CIIT Committee Report

GOVERNMENT RESPONSE
FIRST REPORT OF THE STANDING COMMITTEE ON INTERNATIONAL TRADE

NEGOTIATIONS TOWARD A COMPREHENSIVE ECONOMIC AND TRADE
AGREEMENT (CETA) BETWEEN CANADA AND THE EUROPEAN UNION

Introduction:

The Government of Canada is pleased to respond to the First Report of the House of Commons Standing Committee on International Trade (the Committee), entitled: Negotiations Toward a Comprehensive Economic and Trade Agreement (CETA) Between Canada and the European Union.  The Government of Canada shares the Committee’s commitment to ensuring that a CETA with the European Union (EU) is in the best interests of Canadians and contributes to Canada’s economic prosperity.

The Government of Canada appreciates the work of the Committee and its analysis, views, conclusions, and recommendations resulting from its study of the Canada-EU CETA negotiations. The Government Response addresses the important issues raised by the Committee report, and welcomes the opportunity to respond to each of the Committee’s recommendations individually.  The Canadian Government thanks the Committee for its work and support, and looks forward to more of its input as CETA negotiations proceed.

The Canada-EU CETA in Canada’s Economic Action Plan:

Canada’s prosperity is linked to reaching beyond our borders for economic opportunities that serve to grow Canada’s trade and investment. Open trade has long been a powerful engine for Canada’s economy. It is even more so in these challenging economic times.  Our participation in global commerce has helped us build a strong, stable economy that boasts thousands of leading-edge businesses, a highly-skilled and educated workforce, world-class financial and physical infrastructure, top-quality research and development facilities and excellent post-secondary institutions.  Open markets create jobs and economic growth for people around the world.  To ensure that Canada can continue to take advantage of new markets and extend its global reach, the Government of Canada has stepped up its efforts to improve Canada’s performance. 

The Government of Canada’s overall economic plan, including Advantage Canada and the Global Commerce Strategy, has been responding to this challenge. It is through the Global Commerce Strategy that the Government of Canada has enhanced its efforts to negotiate bilateral trade policy instruments, including free trade agreements, so as to maintain Canadian competitiveness abroad. And now, Economic Action Plan 2012 proposes to refresh the Global Commerce Strategy through extensive consultations with Canada’s business community, including the very critical small and medium-sized businesses. An updated Global Commerce Strategy will align Canada’s trade and investment objectives with specific high-growth priority markets with an eye to ensuring that Canada is branded to its greatest advantage within each of those markets.  The new Global Commerce Strategy will be announced in 2013, and guide Canada’s trade plan in priority markets going forward.

Furthermore, Economic Action Plan 2012 proposes to intensify Canada’s pursuit of new and deeper trading relationships. The Government of Canada understands that Canadians’ standard of living and future prosperity depend on growing trade and investment. To that end, the Government of Canada is continuing to actively pursue new trade and investment opportunities, particularly with large, dynamic and fast-growing economies.

As part of this re-invigorated trade policy agenda, Canada is focused on deepening our relationship with our second largest trading partner by pursuing a Comprehensive Economic and Trade Agreement (or CETA) with the European Union.  Canada and the European Union have a strong trading relationship based on historical ties, shared common democratic values and an open liberalized trading system. As an integrated block, the EU is Canada's second largest trading partner in goods and services, as well as our second largest source and destination for foreign direct investment (FDI); and Canada is the EU’s 12th largest trading partner. In 2011, Canada's goods and services exports to the EU totalled $42.4 billion in goods and $12.9 billion in services. In 2011, Canada’s exports of goods and services to the EU increased by 12.6%. Imports of goods and services from the EU amounted to $45.8 billion in goods and $15.3 billion in services.  Overall, the total bilateral goods and services trade between Canada and the EU increased 11.6% ($116.4 billion in 2011 from $104.4 billion in 2010).

A CETA with the EU will improve access for Canadian businesses to the EU’s $18-trillion economy and 500 million consumers.  The impetus for pursuing such an agreement stems from the conclusion of the Canada-EU Joint Study, Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership (the Joint Study) which found that our bilateral commercial relationship with the EU was significantly under traded and showed room for growth. This was further supported by the quantitative analysis in the Joint Study, which indicates that an agreement with the EU could provide a $12 billion boost to Canada’s GDP and generate an increase of at least 20% in bilateral trade by the time an agreement is fully implemented. 

