Case Study: CETA – Assessing the Climate Impact of Trade Policy and Agreements

Teersand-Ölraffinerie im norden Albertas, Canada

Introduction

In an era marked by rising geopolitical tensions and the urgent need to combat climate change, the intersection of trade and the environment has emerged as a critical focal point for researchers, policymakers and environmental advocates alike. The climate crisis has led to renewed interest in trade agreements in particular, as they can have significant impact on greenhouse gas emissions by increasing international trade of often emissions-intensive goods and services. The Comprehensive Economic and Trade Agreement (CETA) between the European Union (EU) and Canada is an example of this. On the other hand, however, trade agreements – when properly designed – could instead promote climate mitigation and adaptation on a global scale, as well as the decarbonisation of global supply chains.

CETA stands out as a notable example of a contemporary trade agreement with profound implications for climate change and the environment. CETA, which entered into provisional application on September 21, 2017, represents one of the broadest and most comprehensive trade deals in the world. The agreement not only seeks to reduce numerous trade barriers to energy-intensive goods but also impacts on various aspects of environmental governance, raising growing concerns about its impact on global warming.

The EU has a pivotal role in the transition towards greener trade in a net zero world. This is due to its importance as a trading power and its ambitious climate goals, as outlined in the European Green Deal. European institutions also influence the global discourse on the environmental effect of international trade agreements. At the beginning of CETA’s ratification process, for instance, the European Commission and the Council promoted the deal as one of “the most progressive trade agreements the EU has ever concluded”, which they said would include “some of the strongest commitments” on environmental protection and climate change.1https://www.consilium.europa.eu/media/50387/factsheet_eu_canada_2021-05.pdf
https://trade.ec.europa.eu/access-to-markets/en/country-assets/tradoc_156061.pdf
Yet, many experts, researchers and civil society groups were more critical of the environmental merits of the agreement, questioning in particular its impact on climate and biodiversity.2https://www.gouvernement.fr/rapport/9467-remise-du-rapport-de-la-commission-d-evaluation-de-l-impact-du-ceta;
https://www.foodwatch.org/fileadmin/foodwatch_international/campaigns/CETA/France_experts_Report_CETA_impact_on_environment_climate_health_2017_ENGLISH.pdf;
https://www.transportenvironment.org/discover/ceta-and-environment-gold-standard-planet-or-big-business
Given the widely differing views on the climate impact of the agreement and the ratification process still ongoing in the EU, CETA provides an excellent case study to investigate how trade agreements, particularly those involving partners with strong environmental commitments, actually influence climate outcomes.

This study therefore delves into the multifaceted relationship between the EU-Canada trade agreement and climate change. By examining CETA’s provisions and mechanisms, as well as actual trade flows between the EU and Canada, the analysis presented here seeks to shed light on the potential impacts of trade agreements on global warming. The study also provides a deeper understanding of the mechanisms included in such a trade agreement, and their potential effects on trade flows impacting the environment. In addition, the analysis aims to help stakeholders to identify the clauses that need to be amended in order for the agreement to actually contribute to net zero trade. It is therefore also meant as a tool to support policy makers in reshaping trade policy and advancing the EU’s climate objectives.

On the following pages, we will explore the trade flows before and after CETA’s implementation, the environment- and climate-related provisions, key components and institutions of the agreement, and the manifold challenges the agreement poses to greener trade. We will analyse the potential trade-offs between the market access commitments and the EU’s environmental objectives, and assess whether CETA aligns with the overarching objective of combatting global warming. Through this analysis, we hope to contribute to the ongoing debate on the role of trade in achieving a climate-neutral economy in a net-zero world.

Methodology

In today’s globalised world, trade agreements play a pivotal role in shaping economic relations between nations. Yet, these agreements are not static documents. They rather evolve and adapt over time, leading to significant impact on the economies, societies and eco-systems of the signatory countries. Evaluating and understanding this impact is crucial for policymakers, stakeholders, and the public alike. However, assessing the ex-post impact of a trade agreement requires a certain methodology which has to be adapted to the specific objectives of the evaluation.

The main objective of our study is to evaluate the climate impact of CETA since its provisional application in September 2017. In this respect, our approach is more focussed than other ex-post evaluations of trade agreements, particularly those conducted by the European Commission.3For an overview of the EU’s ex-post evaluations undertaken so far see: https://policy.trade.ec.europa.eu/analysis-and-assessment/ex-post-evaluations_en  The EU’s ex-post evaluations are one of four assessment tools used by the Commission during the lifecycle of a trade agreement (see Box 1).

Box 1
EU tools for the assessment of trade agreements4Adapted from: Thomas Dauphin/Mathilde Dupré: The European Commision’s Trade Sustainability Impact Assessments: A Critical Review, Veblen Institute/Greenpeace, Paris/Hamburg, May 2022: https://www.veblen-institute.org/The-European-Commission-s-Trade-Sustainability-Impact-Assessments-a-critical.html
Stage Instrument
Preparation Impact Assessment
Negotiations Sustainability Impact Assessment (SIA)
Signature/Conclusion Economic Assessment of the negotiated outcome
Implementation Ex-post evaluation

The Commission’s ex-post evaluations are evidence-based assessments of the extent to which an agreement has been effective in fulfilling its objectives. Commission services usually prepare the ex-post evaluations and may also draw on work outsourced to external service providers. The official ex-post evaluation of CETA is scheduled for 2024.

One of the most recent ex-post evaluations published by the Commission has been on the Deep and Comprehensive Free Trade Area (DCFTA) with Georgia, released in September 2023. The final report of the DCFTA evaluation reveals some of the limits of the EU approach. While assessing a rather broad set of issues, including economic, regulatory, business, labour and environmental effects, the climate outcome is not given significant attention. Out of 110 pages, only three deal with the climate impact of the agreement. This assessment is mainly based on the highly aggregated results of an econometric model covering only a limited set of energy-related Green House Gas (GHG) emissions.5Ex post evaluation of the Trade Agreement between the European Union and Georgia, September 2023. https://circabc.europa.eu/ui/group/09242a36-a438-40fd-a7af-fe32e36cbd0e/library/207a8045-ab42-43dc-a2e2-af0b4ae5b73c?p=1&n=10&sort=modified_DESC Accessed: 16.10.2023.

Another drawback of the Commission’s approach relates to the overarching objective of the trade agreement whose fulfillment is being assessed: the increase of bilateral trade. As the Commission bluntly states: “The Comprehensive and Economic Trade Agreement, or CETA, is a trade deal between the EU and Canada. It aims to boost trade and help generate growth and jobs.”6European Commission: CETA chapter by chapter: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/canada/eu-canada-agreement/ceta-chapter-chapter_en In contrast, the key research question of our ex-post assessment relates to the agreement’s contribution to the objective of a net-zero global economy, not to its boosting of bilateral trade. Concerningly, the EU approach to ex-post assessments is far too limited to gain proper insight into the climate impact of the implementation of a trade agreement such as CETA. A different approach, one that focuses squarely on the climate crisis, is necessary.

The methodology employed for our ex-post assessment of CETA’s implementation rests on four pillars:

  1. Analysis of the variations of trade in goods, with a focus on high-impact commodities (fossil fuels, raw materials, emissions-intensive industrial products, forest-risk commodities);
  2. Analysis of rules, institutions and decisions that govern the climate policies of the trade agreement;
  3. Analysis of the work of CETA committees and dialogues that have a strong climate impact;
  4. Estimates of the implications of CETA’s investment provisions regarding flows, stocks and investment protection.

The analysis in all four pillars of our methodology has been conducted using a specific climate lens.

The first pillar provides basic data charting the evolution of trade in goods between the EU and Canada since CETA’s implementation. The main objective of this pillar is to identify goods that have a strong climate impact, including those that were already duty-free when CETA entered into force. The reason for this approach is that a truly green trade agreement must include targeted measures that mitigate the risks of all emissions-intensive goods, regardless of specific tariff reductions or variations in trade flows. In addition, the analysis also includes an assessment of the rather modest role of so-called ‘green goods’ that are being promoted under CETA.

