Documents considered by the Committee on 7 December 2016 Contents

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

Summary and Conclusions

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

1.1Given the fundamental legal and political importance of CETA to the UK, both while it is a Member of the EU and in view of Brexit, the Committee recommended the proposed EU-Canada trade deal (CETA) for an urgent debate on the floor of the House in early September.

1.2The Government overrode parliamentary scrutiny at the Foreign Affairs Council on 18 October as it endorsed the signature, provisional application and conclusion of this deal before MPs had had the opportunity to debate the deal. The Committee called the Secretary of State (Dr Liam Fox) in to give urgent oral evidence on the reasons for the override and its implications for parliamentary scrutiny of trade deals on 26 October.

1.3On 1 November, the Secretary of State provided an update on recent developments (following the oral evidence session) and stressed his commitment to a debate, which he expected to take place “sometime in November”.

1.4At its meeting on 16 November, the Committee:

Reiterated that overriding scrutiny, 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, was a serious matter;
Stressed the urgency of scheduling the outstanding debate, stipulating that it must take place before the European Parliament gives its consent to the Agreement; and
Requested responses to the following outstanding issues, in order to help inform the debate: the expected distribution of benefits and losses of the deal for the UK—by region/stakeholder; the exercise of competence; who triggers provisional application and who can terminate it; the Government’s position on elements of the Belgian compromise deal (notably the exclusion of Belgian insurance markets from market access provisions and its declaration on agricultural safeguards); the implications of Belgium’s request for an opinion from the ECJ on the compatibility of the Investor Court System (ICS) with the EU Treaties; and the Brexit implications of the UK entering into and provisionally applying CETA—in particular the possible continuation of mixed agreements post Brexit and how they are untangled.

1.5We thank the Minister for his latest update on CETA. We reiterate the urgency of scheduling the promised debate on the floor of the House as soon as possible, and in advance of the European Parliament giving its consent to the Agreement. While the European Parliament plenary vote has been pushed back from 14 December to 2 February, it is important that the debate is scheduled as soon as possible. We note the Minister’s undertaking that debate will take place before the EP Plenary. A debate scheduled by mid-January 2017 would be desirable and would still be over four months since the recommendation for an urgent debate was first made by the Committee.

1.6We draw the attention of the House to the points set out below, which cover the Government’s position on a range of policy and legal issues previously raised by the Committee, and highlight partial and/or incomplete responses from the Government. These will need to be addressed by the Government in further correspondence ahead of the debate and/or during the debate.

Expected costs and benefits of CETA

The Minister considers that the expected £1.3bn benefits of CETA to the UK will be “spread across” a wide range of UK sectors and stakeholders; he does not address the question of which sectors and/or stakeholders might be expected to incur costs or lose out as a result of provisionally applying and concluding the deal.

Competence and provisional application

In his oral evidence to us on 26 October, the Minister agreed that it was necessary to ensure that the legal provisions were absolutely clear as to where the EU has exercised its competence and where the UK has exercised competence, given the Commission’s attempt to limit Member States involvement in trade agreements and given the possibility that deals like CETA will need to be untangled for Brexit.
The Minister’s view is that the Council Decision on provisional application does not seek to apply what the UK considers to be unexercised shared competence1 and that “the EU is not extending its exercise of shared competence into new areas”. He explains this as follows:
- the Decision states that provisions on trade and sustainable development, trade and labour and trade and the environment, previously identified as areas where there was shared competence, “shall respect the allocation of competences between the Union and the Member States”;
- a Council statement “confirm[s] that only matters within the scope of EU competence will be subject to provisional application”; and
- a number of areas involving investment (including portfolio investment, the Investment Court System, measures relating to investment protection and dispute settlement for financial services and camcording) have been expressly exempted from provisional application.
The Committee notes that the allocation of competence within these areas is a matter of ongoing dispute upon which a formal Opinion of the European Court of Justice is awaited. We also ask the Minister to explain which provisions of CETA “include areas of exercised shared competence”.
Furthermore, the Committee considers that the Minister has still not explicitly set out the extent to which the EU and Member States exercised their respective competence at signing (as opposed to provisional application), and whether, and if so how, the Government’s policy that Member States should exercise shared competence was transparently fulfilled at this stage. Since the Council Decision on signature is effectively silent on the question of the exercise of competence for signing CETA, the issue is ‘fudged’ when it would have been possible for the Government to insist on clarity in the legal text or at least to have lodged a minute statement—of which there were 38 including one from the United Kingdom on an unrelated matter.
The Minister infers the EU has the power to trigger provisional application, stating “the UK is clear that the Council has now agreed to provisionally apply the agreement”.
By contrast, on who has the power to terminate provisional application, the Minister states that “it is clear that an individual Member State has the power to terminate provisional application of this agreement”, which he concludes arises from the Council statement that: “if the ratification of CETA fails permanently and definitively because of a ruling of a constitutional court, or following the completion of other constitutional processes and formal notification by the government of the concerned Member State, provisional application must be terminated.”
The Committee’s view is that it is still not clear if the EU and/or any one of its Member States can terminate provision application. CETA itself makes no distinction as to who can trigger provisional application and who can terminate it. Germany, Austria and Poland have lodged minute statements asserting their rights to terminate provisional application. The lack of clarity is exacerbated by the fact that these statements, and the Council’s, note that the necessary steps for termination are to be “taken in accordance with EU procedures”.