An agreement is expected to benefit the Canadian economy across the board, including sectors such as aerospace, chemicals, plastics, aluminum, wood products, fish and seafood, automotive vehicles and parts, agricultural products, transportation, financial services, renewable energy, information and communication technologies, engineering and computer services, among others. Beyond the elimination of tariffs, the reduction of non-tariff barriers and preferential treatment in the core market access areas of goods, services, investment, and government procurement are key priorities in the negotiations.  The government is also seeking to enhance the Canada-EU relationship in areas such as labour mobility, regulatory cooperation, environment, and science and technology.

An ambitious CETA with the EU is also supported across the country. All provinces and territories are unanimous in their support of a CETA with the EU. In a statement released by the Council of the Federation on February 20, 2009, Premiers supported the launch of the negotiations and confirmed their commitment to implementing obligations they undertake.  Newfoundland and Labrador later confirmed its participation in and support of the negotiations as well. As a result, provinces and territories continue to be closely engaged in the negotiations.  Provinces and territories confirmed their support most recently on February 28, 2012, when the Honourable Ed Fast, Minister of International Trade and Minister for the Asia-Pacific Gateway and his Provincial and Territorial colleagues issued a joint statement announcing their commitment to an ambitious and balanced outcome to the CETA negotiations.

Consultations and Transparency:

The Canada-EU CETA negotiations are the most ambitious, transparent, and inclusive in Canada’s history. The government has been holding extensive consultations with Canadians concerning the prospect of a CETA with the EU prior to, and throughout, the negotiations. Domestic consultations play an important role in informing Canada’s negotiating position in free trade negotiations. 

An initial “Consultations on Possible Comprehensive Economic Agreement Negotiations with the European Union” notice appeared in the December 20, 2008 Canada Gazette seeking Canadians’ input on the possibility of negotiating a trade agreement with the European Union. Since then, the Government of Canada has remained active in consulting with stakeholders from across the country and from across a variety of Canadian industry sectors, for example holding numerous regional roundtable discussions and meetings with Canadians interested in the EU.  As noted in the Committee report, the Minister of International Trade provides regular updates to his fellow Parliamentarians on the status of negotiations, most notably to the House of Commons Standing Committee on International Trade. In addition, during the course of negotiations, Canada’s Chief Trade Negotiator for the CETA has appeared five times before various Parliamentary Committees (Standing Committee on International Trade, Standing Committee on Agriculture and Agrifood, and Standing Committee on Canadian Heritage) and has also briefed Members of Parliament on other occasions. In addition, Canadian officials have held hundreds of meetings with stakeholders to consult on all aspects of the negotiation, both on broad direction and specific technical issues.

Specific Areas Under Negotiation Addressed by the Committee Report:

The Committee Report focused on many of the key areas of negotiation, specifically: trade in goods, trade in services and labour mobility, investment protection, government procurement, and intellectual property rights

In the area of trade in goods, the largest trade gains resulting from a Canada-EU CETA are expected in sectors in which current trade is high as well as in sectors where significant tariff barriers exist, resulting in minimal or no current trade. Benefits to Canadian trade in goods are expected in non-agricultural areas such as metals, industrial manufacturing (electronic equipment, machinery and equipment, motor vehicles and parts), chemical products, forestry products, and fish and seafood products. Canada is also seeking increased market access for beef and pork, grains, oils and oilseeds, pulses and special crops, fruits and vegetables, maple products, and processed foods.  In addition to tariff elimination, Canada is seeking to include provisions that would facilitate increased cooperation with the EU to make trade more efficient, such as trade facilitating measures to address non-tariff barriers and customs procedures designed to provide certainty, transparency and effective origin verification procedures. Canada is also seeking robust disciplines to provide for greater transparency and cooperation in the development of new regulations with a view to ensuring that unnecessary obstacles to trade do not erode current and future market access to the European market.

In the areas of services and labour mobility, a Canada-EU CETA will reduce market access restrictions in the European Union, giving Canadian service providers better, more predictable and secure access to the EU services import market, which was worth about $1.4 trillion in 2010. Canada is seeking gains in areas of Canadian interest such as professional services (architecture, engineering and integrated engineering services), research and development, environmental services, information and technology services, oil and gas, mining, clean energy, transportation and tourism. Canada and the EU are also negotiating provisions on labour mobility to address impediments to the temporary entry of business people, as well as to develop a framework for mutual recognition of professional qualifications.

