Documents considered by the Committee on 18th November 2016 Contents

1Comprehensive Economic Trade Agreement (CETA) between the EU and Canada

Committee’s assessment

Legally and politically important

Committee’s decision

(a)–(c) Not cleared from scrutiny; further information requested; recommended for debate on the floor of the House (decision reported on 7 September 2016); granted a conditional scrutiny waiver for (a) at the Foreign Affairs Council on 18 October (decision reported on 12 October 2016), but Government overrode scrutiny; (a)–(c) drawn to the attention of the International Trade Committee and the Committee for Exiting the EU

Document details

(a) Council Decision on the signing of the Comprehensive Economic Trade Agreement between Canada and the EU and its Member States (b) Council Decision on the provisional application of the Comprehensive Economic Trade Agreement between Canada and the EU and its Member States (c) Council Decision on the conclusion of the Comprehensive Economic Trade Agreement between Canada and the EU and its Member States

Legal base

Articles 91, 100(2) and 207(4), in conjunction with Article 218(5) (on signing and provisional application) and Article 218(6)(a)(v) and Article 218(7) (on conclusion) TFEU, QMV

Department

International Trade

Document Numbers

(a) (37921), 10968/16 + ADDs 1–16, COM(16) 444
(b) (37922), 10969/16 + ADDs 1–16, COM(16) 470
(c) (37923), 10970/16 + ADDs 1–16, COM(16) 443

Summary and Conclusions

Importance of parliamentary and public scrutiny of CETA

1.1CETA has generated heated public and political debate in recent months:

Scrutiny override by the Government

1.2The background to this trade deal and correspondence between the Government and this Committee is covered in the Committee’s previous Report chapters.1 However, to summarise events to date:

1.3The Minister now provides an update on the Belgian compromise package, including Council and Commission Statements on: the Investment Court System (ICS); agriculture safeguards; and insurance (Canada will no longer have access to the Belgian mutual associations market). He also notes Council Declarations by Bulgaria and Romania and the Commission on visa free travel.

1.4The Minister asserts that:

“[n]one of these documents supplant or adjust the CETA text. For the most part…with the only exceptions to this being the declarations from Bulgaria and Romania, which…express their governments’ positions towards its ratification…they operate to help interpret CETA...” and that “those areas of the agreement that will not be provisionally applied including ICS” have “not changed” since the oral evidence discussion of 26 October.

Outstanding issues

1.5The Committee reiterates that overriding scrutiny is a very serious matter—particularly on trade deals of such fundamental political and legal importance to the UK, both while it is a Member of the EU and in view of Brexit.

1.6We take this opportunity to remind the Government:

1.7We thank the Minister for his recent update on expected next steps for CETA (following the Belgian compromise package and signature of the deal on 30 October), and welcome the promised “full” debate on the floor of the House before the end of the month. However, we are disappointed that the Government has still not addressed a number of key economic, legal and policy issues on this deal (as set out in previous Report chapters, raised during the oral evidence session of 26 October and taking into account recent developments).

1.8We ask the Minister to respond to the questions below at least three working days before the debate is scheduled and no later than 30 November (whichever is earlier) in order to enable the House to make an informed decision about the deal. We also stress the urgency of the debate, which must take place before the European Parliament gives its consent to the Agreement (the plenary vote is scheduled for 14 December).

The expected benefits of the deal for different UK stakeholders:

The exercise of competence and the triggering of and termination of provisional application:

The Belgian compromise deal:

Belgium’s referral of the ICS provisions to the European Court of Justice (ECJ)

The continuation of mixed agreements beyond Brexit:

1.9We draw the attention of the House to the following:

1.10In the meantime, we retain all documents under scrutiny and draw the Minster’s response and our conclusions to the attention of the Committee for International Trade and Committee for Exiting the EU.

Full details of the documents

(a) Council Decision on the signing of the Comprehensive Economic Trade Agreement between Canada and the EU and its Member States: (37921), 10968/16 + ADDs 1–16, COM(16) 444; (b) Council Decision on the provisional application of the Comprehensive Economic Trade Agreement between Canada and the EU and its Member States: (37922), 10969/16 + ADDs 1–16, COM(16) 470; (c) Council Decision on the conclusion of the Comprehensive Economic Trade Agreement between Canada and the EU and its Member States: (37923), 10970/16 + ADDs 1–16, COM(16) 443.

Background

Timeline of events

1.11An overview of key events is set out below:

Original and final texts

1.12Signature of CETA was originally scheduled to take place at the EU-Canada Summit on 27 October, with provisional application following in spring 2017, provided that the European Parliament consented to the Agreement in the interim. Formal conclusion or ratification by individual Member States would then be subject to the internal procedures of 38 national parliaments/chambers, which may take several years. Despite delays to signature, the above timetable on provisional application, conclusion and ratification is expected to hold.