The Belgian compromise deal

The Government does not address the extent to which the exclusion of Belgian mutuelles (insurance markets) from market access provisions conflicts with Single Market and Common Commercial Policy legal provisions, but notes that the interpretation of the Commission declaration could be challenged by Canada. The Minister does not explain what implications such exclusions could have for a future UK-EU trade agreement after Brexit; for example, could other Member States ‘pick and choose’ market access provisions?

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

The Minister notes that the Government’s view “is that in principle it is not incompatible with the EU Treaties for an agreement to contain a dispute resolution mechanism for matters arising under the Treaty” and that the Government does not intend to submit evidence to the ECJ.
The Minister does not address the Committee’s question of whether the Government considers that the Belgian regional parliaments’ request for clarity over this issue, before the EU enters into binding commitments in international agreements containing investor-state dispute settlement, is necessary and/or beneficial (for example by providing legal certainty) and should have been requested earlier by the Commission.2 The Minister simply notes that the European Parliament “voted by a substantial majority to reject a resolution to refer the ICS” to the ECJ on 23 November.

The continuation of mixed agreements beyond Brexit:

The Minister declines to set out the Government’s approach to how it is assessing whether it would be desirable and/or possible for the UK to continue to benefit from CETA after it formally withdraws from the EU (i.e. which arrangements would need to be negotiated as part of a post-Brexit deal to retain access to the trade preferences contained within CETA and what other options exist) on the basis that “it would be wrong to set out unilateral positions at this stage”.
The Committee does not consider that setting out options and underlying analysis on the future of mixed agreements would undermine the Government’s negotiating hand, and should be made publicly available.

1.7In 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

1.8The background to this trade deal and correspondence between the Government and this Committee, including information about the override and the evidence session with the Secretary of State, as well as detailed information on the legal aspects of CETA (competence for signing, provisional application and disputes about the legality of inclusion of ICS provisions), is covered in the Committee’s previous Report chapters listed at the end of this chapter.

The Minister’s letter of 30 November 2016

1.9On the scheduling of the debate, the Minister says:

“I recognise that a debate on the floor of the House of Commons is of the utmost importance, and my officials are working with business managers in the House of Commons in order to arrange this at the earliest opportunity. As part of this process, my office provided the Whips Office with a number of dates in November and December. We have been advised this week by our Representation in Brussels that the plenary vote in the European Parliament is likely to be delayed from its originally scheduled date of 14th December, and will not take place until 2nd February next year. However, I’d like to reassure you that we are still making every effort to identify a date as soon as possible, and certainly before the plenary vote in the European Parliament.”

1.10The Minister also apologises for “not explicitly inform[ing] the House of Commons of the decision to override, as is set out in the Scrutiny Reserve Resolution”. He acknowledges that the Written Ministerial Statement by David Jones MP on the Government’s decision to endorse the relevant Council decisions on 18 October at the extraordinary Foreign Affairs Council (Trade) should have stated the override “more clearly”.

1.11The detail of the Minister’s responses to each of the questions raised by the Committee in its previous Report chapter on substantive policy, economic and legal issues are set out below for ease of reference.

1.12On the expected distribution of benefits to the UK of CETA, the Minister says:

“CETA is an important trade agreement for the UK, with potential economic benefits to the UK estimated at £1.3 billion a year while we remain in the EU. These benefits are spread across a wide variety of different sectors, including industrial products, machinery and equipment, financial services and insurance, life sciences, construction, and processed foods. Broader trade cost reductions are also expected from this agreement, which will benefit a broad range of UK businesses and consumers.”

1.13On competence issues and provisional application, the Minister states:

“The issue of EU competence with respect to free trade agreements is of particular relevance currently and there are on-going developments. The Committee will be aware that the Commission has sought an Opinion from the Court of Justice of the EU (CJEU) on where competence lies in the Singapore free trade agreement with a view to concluding future agreements as EU-only. We expect a ruling in the first half of 2017. In relation to CETA, the UK Government was robust in its approach, along with other Member States, to ensure that this agreement was treated as a mixed agreement. As a result, the Commission agreed to treat CETA as a mixed agreement in July this year.