Canada’s investment relationship with the EU is both significant and growing.  The EU is the second largest source of FDI in Canada. According to European statistics, Canada was the third largest source of FDI in the EU in 2010.  In 2011, the EU accounted for $160.7 billion or 26.4% of total FDI stock in Canada.  In 2011, the stock of Canada’s FDI in the EU totalled $172.5 billion, representing 25.2% of total Canadian Direct Investment Abroad (CDIA).  A CETA would offer the potential to further facilitate growth of EU investment in support of the Canadian economy. However, while the existence of investment provisions resulting from a CETA will be a positive factor in decisions on whether to invest in each other’s market, it will be but one of many.  Investment in the Canadian market offers EU investors access to the NAFTA market of 448 million consumers, simple and straight-forward procedures and an attractive business climate. Based on current European investment and its growth in Canada over the past decade, investment provisions in a CETA are expected to increase investment in key areas of European interest such as financial services, manufacturing, real estate, business services and energy. Canada has investment interests in the EU in areas including agriculture, mining, oil/gas, seafood, manufacturing, building products and bio-science.  Some of these sectors currently face trade barriers in the EU, such as citizenship or residency requirements, lack of temporary entry rules, and ownership and investment restrictions.  Provisions on labour mobility negotiated in the area of services are also anticipated to facilitate increased investment between Canada and the EU.

In terms of government procurement, the EU procurement market is worth an estimated $2.4 trillion or 16% of their GDP.  The benefits expected from a CETA between the EU and Canada would stem from extending the current commitments to cover sub-central and other procuring entities (“utilities” in the EU, Crown corporations in Canada).  Canadian suppliers would benefit from improved access to trillions of dollars worth of government contracts in key growth sectors in the EU, such as information and communications technology, telecommunications, energy technologies and environmental products and services.  Access to EU government contracts would also improve in other areas of Canadian expertise, such as infrastructure, engineering services & civil works, transportation and energy.

A number of complex issues are under discussion in the CETA negotiations, including a full range of intellectual property (IP) issues such as copyright, trademarks, patents, enforcement and geographical indications (GIs).  The Government of Canada takes the protection and enforcement of IP rights seriously, and has an interest in protecting the IP of Canadian right holders abroad as well as at home. A strong IP regime is central for any growing knowledge-based economy such as Canada’s, in order to remain competitive and foster an environment that promotes innovation and creativity, attracts new investment, and stimulates economic growth.  As the negotiations proceed, the government will continue to consult with the full range of interested stakeholders to ensure that Canada’s approach to IP remains fully informed by our domestic interests. The Government of Canada will not adopt any proposal that is not deemed to be in the best interest of Canadians.

Supplementary Opinions Provided by Opposition Parties:

The Government of Canada has reviewed the supplementary opinions and recommendations provided by the New Democratic Party (NDP) and Liberal Party of Canada to the Committee report.  The supplementary opinions raise a number of questions related to the CETA negotiations, in areas such as health, water and other public services, as well as on transparency in the negotiations process. As with all input received during the course of these negotiations, the supplementary opinions have been considered by the government and serve to inform Canadian positions taken in the negotiations.  The CETA consultation process is extensive and includes consultations with stakeholders, including those from civil society, private sector and public sector groups.  Throughout the CETA negotiations, the government has been keeping Canadians informed of the negotiations, as well as providing information on the significant opportunities for Canada in a trade agreement with the EU.  Most recently, on April 27, 2012, the government held events in every province across Canada to highlight to Canadians the benefits of a Canada-EU CETA. The government also prepared new material not only to outline the potential gains from a CETA but also to address a number of concerns commonly raised in the context of the CETA negotiations. This information is publicly available on the website of the Department of Foreign Affairs and International Trade.

Canada approaches the negotiations toward a CETA with the EU mindful of the balance that must be struck in pursuing economic benefits for Canada while maintaining full control over domestic policy decisions.  All of Canada’s trade agreements covering services exclude public services such as health, public education and social services. In addition, nothing in any of Canada’s international trade agreements can force countries to privatize or to deregulate their public services. Decisions to either privatize or deregulate in certain public sectors are guided by domestic policy decisions. It is important to emphasize that none of Canada’s international trade agreements prevents governments at the federal, provincial, territorial or municipal level from regulating in the areas of environmental, labour, and health and safety standards.  This will not change in a Canada-EU CETA.

Government of Canada Response to Committee Recommendations:

The government has carefully reviewed the recommendations in the Committee’s report and welcomes the opportunity to respond to each recommendation individually.

Recommendation 1: Recognizing that the European Union is a historical and natural trading partner, the Government of Canada strengthen its ties with the European Union and, in 2012, conclude a Comprehensive and Economic Trade Agreement with the European Union that is of net benefit to Canada.

