade-related labour issues of common interest.
Article 23.1 outlines the context and objectives of the Chapter, noting the link between trade and labour.
Article 23.2 recognizes that the Parties have the right to set their own labour priorities and levels of protection, and to adopt or modify their respective laws and policies accordingly, consistent with their international labour commitments. It requires the Parties to pursue high levels of labour protection through improved laws and policies.
In line with the Parties' obligations resulting from their membership of the International Labour Organisation (ILO) and consistent with their commitments under the ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up of 1998, Article 23.3 requires that the labour law and practices of the Parties embody and provide protection for the following internationally recognized principles and rights at work:
- freedom of association and the effective recognition of the right to collective bargaining;
- the elimination of all forms of forced or compulsory labour;
- the effective abolition of child labour; and
- the elimination of discrimination in respect of employment and occupation.
To further protect the rights of workers, this Article commits each Party to ensuring that its labour law and practices promote health and safety at work, acceptable minimum employment standards, and non-discrimination in respect of working conditions, including for migrant workers.
Article 23.3 also commits the Parties to the ratification and effective implementation of the fundamental ILO Conventions.
In Article 23.4, the Parties recognise that it is inappropriate to encourage trade and investment by weakening their labour law and standards or reducing the levels of protection afforded through those law and standards. Accordingly, the Parties commit to not waive or derogate from their respective labour law and standards to encourage trade or investment, or offer to do so. The Parties also commit that they will not fail to enforce their respective labour law and standards through a sustained or recurring course of action or inaction to encourage trade or investment.
Article 23.5 recalls each Party's obligation to enforce its labour law. This includes the obligation for each Party to maintain a system of labour inspection aimed at securing the enforcement of legal provisions relating to working conditions and the protection or workers.
Furthermore, Article 23.5 commits each Party to ensuring that effective recourse to administrative and judicial proceedings are available to persons with a legally recognised interest in a matter who maintain that a right is infringed under that Party's law in order to permit effective action against the infringement in question. These proceedings must not be unnecessarily complicated or prohibitively costly, entail unreasonable time limits or unwarranted delays. These proceedings must also be fair and equitable.
Article 23.6 commits each Party to promote public debate and awareness of its labour law and standards, as well as its corresponding enforcement and compliance procedures, including by ensuring the availability of information to stakeholders.
In Article 23.7, the Parties commit to cooperate on trade-related labour issues of common interest. The provision provides a range of potential areas for cooperation, including on the linkages between trade and labour particularly within the context of the World Trade Organisation or the ILO.
Article 23.8 mandates the designation of a contact point for each Party for the implementation of the Chapter. It also establishes that the Committee on Trade and Sustainable Development, including through dedicated sessions on the Trade and Labour Chapter, will oversee the implementation of this Chapter, review the progress achieved, and discuss any other issues within the scope of this Chapter. In addition, the Parties are required to make use of existing or establish new consultative mechanisms to seek the views of civil society, with a balanced representation of employers, unions, labour and business organizations, and other stakeholders as appropriate, on issues relating to the Chapter. To promote accountability, it also commits the Parties to receive and give due consideration to submissions from the public regarding the Trade and Labour Chapter and its implementation.
Article 23.9 outlines procedures for a Party to request consultations should any matter arise under the Trade and Labour Chapter. If relevant, and with the consent of both Parties, it allows for information or views to be sought from any relevant individual or organization. If a Party considers that further discussion of the matter is required, that Party may request that the Committee on Trade and Sustainable Development, including through a dedicated session on the Trade and Labour Chapter, be convened to consider the matter. Any solution or decision on a matter discussed under this Article will be made public.
For any matter that is not satisfactorily addressed through consultations under Article 23.9, Article 23.10 allows a Party to request that an independent Panel of Experts be convened to examine that matter and provide reports and recommendations for the resolution of the matter. Any final report is to be made public. The panellists would be jointly selected by the Parties and if they are unable to reach an agreement, by the Chair of the CETA Joint Committee, based on a list of qualified candidates established and maintained by the Committee on Trade and Sustainable Development according to criteria established in the Chapter. Should the Panel determine that a Party has not conformed with its obligations under the Trade and Labour Chapter, the following procedures apply:
- 1) the Parties must engage in discussions, aiming to agree to appropriate measures or a mutually satisfactory action plan to resolve the issue;
- 2) the Party complained against must inform its labour or sustainable development advisory groups referred to Article in 23.8 and the requesting Party of any actions or measures it intends to take to address the matter; and
- 3) the requesting Party must inform its labour or sustainable development advisory groups referred to Article 23.8 and the Party complained against of any other actions or measures it may decide to take in order to encourage the resolution of the matter.
Article 23.11 commits the Parties to make every attempt to arrive at a mutually satisfactory resolution of any matter that could arise under the Chapter.
While the Parties are committed to making an effective use of the mechanisms provided in the Chapter in this regard, they are furthermore committed to initiating an early review of these provisions, including with a view to the effective enforceability of CETA provisions on trade and labour.
2. Canadian Legislation
As the commitments under the Chapter are consistent with Canada's existing laws and regulations, the implementation of the Chapter requires no changes in Canada's labour law.
3. Intended Government Action
The Trade and Labour Chapter builds on and advances Canada's longstanding commitment to the principle that trade and labour objectives should be mutually supportive. The Government will work with the EU and its Member States to implement the commitments in the Trade and Labour Chapter. Along with the EU and its Member States, the Government will establish and engage in the Committee on Trade and Sustainable Development and relevant dedicated sessions on the Trade and Labour Chapter aiming to ensure the effective implementation of this Chapter.