1.13The detail of the original Agreement (including its coverage, the process and implications of CETA being a mixed agreement, disputes over competence, provisional application, ratification of the Agreement by each Member State, and investment provisions and dispute settlement) and the Government’s position on it are set out in the Committee’s previous report.6

1.14The final Council Decisions plus Joint Declaration, Council Minute Statements (save one note7 from the Council Secretariat) and Council Conclusions have been published.8

Competence for signing CETA

1.15The Commission wanted CETA to be signed and concluded by the EU alone and is pursuing litigation with the objective of securing that a similar Free Trade Agreement with Singapore can be signed and concluded by the EU alone. The ultimate outcome is that it is a mixed agreement, which means that the Member States are exercising competence over some part(s) of it. That can be competence which is exclusive to them or it can be competence which is shared with the EU and can therefore be exercised by either. It is the Government’s stated policy that shared competence should be exercised by the Member States.

1.16However the Decision on signing of CETA gives no indication of the extent to which the EU is exercising competence or the extent to which Member States are exercising competence. The UK has not made a statement on this matter in the minutes billed as “part of the Context in which the Council adopts the decision to authorise the signature of CETA on behalf of the Union”.9 Although ostensibly relating to provisional application of CETA and not signature, the Council has made statements here that provisional application in identified areas of claimed shared competence10 does not prejudge the allocation of competences between the EU and the Member States in these fields and does not prevent Member States exercising their competences with Canada for matters not covered by this Agreement, or with another third country. These statements either:

Provisional Application

1.17Under Article 218 TEU the Council may adopt a decision authorising the provisional application of an external agreement such as CETA. This does not require any formal involvement of the European Parliament, although in this case the Council has decided to make provisional application subject to agreement by the European Parliament.

1.18Article 30.7 of CETA only says that the “Parties” may provisionally apply the Agreement and allows a “party” to terminate provisional application. According to its title the parties to CETA are (a) Canada and (b) the European Union and its Member States.

1.19On 13 October, the German Constitutional Court refused to issue an interim injunction to stop the German Government from signing CETA, on the basis that Germany could terminate provisional application. The Court:

1.20In the event the Council Decision authorising provisional application excludes provisions of CETA that cover most of the investment chapter (and all of it in respect of portfolio investment), illegal camcording, and administrative proceedings and appeals in connection with transparency at the Member State level. These are areas where Member States claim exclusive competence. In other areas, where Member States claim to share competence with the EU—trade and sustainable development, trade and labour, and trade and environment—the Decision provides that provisional application “shall respect the allocation of competences between the Union and the Member States”. It does not specify how competence is to be respected, given that it is clear that the Decision authorises the EU to trigger provisional application in these areas.

1.21Additionally the Council has made the statements referred to in paragraph 16 which cover additional areas to those expressly dealt with in the Decision.

Belgium request for ECJ Opinion on legality of ICS in CETA

1.22As part of the Wallonia/Belgian (federal) Government’s compromise deal (leading to Wallonia authorising Belgium’s signature of CETA at the EU-Canada Summit), the Belgian Government will request an Opinion from the ECJ on the compatibility of ICS in CETA with the EU Treaties.

The Minister’s letter of 1 November 2016 (received 4 November 2016)

1.23The Minister provides the following update following the oral evidence session on 26 October:

“I committed to providing an update to the European Scrutiny Committee on the EU-Canada Comprehensive Economic and Trade Agreement (CETA), once next steps became clearer. Since we met last Wednesday, things have moved very quickly, culminating in the signature of CETA at the rescheduled EU-Canada Summit on Sunday 30th October. This followed a number of days of intense negotiations between the Commission, Belgium Federal Government and regional governments, who as you know had previously blocked agreement. The regional governments voted in favour of CETA on Friday and in parallel a written procedure was launched, which concluded on Friday evening following approval by all Member States of the Council Decisions on signature and provisional application, and agreement to request the consent of the European Parliament for the conclusion of the agreement.

“Outcomes of Discussions with Belgium regional parliaments

“In order to address the concerns of Belgium’s regional parliaments—and in particular that of Wallonia – new Council declarations have been adopted on the investment court system of arbitration (ICS) and Agriculture, a new Commission declaration on insurance, and the Joint Interpretative Instrument updated to add in language on the benefits of CETA for SMEs. Additional declarations were also added by Bulgaria and Romania clarifying their respective aims for agreements with Canada on visa free travel. None of these documents supplant or adjust the CETA text. For the most part they operate to help interpret CETA, with the only exceptions to this being the declarations from Bulgaria and Romania, which are not meant to interpret CETA but to express their governments’ positions towards its ratification. Therefore, the substance has not changed since we discussed the agreement last week, including, and critically, those areas of the agreement that will not be provisionally applied including the ICS. Since negotiations on this stage of CETA have now been finalised these documents have now been released and can be found at http://www.consilium.europa.eu/en/press/press-releases/2016/10/28-eu-canada-trade-agreement/. I have also outlined below some key points from our analysis of these additional documents, which I hope the Committee will find helpful.

