The real impact of CETA: Global Economic and Commercial Agreement  

CETA WILL GIVE ACCESS TO 500 MILLION CONSUMERS

The Government of Canada claims that the Canada-EU Comprehensive Economic and Trade Agreement (CETA) will give Canadian companies preferential access to 500 million European consumers, a market evaluated at $ 18 trillion[1] [2]. Accordingly, bilateral trade would increase by 20 percent and would increase Canada’s GDP by $ 12 billion a year. This would create nearly 80,000 new jobs and increase the average Canadian household’s annual income by $ 1,000. [3]

Are these predictions realistic ? What are the business opportunities for transport and maritime companies? In order to answer these questions, this text analyses the figures of Canada’s international trade with the rest of the world and the European Union. It also attempts to estimate the impact of this agreement on transportation and the Canadian marine industry.

1-SUMMERY OF THE AGREEMENT

The CETA is considered a modern and innovative agreement because it covers a wider field of activity and is more permissive than other free trade agreements, such as the WTO’s General Agreement on Trade and Services (GATS) or NAFTA. The main provisions concern directly or indirectly the maritime sector.

1.1 Non-discriminatory rules for the goods, services and public procurement sectors

The rules of the “national treatment” and the “most favored nation” are maintained for both the goods sector and the service sector. The first rule requires equal treatment between foreign firms and local businesses. The second rule provides that the signatory parties must give each other at least the same advantages as they would accord to a third State.

CETA also provides that Parties may not adopt or maintain measures to limit the number of enterprises, the value of transactions, the number of transactions or natural persons, and the participation of foreign capital.

1.2 Elimination of tariffs and non-tariff barriers

CETA will eliminate tariffs on most commercial products. Gradually, more than 98% of the products traded between Europe and Canada will be exempted. Certain agricultural products are, however, excluded from the agreement as well as cultural products. It is expected that all other product’s tariffs be reduced to zero within 3, 5 or 7 years. In addition to tariffs, CETA plans to reduce non-tariff barriers. Arrangements are made to facilitate direct investment, encourage cross-border trade in services and open up public markets. In the latter case, the principle of non-discrimination must also apply. The bidding companies of both parties will be attributed same treatment in accessing public procurement contracts. European companies will be able to bid on federal, provincial and municipal contracts, with the exception of public transportation in Ontario and Quebec and other public utility such as  Hydro-Québec. [4]  Canadian companies will have an access to 90% of European public procurement.

With regard to labor mobility (admission rules, extension of temporary stay and recognition of diploma equivalencies), temporary work permits will be granted to key personnel of a company for a limited period of time of three years. In this regard, mutual recognition agreements (MRAs) will be negotiated between the parties and will become mandatory.

The Agreement provides for a system of protection for intellectual property and increased regulatory cooperation in order to eliminate unnecessary barriers to trade and investment. Parties will need to promote transparent regulatory processes, exchange information and adopt best regulatory practices. Committees of representatives of Canada and the EU will be established for this purpose.

1.3 Sustainable development and workers’ rights

Three chapters of the Agreement are devoted to sustainable development, one of which deals with the rights of workers. It recognizes the value of international cooperation in achieving the objectives of sustainable development in terms of economic, social and environmental protection. A Trade and Sustainable Development Committee will be created to oversee environmental law and cooperation activities. The Parties agreed to engage in dialogue and consultation on trade-related sustainable development issues of common interest.

The agreement recognizes the right of the parties to define their labor priorities, establish levels of labor protection and adopt or amend their legislation and policies accordingly in a manner consistent with their international commitments Work. These objectives remain in line with the commitments set out in the Declaration of the International Labor Organization (ILO). They include freedom of association and the recognition of the right to collective bargaining, the elimination of all forms of forced or compulsory labor, the effective abolition of child labor and the elimination of discrimination in respect of employment and profession.

Labor law and practices should promote occupational health and safety, the establishment of minimum acceptable work standards for employees, including those not covered by a collective agreement and the non-discrimination in respect of working conditions, including for migrant workers.

1.4- Special provisions for maritime sector.

In addition to the general provisions above, special provisions are provided for certain industrial sectors, including the maritime sector.

Regarding maritime transportation service[5]

Canadian local markets will be partially open to European companies. Public tenders will be open to dredging for projects over $ 7.8 million.

