Canada and the EU (European Union) signed the Canada - EU Comprehensive Economic and Trade Agreement (CETA) on Oct. 30, 2016.
Canadian and EU Parliamentary approval is expected in early 2017. Significantly, however, these steps will only result in provisional or interim ratification of the agreement. (Ratification is the process by which agreements like CETA are "officially" recognized, in this case by Canada and the EU.) Permanent ratification of CETA by the EU will require the approval or consent of every EU member country. The Walloon region of Belgium is opposed to CETA unless certain changes are made to the CETA's investment court, which means that unless changes are made or the Walloon region alters its position, Belgium will not be able to give its approval. Because of the EU requirement for unanimity, this means it is uncertain whether CETA will ever be permanently ratified.
What does this mean? Provisional ratification will enable the EU to bring matters that are within the exclusive jurisdiction of the EU Parliament, such as obligations relating to reductions in customs tariffs, into force. Obligations for which jurisdiction is shared between the EU Parliament and its member states, such as procurement obligations, will not come into effect unless CETA is permanently ratified. It remains to be seen what provisions will and will not come into force pending permanent ratification.
For Canada, Brexit adds further complexity to assessing the impact of CETA. Trade with the UK will be governed by the CETA provisions that come into force until the UK withdraws from the EU. Whether or not CETA applies to trade with the UK following its exit from the EU (if and when that does occur) will depend on the terms of the subsequent relationship between Britain and the EU. But this is something that may not be known for at least two years following the start of the Brexit negotiations, which are expected to begin in 2017.
The Transpacific Partnership Agreement (the TPP), involving 12 Pacific Rim countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the U.S. and Vietnam) was signed in February, 2016, but will not come into force under its current terms unless both the U.S. and Japan ratify the Agreement. U.S. President-Elect Trump has stated that he intends to "withdraw" the U.S. from the TPP. At a minimum, this means the agreement is not expected to be implemented in the near future in its current form.
The Canadian Government continues to consult on whether it should ratify the TPP. Therefore, for the time being, the TPP appears to be in abeyance pending further developments in the U.S. In the intervening period, it is possible that Canada and others may engage or re-engage in bilateral trade negotiations with countries such Japan, China, and Australia (although Japan has stated that its priority is to convince the U.S. to agree to bring the TPP into force).
President-Elect Trump also expressed dissatisfaction with NAFTA during his election campaign, but has not repeated his proposal to withdraw from NAFTA since being elected. Instead, he has focused on softwood lumber and imports of beef and pork into the U.S. as trade-irritants he wants to resolve through NAFTA. In the case of softwood, regardless of any NAFTA negotiations, litigation in the U.S. is expected to ramp up in 2016 and on into 2017. Both Canada and Mexico have confirmed their willingness to re-negotiate the Agreement. President-Elect Trump has not stated when he wants to start such negotiations, nor have Canada and Mexico indicated what their objectives of the negotiations may be.
While companies cannot adjust their business plans based on uncertainties, it is important that they stay informed of international trade and investment developments and work to better understand what these developments will mean for their operations. Risk management and identification of international trade and investment opportunities and challenges will be important in 2017.
Clifford Sosnow is a partner at Fasken Martineau's Ottawa and Toronto offices and an internationally recognized expert on cross-border anti-bribery and foreign corruption law, economic sanctions, export/import compliance, investment arbitration and foreign investment reviews.
Leslie Milton is a partner at the Ottawa office who practices primarily in the areas of communications law, competition law and international trade law.
Alexandra Logvin is an associate at the Ottawa office. She focuses her practice on commercial litigation, arbitration, and international trade and investment law.