CETA’s rocky road to ratification and its implications for the U.S. by Joris Larik
On September 21, 2017, European and Canadian leaders were celebrating the next milestone in making the Comprehensive Economic and Trade Agreement (CETA) a reality. By contrast, no such celebrations are on the horizon for the EU and the United States. The Transatlantic Trade and Investment Partnership (TTIP) between the US and EU remains in the proverbial “freezer” for the time being, while NAFTA is being renegotiated and the Trans-Pacific Partnership (TPP) was unsigned by President Trump shortly after his inauguration.
For this occasion, the Center for Transatlantic Relations and the Center for Canadian Studies at SAIS organized a panel discussion on the subject, including the next steps for CETA and what its implications are for US trade policy. You can watch a recording of the event here. The following paragraphs contain some of the main takeaways from our discussion.
Both Prime Minister Justin Trudeau and EU Trade Commissioner Cecilia Malmström took to Twitter on September 21 to announce that CETA had “entered into force”. However, this is not quite what had happened. Canadian Foreign Minister Chystia Freeland, who in her previous function as Minister for International Trade had played in instrumental role in negotiating the agreement, was the one who got it right: What was being celebrated was not its entry into force, but its “provisional application”.
What does this mean and why does it matter? There are three reasons to keep this distinction in mind. Firstly, it means that the treaty is not yet in force and binding on the parties under international law. Secondly, not all of CETA is being provisionally applied. Important parts are being excluded, above all the controversial investment court system. Thirdly, provisional application can be easily terminated with two months’ notice. If CETA were in force, the notice would be 180 days, and even 20 years in case of investments.
This raises the question when CETA will actually enter into force. For that, it will require the ratification of all its parties. On the Canadian side, things are looking encouraging, with the Trade Agreement Implementation Act and the Canadian Free Trade Agreement (concluded between the provinces and the federal government) having paved the way. On the European side, by contrast, there remain many hurdles to be taken. CETA is a so-called “mixed agreement”, which requires the ratification by both the EU and all the EU Member States. More than twenty Member State ratifications remain outstanding. In some cases, such as Belgium, this requires also the consent of sub-federal entities. This already led to delays in the lead-up to the signature of CETA in October 2016. Only an intra-Belgian compromise and the addition of a Joint Interpretative Statement could prevent a breakdown and allow the signing of the agreement to proceed.
In addition to the parliamentary approvals normally required for ratification, there are also a number of legal hurdles, of which some have been overcome while others are still ahead. In several countries, legal challenges are pending against CETA. For instance, a request for a preliminary injunction to prevent provisional application at the German Federal Constitutional Court was dismissed, though a judgment on the merits is still forthcoming. On July 31, CETA received the green light from the French Constitutional Council. Moreover, part of the abovementioned Belgian compromise was that the country’s federal government would request an opinion from the European Court of Justice on CETA. If the court rules that CETA—and in particular its investment court system—is at odds with the EU Treaties, it cannot enter into force. Hence, the road to CETA’s entry into force remains long and full of stumbling blocks.
What does this mean for the United States? There are three main implications. Firstly, there is the immediate issue of trade diversion. Part of provisional application is that tariffs are being eliminated or reduced. However, as explained by fellow panelist Daniel Schwanen, Vice President of the C.D. Howe Institute in Toronto, the Canadians achieved a special concession from the EU concerning the content of automobiles, considering the integrated nature of that industry between the U.S. and Canada. Hence, the direct impact on the US in core industries has been mitigated.
Secondly, CETA is a test balloon to watch what happens to the United Kingdom after it leaves the EU. In a paper on future trade policy published on October 9, the British government argued for continuity of its trading arrangements thus far covered by the EU. However, it is doubtful whether the UK can simply remain a party to CETA, thus turning an essentially bilateral relationship into a trilateral one. It is equally doubtful whether Canada would simply accept a “copy paste” version of CETA—including all concessions it had to give to the EU—for a future bilateral UK-Canada free trade agreement.
Thirdly, there is the matter of the future of TTIP—or even a rebooted, somewhat less ambitious approach to a transatlantic trade agreement. The EU’s approach to trade has evolved ever since TTIP was stowed away, including through pressure from civil society organizations and critical governments. Manifestations of that are the investment court system with its appellate tribunal and the many references to preserving the right to regulate in CETA and its Joint Interpretative Statement. It will be hard for the EU to publicly step back from these advances, while for the US it may be difficult to stomach them. Hence, if the two sides were to sit down again around a negotiating table, they are likely to find out that the room for compromise between them is now even smaller.
Joris Larik is a Fulbright-Schuman Fellow at the Center for Transatlantic Relations at Johns Hopkins SAIS and Assistant Professor of Comparative, EU and International Law at Leiden University.