“The UK’s areas of concern relating to competence involved investment (including portfolio investment and the Investment Court System), sustainable development and the environment. In the Council Decision on provisional application, a number of areas are exempted including a large part of the chapter on investment, with those provisions being provisionally applied relating only to foreign direct investment. In particular, the majority of the section on investment protection, including the ICS, is not being provisionally applied, including measures relating to dispute settlement and expropriation. Measures relating to investment protection and dispute settlement for financial services are also excluded. In addition, provisions relating to camcording are not being provisionally applied.

“The Decision also clearly states that provisional application of the measures relating to sustainable development, labour and environment will respect the allocation of competences between the Union and the Member States. It should also be noted that the right to regulate in these areas for Member States is stated in each section and thus protected by CETA. This right is also reinforced in the Joint Interpretative Instrument.

“Therefore, as a result of negotiations in Council, the Council Decision on provisional application does not seek to apply what the UK considers to be unexercised shared competence in these areas. The Council also agreed a statement confirming that only matters within the scope of EU competence will be subject to provisional application. CETA does include areas of exercised shared competence but the EU is not extending its exercise of shared competence into new areas.

“With regards to the triggering of provisional application, the UK is clear that the Council has now agreed to provisionally apply the agreement. Provisional application takes place from the first day of the month following the date on which the Parties have notified each other that their respective necessary internal requirements and procedures necessary for the provisional application of the Agreement have been completed.

“Regarding termination of provisional application, the Council agreed a clear statement that if the ratification of CETA fails permanently and definitively because of a ruling of a constitutional court, or following the completion of other constitutional processes and formal notification by the government of the concerned Member State, provisional application must be terminated. As such, it is clear that an individual Member State has the power to terminate provisional application of this agreement.”

1.14On the Belgian compromise deal, and the Government’s position on Belgian mutuelles (insurance markets) being excluded from market access provisions and on Belgium’s declaration on agricultural safeguards, the Minister states:

“The insurance aspects of the Commission Declaration mean that Belgium will be excluded from the commitments in this area. It will not affect UK access to Canadian markets. In practice this will mean that Canada will no longer have access to the Belgian mutual associations market. The declaration is a statement of the Commission’s interpretation and the way in which it intends to act in relation to this area. This interpretation could be challenged by interested parties in Canada, but it will not impact the UK’s commitments under CETA.

“The declaration from the Council and Commission on agricultural safeguards asserts the right of the EU to use all the safeguard instruments necessary to fully protect all sensitive agricultural products in the Union in accordance with WTO commitments. 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. There is no special deal for Belgium agreed here, as Canada and all other Member States would also have the same recourse to these kinds of safeguards. Though the Council or European Parliament may call on the Commission to act, the UK government is clear that it is the Commission that retains the ability to act in terms of applying safeguards.”

1.15On Belgium’s referral of ICS to the ECJ, the Minister states:

“This was a unilateral declaration by Belgium, which merely confirms the right a Member State has under Article 218(11) TFEU to refer an international agreement to the CJEU. The Declaration was not agreed or endorsed by the UK Government. Our view is that in principle it is not incompatible with the EU treaties for an agreement to contain a dispute resolution mechanism for matters arising under the treaty. The UK government has no plans currently to make submissions in this case but we will keep the Committee updated if this position changes. On 23 November, the European Parliament voted by a substantial majority to reject a resolution to refer the ICS to the CJEU.”

1.16On the continuation of mixed agreements, including CETA, beyond Brexit, the Minister says:

“Leaving the EU offers us an opportunity to forge a new role for ourselves in the world: to negotiate our own trade agreements and to be a positive and powerful force for free trade. It would be wrong to set out unilateral positions at this stage.”

1.17 On expected next steps, the Minister notes:

“The agreement is now with the European Parliament for approval. The European Parliament’s plenary vote on CETA was originally scheduled for 14th December, but advice from our Representation in Brussels is that it is now scheduled for 2nd February 2017. Provided that the European Parliament gives its consent within the required timeframe, the EU intends to notify Canada on 17th February 2017 that its requirements for provisional application are complete. Canada is also working towards parliamentary approval of their CETA implementing legislation (currently at second reading stage). This will likely be done early in the New Year, which will be followed by the introduction of relevant regulations. The agreement can then be provisionally applied from the first day of the month that follows this notification by both the EU and Canada. Those areas that are within Member State competence will not be applied until all Member States have ratified the agreement in line with their national procedures, which has to happen before CETA can come into force.”

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); Eighteenth Report HC 71-xvi (2016–17), chapter 1 (16 November 2016).

1 Shared competence can be exercised by either the EU or the Member States.

2 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.

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9 December 2016