The second pillar takes a closer look at the rules, institutions and decisions governing the climate policies of CETA. It provides analyses of the CETA chapters on sustainable development and environment, the work programme of the Committee on Sustainable Development, the Domestic Advisory Groups and the Commission’s “Interpretative Declaration”, which is supposed to strengthen CETA’s rather weak climate provisions.

The third pillar consists of an analysis of committees and dialogues, established under CETA, whose decisions may influence the climate impact of the agreement. The committees and dialogues reflect CETA’s character as a “new generation” trade agreement – one which focuses not only on tariff reductions but also on the elimination of non-tariff measures such as technical standards or environmental regulations. Decisions on these kinds of measures, including amendments of the agreement itself, may be taken by committees, which are composed of EU and Canadian officials, and focus on areas such as goods, agriculture or sanitary and phytosanitary measures. These decisions may also be prepared in bilateral dialogues on issues like regulatory cooperation, raw materials or forest products. The ongoing work of committees and dialogues which we assess under this pillar is a key example of why CETA has been described as a “living agreement” which is constantly evolving.

Finally, the fourth pillar of our methodology examines CETA’s investment provisions, part of which –investment protection – will only be applied once the treaty has been ratified in all EU member states. However, liberalisation commitments that aim to stimulate bilateral investment flows and thereby increase investment stocks already came into force in September 2017. Our analysis thus provides data on EU-Canadian investment flows and stocks and an assessment of potential climate impacts of the Investor-State Dispute Settlement procedure due to be implemented after CETA’s final ratification.

Image of open-pit mining machinery

Bucket-Wheel Coal excavator at work. Photo: Albert Hyseni / Unsplash.com

Our four-pronged methodology provides a structured framework to assess the climate outcomes of CETA’s implementation. It takes account of the specific interplay of treaty rules, institutional mechanisms, government regulations and economic actors’ decisions on trade and investment flows between the EU and Canada.

Our methodology goes beyond traditional impact assessments, which are usually based on the presumed changes in trade flows due to the dismantling of tariffs and non-tariff measures. Unlike these assessments, we take the actual trade and investment relationship as a starting point to identify all harmful trade requiring special treatment to mitigate the climate impact of the respective trade agreement. This analysis is supplemented by an evaluation of the concrete decisions taken in the realm of the institutional mechanisms established under the agreement.

On this basis, it is possible to devise targeted mitigation measures that would improve production processes and phase-out trade in particularly harmful goods. Our methodology therefore seeks to empower policymakers, civil society, and the broader public by offering a practical tool to support the improvement of trade agreements that are already in force. We will further refine the methodology employed here and are aiming to apply it to other trade agreements in the future.

Trade in goods between the EU and Canada

The main purpose of this chapter is to provide some basic data on the evolution of trade in goods between the EU and Canada, with a particular focus on goods having a strong impact on sustainability and climate change. In this context, it is important to note that although CETA was provisionally applied since September 2017, this does not necessarily imply a causal link between the trade agreement and the variations of trade flows outlined.

The data presented here should rather be seen as part of a scoping exercise to identify goods with a significant climate impact, that would require special treatment in a truly green trade agreement. Such treatment should be applied regardless of the level of tariff reductions agreed or the specific variations in trade flows.

Another note concerns the approach of our scoping exercise. Official impact assessments usually attempt to measure and evaluate the presumed changes in trade flows due to tariff cuts. Yet, unlike these official assessments, we also consider products where CETA does not foresee new market access or tariff reduction commitments. This concerns, for example, commodities that were already largely duty-free in the EU before CETA, such as iron ore, coal, crude oil, soya, rapeseed as well as many timber products.

Trade in all of these commodities has serious implications for climate change, both in terms of production and consumption. Excluding them from an assessment of CETA’s climate impact would therefore provide a highly distorted picture of an agreement that has been presented as a major step forward for green and sustainable trade.

This in turn highlights the criteria that we believe should be used when assessing a progressive trade agreement. One of the key objectives of a truly sustainable trade accord should be to identify the most harmful products in the parties’ bilateral trade and to agree concrete measures that would eliminate the environmental risks they pose. These mitigation measures can take various forms, including improved production methods or the reduction and phasing-out of trade in especially harmful products. These measures may also be supplemented by commitments to provide technical and financial assistance, as well as technology and know-how transfer, as deemed necessary by the parties.

The above outlines why we consider the following criterion to be the most important one for our assessment: the extent to which CETA actually contributes to eliminating the burdens on the environment and the climate caused by EU-Canadian trade. In the subsequent sections we hope to answer this question by assembling and analysing basic data on the trade flows between the EU and Canada.

Evolution of trade in goods – the general picture

In the first two years since the provisional application of CETA, EU trade in goods with Canada has steadily increased. Yet in 2020, the impact of the COVID-19 pandemic caused a marked decline in bilateral trade. This slump, however, was followed by a strong recovery in the last two years. Over the entire period considered, the EU achieved a huge surplus in its trade with Canada (Figure 1).

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The composition of bilateral trade between the EU and Canada reveals a certain imbalance. While the EU’s exports are largely dominated by manufactured goods, such as machines, cars and chemicals, Canada’s exports to the EU have a significantly higher share of raw materials and energy. Overall, the share of the manufacturing industry in Canada’s export portfolio is significantly lower than in the EU’s (Figure 2).

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This rather broad overview of the composition of EU-Canada trade already provides some indications of which sectors require examination to assess CETA’s climate impact. In the case of the EU, it is obvious that the manufacturing sector and its GHG emissions require attention.

In the case of Canada, in addition to the raw materials and energy sectors, the manufacturing industry’s climate impact must also be considered. Finally, the food and agricultural sector should not be neglected in either case, even if it ranks somewhat lower in the sectoral breakdown of bilateral trade. This is because both partners are lagging behind in curbing their agricultural GHG emissions, especially in the livestock sector.

A compilation of the top 10 products exchanged between the EU and Canada in 2022 provides a more detailed overview. Products of the chemical (pharmaceuticals, compounds) and automobile industry (cars, motors) are among the most important items in the EU’s trade portfolio (Figure 3). For Canada, raw materials and fossil fuels such as iron ore, crude oil and coal represent some of the most traded commodities (Figure 4). The partner’s top 10 lists also reveal a sizeable two-way trade of fossil fuels. Canada supplies crude oil to Europe, but at the same time imports considerable quantities of refined oil (products such as gasoline) from the EU. Other important products in bilateral trade that are potentially harmful for the climate include aircrafts, fertilisers and oil seeds. As for the latter, Canada is an important supplier of rapeseed and soya beans to the EU.

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Iron ore imports from Canada

Canada is an important supplier of raw materials for the European iron and steel industry, one of the most energy and emissions-intensive branches of the manufacturing sector. Amongst others, the country exports sizeable amounts of iron ore, the indispensable component of iron and steel production.

But as iron ore is already subject to zero tariffs in the EU it has been largely ignored in assessments of the CETA agreement. This is a significant omission, given the serious environmental impacts associated with iron ore extraction – such as air and water pollution, biodiversity loss and land-use changes, causing carbon emissions and numerous negative impacts for local communities. In Canada, there are recurrent conflicts over iron ore production, as in the case of the Mary River Mine, co-owned by Luxembourg-based ArcelorMittal.7https://www.theguardian.com/environment/2022/nov/17/canada-arctic-mine-expansion-rejected-protest

Expressed in monetary terms, the volume of EU iron ore imports from Canada has increased considerably since the provisional application of CETA. In the last two years, the trade value more than doubled compared to the period preceding the agreement (Figure 5).