Chapter Twenty-Four – Trade and Environment
1. CETA Provisions
The Trade and Environment Chapter reaffirms the commitment of the Parties to advance environmental protection objectives while enhancing trade relations. The provisions in the Chapter directly incorporate commitments to help ensure that trade and environmental protection are mutually supportive and reinforcing, and that the increased prosperity resulting from liberalized trade does not occur at the expense of environmental protection. This builds on Canada's past practice of incorporating environment provisions in the context of its FTAs in support of these principles.
The objectives of the Trade and Environment Chapter are to support sustainable development, strengthen environmental governance, build on the international environmental agreements to which both the Parties are a party, and complement the objectives of CETA. These objectives are supported by provisions that include substantive commitments, complemented by mechanisms for dialogue and cooperation on trade and environment issues.
This Chapter contains commitments that require the continued effective enforcement of domestic environmental laws, and ensure promotion of public awareness and transparency regarding those laws. Additional provisions address environment-related resource management issues in relation to trade in forest and fish products.
Article 24.1 defines the term “environmental law”. It includes any law, statutory or regulatory provision, or other legally binding measure, intended to protect the environment, including the prevention of danger to human life or health from environmental impacts. This includes laws that prevent the release of pollutants, regulate the management of chemicals and waste, and mandate conservation and protection of wild flora or fauna, including endangered species and protected areas. The definition does not include measures related solely to worker health and safety, or the purpose of which is to manage the subsistence or aboriginal harvesting of natural resources.
Article 24.2 outlines the context and objectives of the Chapter, noting the links between the environment, trade and sustainable development.
Article 24.3 recognizes that each Party has the right to set its own environmental priorities and levels of protection, and to adopt its laws and policies accordingly, consistent with CETA and with multilateral environmental agreements to which it is a party. It requires the Parties to pursue high levels of protection through improved laws and policies.
Article 24.4 reaffirms the commitment of each Party to implement the multilateral environmental agreements to which it is a party, and to cooperate and exchange knowledge related to the implementation of these agreements.
In Article 24.5, the Parties recognise that it is inappropriate to encourage trade and investment by weakening their environmental laws or reducing the levels of protection afforded through those laws. Accordingly, the Parties commit to not waive or derogate from their respective environmental laws to encourage trade or investment, or offer to do so. The Parties also commit that they will not fail to enforce their respective environmental laws through a sustained or recurring course of action or inaction to encourage trade or investment.
Article 24.6 sets out requirements to ensure that alleged violations of environmental law brought forward by persons residing or established in Canada or the EU are given due consideration by competent authorities of that Party, and that procedures and remedies are available to persons with a legally recognized interest in a matter. These proceedings must not be unnecessarily complicated or prohibitively costly, or entail unreasonable time limits or unwarranted delays. These proceedings must also be fair and equitable.
Article 24.7 commits each Party to promote public debate and awareness of its environmental law, as well as its corresponding enforcement and compliance procedures, including by ensuring the availability of information to stakeholders. With a view to promoting accountability, it also commits the Parties to receive and give due consideration to submissions from the public regarding the Trade and Environment Chapter and its implementation.
Article 24.8 commits the Parties to take into account relevant scientific and technical information, and related international standards, guidelines or recommendations, when preparing and implementing measures aimed at environmental protection that may affect trade or investment between the Parties. The Parties also recognize that, where there are threats of serious or irreversible damage, the lack of full scientific certainty shall not be used as a reason to postpone cost-effective measures to prevent environmental degradation. This is in line with the precautionary approach as set out in the 1992 Rio Declaration on Environment and Development.
In Article 24.9, the Parties resolve to facilitate, and reduce obstacles to, trade and investment in environmental goods and services, including addressing the reduction of non-tariff barriers, with special attention to goods and services relevant to climate change mitigation.
In Article 24.10, the Parties recognize the environmental, economic and social importance of the conservation and sustainable management of forests, and of market access for forest products that are legally harvested and from sustainably managed forests. In support of this, the Parties undertake to encourage trade in such forest products and to exchange information and cooperate, as appropriate, with regards to promoting sustainable forest management and combatting illegal logging and related trade.
In Article 24.11, the Parties recognize the environmental, economic and social importance of the conservation and the sustainable and responsible management of fisheries and aquaculture, and undertake to adopt or maintain appropriate measures aimed at the conservation of fish stocks and the prevention of overfishing; to combat illegal, unreported and unregulated (IUU) fishing; to cooperate with, and where appropriate in, regional fisheries management organizations, including by advocating for science-based decisions; and to promote the development of an environmentally responsible and economically competitive aquaculture industry.
In Article 24.12, the Parties commit to cooperate on trade-related environmental issues of common interest. A range of potential areas for cooperation are listed, such as: the potential impacts of CETA on the environment; activities in international fora regarding trade and environment; corporate social responsibility; the trade impact of environmental regulations and standards; trade-related aspects of the current and future international climate change regime; trade and investment in environmental goods and services; exchange of views on the relationship between multilateral environmental agreements and international trade rules; and others.
Article 24.13 mandates the designation of a contact point for each Party for the implementation of the Chapter. It also establishes that the Committee on Trade and Sustainable Development, including through dedicated sessions on the Trade and Environment Chapter, will oversee the implementation of this Chapter, review the progress achieved, and discuss matters of common interest as well as any other issues within the scope of this Chapter jointly identified by the Parties. In addition, the Parties are required to make use of existing or establish new consultative mechanisms to seek the views of civil society, with a balanced representation of environmental groups, business organizations and other stakeholders as appropriate, on issues relating to the Chapter.
Article 24.14 outlines procedures for a Party to request consultations should any matter arise under the Trade and Environment Chapter. If relevant, and with the consent of both Parties, it allows for information or views to be sought from any relevant individual or organization, including relevant international environmental organizations. If a Party considers that further discussion of the matter is required, that Party may request that the Committee on Trade and Sustainable Development be convened to consider the matter. Any solution or decision on a matter discussed under this Article will be made public.