The Government of Canada values the European Union as an important trading partner, and recognizes it as the world’s single largest market, foreign investor and trader.  The government is committed to strengthening its ties with the EU while also building upon the many important areas in which collaboration already exists.

Canada and the EU share historical and cultural ties.  Our economic relationship is wide-ranging and long-standing.  In 1976 Canada and the EU formalized their trade and economic relationship through the 1976 Framework Agreement for Commercial and Economic Cooperation. In the years since the 1976 agreement, numerous sectoral agreements and arrangements on such issues as science and technology, customs, environment, and fisheries have been established, further strengthening the bilateral relationship. Despite these achievements, more can be done to further foster this important relationship. Canada’s relationship with the EU, already our second-largest trade and investment partner, holds great potential for growth.

In recognition of this, the Government of Canada has made the successful negotiation of a high-quality, ambitious Comprehensive Economic and Trade Agreement with the European Union a key priority for Canada. Since the launch of negotiations in 2009, considerable progress has been made across the board, and a positive atmosphere remains among negotiators who are working toward the goal of concluding in 2012. 

A Canada-EU CETA would help Canada and our European Union partners create more opportunities, jobs and prosperity through increased trade and investment. An agreement with the EU is expected to provide a $12 billion boost to Canada’s GDP and generate an increase of at least 20% in bilateral trade by the time an agreement is fully implemented. The Government of Canada is committed to negotiating a broad and ambitious deal that is in the best interests of Canadians, and we will only accept an agreement that meets this goal.

Recommendation 2: In order to assist Canadian businesses and promote the opportunities within the European Union, the Government of Canada draw on stakeholder testimonials and consultations to encourage Canadian businesses to trade with the European Union.

The Government of Canada agrees that industry consultations are a critical component in better supporting Canadian businesses interested in trading with the EU.  As Canada’s second-largest trading partner, the EU has clearly been an attractive market for Canadian companies.  Canadian industry has long called for a closer economic partnership with the EU, and for a trade agreement to provide preferential access to the EU market. 

Prior to the launch of negotiations, during the scoping-out phase, and in consultations during the negotiations, the Government of Canada has drawn on the experience of Canadian business and the interests of stakeholders. This has been done through consultations undertaken by the government, including through regular updates to stakeholders provided by the CETA Chief Negotiator. Canadian industry has voiced strong support for the conclusion of an ambitious agreement and has been actively involved in consultative groups.

The Government of Canada is active in helping Canadian businesses achieve success in the EU market through ongoing support provided by the Canadian Trade Commissioner Service of Foreign Affairs and International Trade, and through the offices of Export Development Canada.  As with all trade agreements, the Government of Canada will assist Canadian businesses in taking advantage of the many benefits resulting from a successfully concluded Canada-EU CETA.

Recommendation 3: In recognition that, under the Treaty of Lisbon, the European Parliament has increased influence and power over foreign policy and the adoption of trade agreements, the Government of Canada and the Committee work on strengthening their relations with the various political groups represented in the European Parliament in order to ensure passage of the Comprehensive and Economic Free Trade Agreement with the European Union.

The entry into force of the Lisbon Treaty on December 1, 2009 has clarified the roles and responsibilities of the principal political actors of the European Union with respect to ratifying and implementing trade and investment agreements, including a future Canada-EU CETA. The Treaty of Lisbon expanded the powers of the European Parliament, which has become the joint decision-maker with the Council of the European Union (EU Member States) on over 90 per cent of EU legislation, including the ratification of international treaties. Once negotiations are concluded, ratification and implementation involve formal decisions by the Council of the European Union, composed of representatives of the 27 member states, and by the European Parliament, composed of 754 members directly elected by the population.  An additional process of ratification by each of the 27 member states, individually, would also be pursued for the (generally limited) elements of an agreement that are within the exclusive jurisdiction of the member states.  The process of EU ratification and implementation of trade and investment agreements takes a substantial amount of time, and can be complicated due to the complexity of an agreement such as a Canada-EU CETA.

Given this process, Canadian relationships with the various political groups in the European Parliament are indeed important to ensuring support for passage of a Canada-EU CETA.  These relationships must be established, maintained, and strengthened to facilitate ease and accuracy of communication with the EU during this important period.