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Yet the picture is slightly different when the traded volumes are expressed in physical terms. Since 2017, the variation of iron ore imports from Canada was less pronounced, fluctuating at around 21 billion tonnes. Nevertheless, the volume of tonnes of iron ore exported from Canada each year since 2017 is still significantly higher than from 2010 to 2017. Comparing the evolution of the monetary and physical volumes traded indicates that price effects played a role. 

That world market prices did indeed influence the monetary values the EU imported from Canada highlights the spot prices for iron ore. As can be seen, the iron ore price saw a sharp increase between 2019 and 2021 and reduced again in 2022 (Figure 6). However, the higher volumes imported from Canada in physical terms may be an indication that CETA helped to cushion the blow from the price jump on the world market – a rather questionable outcome from an environmental perspective.

Given the increased level of imports and the overall environmental impact of iron ore along the supply chain – including its extraction, transportation and smelting in blast furnaces – it would have been desirable to see targeted mitigation measures addressing these negative impacts included in CETA. But unfortunately this has not happened.

Crude oil and hard coal imports from Canada

Another cause for concern is EU-Canadian trade in fossil fuels. Despite the urgent need to phase-out the production and use of fossil fuels, CETA does not contain any provisions in this regard. This, alarmingly, has allowed an almost unhindered growth of European crude oil imports from Canada, which saw a steep rise since CETA’s application. Importantly, the import surge is not merely a monetary phenomenon, but also a physical one. Crude oil imports have risen strongly both in value and volume, albeit to a lesser extent in 2019 and 2020, but with a big jump in 2022 (Figure 7).

The fact that the increase by value is still somewhat higher than that by volume suggests that oil prices also played a role. The evidence shows that the global average price for crude oil rose sharply in 2021 and 2022 (Figure 8).

Price effects influenced the evolution of coal imports into the EU as well. Whereas CETA’s implementation was followed by a marked increase of EU hard coal imports from Canada in value terms, still physical trade developed somewhat differently. While the first two years after the implementation also registered a significant increase in physical trade compared to the years preceding CETA, 2019 and 2020 saw a decrease, which in turn was followed by a renewed increase in the past two years (Figure 9).

The evolution of the world market price for Australian coal – a global benchmark – shows that the huge EU imports of Canadian coal expressed in monetary terms were indeed influenced by market developments (Figure 10). The 2022 price hike for coal on the world market also inflated the import price for Canadian coal.

Given the urgency of the climate crisis and the need to end the use of fossil fuels entirely, there is no denying that the level of coal trade between the EU and Canada remains a matter of concern, even if the increase in trade is not as pronounced as in the case of crude oil.

Assessments of the EU-Canada trade agreement should therefore put a strong focus on developments in the area of both crude oil and coal trade, regardless of the fact that EU import tariffs on these commodities were already set at zero before CETA. By doing so, impact assessments should also highlight one of CETA’s major weaknesses: the fact that it does not address, or indeed ignores, the need for a rapid phase-out of fossil fuel production,  trade and consumption.

Bilateral beef trade

In both the EU and Canada, agricultural methane emissions continue to be largely unregulated, despite the fact that methane is among the most potent greenhouse gases, believed to be responsible for one third of global GHG emissions. As methane is a natural byproduct of the digestive process of ruminants, also known as enteric fermentation, the livestock sector accounts for a significant share of total methane emissions.8https://globalnews.ca/news/8331729/cattle-beef-farming-methane-emissions; https://www.reuters.com/business/environment/eu-countries-seek-weaken-livestock-emission-limits-2023-03-16 Yet over the last decades, both partners largely failed to make any significant progress in reducing the GHG emissions of their agricultural and livestock sectors, with enteric fermentation accounting for almost half of EU and Canadian agricultural emissions (Figures 11 and 12).

Despite this failure, CETA does not include any concrete commitments tackling the livestock sector’s contribution to climate change. Quite the opposite in fact – the agreement aims to increase trade in beef, which is responsible for the largest share of agricultural methane emissions. The EU, e.g., grants Canadian exporters two duty-free tariff rate quotas for fresh and chilled, as well as frozen, beef.9https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/2020-11-12-beef-pork-exp-boeuf-porc.aspx?lang=eng Although these quotas have only been used minimally so far, EU import of beef from Canada has nevertheless risen sharply since CETA’s implementation (Figure 13).10Kutlina-Dimitrova, Zornitsa: CETA: Evolution of Key Economic Indicators, European Commission, Trade, Chief Economist Note, March 2023: https://circabc.europa.eu/rest/download/faff658b-3e97-4784-a869-3025888bdec4

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Canada also cut its import tariff on EU beef, from 26.5% to 0%, through CETA. This move bolstered EU beef exports to Canada – in particular frozen beef, which registered a big jump, especially since 2020. Before CETA, EU beef exports to Canada were largely non-existent (Figure 14).

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A recent EU Commission report celebrates this development, maintaining that ‘the EU is exporting more beef to Canada than vice versa with an impressive increase in European exports of frozen beef’.11Kutlina-Dimitrova, Zornitsa: CETA: Evolution of Key Economic Indicators, European Commission, Trade, Chief Economist Note, March 2023: https://circabc.europa.eu/rest/download/faff658b-3e97-4784-a869-3025888bdec4 But when the associated methane emissions are taken into account, the European success in increasing its beef exports appears to be a rather questionable achievement, undermining the EU’s goal of reducing its GHG emissions.

Rapeseed and soya bean imports from Canada

Closely linked to the livestock industry is the Euro-Canadian trade in oilseeds used for animal feed, especially soya beans and rapeseed. Given the EU’s sustained deficit of protein feed, soybeans, rapeseed and other protein-rich oilseeds have been tariff-free in the EU for many decades. Nevertheless, a truly progressive trade agreement would have included targeted provisions minimising the harmful environmental effects of soybean and rapeseed monocultures in Canada. Such commitments, however, are missing in the EU-Canada trade agreement. 

Since CETA’s provisional application in 2017, EU soybean imports from Canada saw only a modest increase, especially in value terms. EU rapeseed imports, however, grew considerably both in volume and value, particularly in 2020 where they reached nearly €1 billion (Figure 15).

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About 95 percent of the rapeseed and 60 percent of the soya plants grown in Canada are genetically modified (GM). These plants are engineered to withstand being sprayed with herbicides such as glyphosate, glufosinate, 2,4-D or dicamba.12https://cban.ca/gmos/products/on-the-market/canola/; https://cban.ca/gmos/products/on-the-market/soy/ In Canada, the use of herbicides has increased significantly over the last 15 years. 2017 was the year when the largest amount of herbicides were deployed so far: about 75,000 tonnes (Figure 16).

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The potential negative impacts of these GM crops and the herbicides used to grow them is very significant – including biodiversity loss, soil erosion, water pollution and numerous health threats. In 2015, the World Health Organization classified glyphosate, the most commonly used synthetic herbicide, as probably carcinogenic.13Gandhi, Kavita et al.: Exposure risk and environmental impacts of glyphosate: Highlights on the toxicity of herbicide co-formulants, Environmental Challenges, 4, 2021: https://www.sciencedirect.com/science/article/pii/S2667010021001281

Moreover, the production, transportation and application of herbicides results in significant GHG emissions. Additional emissions are caused by the herbicides released into the environment and their interaction with the soil and atmosphere.14Sharma, Asha et al.: Pesticides and Climate Change: A Vicious Cycle, Pesticide Action Network North America, Winter 2022-2023: https://www.panna.org/wp-content/uploads/2023/02/202308ClimateChangeEng.pdf Despite these issues, CETA does not include any concrete mitigation measures to tackle the risks of increasing rapeseed and soybean trade. Even worse, EU regulations setting maximum residue levels for pesticides in food imports are regularly questioned by Canadian officials, at meetings of CETA’s Sanitary and Phytosanitary Committee (see "Investment: Flows, Stocks and Protection").