For any matter that is not satisfactorily addressed through consultations, Article 24.15 allows a Party to request that an independent Panel of Experts be convened to examine that matter and provide reports and recommendations for the resolution of the matter. Any final report is to be made public. The panellists would be jointly selected by the Parties, and if they are unable to reach an agreement, by the Chair of the CETA Joint Committee, based on a list of qualified candidates developed and maintained by the Committee on Trade and Sustainable Development according to criteria established in the Chapter. Should the Panel determine that a Party has not conformed with its obligations under the Trade and Environment Chapter, the Parties commit to engage in discussions and endeavour to identify an appropriate measure or mutually satisfactory action plan to resolve the issue.
Article 24.16 clarifies that for any dispute that arises under the Trade and Environment Chapter, the Parties shall have recourse only to the rules and procedures provided for in that Chapter. Other dispute resolution mechanisms in CETA do not apply to the Trade and Environment Chapter. The Parties may also have recourse to good offices, conciliation, or mediation to resolve disputes.
2. Canadian Legislation
The Trade and Environment Chapter does not require legislative or regulatory changes. The Chapter explicitly recognizes each Party's right to establish its own priorities in order to protect the environment, and to adopt or modify its laws and policies accordingly and in a manner consistent with multilateral environmental agreements that it is a party to and with CETA. Each Party commits to seek to ensure that those laws and policies provide for and encourage high levels of environmental protection, and strive to continue to improve such laws and policies and their underlying levels of protection. A number of Canadian federal acts are relevant in this regard, including those related to environmental protection, pollution prevention – such as the Canadian Environmental Protection Act (1999) – as well as biodiversity and conservation – including the Species at Risk Act, and the Migratory Birds Convention Act (1994).
3. Intended Government Action
The Government will work with the EU and its Member States to implement the commitments in the Trade and Environment Chapter. With the EU and its Member States, the Government will establish and engage in the Committee on Trade and Sustainable Development and relevant dedicated sessions on the Trade and Environment Chapter, aiming to ensuring the effective implementation of this Chapter.
Chapter Twenty-Five – Bilateral Dialogues and Cooperation
1. CETA Provisions
In the context of the Agreement, the EU and Canada have agreed to work together and continue their close cooperation in a number of areas. The Bilateral Cooperation and Dialogues Chapter draws on established partnerships, existing cooperation arrangements (and international commitments on trade and economic matters), and incorporates them within the framework of CETA.
Article 25.1 sets out the Parties' agreement to cooperate on issues of common interest in the areas of biotechnology, forest products, raw materials, and science, technology, research and innovation. The Parties will engage in formal dialogue at the request of the other Party or the CETA Joint Committee. The Parties can also engage in cooperation in other areas of CETA with the agreement of the Joint Committee.
Under Article 25.2 of CETA, the existing Canada-EU Dialogue on Biotech Market Access Issues that was established in 2009 as part of the Mutually Agreed Solution to the WTO dispute between Canada and the European Communities (WT/DS292) will continue to facilitate cooperation and information sharing regarding biotechnology-related measures that can affect trade between the Parties. This includes the domestic approval of biotechnology products, trade impacts of product approval or release, as well as new legislation in the field of biotechnology. Under CETA, the Dialogue will be enhanced to cover additional topics such as international and regulatory cooperation on biotechnology issues. Best practices on issues of common interest will be shared, along with information regarding domestic systems and decision-making processes, and on the use of genetically modified organisms. Canada and the EU will also promote the use of a system of approval for biotechnology products that is efficient and science-based.
Under Article 25.3 Canada and the EU agree that bilateral dialogue, cooperation and exchange of information and views on laws, regulations, policies and issues related to the production, trade and consumption of forest products are of mutual interest. The Parties agree that the Bilateral Dialogue on Forest Products provides the forum to discuss these issues, including: the development, adoption and implementation of relevant laws, regulations, policies, standards, and testing; certification and accreditation requirements and their potential impact on trade in forest products between the Parties; Canada and EU initiatives related to the sustainable management of forest products and forest governance; mechanisms to assure legal or sustainable origin of forest products; market access for forest products; views on multilateral and plurilateral organizations and processes in which they participate that seek to promote sustainable forest management or combat illegal logging; and issues related to trade in forest products.
Under Article 25.4 Canada and the EU agree that a Bilateral Dialogue on Raw Materials provides the forum to discuss any relevant issues of mutual interest relating to market access for raw materials, including metal and mineral products, as well as related services and investments. In the context of the Dialogue, raw materials include minerals, metals and agricultural products with an industrial use. The Dialogue will facilitate consultation on the Parties' positions in multilateral or plurilateral fora where issues related to raw material may be discussed, as well as the exchange of information regarding best practices concerning regulatory policies, and activities that support social corporate responsibility in accordance with internationally-recognized standards.
Under Article 25.5 Canada and the EU acknowledge the interdependence of science, technology, research and innovation, and international trade and investment in increasing industrial competitiveness and social and economic prosperity. The Parties agree to enhanced cooperation in science, technology, research and innovation by all levels of government, the private sector, and research and civil society organizations, by building on the 1996 Agreement for Scientific and Technological Cooperation between Canada and the European Community.
2. Canadian Legislation
No changes to Canadian legislation arise out of Chapter Twenty-Five.
3. Intended Government Action
The Government will establish or strengthen bilateral dialogue as set out in this Chapter. Dialogue between experts will provide a useful mechanism to discuss, advance and resolve issues between the Parties, aiming to minimize any adverse trade impacts through exchange of information, and cooperation on issues of interest.
The Government will consult with provinces and territories on the preparation and presentation of submissions raised in Bilateral Dialogues on issues that fall under provincial or territorial jurisdiction. The Government will also reach out to stakeholders.