The Committee has already been active in developing strong relationships with its EU counterpart, including during its study of the CETA negotiations.  Half of the committee members travelled to Brussels and Paris in December 2011 to meet with European parliamentarians, representatives of national governments and stakeholders that are involved or have an interest in the negotiations.  The Committee has also received members of the European Parliament’s International Trade Committee (INTA) on a regular basis over the past few years.  The Government of Canada is committed to supporting the Committee in its important work in this regard. 

The Government of Canada, through its Mission to the EU in Brussels and Missions in many of the EU’s 27 member countries, is also working hard to strengthen the political relationships necessary to ensure passage of the CETA in the European Parliament.  Canada’s Ambassador to the EU and Canada’s Chief Negotiator for CETA have regularly briefed the European Parliament’s International Trade Committee and Delegation for Relations with Canada.  Significant and systematic outreach to individual Members of the European Parliament in Brussels and Strasbourg has been and will continue to be undertaken.  Over the past year, our missions in the EU have played a key role in strongly advocating in support of the CETA negotiations and take advantage of every occasion to promote an ambitious outcome to representatives of Member State governments and Members of the European Parliament.

Recommendation 4: The Government of Canada develop a proactive plan to pursue more value-added development of Canadian exports in order to maintain market access for exports while capturing greater economic benefits at home and reducing environmental impacts.

The Government of Canada agrees that adding value to Canadian exports and ensuring export market access are ongoing challenges that are critical to Canada’s economic prosperity.

Global value chains (GVCs) play an increasing role in determining where and how the value-added development of exports takes place.  A Canada-EU CETA is expected to provide preferential access for Canadian companies to a market of over 500 million consumers, and provide a $12 billion boost to Canada’s GDP, which in and of itself could facilitate linkages to GVCs.  Helping Canadian business to understand and participate in GVCs has been a growing focus of Foreign Affairs and International Trade Canada’s (DFAIT’s) work.  Under the Global Commerce Strategy (GCS) integrative trade business model, DFAIT's Trade Commissioner Service is encouraging and facilitating small and medium size enterprises (SMEs) to enter foreign multinational enterprise (MNE) supply and value chains. Many Canadian firms export indirectly through their participation in GVCs, with 32% exporting through an intermediary and 38% supplying inputs to companies which then export. Since 2008-09, over 200 global value chain projects have been initiated by DFAIT across many country markets. These projects include meetings arranged with foreign MNEs, targeted SME supplier days, incoming and outgoing fairs and missions, and GVC guides and MNE profiles downloaded by Canadian SME representatives. 

Rules of origin, which establish the minimum amount of production that must occur in Canada (or the EU), determine whether an exported product can benefit from preferential tariffs. Canadian CETA negotiators continue to focus on ensuring that any rules of origin agreed to in the CETA negotiations are clear, simple to understand and reflect Canadian production realities. Tariff elimination for highly processed or high value-added products (which generally face higher and more complex tariffs) as well as addressing non-tariff barriers will also help to encourage adding value in Canada.

The export of Canadian goods and services in all sectors, but particularly in high-value-added products such as aerospace, automotive, information and communications technologies and life sciences, will increasingly be determined by the results of private sector investments in research, development and innovation.  In recognition of this, the Government of Canada continually seeks to facilitate international research collaborations leading to commercialization through programmes such as Going Global Innovation, targeted missions abroad, investment initiatives, and Science and Technology (S&T) Agreements. Canada has S&T Framework Agreements with many countries, including the European Union, that contribute to key  research partnerships that foster the development of new technologies here in Canada.  In addition, DFAITs Going Global Innovation provides financial support for SMEs and not-for-profit research institutions to help develop R&D partnerships abroad. 

International trade offers the opportunity to lower the costs of addressing environmental issues such as water and air quality and climate change.  It also helps facilitate technology transfer and strengthen incentives for innovation and investment in environment-friendly technologies.  Canada and the European Union share the goal of liberalizing trade in environmental goods and services as a means to address environmental challenges.  Both Parties are supporters at the WTO of the reduction or elimination of tariffs on environmental goods. In the CETA negotiations, Canada and the EU have agreed in principle to promote trade and investment in environmental goods and services and to pay special attention to the removal of obstacles to trade and investment of goods and services of particular relevance to climate change. Separately, Canada is actively involved in the efforts to fulfill the call by APEC Leaders in their 2011 Declaration to compile a list of environmental goods that directly and positively contribute to the green growth and sustainable development objectives of APEC Economies. These efforts are undertaken with a view to reducing applied tariffs to 5% or below by the end of 2015, as well as, consistent with our WTO obligations, to eliminate non-tariff barriers that distort trade in environmental goods and services.