Bilateral trade in forest products

CETA’s chapter on trade and environment contains a provision committing the parties to ‘encourage trade in forest products from sustainability managed forests’.15CETA, Article 24.10, Trade in forest products. But while the majority of Canada’s vast forests are indeed under different forms of management, this is not being done in a sustainable fashion. As a consequence, since 2001, Canada’s managed forests turned from being a carbon sink to instead becoming a huge source of carbon emissions, with industrial logging and wildfires among the most significant issues. Industrial logging in particular has released far more carbon dioxide than could have been absorbed by growing trees.16https://thebulletin.org/2023/08/managed-to-death-how-canada-turned-its-forests-into-a-carbon-bomb; https://www.cbc.ca/news/science/forestry-emissions-accounting-1.6227903

Despite these threats to the environmental integrity of Canada’s forests, CETA aims to increase EU-Canada timber trade. While the majority of forest products were already duty-free in the EU, CETA eliminated the remaining tariffs on Canada’s timber exports. The agreement cut tariffs, for instance, on fibreboard, plywood as well as maple wood, obtained from Canada’s iconic maple tree.17https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/business-entreprise/sectors-secteurs/FS-SF.aspx?lang=eng; https://www.cbc.ca/news/canada/calgary/canada-forests-carbon-sink-or-source-1.5011490

Before CETA, EU imports of forest products from Canada were on a descending path. Yet since its provisional application, there has been a turnaround. With the exception of 2019, European imports of Canadian cork and wood achieved higher levels than in 2017. In monetary terms, this upswing has been even more pronounced, with the import value in 2022 reaching levels last seen ten years ago (Figure 17).

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While Canada’s timber exports reversed their decline since CETA’s implementation, equivalent EU exports to Canada experienced an even sharper increase compared to the period preceding the agreement. The surge in exported quantities of cork and wood in fact began in 2016, but the increase measured in Euro was particularly pronounced in the last two years (Figure 18).

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The EU’s marked increase in timber exports to Canada occurs against the background of accelerated forest loss in Europe as well. Satellite data indicates that logging may have reached unsustainable levels in countries like Sweden and Finland. Increased harvesting due to growing demand is also weakening European forests’ capacity to absorb carbon dioxide, thereby undermining the EU’s ability to achieve its climate targets.18https://www.theguardian.com/environment/2020/jul/01/europe-losing-forest-to-harvesting-at-alarming-rate-data-suggests

Indeed, both partner’s forest land – i.e. the entire area of natural and managed forests – is suffering from a decrease in the ability to remove carbon dioxide, mainly due to high harvest rates. In Canada, this process already started 20 years ago (Figure 19).19https://thebulletin.org/2023/08/managed-to-death-how-canada-turned-its-forests-into-a-carbon-bomb In the EU, the carbon removal capacity of forest land has been constantly shrinking for the last 10 years (Figure 20).20European Environment Agency: Greenhouse gas emissions from land use, land use change and forestry in Europe – 8th EAP, 26 October 2022: https://www.eea.europa.eu/ims/greenhouse-gas-emissions-from-land

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Against this background, CETA’s removal of the remaining timber tariffs and the subsequent increas of transatlantic trade flows will likely put additional pressure on European and Canadian forests, weakening their absorptive capacities even further. Although this risk was well-known to EU and Canadian trade negotiators, the agreement does not provide for any safeguards protecting forests in their role as carbon sinks against growing international demand for timber. Even worse, minutes of the debates in the CETA committee on trade in goods and the bilateral dialogue on forest products reveal that even progressive measures such as the EU’s deforestation regulation are being challenged – Canadian officials repeatedly criticised the regulation for jeopardising Canadian wood exports to the EU (see "Investment: Flows, Stocks and Protection").

Euro-Canadian plastics trade

The European chemical industry is a huge contributor to climate change, as well as other environmental damage such as air and water pollution and species extinction. The petrochemical industry and its plastics production is among the subsectors placing the highest burden on the environment, with plastic waste polluting oceans only one of the most visible impacts. It is estimated that current fossil-based plastics, i.e. polymers derived from fossil fuels will claim 15 percent of humanity’s remaining carbon budget by 2050. Despite the clear risks posed by these polymers, plastics demand is expected to double by 2050.21Bachmann, Marvin et al: Towards circular plastics within planetary boundaries, Nature Sustainability, 6, 599-610 (2023), 6 March 2023: https://www.nature.com/articles/s41893-022-01054-9

As the world’s biggest exporter and importer of plastics, the EU bears great responsibility for this development.22Deer Birkbeck, Carolyne et al.: Trends in Trade Flows Across the Life Cycle of Plastics: Preliminary Review, TESS – Forum on Trade, Environment & the SDGs, Briefing Note, May 2023: https://tessforum.org/latest/trends-in-trade-flows-across-the-life-cycle-of-plastics-preliminary-review Yet CETA’s market access commitments are fuelling increased plastics demand by eliminating tariffs on chemicals and plastics products of up to 6.5 percent.23Government of Canada: Technical Summary of Final Negotiated Outcomes – Canada-European Union Comprehensive Economic and Trade Agreement: https://www.italaw.com/sites/default/files/archive/ceta-final-negotiated-outcomes.pdf

Since CETA’s provisional application, the value of EU plastics exports to Canada has risen substantially, especially in the last two years, generating a sizeable surplus for the EU. In contrast, Canada’s plastics exports saw a more modest increase, which nevertheless accelerated in 2022 (Figure 21).

However, it is important to note that the data in the Eurostat database covers only part of the plastics trade, limited to products under Chapter 39 of the Harmonized System (HS), the product classification administered by the World Customs Organization. Experts at the UN-Conference for Trade and Development (UNCTAD) therefore worked to develop a database capturing the breadth of plastics trade, including other chapters of the Harmonized System, and estimates of so-called hidden plastics flows. These hidden flows include, for instance, plastic products used for packaging (e.g. pre-packaged food) and the huge volume of plastics embedded in manufactured goods – from television sets to cars. The database also provides a breakdown of traded products along different stages of the plastics lifecycle.24Barrowclough, Diana: Global trade in plastics: insights from the first life-cycle trade database, UNCTAD Research Paper No. 53, December 2020: https://unctad.org/publication/global-trade-plastics-insights-first-life-cycle-trade-database

The EU’s growing plastics exports to Canada mainly consist of primary, intermediate and final products (Figure 22). A particular cause for concern is the significant share of primary plastics such as resin pellets and synthetic fibres. Most of the resin pellets are composed of microplastics, many of which are being released into the environment. These microplastics do not biodegrade, accumulate in animals and humans, and poison terrestrial and marine ecosystems as well as food and drinking water.25Cabrera, Jewel S.: Plastic pellet pollution can end through coordinated efforts, report shows, Mongabay, 21 December 2022: https://news.mongabay.com/2022/12/plastic-pellet-pollution-can-end-through-coordinated-efforts-report-shows In addition, plastics embedded in the EU’s final goods exported to Canada, such as cars and electronic goods, also pose environmental risks, as only a small fraction of these components are recycled.

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The EU is the world’s biggest exporter of some of the plastic products that are most damaging to the environment.26Deer Birkbeck, Carolyne et al.: Trends in Trade Flows Across the Life Cycle of Plastics: Preliminary Review, TESS – Forum on Trade, Environment & the SDGs, Briefing Note, May 2023: https://tessforum.org/latest/trends-in-trade-flows-across-the-life-cycle-of-plastics-preliminary-review This is reflected in the EU’s growing exports of plastic packaging to Canada, which saw a particularly strong increase from 2019 – 2021 (Figure 23). Most plastic packaging is single use and difficult to recycle because it is contaminated, combined with non-recyclable materials or contains toxic materials.27Barrowclough, Diana: Global trade in plastics: insights from the first life-cycle trade database, UNCTAD Research Paper No. 53, December 2020: https://unctad.org/publication/global-trade-plastics-insights-first-life-cycle-trade-database

Chart

Further environmental risks result from the EU’s growing export of synthetic fibres such as polyester and nylon, which are used to produce synthetic textiles (Figure 23). The production of these synthetic fibres requires large amounts of energy and is thus a huge contributor to climate change without the full decarbonisation of the energy system. Environmental damage also occurs when these fibres are washed, dried and ironed. These risks are compounded by microplastics being shed throughout the whole lifecycle of synthetic textiles – from the manufacturing of fibres, through their transportation and use, as well as their final disposal.28European Environment Agency: Plastic in textiles: towards a circular economy for synthetic textiles in Europe, Briefing, 28 January 2021: https://www.eea.europa.eu/themes/waste/resource-efficiency/plastic-in-textiles-towards-a

Despite the EU’s huge responsibility for global plastics pollution, CETA lacks any concrete commitments to mitigate the risks associated with the growth of plastics production and trade. The agreement even intensifies these risks by eliminating the remaining tariffs on several plastics products.