Chapter Twenty-Six – Administrative and Institutional Provisions
1. CETA Provisions
The Administrative and Institutional Provisions Chapter defines how the Agreement will be jointly managed and implemented by Canada and the EU. The Chapter establishes the structure and processes of the various Canada-EU committees, each of which will play a role in administering CETA. This is important in providing the administrative and institutional structure that allows on-going dialogue between the Parties with respect to the interpretation and implementation of the Agreement, as well as on-going work to ensure that CETA remains current.
Article 26.1 establishes the CETA Joint Committee, which is mandated to oversee and facilitate the interpretation and implementation of the Agreement. Either Party can refer issues to the Joint Committee, which has the mandate to review all questions concerning trade and investment between the Parties. The CETA Joint Committee, which will be co-chaired by Canada's Minister of International Trade and his/her European Commission counterpart, or their respective designates, will serve as a forum to help avoid irritants from arising and to resolve disputes related to trade and investment between the Parties.
The CETA Joint Committee may consider or agree on certain amendments to the Agreement, for example with respect to certain technical annexes subject to the Parties' respective processes (Article 26.1.5. (c)).
The CETA Joint Committee can also adopt binding interpretations of the provisions of the Agreement under Section F of Chapter Eight (Resolution of Investment Disputes Between Investors and States) and Chapter Twenty-Nine (Dispute Settlement).
The CETA Joint Committee will also supervise the work of the various specialised Committees and Dialogues established under CETA.
CETA also established a number of specialised Committees and Dialogues. The specialised Committees, along with their specific subject matters and operating provisions, are outlined in Article 26.2, as well as in their relevant Chapters and Protocols of the Agreement. They are:
- the Committee on Trade in Goods;
- the Committee on Agriculture;
- the Committee on Wines and Spirits;
- the Joint Sectoral Group on Pharmaceuticals;
- the Committee on Services and Investment;
- the Joint Customs Cooperation Committee;
- the Joint Committee on Mutual Recognition of Professional Qualifications;
- the Joint Management Committee for Sanitary and Phytosanitary Measures;
- the Committee on Government Procurement;
- the Financial Services Committee;
- the Committee on Trade and Sustainable Development;
- the Regulatory Cooperation Forum; and
- the CETA Committee on Geographical Indications.
The specialised Committees report directly to the CETA Joint Committee, and may propose draft decisions for adoption by the CETA Joint Committee or table decisions when the Agreement so provides. The creation or existence of a specialised Committee does not prevent a Party from bringing any matter directly to the CETA Joint Committee.
Article 26.5 sets out the framework to establish a “CETA contact point” for each Party that will be responsible for coordinating the institutional and administrative liaison with the other Party to the Agreement. The CETA contact point of each Party will also monitor the work of the institutional bodies established under the Agreement, such as the Committees, and serve as a communication point for all notifications and information exchanges with regards to CETA. The CETA contact point of each Party shall respond to any information request and consider any other matter that may affect the operation of the Agreement as mandated by the CETA Joint Committee.
2. Canadian Legislation
Part 1, sections 9, 10, 11, and 13 of the CETA Implementation Act outline the legal basis for the creation of, and participation on, the CETA Committees.
3. Intended Government Action
The work of the CETA Joint Committee and specialized Committees will further the Parties' collaboration and understanding of various issues that may affect trade and investment between the Parties, and help to avoid irritants and resolve disputes. The Government anticipates regular meetings of the committees to deliver on the ambitious work plan set out in the Agreement.
Chapter Twenty-Seven – Transparency
1. CETA Provisions
The Parties recognize the importance of clear and transparent regulation in which economic activity can take place. CETA's Transparency Chapter commits the Parties to publishing their laws, regulations, procedures, and administrative rulings that could affect trade and investment and other matters covered by the Agreement. The Chapter also helps to ensure that Canadian and EU stakeholders are either notified of, or have access to information regarding measures that may affect trade under CETA.
Article 27.1 requires that, to the extent possible, each Party shall publish in advance, any measure that it plans to adopt and that interested persons and the other Party have a reasonable opportunity to comment.
Article 27.2 ensures that at the request of the other Party, a Party shall, to the extent possible, provide information and respond to questions in a timely manner. Information provided under this Article is without prejudice as to whether the measure is consistent with the Agreement.
Fairness and transparency in domestic administrative and judicial proceedings is provided for in Articles 27.3 and 27.4.
Under Article 27.5 the Parties have also agreed to work together in international trade and investment in bilateral, regional, and multilateral fora, to promote transparency.
2. Canadian Legislation
Transparency of laws and regulations, as well as administrative and judicial proceedings is already provided for in Canada. Therefore, no amendments to Canadian legislation arise from Chapter Twenty-Seven.
3. Intended Government Action
The Government will continue to promote transparency in laws, regulations, and other proceedings in Canada and the EU. Canadians affected by measures or proposed measures of the EU or its Member States and having concerns that these measures could affect the benefits of the Agreement, should contact Canadian Government officials.
Chapter Twenty-Eight – Exceptions
1. CETA Provisions
The Exceptions Chapter sets out cross-cutting exceptions agreed by Canada and the EU that affect several chapters or the entire Agreement. Generally, these exceptions are designed to ensure that Canada and the EU maintain the right to take action for certain purposes or in certain areas notwithstanding specific obligations in the Agreement. The Chapter specifies when Canada or the EU may impose measures that would otherwise be inconsistent with CETA obligations.
Article 28.1 and 28.2 establish respectively the general and Party-specific definitions that apply to this Chapter.