“Investment Court System

“The Statement by the Commission and the Council on the ICS generally addresses procedural and administrative issues such as the process for the selection of judges and does not add any significant commitments to the provisions already set out in CETA. It specifically refers to further review of the ICS by the Commission, ‘allowing sufficient time that Member States can consider it in their ratification processes.’ The language on the Multilateral Investment Court makes clear that there are procedural hurdles to be crossed before it can be agreed. This should not, therefore, prejudice any policy position we would wish to adopt in due course. As noted in the Statement, ‘all of these provisions having been excluded from the scope of provisional application of CETA, the Commission and the Council confirm that they will not enter into force before the ratification of CETA by all Member States, each in accordance with its own constitutional procedures.’ There will be plenty of opportunity to discuss and refine proposals ahead of any formal ratification—which is unlikely to take place for a number of years.

“Insurance

“The insurance aspects of the Commission Declaration mean that Belgium will be excluded from the commitments in this area. It will not impact the UK access to Canadian markets. In practice this will mean that Canada will no longer have access to the Belgian mutual associations market, so their firms may not be able to access the market or may face discriminatory treatment. It won’t impact the UK commitments under CETA.

“Agricultural sector—safeguards

“The Belgian declaration asserts the right of federal authorities with competence for agricultural affairs to activate the safeguard clause in case of market turbulence, with thresholds to define market turbulence to be determined within twelve months of signing CETA. Though it is unusual to state this in a separate declaration, the content here isn’t exceptional. The CETA text already states that the parties reaffirm their rights and obligations concerning global safeguard measures under Article XIX of GATT 1994 and the Safeguards Agreement, which includes the ability to safeguard domestic industries in certain circumstances. This declaration says nothing new except the point about specifying thresholds. Canada would also have the same recourse to these kinds of safeguards.

“Visas

“The declaration on visa free travel by Bulgaria and Romania calls on all parties to CETA to implement this. This is a unilateral declaration and is not binding, nor have the UK signalled agreement to it. The Commission declaration on visa free travel commits it to working with Canada to achieve this for Bulgarian and Romanian citizens within a satisfactory time frame. Canada separately committed in the Summit communiqué that it would lift visa requirements by late 2017 for Romanians and Bulgarians.

1.24On expected next steps the Secretary of State notes:

“The agreement will now go to the European Parliament for approval. This is likely to be at some point in either December or January next year. Once the European Parliament has consented to its conclusion and Canada’s ratification process has also been completed, the agreement will be applied on a provisional basis. The Council Conclusions agreed by written procedure state that provided the European Parliament has given its consent, the EU will notify Canada that its requirements for provisional application are complete on 17 February 2017. The agreement can be provisionally applied from the first day of the month that follows notification by both the EU and Canada. Provisional application concerns essentially only those provisions that are within EU competence. Those areas that are within Member State competence will not be applied until all national parliaments have ratified the agreement, which has to happen before it can come into full effect.”

1.25On the scheduling of the debate, the Minister says:

“I very much look forward to debating CETA further in the House once business managers have set a date, although I understand that this is most likely to be sometime in November.”

Previous Committee Reports

Tenth Report HC 71-viii (2016–17), chapter 1 (7 September 2016); Thirteenth Report HC 71-xi (2016–17), chapter 1 (12 October 2016).


1 See Tenth Report HC 71-viii (2016–17), chapter 1 (7 September 2016); and Thirteenth Report HC 71-xi (2016–17), chapter 1 (12 October 2016).

3 Article 4 states:

“The Minister concerned may also give agreement to a proposal which is still subject to scrutiny or awaiting consideration by the House if he decides that for special reasons agreement should be given; but he should explain his reasons— (a) in every such case, to the European Scrutiny Committee at the first opportunity after reaching his decision; and (b) in the case of a proposal awaiting consideration by the House, to the House at the first opportunity after giving agreement.”

4 Shared competence can be exercised by either the EU or the member States.

5 The Commission could, for example, have added the question of compatibility of ISDS in the EU-Singapore Free Trade Agreement to its request in Opinion 2/15, but limited the question to the division/exercise of competence.

6 See Tenth Report HC 71-viii (2016–17), chapter 1 (7 September 2016); Thirteenth Report HC 71-xi (2016–17) chapter 1 (12 October 2016).

7 See: 13463/16 INIT.

9 These statements are recorded in 13433/1/16 included in the published texts linked in footnote 8.

10 The extent of intellectual property protection, transport and transport services, trade and sustainable development, trade and labour, trade and environment.




21 November 2016