Putting trade of ‘green goods’ into perspective

In Article 24.9 of CETA’s trade and environment chapter, the parties commit to “facilitate and promote trade and investment in environmental goods and services”. Trade in environmental or ‘green goods’ has emerged as one of the key areas the Commission emphasise while trying to back up the green credentials of trade agreements such as CETA.

According to a Chief Economist note published by the Commission, bilateral trade in environmental goods between the EU and Canada increased from €4.7 billion to €5.6 billion in the four year periods before and after CETA’s provisional application.29Kutlina-Dimitrova, Zornitsa: CETA: Evolution of Key Economic Indicators, European Commission, DG Trade, Chief Economist Note, March 2023: https://circabc.europa.eu/rest/download/faff658b-3e97-4784-a869-3025888bdec4 However, during this entire period, the share of green goods in total bilateral trade did not surpass 10 percent (Figure 24). It is therefore very difficult to see how green goods could be able to offset the climate impact of the 90 percent of non-green, often highly emissions-intensive goods exchanged between the EU and Canada.

Chart

It should thus be clear that any serious environmental evaluation of trade agreements such as CETA must focus on the overwhelming share of non-green polluting products being liberalised or left unregulated. The public should not be tricked into believing that small shares of environmental goods being traded would turn largely harmful trade deals into green ones.

Moreover, the environmental benefits of many of the goods dubbed ‘environmentally friendly’ or ‘green’ are also contested. This problem is compounded by the fact that the Commission refers to a list of over 260 ‘green goods’ used during the negotiations of the WTO Environmental Goods Agreement (EGA), which collapsed in December 2016. This EGA list, however, is neither publically available nor officially accepted. It was only one of several competing lists that were circulated during the WTO negotiations.

One of the reasons why negotiators failed to agree on a common list of environmental goods was that many of the proposed items have a dual use. For instance, pipes, tubes and tanks may be used to transportfossil fuels as well as green hydrogen to supply hard-to-abate industry sectors with renewable energy.30Ecorys: Trade in Environmental Goods and Services, Final Report, Rotterdam, 3 March 2023: https://www.rijksoverheid.nl/documenten/rapporten/2023/03/03/ecorys-trade-in-environmental-goods-and-services-final-report To identify the truly environmentally friendly goods, negotiators would have needed a highly disaggregated classification which is internationally accepted. But unfortunately, such a classification does not yet exist. Instead, in order to assemble their respective lists, negotiators at the WTO used the Harmonized System (HS) classification, with HS codes at the six-digit level. Yet, to precisely single out true green goods, disaggregation up to the 8-digit or 10-digit level of HS codes would have been required.31Michael Gasiorek et al.: Recommendations on the UK Government’s Global Tariff Proposal, Briefing Paper 39, Technical Appendix, March 2020: http://blogs.sussex.ac.uk/uktpo/files/2020/03/Technical-Appendix_BP39.pdf

In addition, green goods may still result in sizeable GHG emissions, as their environmental benefits may occur only at particular stages of their lifecycle. While the use or application of certain green goods can contribute to climate mitigation, their production – including the required raw materials and intermediate products – may still be very emissions-intensive. This is particularly true for manufacturing processes for basic metals and machinery, which continue to be highly dependent on fossil fuels for their energy supply. As a consequence, increased trade of supposedly ‘green’ goods can still have a negative climate impact, as long as only individual stages of their lifecycle are being decarbonised.

It is also important to note that the EU has a huge surplus in its environmental goods trade with Canada (Figure 25). This once again raises the question of whether a truly green trade agreement should not also include targeted measures supporting the production of environmentally friendly goods. And this should certainly be a particular responsibility for the partner that has stronger capacity in the green goods market – the EU in the case of CETA. But beyond the commitment to liberalise environmental goods, CETA does not foresee any concrete measures to support their production.

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In a nutshell

The analysis of the variations in trade flows reveals that bilateral trade in numerous products harmful for the climate did indeed increase since CETA’s implementation. This is true for the most important mineral raw material exported from Canada to the EU – iron ore – as well as fossil fuels such as crude oil and hard coal. In addition to accelerating climate change, the production and consumption of these minerals and fuels causes numerous other environmental impacts – such as air and water pollution, biodiversity loss and land use changes.

The liberalisation of agricultural products adds to the negative climate impact of CETA. The quotas and tariff preferences offered for animal products such as dairy and beef pose particular risks, given that both partners largely failed to make any significant progress in reducing the GHG emissions of their livestock sectors, with methane the most harmful of the greenhous gases emitted. Since CETA’s implementation, both partners’ beef exports have risen sharply.

Closely linked to the livestock industry is the Euro-Canadian trade in oilseeds used for animal feed, especially soya beans and rapeseed. While EU soy bean imports from Canada saw a rather modest increase, EU rapeseed imports, however, grew considerably since CETA’s application. The large majority of rapeseed and soya plants grown in Canada are genetically modified to withstand being sprayed with herbicides. The use of these herbicides has increased substantially over the last 15 years causing biodiversity loss and significant GHG emissions.

Trade in forest products also saw an increase since CETA’s implementation. While EU wood imports from Canada reversed the decline they had experienced before the agreement, EU exports to Canada were even more pronounced. The bilateral increase in timber trade occurs against the background of accelerated forest loss in Canada and the EU as well. In both regions, forest land is suffering from a decrease in the ability to remove carbon dioxide, mainly due to high rates of industrial logging.

CETA’s market access commitments in the chemical industry are also fuelling demand for goods harmful for the environment. For instance, since CETA’s implementation, EU plastics exports to Canada have risen substantially, including particularly damaging products such as microplastics, plastic packaging and synthetic fibres. The production of these plastics requires large amounts of energy and is thus a huge contributor to climate change.

Another concern relates to the absence of targeted measures to mitigate the climate risks of trade in all these products. CETA does not link its trade preferences to concrete improvements in the production process of the sectors benefitting from the agreement. It also lacks concrete provisions to reduce or end trade in especially harmful products such as fossil fuels. Another glaring lacuna relates to technology transfer to facilitate the decarbonisation in the sectors which have been liberalised.

These failures cannot be compensated by the fact that trade in environmental goods saw a slight increase since CETA’s implementation, given that the share of ‘green’ goods in total bilateral trade never surpassed the threshold of 10 percent. It is therefore difficult to see how ‘green’ goods should be able to offset the climate impact of the 90 percent non-green and emissions-intensive goods exchanged between the EU and Canada.

All these weaknesses point to perhaps the most basic failure of EU trade policy in relation to the climate crisis – the ongoing prioritisation of liberalisation over transformation. But as our analysis of CETA’s implementation clearly shows, these priorities must be reversed. The transformation of the productive apparatus, the decarbonisation of goods traded internationally must take precedence over the dismantling of barriers to trade, in order to mitigate climate change. Only after the manufacturing of goods along their value chains has become climate-neutral, will it make sense to further liberalise markets for these particular products.