Article 28.3 sets out general exceptions to the obligations in the Agreement. With respect to various goods-related chapters and provisions, the general exceptions in the General Agreement on Tariffs and Trade (GATT 1994) are incorporated into the Agreement and made applicable. With respect to chapters related to services and investment, the Parties have set out applicable general exceptions which largely mirror those in the General Agreement on Trade in Services (GATS). This allows Canada and the EU to take, for example, measures (including environmental measures) necessary to protect human, animal, or plant life or health that would otherwise be inconsistent with CETA obligations. In addition, the Parties have agreed to a public security and public order exception that can be invoked only where there is a genuine and sufficiently serious threat posed to one of the fundamental interests of society.
Article 28.4 establishes a safeguard measure available to the EU in extraordinary circumstances where capital movements and payments pose a serious threat to the stability of the EU economic and monetary union. This provision allows the EU to impose a measure to restrict these flows for a maximum of 180 days and in a manner that does not treat Canada differently than other trading partners. Canada is to be informed immediately in the event of its use and a schedule for removal established as soon as possible.
Article 28.5 allows for Canada or any EU country to institute safeguards that restrict capital movement or payments in order to address a balance-of-payments crisis. It also specifies that these measures shall not treat Canada differently than other trading partners, only go as far as is absolutely necessary, be consistent with relevant IMF articles and not exceed 180 days except under extreme circumstances. In the case of trade in goods and services, the article establishes the requirement that any measures taken be consistent with relevant WTO agreements and lays out the procedure to be followed in the event of their use.
Article 28.6 affirms that nothing in CETA should be interpreted as to furnish or allow access to information deemed essential to the security interests of Canada or the EU, or preventing a Party from taking actions it considers necessary to protect its security interests or carrying out its international obligations to maintain international peace and security. This includes actions related to the traffic in arms, ammunition and implements of war, as well as actions taken in time of war or other international relations emergencies, and actions relating to fissionable and fusionable materials and their derived forms.
Article 28.7 of CETA addresses the application of the Agreement to taxation measures. The taxation article in CETA adopts a different format from that used in Canada's other trade agreements. The objective, however, is the same: to take into account the complexities and particularities related to taxation measures and the need to preserve certain policy space. Under Canada's other trade agreements, taxation measures are subject to only the obligations specified in the taxation article. Under CETA, all of the obligations in the Agreement apply to taxation measures, subject to the clarifications and expectations set out in Article 28.7.
The taxation article of CETA contains a number of provisions intended to preserve existing taxation practices and secure flexibility in the development of future tax policies. It also contains procedural provisions that allow the Parties to launch consultations in circumstances where an investor wishes to challenge the conformity of a taxation measure with the provisions of the CETA Investment Chapter. Should consultations result in an agreement between the Parties that, for example, the measure is a taxation measure, this would be binding on any CETA arbitral tribunal established to address the issue.
The terms “tax” and “taxation measure” are defined in Article 28.1, and broadly include income tax, sales and excise tax measures. Custom duties are specifically excluded from the scope of the taxation article. In addition, Article 28.7.8 clarifies that “taxation measure of a Party” means a taxation measure adopted at any level of government of a Party.
Article 28.7.1 provides that CETA shall not prevent a Party from adopting or maintaining any taxation measure that distinguishes between persons who are not in the same situation, in particular with regard to their place of residence or with regard to the place where their capital is invested.
Article 28.7.2 provides that CETA does not prevent a Party from adopting or maintaining any taxation measure aimed at preventing the avoidance or evasion of taxes pursuant to its tax laws or tax conventions.
Article 28.7.3 deals with the relationship between CETA and conventions for the avoidance of double taxation (“tax conventions”). It provides that a tax convention prevails, in the event of any inconsistency between CETA and the convention, to the extent of the inconsistency.
Article 28.7.4 provides that neither CETA nor any arrangement under CETA will apply to a taxation measure of a Party that:
- — provides a more favourable tax treatment to a corporation, or to a shareholder of a corporation, on the basis that the corporation is wholly or partly owned or controlled, directly or indirectly, by one or more investors who are residents of that Party;
- — provides an advantage relating to the contributions made to, or income of, an arrangement providing for the deferral of, or exemption from, tax for pension, retirement, savings, education, health, disability or other similar purposes, conditional on a requirement that that Party maintains continuous jurisdiction over such arrangement;
- — provides an advantage relating to the purchase or consumption of a particular service, conditional on a requirement that the service be provided in the territory of that Party;
- — is aimed at ensuring the equitable and effective imposition or collection of taxes, including a measure that is taken by a Party in order to ensure compliance with the Party's taxation system; and
- — provides an advantage to a government, a part of a government, or a person that is directly or indirectly owned, controlled or established by a government.
Additionally, Article 28.7.4 grandfathers non-conforming taxation measures that are in existence at the time of the entry into force of CETA, including measures that are renewed or amended, if the amendment does not make the measure less conforming. Therefore, the CETA obligations are relevant to future taxation measures.
Article 28.7.5 clarifies that the fact that a taxation measure constitutes a significant amendment to an existing taxation measure, takes immediate effect as of its announcement, clarifies the intended application of an existing taxation measure, or has an unexpected impact on an investor or covered investment, does not, in and of itself, constitute a violation of the Treatment of investors and of covered investments in Article 8.10.
Article 28.7.6 ensures that the most-favoured-nation obligations under Articles 8.7, 9.5 and 13.4 do not apply to an advantage accorded by a Party pursuant to a tax convention.
Finally, Article 28.7.7 contains procedural provisions that allow the Parties to launch consultations in circumstances where an investor submits that a taxation measure breaches an obligation under the Non-discriminatory treatment section (Section C) or the Investment protection section (Section D) of Chapter Eight (Investment). If as a result of the consultations, the Parties agree with respect to certain aspects of the claim, the determination would bind the Tribunal. For example, if the Parties decide that a disputed taxation measure does not amount to an indirect expropriation as claimed by the investor, the decision would bind the Tribunal and prevent that claim from proceeding.
