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NAFTA | Trade Remedies | Asia-Pacific, Europe and South America | Progressive Trade | World Trade Organization | Economic sanctions | Tax | Mediation and International Arbitration

The beginning of the year provides CMKZ with an opportunity to inform companies trading internationally of developments that may affect their activities and strategies.

According to CMKZ, 2018 will be particularly influenced by:

NAFTA

Canada will continue to focus in 2018 on the NAFTA renegotiations and defending its commercial interests. It will continue to seek constructive solutions to modernize NAFTA and to mitigate some of the most excessive US demands. At the same time, many federal and provincial delegations will continue to make their presence felt in the US by visiting elected representatives and the business community to support the talks and to promote the merits of NAFTA.

While a full-blown crisis has been avoided until now, pressure is expected to mount on the negotiations as Mexican presidential elections will take place in July and US mid-term elections will be held in November. Despite the uncertainty, it is unlikely that the negotiations will result in the unilateral withdrawal of the US from NAFTA. The economies of many US states and industries depend on NAFTA and few US officials have said they support such a withdrawal. Moreover, a withdrawal decreed by President Trump would certainly lead to a constitutional crisis and give rise to court battles by many elected officials, chambers of commerce and entrepreneurs opposed to such a decision.

Trade Remedies

Given the imposition of duties and trade remedies to restrict the import of lumber into the US, as well as Bombardier’s CSeries and various types of paper, Canada will continue to defend its interests under Chapter 19 of NAFTA (lumber) and rules of the World Trade Organization. In 2017, Canada filed WTO complaints against the United States denouncing the various softwood lumber decisions as well as certain aspects of the US trade remedy system. Recently, the United States International Trade Commission (USITC) determined that the CSeries did not cause injury to Boeing thereby eliminating countervailing duties imposed by the US Department of Commerce. It is possible but unlikely that Boeing will appeal the decision.

The next trade dispute could be on steel and aluminum. President Trump must decide before April 2018 whether or not to adopt restrictive import measures for steel and aluminum in order to protect his domestic industry which is not producing at full capacity according to the report submitted to him in January 2018 by US Secretary of Commerce Wilbur Ross. If this is the case, Europe, China and other countries exporting such products would react strongly. As for Canada, it may be exempted from such measures.

Diversifying Trade: Asia-Pacific, Europe and South America

In order to mitigate the impact of US isolationist tendencies, 2018 will see Canada turn towards the Asia-Pacific region, given its key role in international commercial relations, as well as towards Europe and South America.

• Asia-Pacific

In March 2018, Canada and the 10 other participating countries will meet to sign the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP), whose negotiations were completed in January 2018. The CPTPP takes over from the Trans-Pacific Partnership (TPP) and suspends certain of its provisions. It is supplemented by series of side letters concluded between States on a bilateral basis. To come into force on this side of the Pacific, the CPTPP will be subject to the ratification and implementation process by Canada; which will result in many consultations and discussions.

With regards to China, the slow rate of progress towards a free trade agreement in 2017 might have disappointed many observers, given that the Canadian government only entered into limited agreements related to beef and pork exports. Nevertheless, Canada’s talks with China have opened up an important line of high-level communication with senior Chinese and Canadian officials. Canada should continue its efforts to maintain its economic and diplomatic relations with China, while remaining cautious in view of the US-China economic rivalry.

Finally, having begun a dialogue with the Association of Southeast Asian Nations (ASEAN) in 2017, formal negotiations for a free trade agreement could begin in 2018.

• European Union

Promoting the Comprehensive Economic and Trade Agreement (CETA) with the European Union (EU) will remain a priority in 2018. CETA has been applied on a provisional basis and needs to be ratified by all of the EU’s thirty national and regional parliaments to be fully implemented. Among such governments, France, Italy and Germany could seek to approve CETA in 2018.

Given Britain’s March 2019 deadline to leave the EU, 2018 will see negotiations continue between the UK and the EU to determine the outcome of their future trade relationship. Of crucial importance for the UK is the inclusion of its vast financial services sector in any future trade deal with the EU. However, until such a deadline, Britain will remain a member of the EU and CETA rules will govern trade with the UK. 2018 will also probably see a more active agenda for informal bilateral trade talks between Canada and the UK in order to sort out a trade relationship for the post March 2019 era.

