Status: 01.12.2022 2:19 p.m
The European-Canadian trade agreement CETA has been a subject of debate for a long time – now the Bundestag has ratified it. Here are the answers to the most important questions.
What is CETA?
The “Comprehensive Economic and Trade Agreement” – CETA for short – is the economic and trade agreement between Canada and the EU. The agreement is intended to facilitate trade between the European Union and Canada and regulates, among other things, the elimination of almost all customs duties. Regulatory obstacles are also to be removed with CETA.
When does the agreement come into force?
The European Parliament approved the agreement in February 2017, followed by the Canadian Senate in May. Large parts of the agreement have come into force since September 2017, but not all of them. The free trade agreement will not fully come into force until all 28 member states have ratified the agreement.
So far, however, only 16 member states have signed the “Comprehensive Economic and Trade Agreement”. France, Hungary, Italy or Poland are still missing. As long as not all member states have signed the treaty, the trade pact only applies to areas that are undisputedly within the competence of the EU and not in that of the individual member states. Therefore, regulations such as those on the subject of investment protection are initially on hold.
What benefits should the agreement bring?
Canada ranked 14th on the list of EU trading partners in 2021, behind Taiwan and Mexico. Conversely, the European Union is Canada’s second most important trading partner behind the United States. The primary objective of the agreement was to facilitate market access for industrial goods, agricultural products and services and also in the area of public procurement. With CETA, almost 98 percent of all customs duties between the two countries will be eliminated. Before the agreement, for example, only around a quarter of the EU customs lines for Canadian goods were duty-free. According to the EU Commission, European companies could save around 590 million euros a year thanks to the free trade agreement.
In addition, the trade agreement gives European companies access to public procurement in Canada – at federal, provincial and local level. The European Commission expects CETA to increase the annual EU GDP by twelve billion euros, and the bilateral trade volume is expected to grow by 23 percent. According to Canadian estimates, trade in goods in 2020 was 12.5 percent above the 2016 CETA level despite the pandemic. Canadian exporters expect the opening of new markets in the EU to give them a competitive advantage that ultimately benefits all Canadians.
What criticism of the agreement is there?
Criticism of the free trade agreement rained down right from the start of the negotiations. The lack of integration of climate and environmental issues in the trade pact was denounced, as was the transparency of the process. In August, for example, the trade union ver.di said that CETA still puts international trade ahead of human interests, environmental protection and democratic interests.
Investment protection is also criticized. This would allow investors to sue states before an international arbitral tribunal. However, investment protection will only come into force once all member states have signed the agreement. The Munich Environmental Institute association wrote last month that civil society organizations criticized investment protection in particular because it allows foreign investors and global corporations to take legal action unilaterally against state regulations.
In March, a constitutional complaint against CETA was dismissed. Nevertheless, the judges made it clear that they view some parts of the trade agreement as critical, including the so-called arbitration panels. For such a court system, however, Germany would have to transfer sovereign rights to the EU. The Federal Constitutional Court doubts whether this would be compatible with the Basic Law. After the decision in March, the federal government announced that it would improve the CETA investment protection standard.
At a public hearing of the Economic Committee in October, Franz Mayer, Professor of European Law at Bielefeld University, criticized the fact that the agreement had not been discussed in such detail in any other country. “If we can’t even get an agreement like this with Canada, then with which state?”
How does business react to the ratification?
The CETA ratification is welcomed in the chemical industry. “In times of astronomical energy prices, stagnant supply chains and high inflation, this is an important signal. This means that European industry has at least a small gift in its boots just in time for Saint Nicholas,” says Wolfgang Große Entrup, Managing Director of the German Chemical Industry Association (VCI).
Industry President Siegfried Russwurm has described the expected ratification of the EU free trade agreement with Canada by the Bundestag as overdue. This must now give the EU new impetus in trade policy, explained the President of the Federation of German Industries. “Germany and the EU need open markets, especially in times of increasing protectionism.”
Modern trade agreements such as CETA “help medium-sized companies in particular to open up markets and promote the necessary diversification of our supply chains as well as the competitiveness of companies,” according to the Association of German Chambers of Industry and Commerce (DIHK). Now other important EU trade agreements, such as with Mercosur, India or Indonesia, must be advanced.
What other trade deals are there?
The European Union has trade agreements with more than 70 countries. Most of them have already entered into force or are provisionally applicable. Other trade pacts are still being negotiated or have yet to be ratified. Free trade agreements that have come into force in the recent past include Vietnam and Singapore. They envisage an almost complete elimination of customs duties. Even since the agreement between the EU and Japan came into force in 2019, 90 percent of all EU exports are no longer subject to tariffs.
The EU is currently negotiating a free trade agreement with Australia and New Zealand. Talks on agreements are also being held with Indonesia, the Philippines and China. Negotiations on a trade agreement with Germany’s second most important trading partner, the USA, have been on hold since 2017. The controversial transatlantic trade and investment partnership – abbreviated as TTIP – was intended to reduce trade barriers and tariffs. In Germany, the project met with fierce resistance: Among other things, it was feared that consumer standards would fall.