Article 28.8 states that CETA does not require a Party to provide or allow access to information that would impede law enforcement. The article also commits that under the Agreement, Canada and the EU are not required to disclose information protected under its competition laws, including during the course of a dispute settlement procedure under CETA.
Article 28.9 identifies the exceptions applicable to culture as set out in the relevant provisions of the Chapters on Subsidies, Investment, Cross-Border Trade in Services, Domestic Regulation and Government Procurement. CETA preserves the necessary policy space for cultural policies and programs at all levels of government and promotion of cultural diversity which is an important objective of the Parties highlighted in the Preamble of the Agreement which refers to the UNESCO Convention on the Protection and the Promotion of the Diversity of Cultural Expression.
Article 28.10 ensures that for an obligation in CETA that is the same as an obligation under WTO Agreements, any waiver of obligations agreed to under Article IX of the WTO Agreement will also operate as a waiver of the equivalent obligation of the CETA.
2. Canadian Legislation
No amendments to Canadian legislation arise from Chapter Twenty-Eight.
3. Intended Government Action
The CETA allows Canada to take legitimate regulatory action in the public interest including where necessary by relying on the general exceptions of the Agreement.
Chapter Twenty-Nine – Dispute Settlement
1. CETA Provisions
The CETA dispute settlement mechanism provides an expeditious and effective means for the resolution of disputes between Canada and the EU pertaining to the interpretation or application of the Agreement.
The Chapter emphasizes the importance of resolving disagreements through cooperative means, recognizing that formal dispute settlement processes can be time consuming and resource intensive. Accordingly, the Chapter contains provisions regarding consultation and mediation, so that formal dispute settlement is used only as a last resort if the Parties fail to resolve the dispute through other means.
Article 29.1 affirms the importance of cooperation and consultations between the Parties in the interpretation and application of the Agreement. The Parties shall make every attempt, through cooperation and consultations, to arrive at a mutually satisfactory resolution of any matter that might affect the operation of the Agreement. This includes discussions in the CETA Joint Committee and specialized committees.
Article 29.2 establishes that the scope of the Chapter applies to any dispute concerning the interpretation or application of the provisions of the Agreement, unless it is otherwise indicated in the Agreement. For example, dispute settlement under this Chapter does not apply to Chapter Three (Trade Remedies), certain provisions under Chapter Seven (Subsidies), Chapter Seventeen (Competition Policy) and it applies with modifications to Chapter Thirteen (Financial Services).
Article 29.3 specifies that while recourse to dispute settlement under this Chapter is without prejudice to recourse to dispute settlement under the WTO Agreement or any other agreement to which Canada and the EU are parties, the same dispute cannot be heard simultaneously under both the WTO Agreement (or other agreements to which the Canada and the EU are parties) and the CETA dispute settlement process. This means for example that where there is a substantially equivalent provision in the WTO Agreement and in CETA, and a dispute has been brought to the WTO, the CETA dispute settlement procedures cannot also be used. However, the prohibition against bringing a claim in another forum would not apply in instances where the tribunal hearing the claim never makes findings on the claim (including for procedural or jurisdictional grounds) or where proceedings under the chosen forum are terminated. The Article further specifies that nothing in the Agreement shall prevent a Party from suspending obligations that have been authorized by a WTO Dispute Settlement body. This avoids a situation where a Party is authorized to retaliate against the other Party as a result of the dispute settlement process in the WTO, but doing so would amount to a breach of CETA. Likewise, the WTO Agreement may not be invoked to prevent a Party from suspending obligations under this Chapter.
Article 29.4 reflects the commitment of the Parties to try to explore other options for the resolution of disputes and sets out the procedure for requesting consultations on any matter covered by the Chapter. When consultations are requested, the Parties shall enter into consultations within thirty days of the date of receipt of the request by the responding Party, unless there is some sort of urgency requiring the consultations to occur earlier. For instance, in cases involving perishable or seasonal goods, or services that rapidly lose their trade value. In order to have efficient and productive consultations, each Party is obliged to provide sufficient information to enable a full examination of the matter at issue and to protect any confidential information of the other Party as appropriate. The Article also clarifies that while proposed measures may be discussed in consultations, they may not be subject to dispute settlement. Only measures that affect trade and investment between the Parties may be the subject of mediation or the dispute settlement procedures outlined in the Chapter.
Article 29.5 provides an avenue for the Parties to resolve any trade issues cooperatively, through a comprehensive and expeditious mediation procedure. The procedures for initiating, conducting, and terminating a mediation, as well as procedures for selecting a mediator and implementing a mutually agreed solution, are outlined in Annex 29-C.
Section C sets out the procedures for dispute settlement and compliance. Detailed rules of procedure for dispute settlement are set out in Annex 29-A that includes, among other things, rules concerning the operation of arbitration panels, the replacement of arbitrators, and the conduct of hearings.
Article 29.6 lays out the circumstances under which a Party may request the establishment of an arbitration panel and the procedure for such a request.
The rules surrounding the composition of the Panel are set out in Article 29.7. Arbitration panels are to be composed of three arbitrators which the Parties will attempt to agree on. Rules are also provided to ensure that neither Party can block the establishment of a panel including through the establishment of lists from which panelists can be chosen (Article 29.8).
The individuals on the list must be chosen on the basis of their objectivity, reliability and sound judgment. The arbitrators must also possess certain qualities and qualifications: they must have specialized knowledge of international trade law, and chairpersons must also have experience as counsel or panellist in dispute settlement proceedings on subject matters within the scope of the Agreement. Further, the arbitrators must be independent and not affiliated with the government of any of the Parties, serve in their individual capacities and not take instructions from any organisation or government, and shall comply with the Code of Conduct outlined in Annex 29-B. The Code of Conduct requires, among other things, that each potential arbitrator must avoid conflicts of interest, both direct and indirect, and must disclose, before she or he is confirmed as an arbitrator, any potential conflict of interest that may affect her or his impartiality or independence.