The EU will also be very active, as it should finalize negotiations with Mexico and continue negotiating a free trade agreement with the four founding countries of the Mercosur bloc (Argentina, Brazil, Paraguay and Uruguay). The EU will take advantage of these negotiations to modernize its free trade agreements, and in particular drawing on innovative elements of CETA. Moreover, the approval and ratification of trade agreements with Singapore, Vietnam and Japan will remain a priority for the EU and its members in 2018.

Lastly, the General Data Protection Regulation (GDPR) will enter into force in the EU in May 2018. The Regulation will apply to all companies offering goods or services to EU residents. Canadian companies will need to be aware of these new rules which intend to strengthen how companies handle data breaches and protect their own employees’ data. The new regulation will simplify the regulatory environment for international business as data protection rules will be identical in every member state of the EU. Of particular importance, due in part to the entry in force of CETA, is for Canada to maintain its status as an adequately protected jurisdiction under EU law – allowing Canada to enjoy a more fluid trade with the European market. On the other side of the Atlantic, due to changes made to the Canadian Personal Information Protection and Electronic Documents Act (“PIPEDA”) and related regulations, new mandatory data breach notification and record keeping requirements are expected to come into force in 2018.

• South America

The diversification of trade flows sought by the Canadian government will also include South America. 2018 will see the official start of negotiations to establish a free trade agreement between Canada and Mercosur, a regional economic bloc that includes Argentina, Brazil, Uruguay and Paraguay. With a meeting planned in March 2018 to begin negotiations in Paraguay, an important work of reconciliation and compromise will have to be carried out as relations between the parties have often been difficult, especially between Brazil and Canada in the aerospace and the cattle industries.

Progressive Trade

So-called “progressive” values, which are increasingly used in free trade agreements, will come to the fore in 2018. In Canada, this trend is reflected in increased attention to issues such as gender and indigenous rights, environmental regulations and labor standards. 2018 will reveal if governments value such social issues and if they will consider them as a new standard in international trade or simply as an obstacle to trade negotiations, especially for Canada, as far as NAFTA, China and ASEAN is concerned. Progressive trade issues will likely be discussed at the G7 meeting to be held in Charlevoix, Quebec, in June 2018.

Moreover, on January 17, 2018, the Canadian International Trade Minister, François-Philippe Champagne, announced the creation of an independent Canadian ombudsman position for corporate social responsibility, a first step in support of such progressive values.  The ombudsman will be responsible for conducting independent investigations into allegations of human rights violations related to the activities of Canadian companies abroad, recommending non-binding solutions, monitoring their implementation and where possible, to collaboratively help resolve conflicts between businesses and affected communities. The ombudsman is expected to be appointed by the federal cabinet this year, along with members of the multi-stakeholder Advisory Group tasked to provide advice to the government on responsible business conduct.

World Trade Organization

In view of the possible paralysis of the World Trade Organization (WTO) dispute settlement mechanism and the stagnant state of the Doha Round negotiations, 2018 will be a crucial year for the multilateral organization. In recent months, the US has blocked appointments of several judges to the Appellate Body, leaving it with only four judges to conduct business, with one judge’s term expiring in September 2018 and with the two remaining judges from countries frequently involved in disputes (the US and China). To function, at least three judges need to be free of conflicts of interest. It is difficult to predict the outcome of this situation. The stakes are high for the stability of the international trading system.

Among the Appellate Body’s expected decisions this year are those on Airbus, Boeing and the market status of China. The latter case will decide whether China is considered a market economy, as this will influence how the value of Chinese products in set in anti-dumping proceedings. This decision will be a decisive for the future of trade relations between China, the EU and the United States.

