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BREXIT: EU aims to conclude free trade agreement with Canada, providing example of potential UK-EU agreement, says expert

The European Commission has formally proposed the signature and conclusion of the Comprehensive Economic and Trade Agreement (CETA) free trade deal between the EU and Canada.06 Jul 2016

This is part of Out-Law's series of news and insights from Pinsent Masons experts on the impact of the UK's EU referendum. Watch our video on the issues facing businesses and sign up to receive our 'What next?' checklist.

The Commission hopes to see the CETA agreement signed at an EU-Canada summit planned for October, it said.

A bespoke trade deal along the lines of CETA has been proposed as a potential model for a future trade relationship between the UK and the EU, but would still see the UK's access to EU services markets restricted further than at present, said competition expert Guy Lougher of Pinsent Masons, the law firm behind Out-Law.com.

"The free trade agreement with Canada is an example of the type of bespoke trade deal, potentially covering goods and services, which the EU can negotiate. It does, however, fall short of providing Canadian companies with unrestricted access to EU services markets, which is the entitlement currently enjoyed by UK companies as a result of our EU membership," he said.

"In the Brexit negotiations, the trade off is inevitably going to be between UK demands for retaining access to EU services markets weighed against the inevitable EU demand that EU nationals continue to enjoy free movement within the UK. The Canadian experience illustrates that such negotiations are likely to last for several years, and certainly longer than the two year timetable provided for by Article 50 of the Treaty on European Union," Lougher said.

The Commission has proposed CETA as a 'mixed agreement'. In doing so it has accepted, for political reasons, arguments from EU governments that the agreement does not fall under the exclusive competence of the EU, but instead needs the ratification of individual EU countries.

EU Trade Commissioner Cecilia Malmström said: "From a strict legal standpoint, the Commission considers this agreement to fall under exclusive EU competence. However, the political situation in the Council is clear, and we understand the need for proposing it as a 'mixed' agreement, in order to allow for a speedy signature."

CETA will scrap almost all customs duties, saving EU companies hundreds of millions of euros a year in duty payments, the Commission said.

Malmström described the agreement as a "milestone in European trade policy" and "the most ambitious trade agreement that the EU has ever concluded".

Jean-Claude Juncker, president of the Commission, said: "The trade agreement between the EU and Canada is our best and most progressive trade agreement and I want it to enter into force as soon as possible. It provides new opportunities for European companies, while promoting our high standards for the benefit of our citizens. I have looked at the legal arguments and I have listened to heads of state or government and to national parliaments. Now it is time to deliver. The credibility of Europe's trade policy is at stake."

In March, Canada agreed to changes in the way investment disputes would be settled under CETA, in response to heavy criticism of an earlier draft. This was seen as a potential breakthrough that would allow the agreement to finally be ratified.

There had been strenuous protest in Europe against the investor-state dispute settlement (ISDS) that was included in previous versions of the agreement. This arbitration method is used in many bilateral investment treaties, but many protestors believe it reduces the power of the state against large commercial organisations.

Under the new proposals for CETA an investment court system (ICS) will include a 15-member permanent tribunal to adjudicate in investment-related disputes. This will be made up of five EU nationals, five Canadian nationals, and five nationals of third countries.

The tribunal judges will no longer be appointed by the investor and the state involved in the dispute, but will instead be chosen in advance by Canada and the EU. Three people will judge on each case, with one from Canada, one from the EU, and one from elsewhere.

These judges will have to demonstrate experience and recognition in a national court system, in a move that will reduce the number of business lawyers being appointed as arbitrators.