Articles 29.9 and 29.10 deal with the interim and final panel reports, respectively. The strict timelines associated with the interim and final panel reports ensure the expeditious resolution of disputes between Canada and the EU.
Article 29.11 deals with urgent proceedings that occur in cases involving perishable or seasonal goods, or services that rapidly lose their trade value. The dates for urgent proceedings are modified to reflect the urgency of the situation.
Parties have committed to taking any measure necessary to comply with the final panel report (Article 29.12). Article 29.13 states that, if immediate compliance is not possible, the responding Party must notify the other Party and the CETA Joint Committee, of the amount of time that it will require in order to bring its measure(s) into compliance. If the Parties cannot agree they may ask the arbitration panel to determine a reasonable period of time.
Article 29.14 allows for temporary remedies where a Party fails to bring its measures into compliance. Where this is the case, the requesting Party is entitled to suspend obligations (to a level equivalent to the nullification or impairment caused by the violation) or receive compensation. Any disagreements on compliance or the equivalence of the retaliation may be referred to the arbitration panel. Article 29.15 covers the situation wherein the responding Party takes steps to bring its measures into compliance after the other Party has suspended obligations under Article 29.14. Where this occurs, the responding Party may request an end to the suspension of obligations.
Article 29.17 confirms that the provisions of the Agreement are to be interpreted by arbitration panels in accordance with customary rules of interpretation of public international law, such as those set out in the Vienna Convention on the Law of Treaties. Further, Panel and Appellate Body reports of the WTO Dispute Settlement Body are also considered relevant interpretations to be taken into account.
Article 29.18 clarifies that the rulings of the arbitration panel cannot create new rights and obligations nor detract from the rights and obligations set out in the Agreement.
Consistent with the Parties commitment to resolving disagreements through cooperative means, Article 29.19 provides that the Parties may, at any time, reach a mutually agreed solution to the dispute and end the arbitration proceedings.
2. Canadian Legislation
Section 10 of the CETA Implementation Act provides that the Minister for International Trade is the principal representative of Canada on the CETA Joint Committee. Further, section 11(1)(b) authorizes the Minister for International Trade to propose the names of individuals to be included in the sub-lists of arbitrators and chairpersons established under Article 29.8 of the Agreement.
Section 12 of the CETA Implementation Act provides that the Minister for International Trade must designate an agency, division or branch within the Government of Canada to facilitate the operation of this Chapter.
Section 13 of the CETA Implementation Act provides the authority for payment of remuneration and expenses incurred by arbitration panels and the CETA Joint Committee, among other bodies established under the Agreement.
Section 14 of the CETA Implementation Act provides a mechanism for the suspension of obligations following a determination by an arbitration panel under this Chapter where the EU fails to bring its measure(s) into compliance. Any suspension made under this clause will be in effect only so long as the inconsistent measure is not rectified by the EU.
3. Intended Government Action
The Government will ensure that the individuals proposed for the sub-lists under Article 29.8 possess the requisite characteristics in order to enable disputes to be heard in a timely, objective and impartial manner.
The Government will also consult closely with affected stakeholders with respect to dispute settlement under this Chapter and with the provinces and territories in the preparation and presentation of submissions in any dispute settlement proceedings in which provincial or territorial measures are at issue.
Chapter Thirty – Final Provisions
1. CETA Provisions
This Chapter includes general provisions related to the entry into force, amendment, and termination of the Agreement.
The text of the Agreement contains a number of protocols, annexes, declarations, joint declarations, understandings and footnotes. Article 30.1 confirms that they constitute integral parts of the Agreement.
Article 30.2 sets out rules regarding amendments to the Agreement and entry into force of the amendments. It anticipates that certain technical annexes and protocols to the CETA may be amended by a decision of the CETA Joint Committee.
Article 30.3 anticipates exchanges of information on imports of goods and use of tariff preferences under the Agreement.
Articles 30.4 and 30.5 address payments and transfers on the current account of the balance of payments as well as movements of capital between the Parties.
Article 30.6 clarifies that the Agreement does not create private rights for any person in domestic law. Rights of action for violations of the Agreement are those set out in the Agreement.
Article 30.7 sets out the procedure for entry into force and provisional application of the Agreement. It anticipates that certain parts of the Agreement may not be provisionally applied and may enter into force at a later date. Provisional application of a treaty is rare in Canada's treaty practice but it is a common feature of EU agreements.
Pursuant to Article 30.7.3(b), the EU notified Canada of its intention to provisionally apply CETA, subject to the following points:
- (a) only the following provisions of Chapter Eight of the Agreement (Investment) shall be provisionally applied, and only in so far as foreign direct investment is concerned:
- — Articles 8.1 to 8.8;
- — Article 8.13;
- — Article 8.15, with the exception of paragraph 3 thereof; and
- — Article 8.16;
- (b) the following provisions of Chapter Thirteen of the Agreement (Financial Services) shall not be provisionally applied in so far as they concern portfolio investment, protection of investment or the resolution of investment disputes between investors and States:
- — Paragraphs 3 and 4 of Article 13.2;
- — Article 13.3 and Article 13.4;
- — Article 13.9; and
- — Article 13.21;
- (c) the following provisions of the Agreement shall not be provisionally applied:
- — Article 20.12;
- — Article 27.3 and Article 27.4, to the extent that those Articles apply to administrative proceedings, review and appeal at Member State level;
- — Paragraph 7 of Article 28.7;
- (d) the provisional application of Chapters 22, 23 and 24 of the Agreement shall respect the allocation of competences between the Union and the Member States.
