CETA and the Cordon Sanitaire
On 21 September 2020, the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union celebrates its 3rd anniversary of provisional application. CETA was – and remains – an ambitious economic and trade agreement. CETA removes up to 99% of tariff barriers between Canada and the EU and introduces notable and innovative tools to address non-tariff barriers (NTB) to trade, both at the border (such as efforts to streamline customs processes and the removal of duplicate testing) and beyond the border (namely, through a novel and ambitious institutional system of regulatory cooperation).
These achievements, coupled with the bilateral opening of public procurement markets and built in safeguards to ensure the preservation of high standards for consumers, workers and the environment, make this an anniversary worth celebrating.
Yet like many celebrations that have taken place in the time of COVID, this CETA anniversary will likely be a more subdued affair. Global trade is down significantly as businesses and consumers continue to grapple with the effects of the COVID-19 pandemic. The global trade situation was surely not helped by the initial reaction of governments around the world to close borders, restrict the export of certain products, particularly on personal protection equipment (PPE), and effectively impose a cordon sanitaire.
Although most of the provisions of CETA are in force and effect, the agreement continues to be only provisionally applied, with full implementation requiring ratification by all EU member states. Unfortunately, there have been a number of bumps along the – ever expanding – road to CETA ratification. In addition to the EU member states where ratification is already known to be far from guaranteed (Belgium, Italy and France to name but three), the past six months have now seen the rejection of CETA by the Cypriot parliament, while the historically free trading kingdom of the Netherlands continues to be engaged in some serious soul searching – if not navel gazing – on the subject of CETA as part of its yet-to-be approved ratification process.
But despite all the ill- political and trade winds, CETA does show positive signs of maturity. The initial two years following CETA’s application witnessed an auspicious rise in bilateral trade (an increase of 17% in merchandise trade and a 15.2% increase in services trade). While the trade levels have fallen in 2020, the decline has not been as drastic as compared to trade with the rest of the world (particularly with respect to Canadian exports to the EU) demonstrating resilience in the Canada-EU trade relationship. The institutional architecture of the regulatory cooperation system has also begun to take shape after a solid start, with many bilateral committee meetings and dialogues under CETA already well under way.
Despite these positive signs, however, it must be acknowledged that CETA has not reached its full potential. As more and responsible trade (of the kind envisaged by CETA, namely protection of consumers and respect for workers and the environment) is critical to ensuring a sustainable economic recovery, more can and should be done to ensure CETA’s success. Paradoxically, the COVID crisis offers a unique opportunity for this happen.
First, greater efforts should be placed under the umbrella of CETA and bilateral cooperation between Canada and the EU to address the challenges presented by COVID. While both Canada and the EU have been working closely together to address the challenges of COVID to the global trading order, their efforts have been largely under the multilateral framework of the World Trade Organization through the Ottawa Group. While a multilateral solution is surely the key to dealing with the impact of COVID on trade in the long-term, there is a role for Canada-EU bilateral solutions in the short-term, from addressing shortages of pharma and medical supplies (including PPE), to ensuring the free movement of health care professionals as needed, to finding ways to encourage bilateral trade and investment in key areas such as health and a supporting digital sector.
Secondly, the EU and Canadian government should do more to ensure that CETA is implemented as designed. This includes ensuring that commitments that have been agreed under CETA are indeed fulfilled. For example, under CETA, the parties agreed to a Protocol on Conformity Assessment, a mechanism in which the EU and Canada agree to accept each other's conformity assessment certificates for specific sectors. This is a key tool aimed at reducing cost and duplication and is a top feature of CETA especially for SMEs. It remains, however, not fully implemented.
Another key innovation of CETA that has yet to bear fruit relates to the mutual recognition of professional qualifications. While mutual recognition of professions is not something that can be imposed by governments under CETA, certainly more can be done by Canada and the EU to encourage professions to consider this benefit. One obvious way would be to conclude the process of mutual recognition of professional qualifications as initiated by architects (a process that started even before CETA was implemented). This would send a signal to, and potentially stir interest with, other professions, such as critical health care professionals.
