This blog posting on the ABCs of the Canada-European Comprehensive Economic and Trade Agreement (CETA) can be adapted for most free trade agreement negotiations. As the 6th Round Canada-EU CETA negotiations is starting on January 17, 2011 in Brussels, I have realized that many do not understand the basics of free trade agreements --- I hope this blog post helps.
A is for Administration - Most free trade agreements have a chapter or provisions setting out the administration of the relationship. Some agreements establish a Commission and others do not. Some administration arrangements are more formal than others. Given the number of parties involved in the Canada-EU CETA negotiations and the number of parties to be bound by the agreement, we should expect formal administration.
B is for Benefits - In a free trade agreement negotiation, the negotiators are focused on the benefits that they can secure. The trade relationship must improve in a comprehensive way. After the benefits are negotiated, the negotiators focus on provisions to make sure the negotiated benefits are not undermined.
C is for Customs Procedures - Most free trade agreements have a chapter or provisions on customs procedures that will be applicable so that the customs officials can make sure that goods manufactured in a free trade agreement party benefit from the tariff reductions and eliminations.
D is for Dispute Settlement - The Canada-EU CETA will contain many forms of dispute settlement mechanisms to resolve the various types of problems that will undoubtedly arise. There will be a chapter that sets out a government-to-government dispute settlement mechanism. There will be a private party-to-government dispute settlement mechanism in the investment chapter and the government procurement chapter. There will be many formal and informal dispute settlement provisions that will permit businesses and affected persons to appeal decisions and ask for advance rulings on the application of the CETA.
E is for Environment - Negotiation of the environmental provisions or a side agreement will make headlines. Many EU parties are concerned about Canada's oil patch and tar sands. Alberta is very focused on the environmental discussions. The EU is unhappy with Canada in terms of the failure to reach an agreemen in Copenhagen and the Canada-EU CETA presents an opportunity to change Canada's environmental agenda.
F is for Financial Services - Developed party -developed party free trade agreement negotiations usually address financial services. Canada and the EU have very developed financial services industries and markets and both want greater market access to the other in respect of financial services. There is significant opportunity. At the same time, Canada is interested in getting information from EU banks about tax evasion by Canadians.
G is for Government Procurement - One of the hot topics in the Canada-EU CETA negotiations is making government procurement opportunities open to businesses from the other CETA parties. The EU wanted the Canadian provinces at the negotiating table because they want provincial schedules to the chapter on government procurement. Governments are the largest purchasers of goods and services. If government procurement is not covered by a free trade agreement, a large segment of the market is outside the scope of the FTA.
H is for Hammer out a deal - The marching orders for the negotiators is to "hammer out a deal" in 2011.
I is for Investment and Intellectual Property - Both the Investment Chapter and the Intellectual Property Chapter of the Canada-EU CETA pose difficulties to the negotiators. Canada will be required to change its intellectual property laws in significant ways if the EU gets all that it wants in terms of intellectual property provisions. The EU is not used to having North America-style Investment Chapters in its free trade agreements. The investor-state dispute settlement mechanism has been the subject of criticism in the United States, Canada and Mexico.
J is for Jobs - The Canada-EU CETA negotiations, at their core, are about creating jobs.
K is for Knowledge - During the Canada-EU CETA negotiations, the negotiators are becoming more knowledgeable concerning the issues that restrict or obstruct trade. What they have learned form the basis for part of the negotiations, which are intended to fix some of the existing problems that negatively affect trade and access to the markets of the other party.
L is for Labour - Modern free trade agreements contain a chapter or provisions concerning labour (and Canada likes to have side agreements on labour cooperation). Given the number of countries, provinces/states and localities affected by the Canada-EU CETA negotiations, there are many labour laws to review and many unions who are concerned about jobs.
M is for Mutual Recognition - Mutual recognition is an important concept that is found in many chapters of a FTA (e.g., Technical Barriers to Trade and Services). Mutual recognition is about accepting that the testing, inspection, safety procedures in the other jurisdiction are satisfactory. If you say "My way of the highway", then you will have problems.