Canada notified the EU of its intention to provisionally apply CETA, subject to the following points:
- (a) only the following provisions of Chapter Eight of the Agreement (Investment) shall be provisionally applied, and only in so far as foreign direct investment is concerned:
- — Articles 8.1 to 8.8;
- — Article 8.13;
- — Article 8.15, with the exception of paragraph 3 thereof; and
- — Article 8.16;
- (b) the following provisions of Chapter Thirteen of the Agreement (Financial Services) shall not be provisionally applied in so far as they concern portfolio investment, protection of investment or the resolution of investment disputes between investors and States:
- — Paragraphs 3 and 4 of Article 13.2;
- — Article 13.3 and Article 13.4;
- — Article 13.9; and
- — Article 13.21;
- (c) the following provisions of the Agreement shall not be provisionally applied:
- — Article 20.12;
- — Paragraph 7 of Article 28.7;
- (d) the provisions of Chapters 22, 23 and 24 of the Agreement shall be provisionally applied to the same extent as they are applied by the European Union.
Given the comprehensive nature of the Agreement and the long-standing relationship between Canada and the EU and its Member States, the Agreement overlaps and replaces a number of existing agreements. Article 30.8 addresses this relationship. It provides for the termination, suspension or incorporation of a number of other existing agreements between the Parties and related modalities. It anticipates that once the investment protection and dispute settlement provisions of the Agreement enter into force, they will replace existing bilateral investment agreements between Canada and a number of EU member states (the Republic of Croatia, the Czech Republic, Hungary, the Republic of Latvia, the Republic of Malta, the Republic of Poland, Romania and the Slovak Republic) and these agreements will be terminated. Moreover, it incorporates and updates existing agreements between Canada and the EU related to alcoholic beverages (the changes are in Annex 30-B described below). Given the new rules negotiated in Chapter Four (Technical Barriers to Trade), the Agreement on Mutual Recognition between the European Community and Canada will be terminated upon entry into force of the Agreement. A set of comprehensive and detailed rules on the protection of public, animal and plant health in respect of trade in live animals and animal products were also incorporated as part of Chapter Five of CETA (Sanitary and Phytosanitary Measures) and its annexes. As a result, the 1998 Veterinary Agreement will also be terminated and the committee's work under that agreement will be integrated under the Joint Management Committee established under CETA.
Article 30.9 contains rules governing termination of the Agreement after entry into force.
Article 30.10 sets out the process for amending the Agreement in case of accession of new Member States of the European Union. While this provision does not explicitly contemplate a Member State's exit from the EU, a similar process would apply in that situation.
Article 30.11 confirms that the Agreement is authentic in French and English and the other 22 EU official languages.
Annex 30-B updates the 1989 Alcoholic Beverages Agreement and the 2003 Wines and Spirit Drinks Agreement between Canada and the EU. Those agreements provide for a variety of obligations related to trade in alcoholic beverages, including relating to imports, distribution, labelling, and uses of certain names and terminology (such as “Champagne” and “Icewine”).
Section A of Annex 30-B adds the definition of “competent authority”, which are the governmental entities that control wine and spirit distribution (for instance, liquor control boards).
Section B of Annex 30-B provides a specific numeric cap on the number of off-site private wine stores in Ontario and British Columbia that are authorized to sell only wines produced by Canadian wineries in those provinces.
Section C of Annex 30-B requires governmental entities that control wine and spirit distribution to make buying and selling decisions based on commercial considerations and to adhere to the obligations in GATT Article XVII concerning State trading enterprises. Paragraph 2 mandates Canada and the EU to take all possible measures to ensure that such entities do not use their monopoly position to engage in the sale of wine and spirits outside of their market such that anti-competitive effects result and cause an appreciable restriction on competition in that market.
Section D of Annex 30-B commits the Parties to nondiscriminatory pricing and limits differential “cost of service” charges to the costs associated with marketing the products of the other Party (for instance, costs arising from delivery methods used to bring imported products to the Canadian market). Paragraph 3 specifically prohibits Canada and the EU from determining a differential “cost of service” charge on the basis of the value of the product.
Section E of Annex 30-B, as with many other Canadian Free Trade Agreements, prohibits a Party from requiring that imported spirits be mixed with domestic spirits in order to be sold.
Section F of Annex 30-B makes various administrative changes to the 2003 Wine and Spirits Drinks agreement.
Annex 30-C contains a joint declaration by Canada and the EU on wines and spirits, indicating the Parties' intentions to continue to work to resolve concerns in this area.
2. Canadian Legislation
Section 138 of the CETA Implementation Act provides that the Act will come into force on a day to be fixed by order of the Governor in Council, except for a few provisions for which special rules of entry into force are necessary due to their dependence on regulations that may follow. For example, s. 138(5) brings into force amendments to the authority of the Patented Medicines Price Review Board (PMPRB) to ensure that it has oversight over medicines protected by Certificates of Supplementary Protection (CSP). This oversight is further defined in regulations that also require amendments.
Article 8 of the CETA Implementation Act reflects Article 30.6 of the Agreement. It excludes private causes of action with respect to rights and obligations under the Act and under the Agreement, except for claims brought by investors under Section F of Chapter Eight (Investment) or Article 13.21 (Financial Services) of the Agreement.
The provinces and territories are also taking measures to implement the Agreement, as necessary, including in the area of trade in alcoholic beverages.
3. Intended Government Action
CETA has been concluded by the EU as a mixed agreement requiring the EU and all of its Member States to ratify the Agreement. Provisional application allows the EU to apply certain parts of the Agreement pending the ratification by Member States and entry into force of the Agreement. The Government intends to use provisional application to ensure that Canadians benefit immediately from the almost 99 percent of the Agreement. Provisions of the Agreement that are not provisionally applied by the EU would not be provisionally applied by Canada. This includes the section on investment protection and the related investment dispute settlement mechanism. As a result, entry into force of certain related sections of the CETA Implementation Act will be delayed.