Committees and bilateral dialogues established under CETA

Trade agreements, standards, and climate protection are intricately linked, shaping and influencing one another in significant ways. Trade agreements often involve the harmonisation of standards. In the context of climate protection, this harmonisation can – in the best case – incorporate eco-friendly practices, promoting sustainability across borders. Additionally, trade agreements could facilitate the transfer of green technology, enhancing global capabilities to address climate challenges. Preferences for environmentally friendly products in trade agreements create market incentives for businesses to adopt climate-friendly practices. Moreover, trade agreements could also provide a platform for global coordination to combat climate change, fostering collaboration and a unified approach to environmental sustainability. Unfortunately in reality this is not the case (yet) in global trade policy.

The CETA is one of the “new generation” trade agreements. The focus of these new FTAs is not only/mostly on reducing tariffs, but on eliminating so-called non-tariff barriers to trade. These include the harmonisation of technical standards, but also regulations in areas such as consumer and environmental protection.

In addition, the agreement is seen as a “living agreement” that is constantly evolving. In this context, the so-called “Committees”, play a key role. Almost every chapter of the agreement is assigned to a specific committee. These specialised committees report to the overall “CETA Joint Committee”. The committees are composed of representatives of the parties, usually Canada and the Commission. They develop the trade agreement during its lifetime, and can even amend it and take important decisions, without the involvement of the European Parliament.

Box 4:
CETA Committees and Dialogues32More information on the CETA committees and dialogues are available on the website of the European Commission: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/canada/eu-canada-agreement/committees-and-dialogues_en Accessed: 05.10.2013.
  • CETA Joint Committee
  • Regulatory Cooperation Forum
  • Civil Society Forum
  • Bilateral Dialogues:
    • Raw Materials
    • Forest Products
    • Biotech Market Access Issues
    • Motor Vehicle Regulations
    • Electronic Commerce
    • Enhanced Cooperation on science, technology, research and innovation
  • CETA Specialised Committees:
    • Sanitary and Phytosanitary Measures
    • Trade in Goods
    • Geographical Indications
    • Agriculture
    • Financial Services
    • Wines and Spirits
    • Trade and Sustainable Development
    • Joint Sectoral Group on Pharmaceuticals
    • Joint Customs Cooperation
    • Government Procurement
    • Mutual Recognition of Professional Qualifications
    • Services and Investment

For example, the Sanitary and Phytosanitary (SPS) Committee33SPS Committee stands for “Joint Management Committee on Sanitary and Phytosanitary Measures” could amend the Annex on hygiene controls for meat to recognise the equivalence of a lower level and a higher level of hygiene control, as is the case in the gap in levels of protection that exist between Canada and Europe. Such a decision in the SPS Committee would have to be submitted to the European Council of Ministers for a decision.34Under the simplified procedure according to Art. 218 (9) of the Treaty of the Functioning of the European Union (TFEU) The Council could then adopt the proposal without the involvement of the European Parliament. This represents a serious democratic deficit. The European Parliament cannot reverse such a decision, despite being excluded from the process of it being made. Once product standards or procedures have been recognised as equivalent, this decision can only be changed through a lengthy procedure based on the agreement of both contracting parties.35Results of the legal opinion of Prof. Wolfgang Weiß, Universität Speyer: Gutachten zu den Regulierungsbefugnissen der CETA Vertragsgremien im Hinblick auf die Festlegung von Grenzwerten für Rückstände von Pflanzenschutzmitteln. Prepared on behalf of Foodwatch International in April 2020. In the case of hygiene controls for meat, such a change would potentially be dangerous for EU consumers. It would certainly increase the trade in beef, which in turn would increase pressure on the climate (see "Trade in goods between the EU and Canada").

Discussions related to climate are underway in various CETA committees. The Committee on Sustainable Development is of course involved, as outlined earlier. However, as well as that Committee’s ongoing work programme, agreements relevant to climate could be made in the Bilateral Dialogues on Raw Materials and Forest Products, the SPS, the Trade in Goods and Agriculture Committees, and the Regulatory Cooperation Forum. Therefore, examining the working approaches and probable outcomes of these committees is worthwhile.

Freezing, or even weakening, protection standards

The mutual recognition of standards and procedures as equivalent is an important measure in CETA (and in other modern trade agreements) for the approximation of technical standards, but also of consumer, climate and environmental protection rules. The purpose of approximation is to remove so-called non-tariff barriers to trade that exist because of different regulations among the parties to the agreement. The mutual recognition procedure can lead to the freezing of standards, but also to their deterioration. The latter occurs when the higher standard of one party is recognised as equivalent to a lower standard of the other party. As discussed above, the CETA Joint Committee can decide on the recognition of equivalence like this.36Further Reading: Foodwatch (Ed) CETA AN ATTACK ON HEALTH, THE ENVIRONMENT, CONSUMER PROTECTION AND DEMOCRACY The trade agreement disempowers the European Parliament and strengthens the influence of corporations. July 2022. https://www.foodwatch.org/fileadmin/-DE/Themen/CETA/CETA_Report_2022_ENGLISH_DIGITAL_06.pdf Accessed: 05.10.2023.

The special significance of such equivalence recognition lies in the international nature of the agreement. When standards of protection are recognised as equivalent under CETA, they become subject to international law. As an international treaty, CETA then determines what can still be regulated in European secondary law and national law with regard to imports from the country of the contracting party. This means that rules and regulations of the EU and its member states that contradict the CETA agreement are automatically in breach of international law. This could thus have serious consequences in a wide range of areas of daily life, directly affecting citizens, consumers, workers and businesses.

The decisions of the CETA committee could lead to the freezing of EU standards, which would affect the EU’s autonomy. This could happen, for example, if the EU wanted to raise its safety standards for pesticides or to introduce new regulation that could affect Canadian exports.37See https://www.veblen-institute.org/Neonicotinoid-pesticides-how-can-European-mirror-measures-be-made-more-1591.html, https://www.veblen-institute.org/Mirror-measures-key-tools-for-implementing-the-European-Green-Deal.html and https://www.veblen-institute.org/Globalisation-How-can-we-stop-the-import-of-food-produced-using-banned.html. Accessed: 31.10.2023. After mutual recognition of pesticide standards, it would no longer be possible for the EU to raise these standards unilaterally without a consultation process with Canada. The standard could no longer be unilaterally revoked, except in violation of international law.38Results of the legal opinion of Prof. Wolfgang Weiß, Universität Speyer: (Folge) Gutachten zu den Regulierungsbefugnissen der CETA Vertragsgremien im Hinblick auf gegenseitige Anerkennung für SPS und TBT relevanter Standards. Prepared on behalf of Foodwatch International, 03.07. 2020. https://www.foodwatch.org/fileadmin/-INT/free-trade-agreements/documents/CETA_report_2022/Prof_Dr_Wolfgang_Weiss_FolgeGutachten_zu_Vertragsgremien_und_ggs_Anerkennung_SPS_TBT.pdf

In an exchange of letters with the consumer protection organisation Foodwatch, the EU Commission was forced to admit that provisions from the SPS chapter, such as hygiene controls or pesticide agreements, are subject to state-to-state dispute settlement.39Foodwatch 2022. p. 30 This means that if a disagreement occurs during this consultation process, the CETA dispute settlement body could impose sanctions for unilaterally raising standards. This provision will make it much more difficult to raise European standards in the future if, for example, new scientific evidence emerges about the harmfulness of pesticides. So CETA will potentially freeze EU standards at their current level.

The extent to which the CETA agreement aims to prevent future strengthened protection standards is also illustrated by the Canadian government‘s plan to prevent EU member states from unilaterally setting their protection standards higher than those in the EU.

This is according to internal preparatory documents of the Canadian government, prepared for the debate in the CETA-SPS Committee:

The goal is for EU Member States to refrain from taking non-science based, unilateral measures, particularly measures inconsistent with scientific decisions made at the EU level.40Internal briefing notes from Canada for the CETA SPS committee, 26. and 27. March 2018. S. 178/S. 182. https://www.foodwatch.org/fileadmin/-NL/CETA-scans.pdf Accessed: 20.04.2020.