Third, it is suggested that Canada and the EU should take more proactive steps to coordinate, prioritize and deepen efforts of regulatory cooperation under CETA. On one level, this may mean some changes to the regulatory cooperation infrastructure. In particular, this should entail a review and assessment of the current CETA committee and dialogue structure to ensure that it addresses key and relevant priorities – including, it is suggested, creating a new committee or dialogue on health.
Another recommended change would be for a greater delegation of CETA regulatory cooperation management from the CETA Joint Committee – CETA’s highest political authority which is co-chaired by the Canadian Minister for International Trade and the EU Trade Commissioner – to the Regulatory Cooperation Forum (RCF) – a committee specifically formed under CETA to “facilitate and promote regulatory cooperation” between Canada and the EU and co-chaired by senior government bureaucrats. While setting priorities is a political exercise that can and must remain at the Joint Committee level, there are simply too many specific issues and committees and dialogues under CETA (approximately twenty specialized committees and joint dialogues) to be dependent on Ministerial decision or action. The RCF, comprised of experts in trade and legislation development and implementation, is very well suited to ensure that regulatory cooperation under CETA progresses, and takes the shape, as directed by political ministers (who will, in all cases, retain the ultimate final say in this area). The RCF, in turn, would benefit greatly from the establishment of a CETA secretariat to actively monitor the work of the various CETA committees and ensure that all stakeholders (including SMEs) are appropriately consulted and processes and outcomes are consistently and transparently communicated.
Another tangible way in which regulatory cooperation under CETA could be made more effective and meaningful in a COVID and post-COVID world, would be for Canada and the EU to undertake a new comprehensive study to identify existing bilateral barriers to trade, as well as anticipate potential new barriers with emerging industries such as health and the digital economy. A 2008 study commissioned by Canada and the EU as part of the CETA negotiations was a critical element in the conclusion and public acceptance of CETA at the time. That study (over a decade old now) was prepared at a very different time than the present, was based on assumptions that have changed, and served a different purpose. A new study that more accurately reflects the current bilateral trade and investment situation (as well as global trade environment), would better inform decision-makers and stakeholders alike. It would also give Canada and the EU an opportunity to consult and engage with stakeholders (including SMEs) and stimulate a renewed interest in CETA by businesses. And this then leads to the final point.
None of the above recommendations, even if implemented fully, will result in greater CETA success if businesses do not actually use CETA. At the moment, CETA remains an underutilized tool, especially by SMEs. This is a missed opportunity, especially for those businesses that may have previously shunned cross-Atlantic trade owing to the prohibitive costs of travel, but now feel empowered to engage in foreign markets owing to the wide acceptance of online communications accelerated by the realities of the COVID crisis. However, a reason for this underutilization rate may be a lack of awareness of businesses of the opportunities CETA offers. While the EU and the Canadian government (the latter through its specialized and professional Trade Commissioner Services and the Export Development Corporation) have made - and continue to make - significant strides to address this information gap, still more is needed to help get the message out of the benefits of CETA. But this is not something that governments can do by themselves. Businesses and associations also need to be engaged so as to ensure that the information and messages are amplified and reach their audience with a higher degree of focus (for example specific business sectors) and granular detail on the practicalities of doing business in specific markets (for example obtaining licenses and authorization processes as well as getting information for movement of business professionals under CETA).
The COVID crisis is not over and there is much that remains unknown about the future. What we do know, however, is the virus will be with us for the foreseeable future and that the crisis has accelerated changes to the way people work, do business and trade. Trade is a key element in addressing the challenges faced by COVID and achieving any meaningful and sustainable economic growth. CETA has been described as a “living agreement”, and as such, it is well equipped to adapt to these changes and ensure that the Canada-EU relationship continues to thrive and prosper in a responsible way. While COVID has put a damper on most celebrations, it need not be the case for CETA’s third anniversary. With the right adjustments to, and incentives through, CETA, it is possible to lift the cordon sanitaire between Canada and the EU and let CETA develop and reach its potential.