Under the CETA, the entity that will grant the dredging contract will be able to establish selection criteria such as quality, price, environmental knowledge and relevant experience, and environmental and social criteria. However, the entity will have to comply with the non-discrimination rules described above.

A provision is added regarding the repositioning of empty containers. Transportation of empty containers in Canada will be allowed to European vessels on a no-fee basis.

Finally, shortsea shipping service between Halifax and Montreal will be allowed to European companies, provided that the journey is part of an international route. Vessels will have to be registered in the national register of an EU Member State and fly the flag of that State. For these services, it will be forbidden to use “flags of convenience”, which often allow less stringent labor, tax, environmental and safety standards. In addition, ships passing through Canadian waters must comply with strict safety and environmental regulations at all times.

Regarding fisheries

The agreement does not include any obligation relating to granting or abolishing domestic subsidies to fisheries sector. The parties are therefore free to grant such subsidies in accordance with their respective obligations under the rules and commitments established within the WTO.

Both sides will abolish all tariffs for fishery products. Before the complete elimination of customs duties, the EU will grant, on a transitional basis, two duty-free tariff quotas: one of 23 000 tons for processed shrimp and another of 1 000 tons for frozen cod with EU preferential rules of origin.  Less stringent rules may apply on certain products.

Canada will give to EU fishing vessels access to Canadian ports. In addition, restrictions for minimum local processing requirements will be eliminated as soon as the agreement enters into force (however, the province of Newfoundland and Labrador will remove them 3 years Only after its entry into force).

Finally, both parties have made commitments on the conservation and sustainable management of fisheries resources.

2-THE GLOBAL IMPACT

2.1 A marginal impact on Canadian GDP

According to data provided by the Canadian government, bilateral trade will increase by 20% and will increase Canada’s GDP by $ 12 billion per year as a result of CETA.  This amount appears to be significant, but accounts for a small share of Canadian GDP, or ,6%. Canadian GDP was  $ 2,034 billion in 2016. [6] [7]

It should be noted that Canadian companies have already access to European market, that is to say 500 million consumers, via the WTO. The impact of the Agreement will rather intensify existing trade. For Canadian companies, size of the European market is the big advantage, but it is disproportionate compared to the Canadian market of 35 million (17 times less). For European companies, the advantage is the opportunity to invest in Canada in order to reach United States market.

In this regard, CETA includes non-discrimination rules that will facilitate European investment in Canada. If assuming a Canadian presence for European companies give,  de facto, access to US market,  renegotiation of Canada/US agreement (NAFTA) could be threatening if it leads to the imposition of more restrictive rules for Canada. Then, Europe would lose the advantage of CETA.

2.2 The United States remains the main economic partner of Canada and Quebec.

The United States remains by far Canada’s most important economic partner. By 2015, Canada exported $ 524 billion  worth of goods around the world. 77% of this merchandise was destined to the United States and 7% to the European Union. Quebec, for its part, exported $ 82 billion, of which 72% went to the United States and 11% to Europe.

Due to importance of trade with the United States, a large proportion of goods is shipped on land, either by rail or by truck, so that it should not have much impact on martime sector. Exported and imported goods to Europe and Asia are mostly transported by boat. This specific segment of trade will then have an impact on demand for maritime sector but still represents a lower proportion of global trade.

Nevertheless, the trade relationship between Canada and the European Union remains important. Canada has exported 7% of its total production to Europe in 2015, or $ 37.8 billion and imported 11% of its merchandise, or $ 61.4 billion.

Québec has a stronger business relationship with Europe. It accounted for 29% of Canada’s total trade with Europe (exports and imports), well above the weight of its GDP (18%) and its population (22%). This situation would result in a greater share of the Agreement’s benefits than the rest of Canada. The proportions for exports and imports with Europe relative to the world were 11% and 22%, respectively, in the case of Quebec, which was $ 9.2 billion and $ 20 billion.

Overall, the balance of trade remains negative both in Canada and in Quebec. In other words, they imported twice as much goods from Europe that they exported. For this reason, unless there is a change in trade patterns, the European Union would be better off by a bilateral tariff reduction than Canada, as this would increase imports from Europe. Also, the main trading partners of Canada and Quebec with Europe are not the same. Canada exchanges mainly with the United Kingdom and Germany, but little with France. On the Quebec side, France enjoys a favorable position.