At first glance, “scientific decisions” sound positive. But this in fact refers to the “science-based” approach to risk assessment that is common in Canada, and actually means reversing the burden of proof.

In other words, in Canada a product is first approved for the market and it can only be withdrawn from the market if it has been scientifically proven that it is harmful.

The General Product Safety Directive (GPSD) of the EU ensures that only safe products are sold on the market. Under this Directive, “a product is safe if it meets all statutory safety requirements under European or national law”41See https://commission.europa.eu/business-economy-euro/product-safety-and-requirements/product-safety/consumer-product-safety_en Accessed: 31.10.2023. – the safety of a product must be proven before it is allowed on the market. Moreover the TFEU set a high standard for such a safety assessment (article 191): “Union policy on the environment shall aim at a high level of protection taking into account the diversity of situations in the various regions of the Union”, and it “shall be based on the precautionary principle.”42See https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:12016E191 Accessed: 31.10.2023. North American trade partners do not follow the precautionary principle,43“The precautionary principle is an approach to risk management, where, if it is possible that a given policy or action might cause harm to the public or the environment and if there is still no scientific agreement on the issue, the policy or action in question should not be carried out. However, the policy or action may be reviewed when more scientific information becomes available. The principle is set out in Article 191 of the Treaty on the Functioning of the European Union (TFEU).” See: https://eur-lex.europa.eu/EN/legal-content/glossary/precautionary-principle.html. Accessed: 31.10.2023. and often deliberately imply that is is not science-based, thus tactically creating a contradiction between a science-based and a precautionary approach, in order to undermine EU standards.

Lack of transparency

The European Commission does not live up to its promise of full transparency in European trade policy. The Commission does publish CETA committee documents on its website.44Website of the European Commission: https://policy.trade.ec.europa.eu/eu-trade-relationships-country-and-region/countries-and-regions/canada/eu-canada-agreement_en Accessed: 29.09.2023. However, with a few exceptions, there are no detailed minutes of the committee meetings published, despite the fact that one of the first decisions of the CETA Joint Committee was to adopt rules of procedure that clearly provide for detailed minutes and reports.45“Rules of Procedure, Rule 9” des Joint Cmt 2018: Rules of procedure of the CETA Joint Committee: https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/2018-10-rules-procedure-regles.aspx?lang=eng Accessed: 11.11.2021.

In response to a written question from Foodwatch looking for more information about this, the EU Commission provided only a very meagre reply, stating that the Joint Committee had decided to abolish the “minutes”.46From email correspondence with DG Trade on 20.11.2020: “As regards your question about the reporting practice, for reasons of transparency it was agreed that after the first meeting of the CETA Joint Committee only one single joint report per committee meeting would be produced and made public. This practice has been followed since then by both the EU and Canada.” https://www.foodwatch.org/fileadmin/-INT/free-trade-agreements/documents/CETA_report_2022/Email_DG_Trade_aus_Annex_1_-_correspondence_with_Europ.Comission.pdf Accessed: 05.08.2022. These detailed minutes, which outline the exact course of discussions, but above all record plans, decisions made and objectives agreed, are essential to enable civil society, researchers and analysts to follow the work of the committees. If it is not clear who is advocating which positions in the negotiations about the implementation of the agreement, CETA will remain a mysterious and opaque “black box”.

Lists of participants in the meetings are also not accessible. This is important in order to support civil society to track the extent to which industry representatives attended the various committee meetings as experts and brought their interests to bear. Presentations made at committee meetings and background documents distributed are also missing from the Commission’s website. As is information on decisions in preparation.

All of this information should be publicly available, and is necessary to ensure that civil society can critically and constructively monitor the implementation of the CETA agreement. It is also essential to enable a public debate to take place on the issues being negotiated. Transparency to support democratic debate and participation is being denied to citizens and Non Governmental Organisations (NGOs), including the members of the CETA civil society monitoring group, the Domestic Advisory Group (DAG).47Since the signing of the EU-Korea trade agreement in 2011, all trade and sustainable development (TSD) chapters have had civil society advisory groups to monitor the chapter’s commitments. So far, however, they have had little political impact. Detailed information and analysis can be found in a 2020 study by the Friedrich-Ebert-Stiftung: http://library.fes.de/pdf-files/iez/17135.pdf Accessed: 02.12.2021.

Even parliamentarians left out of the loop

Even elected representatives in the European Parliament are insufficiently informed about the implementation of CETA in the Committees – they have access to the same superficial information as the general public. In addition, theoretically they can request further documents. However, they are not allowed to share or circulate the content. As in the case of the highly controversial Transatlantic Trade and Investment Partnership (TTIP) between the EU and the USA (a trade agreement that was eventually abandoned, significantly due to public and civil society outcry), a reading room exists where MEPs can look at documents – however they cannot take documents from the room, or transcribe them. This approach makes democratic participation by legitimate representatives impossible. The very concept of such a restricted reading room undermines and contradicts the accountability and oversight function that MEPs are supposed to have.

The level of information and transparency available for parliamentarians from EU member states, some of whom have not yet voted on CETA, is even worse. In some countries, parliamentarians receive the same documents as their MEP colleagues; however in many countries, they have been given access to even less information.

Enabling the lowering of health and other standards – Examples

Industrial, intensive agriculture is an important driver of climate change and therefore the issues discussed in the CETA committees on SPS or agriculture can contribute to particularly emissions-intensive agriculture receiving trade advantages.

Example:
The Case of Hygiene Inspections

To return to the issue of hygiene inspections: it is clear that the production and trade of meat is highly damaging to the climate (see "Trade in goods between the EU and Canada"). Yet an increase in meat exports is a declared aim of the CETA agreement. These exports are to be boosted by more “flexibility” in the interpretation of various standards. This concerns, for example, the control of imported goods. Effective food hygiene controls are essential to protect consumer health. As far as sanitary controls on imports of agricultural products are concerned, the text of the CETA agreement so far stipulates that imports of live animals will be subject to 100% controls. However, the relevant SPS Committee can at any time recommend to the Joint Committee that it change the frequency of controls or recognise the equivalence of different standards.48CETA Annex 5-J, p. 116. http://data.consilium.europa.eu/doc/document/ST-10973-2016-ADD-3/de/pdf#page=59 Accessed: 20.01.2020. This means that control standards in fact could be lowered. In addition, the agreement states that import controls must be “no more trade restrictive than necessary”.49CETA Article 5.10 Import Checks and Fees. https://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/index_de.htm Accessed: 29.01.2020.

There is therefore a risk that the Committee’s decisions will jeopardise the EU‘s level of sanitary controls and thus the health protection of EU consumers. The possibility of a further reduction in the quality of controls under CETA is worrying. On the one hand, of course, because animal health is also important in terms of diseases that can be transmitted to humans. On the other hand, lower quality controls could lead to more meat being traded, which in turn would lead to increased pressure on the climate (see "Trade in goods between the EU and Canada").

Strict controls are also needed to prevent the import of meat produced with growth-promoting substances (e.g. growth hormones), which are banned in the EU but allowed in Canada. Canada has been trying for decades to persuade the EU to abandon its strict position on protecting consumers. As early as 1996, it brought a complaint before the WTO (as did the USA) against the EU‘s decision ban the import meat from livestock that have been treated with growth hormones.50Detailed information on the dispute is available at the WTO website: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds48_e.htm Accessed: 14.12.2023. So, the possibility of a change in the level of protection recognised in CETA is not just a theoretical risk, but a very real one.

