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American pressures | World Trade Organization | Free Trade | Brexit | Intellectual Property | Tax evasion | Investments | Privacy | International Contracts
The beginning of the year is an opportunity to take stock of the foreseeable developments in international trade law for 2019 which are likely to affect companies active internationally.
According to CMKZ, 2019 will be dominated by tensions brought on by protectionist American commercial policy and by the will of countries such as Canada to try to limit their effect and to diversify their commercial exchanges:
- The pressure exerted by the United States (US) on China by imposing tariffs on imports of Chinese goods or the accusations of industrial espionage against the Chinese government and some companies like Huawei will continue. Despite trade meetings between the representatives of China and the US, it is unlikely that the two countries will reach an overall agreement regulating their commercial exchanges before the end of their 90-day truce on March 31st, 2019.
- The US will continue to impose tariffs of 10% and 25% on imports of aluminum and steel respectively, including those originating from Canada. It is also possible that such measures (based on national security concerns) may also extend to imports of automobiles and uranium, on the basis of reports that the US Department of State is expected to release in February and in April 2019. The imposition of customs tariffs on auto imports would cause tensions with Japan, Korea and Germany, major car exporters to the United States, and an escalation of counter-measures would be expected, as is usually the case in such situations.
- This is without mentioning that American trade sanctions should intensify against countries like Russia, Venezuela and especially Iran. This being said, in order to save the Iranian nuclear deal denounced by the Americans in 2018, Europeans and Iranians will implement a special payment mechanism to allow trade to take place notwithstanding the sanctions in the areas of health and agribusiness.
World Trade Organization
- The Americans will continue for now to block the nomination of judges to the Appellate Body of the World Trade Organization (WTO). This may have the effect of preventing the body from hearing new disputes starting December 2019, which is the date of the end of term of two of the last three judges on the body. The judges whose terms have expired may still complete their work on current cases submitted prior to such a date. In particular, the US is attacking the role and process of the Appellate Body as well as focusing on the international trade rules they wish to see applied with regards to subsidies offered to state enterprises as well as forced technology transfer. They also seek a new way of accommodating different levels of State development to prevent countries such as China and India from having the same flexibility in applying WTO rules as those applicable to less developed countries.
- It is still worth mentioning that the WTO dispute settlement mechanism plays a key role and its popularity among States continues to increase. In 2018, 35 new disputes were submitted. This is in addition to the disputes already ongoing regarding the imposition by the US of tariffs on steel and aluminum and on the retaliatory measures of notably Canada; the American anti-dumping duties against Canadian lumber; and Qatar’s restrictions on the importation of products from the UAE, among others. Also noteworthy is the large and complex litigation currently underway between Brazil and Canada on federal and Quebec subsidies provided to Bombardier, which will keep our Canadian representatives busy throughout the year.
- Canada is putting tremendous energy in trying to unlock the stalemate and crisis facing the WTO, through its minister Jim Carr and its ambassador in Geneva. In 2019, Canada will continue its initiative launched in October 2018 to bring together twenty international trade ministers of like-minded countries to tackle WTO reform. Follow-up meetings are to be held in January and May before the G20 meeting in Japan in June 2019. These meetings are taking place in parallel to other initiatives seeking to reform the WTO and to relaunch the judicial appointment process for judges of the Appellate Body. Encouragingly, 76 countries, including the US, the European Union and Japan, decided in January 2019 to begin negotiating an e-commerce agreement.
Free Trade Agreements
- At the regional level, Canada is working with the US and Mexico to review the French, English and Spanish versions of the Canada United States Mexico Agreement (CUSMA or USMCA). They should then proceed with the signature and the adoption of implementation measures in order to ratify the agreement. During the months leading up to ratification, Mexico and Canada will pressure the US to lift their tariffs on steel and aluminum. It is probably that some Democrat representatives, in control of the House of Representatives, will support the lifting of such tariffs as well as request the review of provisions dealing with labor standards and the environment in the agreement. Whatever the outcome of these discussions, CUSMA is likely to come into force by the end of the year or the beginning of 2020, and replace NAFTA.
- Canada is working hard to finalize a free trade agreement with Mercosur (Brazil, Argentina, Uruguay and Paraguay) by the next federal election in October 2019. Canada will continue to negotiate free trade agreements with the Association of Southeast Asian Nations (ASEAN) which is comprised of ten countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam) as well as with the Pacific Alliance composed of 4 countries with which Canada has already concluded such agreements (Chile, Colombia, Mexico and Peru).