Under the new trends at the WTO, let us highlight the movement that appears to be emerging in order to circumvent the difficulties in obtaining the consensus of all WTO members for the adoption of agreements. At the Buenos Aires ministerial meeting in December 2017, subgroups constituted of various governments affirmed that they desired to tackle issues at a plurilateral level related to investment facilitation, electronic commerce, fossil fuel subsidies, domestic regulation and small and medium-sized enterprises. If an agreement arises from the work of such subgroups, it would then be open for signature to other WTO Members, with the scope of such an agreement being extended to all WTO Members on a most-favored-nation (MFN) basis unless otherwise decided by all WTO Members.

WTO accessions will remain a priority for the WTO in 2018.  It is expected talks with Bosnia and Herzegovina and the Union of Comoros will continue, with both States slated to accede to the WTO in 2018.

Economic sanctions

Attention should be paid to the situation in Myanmar. Following the persecution suffered by the Rohingya, the country has attracted the wrath of the international community. It is likely that Canada will adopt important measures as a result of such violence, but probably not until the final report of the Canadian Special Envoy to Myanmar Bob Rae, appointed in October 2017, is submitted. The Canadian government has decided to act in the meantime by directly sanctioning a Burmese general in February 2018 for his role in the clashes.

After adopting its own Magnitsky law (based on the US law of the same name in memory of a Russian whistleblower who died in prison) in 2017, the government of Canada can now impose a freeze of financial assets or a travel ban on any foreign official guilty of serious human rights violations.

Moreover, in 2018 attention should be paid to potential new sanctions from the US government against the restricted circle of Russian President Vladimir Putin as a reprisal against Russia’s interference in the US elections, as well as any developments concerning the US opposition to the Iranian nuclear deal known as the Joint Comprehensive Action Plan (JCPOA).

Tax

2018 will see Canada continuing negotiations on international tax treaties with Switzerland and Germany, and the amendments to tax treaties with Taiwan and Israel will come into effect.

In addition, new changes to the Government of Canada’s Voluntary Disclosures Program are expected, which gives legal persons a second chance to amend a filed tax return or to file a tax return that should have been filed. As of March 1, 2018, eligibility criteria for the program will be restricted to bar fraudulent companies that have deliberately avoided paying taxes.

Canada also announced the establishment of a website entitled Registering a trade barrier. This is a forum where Canadian companies doing business abroad will be able to report any impediments, fiscal or otherwise, encountered during their overseas operations. Companies will now be able to work directly with the Canadian Trade Commissioner Service and other government departments to reduce these barriers to international trade.

Mediation and International Arbitration

In the area of ​​private law, a special committee of The Hague Conference on Private International Law should complete the draft Convention on the Recognition and Enforcement of Foreign Judgments, also known as the “Judgment’s Project”. At its meeting in July 2018, the UN Commission on International Trade Law (UNCITRAL) is expected to adopt the Model Law on the Recognition and Enforcement of Insolvency Related Judgments as well as the draft convention on international commercial settlement agreements (resulting from mediation) and the UNCITRAL Model Law on International Commercial Mediation which amends the previous Model Law of 2002. Finally, a UNCITRAL Working Group will continue its work on investor-State arbitration reform.

In the field of securities interests, a diplomatic conference should be convened by the UNIDROIT Council for the adoption of the 4th Protocol to the Cape Town Convention on Matters Specific to Agricultural, Construction and Mining Equipment.

Recommendations

In light of these developments, in 2018 businesses will have to keep a close eye on:

• The outcome of the NAFTA renegotiation and its effect on North American trade and on Canadian commercial strategy;
• The evolution of trade remedies, and economic sanctions and other measures that disrupt trade;
• US arm wrestling to weaken the ability of the World Trade Organization (WTO) to settle trade disputes between States and to ensure compliance with international trade rules;
• The development of privileged trade relations between Canada and the Asia Pacific, Europe and South America, and the consequences of the withdrawal of the United Kingdom from the EU on contracts, intellectual property and access to the UK and European markets;
• The entry into force of the General Data Protection Regulation in EU countries and its direct impact on the business operations of companies offering goods and services to the EU; and
• Initiatives to facilitate international recognition of mediation agreements and judicial decisions.

For further information on these developments and on the potential impact they may have on your activities, please do not hesitate to contact Bernard Colas, Julius Dunton or one of our other lawyers at CMKZ specialized in international trade law.