N is for Non-Discrimination - The non-discrimination concepts of "national treatment" and "most-favoured-nation" appear in many chapters of free trade agreement because they are so very important.
O is for Origin - Most free trade agreements have a chapter on rules of origin. The parties spend hours drafting hundreds (or thousands) of pages setting out the rules of origin so that goods of non-parties do not attract the negotiated benefits under the FTA (no riding coat-tails). Some rules of origin are very restrictive and have the effect that benefits do not flow except in very specific circumstances. In reality, the rules of origin can restrict the benefits of the Canada-EU CETA - the details will be important.
Q is for Quit - The negotiators are not ready to quit. Further, once an agreement is signed and the changes are made to promote market access, the parties are not able to quit and terminate the agreement. While there will be termination provisions, it is very very very difficult from a practical perspective to undo a free trade agreement between two (or more) developed parties.
R is for Reductions - The Canada-EU CETA negotiators have worked out the deal (for the most part) on the reductions and eliminations of customs duties on goods. Under Article XXIV of the GATT, tariffs must be eliminated on substantially all trade in goods. The negotiators must also reduce existing restrictions on trade in services, investment, labour mobility, etc.
S is for Services - Liberalization of services is more important than reductions in tariffs because Canada and the EU have already reduced or eliminated tariffs under the WTO Uruguay Round. The WTO services liberalization schedules in the GATS were minimal. Canada and the EU have significant services markets. Liberalization of trade in services will require changes to laws and also application of rules by non-governmental regulatory bodies. This will be hard work. Also, and most importantly, the Canada-EU CETA negotiators are under a WTO microscope and Article 5 of GATS must be satisfied in term of extent of liberalization.
T is for Technical Barriers to Trade - The negotiators of the Canada-EU CETA will spend time negotiating a chapter on technical barriers to trade. Laws, regulations, standards and conformity assessment procedures have to be reviewed so that the negotiated benefits are not undermined. Technical barriers to trade are the new protectionism and the negotiators must be focused on preventing protectionism.
U is for Unfair - The negotiators know that every FTA negotiation involves winners and losers. The losers will say that the FTA is unfair. This agreement will not be beneficial for everyone.
V is for Verifications - The negotiators need to include provisions so that after the Canada-EU CETA is implemented, there can be verifications by government to ensure that the agreement is working as intended and that businesses utilizing the benefits of the agreement are doing so properly.
W is for World Trade Organization - The Canada-EU CETA will enhance the Canada-EU trade relationship beyond what they have agreed at the WTO. This is the reason for a free trade agreement - expanding and enhancing beneficial trade. The negotiators need to be mindful of the arguments that the proliferation of FTAs undermines the Doha round negotiations. Canada and the EU may be accused of being less committed to the Doha Round negotiations after they have signed and implemented their CETA.
X is for Xerox - The negotiators need to keep control over the Xerox copies of the draft negotiating texts as they will be leaked to the press if there is anything that is problematic.
Y is for Yes - Many want the negotiators to say "yes" in order to get the benefits they desire assoon aspossible. However, the negotiators must be mindful of the big picture. It is easy to say "yes". That being said, the Canada-EU CETA negotiations may fail because of the requests that demand a "no" answer.
Z is for Zeal - The politicians may be approaching the Canada-EU negotiations with zeal and will focus on job creation publicly. There may not be so much zeal behind the scenes in terms of the hard negotiation points. Some businesses may show zeal as they see huge opportunities for growth in export markets. Many activists will show more zeal than all others - and they are the loudest. Some activists will be correct, and some partly correct and partly wrong, and others completely wrong. The activists may affect public opinion and can prevent the successful completion of a deal or can undermine the positive elements of a negotiated deal.
Cyndee Todgham Cherniak, LL.B., J.D., LL.M. can be reached at 416-307-4168. Cynde is an international trade lawyer affiliated with McMillan LLP. She is also an adjunct professor at Case Western Reserve University School of Law and teaches a course on NAFTA and bilateral trading arrangements. In 2007, she wrote a report for the Asian Development Bank on regional trading arrangements after reviewing over 150 preferential trading arrangements.