- As for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which entered into force on 30 December 2018 following the ratification of Canada, Australia, Japan, Mexico, New Zealand and Singapore and Vietnam, it should soon be ratified by the other signatory countries (Brunei, Chile, Malaysia and Peru). Following that, the challenge will be to integrate non-signatory countries that have applied to join, including Thailand, Indonesia, Colombia, South Korea and Taiwan, which would provide our companies with privileged access to vast markets.
- Although the European Union and the UK will do everything possible to avoid a no-deal Brexit on March 29th, 2019, governments and industry are preparing for it. A no-deal scenario would entail the imposition of various trade restrictions between the UK and the EU, as well as with other States such as Canada which already have a free trade agreement with the EU, of which the UK would no longer be a part. Aware of the negative consequences of such a situation, it is expected that Canada and the UK will make every effort to conclude rapidly a bilateral free trade agreement of their own especially in a no-deal Brexit.
- In the wake of the signature and ratification of various free trade agreements, a number of Canadian intellectual property laws and rules are expected to come into force this year, notably to implement a series of international conventions (Madrid Protocol, Singapore Treaty and Nice Agreement, Hague Agreement and Patent Law Treaty) which will facilitate the international registration of trademarks, industrial designs and patents and to ratify such conventions.
- The Canadian Parliament is expected to pass in 2019 a law adopting the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. The entry into force of this law should amend the double taxation agreements between Canada and other countries that would have notified the OECD of their intention to subject these tax treaties to this international instrument. It will have the effect of updating international tax rules by the application of minimum standards to prevent the misuse of tax treaties and to reduce the opportunities for tax evasion by multinational companies and to improve the settlement of disputes.
- With the elimination of the chapter on investment protection between Canada and the United States in the CUSMA, less time will be spent in 2019 on the negotiation of new agreements promoting and protecting investments. Instead, the settlement of various ongoing arbitration proceedings will take center stage, including the Bilcon case for which a decision is to be rendered to fix the amount of compensation Canada will need to pay Bilcon for refusing to authorize its industrial project in Nova Scotia, following a deemed discriminatory environmental assessment.
- Also noteworthy are ongoing discussions to modernize and simplify the Arbitration rules of the International Center for Settlement of Investment Disputes (ICSID) as well as those of the United Nations Commission on International Trade Law (UNCITRAL), and those initiated by the European Union to establish a permanent multilateral investment tribunal with an appeal mechanism and full-time and permanent arbitrators. Canada has played an important role but has not yet taken a stand on setting up a multilateral investment tribunal.
- Lastly, two important diplomatic conferences are planned for this year:
- one in mid-year 2019, under the auspices of the Hague Conference on Private International Law, to adopt a convention that will facilitate the recognition and enforcement of judgments in civil or commercial matters rendered by a court of a contracting State (State of origin) in another contracting State (Requested State); and
- one in November 2019, under the auspices of UNIDROIT, to adopt the Fourth Protocol to the Cape Town Convention on Matters Specific to Mining, Agricultural and Construction (MAC) Equipment. This MAC Protocol is intended to provide an international legal framework for the financing of mining, agriculture and construction equipment. It adds itself to the aeronautical, railway and space protocols.
- At its annual meeting in July 2019, the United Nations Commission on International Trade Law (UNCITRAL) is expected to adopt the following:
- Practical Guide to the UNCITRAL Model Law on Secured Transactions, destined to offer practical guidance for parties to secured transactions;
- Legislative provisions to facilitate international insolvency procedures involving groups of companies and thus enhance the existing articles of the UNCITRAL Model Law on Cross-Border Insolvency; and
- Review of the UNCITRAL Legislative Guide on Privately Financed Infrastructure Projects. This update is intended in particular to facilitate public-private partnerships.
In this context, our companies this year:
- will need to manage the risk posed by American protectionist measures and sanctions;
- will be able to take advantage of the new opportunities provided by the entry into force of the CPTPP and monitor the implementation of CUSMA and negotiations with Mercosur, ASEAN, the Pacific Alliance and the United Kingdom;
- will need to review their European business strategy given the impact of Brexit (including of a no-deal exit). For some businesses, the United Kingdom will no longer act as their gateway to Europe;
- will welcome the possibility of extending the territorial scope of their intellectual property rights at a lower cost;
- will be advised to act with caution in view of the gradual entry into force of standards designed to reduce the possibilities of tax evasion;
- may support negotiations on investment disputes, the recognition and enforcement of foreign judgments and the financing of mining, agricultural and construction equipment; and
- should take into account these developments in the drafting of their international contracts, particularly with regard to jurisdictional clauses, as well as with securities and public-private partnerships.
For more information on these developments and the potential impact they may have on your business, please contact Bernard Colas or one of our other CMKZ lawyers specializing in international trade law.