2.3 Different impact across provinces

Canada’s main export product to the world is Alberta crude oil, followed by motor vehicles, aerospace products and oil refineries, gold and silver ores.

But Europe imports little oil from Canada. Most imported products from Canada are aeronautic products, gold and silver ores, iron and non-ferrous metals, and some pharmaceuticals. But construction of a pipeline that would bring Alberta oil to eastern Canada, could change the structure of trade.

For its part, Canada imports high-value-added manufacturing products from Europe, such as pharmaceutical products, cars, aerospace products, refined petroleum products, navigation instruments, industrial machinery, material handling equipment, Resins and rubber. Canada imports few natural resources from Europe.

Due to the strong presence of its aerospace industry, Québec will be able to benefit from its relationship with Europe, as this sector is the main export sector to Europe, followed by iron ore, engines and turbines, copper ores, refined petroleum, paper products, iron and steel.

Bulk shipping will be solicited, at least for minerals, refined petroleum, paper and iron and steel. Quebec imports Europe from aerospace products, but also from automobiles and the rest of Canada from manufacturing products. It is also a major importer of wine from France, Italy, Spain and Portugal.

3- IMPACT ON MARITIME SECTORS

In general, the impact of the Agreement on the maritime sector will be determined by the volume of trade. But, according to the government’s estimates, Canada’s GDP would increase by only 0,6% as a result of this agreement. Also, despite the fact that Europe represents a market of 500 million consumers, the most exported products to Europe, apart from aerospace, are mainly natural resources transported in bulk, such as minerals and and wood products. For Canada, therefore, the European market is definitively an industrial market and not a consumer market.

Also, 80 per cent of the vessels navigating on the Great Lakes and St. Lawrence waters are non-Canadian vessels. Since foreign shipowners are mostly involved in international trade on the St. Lawrence River, the impact on the Canadian labor force in the marine transportation sector would be marginal if there was an increase in the traffic. However, the increase in volumes transported should benefit the port sites and the local logistics sector.

In the Short Sea Shipping (TNCD), the opening of the Canadian market to European companies does not appear to have any factual reciprocity in Europe, due to the local nature of Canadian industry and the size differences between Canadian and European industries. The shipping industry is increasingly developing through alliances and acquisition and not through natural growth. However, the size of an industry gives an important advantage to this type of development, which should favor European companies.

Natural trade links, geographic proximity and high volume of trade with the United States (some 77% of exports go to the United States) mean that the impact of the CETA will not be of the same order as that of the United States, NAFTA. In fact, NAFTA is the key to Canadian international development. Interest in third countries is not necessarily linked to the size of the Canadian market but to the possibility of creating subsidiaries that would allow them to enter the US market. For this reason, a renegotiation of the current NAFTA provisions, as planned on the Trump administration agenda, could undermine Canada’s attractiveness as a place of investment for European businesses

CETA will impact more specific and localized areas and will contribute to the development of local industries, including fisheries in Gaspé, Madeleine Islands and the Maritimes. Due to the increase in demand and the limits imposed by quotas, the effect could raise prices, especially as the new demand coming from Europe will be competitive with the US offer. These price increases will benefit local industries.

Louis Bellemare

New Maritime World 

 

References : 

[1] Note : In the following text if not specified, dollars are in canadian $

[2] Ouvrir de nouveaux marchés en Europe, Avantages de l’ACEG pour les secteurs clés de l’économie du Canada . http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/ceta-aecg/final-sectors-fra_v10.pdf

[3] Idem  http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/ceta-aecg/final-sectors-fra_v10.pdf, page 3

[4] Libre échange Canada-UE, dix choses que vous devrez savoir. http://ici.radio-canada.ca/nouvelle/811927/aecg-ceta-libre-echange-accord-entente-europe-ue-canada-trudeau-magnette

[5] Les faits en bref, l’AECG et l’industrie du transport maritime canadienne http://www.international.gc.ca/media/comm/news-communiques/2014/09/12b.aspx?lang=fra

[6] Statistique Canada, Comptes nationaux,  Produit intérieur brut, en termes de dépenses http://www5.statcan.gc.ca/cansim/a46?lang=fra&childId=3800064&CORId=3764&viewId=3

[7] http://ici.radio-canada.ca/nouvelle/811927/aecg-ceta-libre-echange-accord-entente-europe-ue-canada-trudeau-magnette

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