Should exporters be concerned about the Canada-EU Comprehensive Economic and Trade Agreement?

On April 7, 2024, Posted by , In En,International Analysis,

Available | Disponible : French Spanish

By Bernard Colas and André-Philippe Ouellet, Collaborator CMKZ

The news from across the pond may seem worrying for Canadian companies exporting to the European Union (EU), which currently benefit from the Comprehensive Economic and Trade Agreement (CETA) provisionally applied between Canada and the EU jointly with its member states. As a result, we want to warn Canada’s business community of the risk CETA ceases to apply, which CMKZ deems low.

French Senate

On Thursday, March 21, the French Senate voted against CETA’s ratification by France. The French National Assembly endorsed ratification of the treaty in 2019, but the agreement of both chambers (Senate and Parliament) is required for ratification to become effective.

Under Article 30.7 CETA, the treaty’s trade provisions have been provisionally applied since September 21, 2017, reducing tariffs to zero for 98% of covered goods.

The French Communist Party—which initiated the Senate vote—announced its intention to initiate a new National Assembly vote on CETA on May 30, 2024. Yet, should Canadian companies be concerned?

Provisionnal Application

CMKZ anticipates CETA will continue to apply provisionally, at least in the short to medium term. However, the risk of the Agreement ceasing to apply provisionally, or even falling through entirely, is not theoretical and should not be minimized.

In legal terms, the provisional application of the Agreement could end in two different ways:

  1. First, it is possible that the treaty’s provisional application could be terminated through EU law. Declaration 20 of the Council of the European Union provides that if ratification fails within a member state, and once such ratification has been duly notified, ‘provisional application must be and will be terminated’. However, this will have to be done ‘in accordance with EU procedures’, which some interpret as requiring a decision by the Council. Such a decision would normally require a qualified majority vote, i.e., 55% of member states (15 states), totalling at least 65% of the EU population, under Article 238 of the Treaty on the Functioning of the European Union.

It is highly unlikely that CETA’s provisional application will be terminated this way. However, if the Council keeps its word and notifies Canada as it has undertaken to do so, a risk still exists that it will terminate the Treaty’s provisional application. Nevertheless, such a risk is mitigated by the prospect of the application of Article 238 of the TFEU. Given that 16 EU member states already ratified CETA, it would be surprising if a qualified majority wished to end the provisional application.

  1. Second, under general international law, which CETA does not derogate from in this respect, states have interim obligations between the time an agreement is signed and its entry into force. If the parties so decide, these obligations may extend to the provisional application of a treaty before its entry into force, as is the case under Article 30.7 CETA, which also sets out the modalities for the agreement’s entry into force.

Under international law, a treaty’s provisional application ends for a state when it notifies its intention not to become a party to the treaty. In this instance, as all EU states are also parties to CETA, ratification by each of them is required for CETA to enter into force. A decision not to ratify an agreement bears legal consequences. Such a decision, duly notified to the other parties, would then probably trigger the application of article 30.7.c., with provisional application ending ‘on the first day of the second month following’ the notification.

While some in the legal community believe that only the EU can notify Canada of such an intention, we believe that it is not possible to rule out the possibility that a single EU state could defeat the treaty and its provisional application by notifying its intention not to become a party. If only the EU could terminate a provisional application despite another party’s refusal to ratify it, the provisions concerning its entry into force would lose their effectiveness. As such limitations on state sovereignty cannot be presumed, the will of the parties to that effect must be clear.

However, this scenario remains unlikely and could only occur if the French executive intended to bring down the Agreement, which does not appear to be the case.

European Governments

Apart from the legal aspects, the level of risk depends, above all, on the decisions taken by European governments. For instance, Cyprus’s Parliament rejected ratification of the Agreement, but its executive has not notified any other party to avoid giving legal effect to such a rejection. The same applies vis-à-vis the Irish Supreme Court, which ruled that Ireland could not ratify the Agreement, as such ratification would be unconstitutional under Irish law.

It remains possible that France will reject CETA at the end of May, considering President Macron does not have a majority in the National Assembly and a coalition of left- and right-wing parties oppose CETA.

Should the agreement be rejected, the French government will likely do the same as its Irish and Cypriot counterparts and omit to notify the other CETA parties, including the EU. However, this cannot be taken for granted in the current context of heightened political tensions in France. Indeed, CETA is denounced by certain political parties as an example of a denial of democracy. Accordingly, a refusal from the French executive to notify such a decision could further increase tensions and a growing anti-European sentiment in France. Alternatively, the French government could decide to solely notify the EU of its decision, probably triggering a vote in the Council, which should lead to the Agreement’s provisional application being maintained. However, this strategy could be double-edged, increasing mistrust vis-à-vis the EU in France.

In conclusion, although it is more likely that CETA will continue to apply, at least in the medium term, CMKZ recommends that Canadian companies operating abroad monitor the outcome of the May 2024 vote before the French National Assembly and the reaction of the French executive, given the risks, albeit small, that the EU, or France directly, notify Canada the end of the provisional application of the treaty or of their decision not to proceed with CETA’s ratification, i.e., to bury the Agreement. CETA’s provisional application could end within three months if such a scenario were to occur.

Through this blog post, we aimed to set the record straight, given that many texts and reports on this issue are alarmist, while others unduly ignore potential risks.

Athens, Auckland City, Barcelona, Belfast, Belgrade, Bolzano, Bordeaux, Boston, Brussels, Bucharest, Budapest, Buenos Aires, Chicago, Colorado, Copenhagen, D.F. Mexico, Dubai, Dublin, Frankfurt, Frederikshavn, Geneva, Hamburg, Helsinki, Herzliya Pituach, Hong Kong, Innsbruck, Istanbul, Izmir, Jounieh, Kiev, Kuala Lumpur, Lagos, Leeds, Leeuwarden, Lima, Limassol, Lisbon, Ljubljana, London, Los Angeles, Luxembourg, Lyon, Melbourne, Miami, Milan, Modena, Montreal, Moscow, Mumbai, München, New Delhi, New York, Nice, Nicosia, Oldenburg, Paphos, Paris, Phoenix, Prague, Richmond, Rome, Saint Paul, San Francisco, Santo Domingo, São Paulo, Seoul, Shanghai, Singapore, Sofia, St Petersburg, Stuttgart, Sydney, Tallinn, The Hague, Tokyo, Tucson, Vaduz, Valletta, Warsaw, Zurich