Internal documents from the EU Commission in preparation for the 2020 meeting of the SPS Committee show that both parties are willing to exchange views on the revision of Annexes 5 C (Process of Recognition of Regional Conditions: Plant Pests) and 5 E (Section B: Phytosanitary Measures).51Working document from the European Commission ‘Sanitary and phytosanitary (SPS) market access to Canada – preparation of the third SPS Committee under CETA’ of 9 October 2020, reference Ares(2020)5411373. S. 4ff. The latter annex in particular could bring about some very dangerous changes as it deals with phytosanitary measures, including pesticides. The Commission wrote:

The EU is ready to engage with Canada on ideas to review these annexes in respect of the regulatory procedures to be followed to review annexes. The EU aims at an outcome whereby trade facilitating measures in the plant health area could be included in the annexes.52Working document from the European Commission ‘Sanitary and phytosanitary (SPS) market access to Canada – preparation of the third SPS Committee under CETA’ of 9 October 2020, reference Ares(2020)5411373. S. 4ff.

As we have outlined, this would mean an amendment to the CETA agreement after its actual ratification by the EU Parliament. On the other hand, the EU Commission is looking for “trade facilitating measures”. However, de facto trade facilitation often means less burdensome and costly standards to meet, and could therefore indicate a possible lowering of high safety standards.

There are also other annexes to the CETA agreement that are currently empty, but will be “filled in” by the committees. This will be done without any parliament being able to approve or reject them, or even to examine their provisions in detail before they are taking effect. There are at least four other annexes to CETA in addition to those mentioned previously.53The annexes are: Annex 5C PROCESS OF RECOGNITION OF REGIONAL CONDITIONS Animal diseases; Plant pests; Parts of ANNEX 5-D GUIDELINES TO DETERMINE, RECOGNISE AND MAINTAIN EQUIVALENCE Determination and Recognition of Equivalence; ANNEX 5-E RECOGNITION OF SANITARY AND PHYTOSANITARY MEASURES SECTION B Phytosanitary Measures; ANNEX 5-H PRINCIPLES AND GUIDELINES TO CONDUCT AN AUDIT OR VERIFICATION; ANNEX 5-J IMPORT CHECKS AND FEES SECTION B Fees. Website of the EU Commission: https://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/ Accessed: 13.11.2021.

Example:
The Case of Pesticides

As already described, a recurring debate in the CETA SPS Committee is about the maximum residue level of pesticides (MRLs). This describes the maximum amount of pesticide residue that is allowed to remain on food products when a pesticide is used according to label directions, that is not deemed a concern to human health. The EU’s MRLs are under constant fire from Canadian government representatives, and the Canadian agricultural lobby. They argue that MRLs in Europe are too stringent, leading to restrictions on the use of certain pesticides that are deemed safe in other parts of the world. This imposes a barrier to trade, according to them. The EU, on the other hand, refers to its commitment to the precautionary principle. However, there is also resistance to the strict legislation within the EU, and the Canadian criticism is grist to the mill of these critics.

The debate on MRLs again featured prominently in the report of the 2022 SPS Committee meeting.  Weakening them appears to be one of the Canadian government’s top priorities.54The report is not publibly available yet, but available to the authors. Discussions on MRLs and neonicotinoids on page 2 of the report. This is understandable, as the import of pesticides from Canada to the EU has been steadily increasing since the provisional application of CETA (see "Trade in goods between the EU and Canada" for data and impacts on the environment), and is an important line of trade for the powerful Canadian agricultural lobby. In addition to criticising the high threshold values for pesticides in general, Canadian government representatives are focusing in particular on the EU’s planned regulation of neonicotinoids, a group of highly effective and toxic insecticides. In Canada, they are used extensively in maize and soya cultivation. In the EU, they can only be used under emergency authorisation (although in January 2023 the European Court of Justice ruled that seeds may not be treated with neonicotinoids in the EU).55NTV: EuGH: EU-Verbot gegen Neonikotinoide bleibt bestehen. January 2023: https://www.n-tv.de/ticker/EuGH-EU-Verbot-gegen-Neonikotinoide-bleibt-bestehen-article23855311.html Accessed: 23.12.2023. The damage caused by the use of these toxic insecticides is significant, especially for pollinators such as bees and bumblebees. This is why the EU is trying to protect European consumers and pollinators with its planned regulation. However this planned regulation is being harshly criticised and questioned by Canada in the CETA SPS Committee. Canada is working together with some large European agricultural companies on this issue. Most recently, in December 2023, the German Bayer Group sought a softening of the MRLs and import tolerances for neonicotinoids from the European Food Safety Authority (EFSA).56Website of the EFSA: https://www.efsa.europa.eu/en/efsajournal/pub/8423 Accessed: 23.12.2023. It is clearly a concern that constant dripping wears away the stone.

Tractor spraying a field

Photo: James Baltz / Unsplash.com

Example:
The Case of Forest Protection under Fire

In fact, many of these committee meetings are used to torpedo climate protection measures. This was recently the case in the bilateral dialogue on forest products. Forest dieback, forest fires and deforestation are a major problem for climate protection and biodiversity worldwide. This is no different in Canada and Europe. There have been severe forest fires in Canada in recent years. In 2023 alone, an area of forest more than half the size of Germany burned (around 18.496.051 hectares, see figure 26).57Website of the Canadian Interagency Forest Fire Centre: https://www.ciffc.ca/ Accessed: 16.10.2023.

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Europe’s forests are also suffering. For this reason – and in light of the global forest crisis – the EU has developed a regulation on deforestation-free supply chains, which aims to combat deforestation more effectively and protect important carbon sinks for the climate.58More information on the proposed regulation on deforestation-free products is available on the website of the EU Commission: https://environment.ec.europa.eu/topics/forests/deforestation/regulation-deforestation-free-products_en Accessed: 20.11.2023. At the same time, however, trade in timber and timber products between the EU and Canada is increasing, as discussed in the section "Trade in goods between the EU and Canada". And now Canada sees its timber exports to Europe threatened by the proposed EU regulation. Canadian representatives therefore used the 2022 meeting of the Bilateral Dialogue on Forest Products to directly attack the proposed regulation:

The EU provided an update on its proposed Regulation on deforestation-free supply chains. In that context, Canada flagged its concerns with the EU’s proposed regulation noting that it had the potential to disrupt Canadian exports of forest products to the EU despite Canada’s low risk for deforestation.59Report of the meeting of the CETA Bilateral Dialogue on Forest Products, October 2022: https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/2022-10-20-forest-summary-forestiers-sommaire.aspx?lang=eng Accessed: 20.11.2023.

However, it is not only the planned regulation on deforestation-free supply chains that is a thorn in the side of the Canadian representatives. The EU’s planned reforms on renewable energy also came under fire at the meeting:

The EU provided an update on the Renewable Energy Directive II implementation status as well as on the proposed Amendment to the Renewable Energy Directive II. Canada flagged concerns with proposed amendments that could affect Canadian exports of woody biomass to the EU and asked the EU to consider its concerns as the amendment process moved forward.60Report of the meeting of the CETA Bilateral Dialogue on Forest Products, October 2022: https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/ceta-aecg/2022-10-20-forest-summary-forestiers-sommaire.aspx?lang=eng Accessed: 20.11.2023.

Thus it is clear that CETA, with its committee architecture, provides a platform and a process for attacking and, potentially, weakening unwelcome (climate) regulations. The Committee structure provides an opportunity to lobby against progressive legislation behind closed doors because, as already described, meetings are not open to the public and little information is made public.

Shaping policy: Privileged corporate influence and access

Corporate lobbyists often possess substantial financial resources and expertise in navigating and influencing the political landscape. This leads to an imbalance of power, where the financial interests of well-funded industries can disproportionately influence the content of laws. This can result in legislation that primarily benefits corporations rather than the broader public interest.

CETA provides an ideal conduit for obfuscation regarding influence and corporate lobbying, given its opaque committee structure and their predominantly covert operation. Lack of transparency can make it difficult to track the extent of corporate influence in the process of developing the CETA agreement further. It is generally large corporations that have the staff and resources to handle the administration involved in international trade.

Example:
The Case of Genetically Modified Organisms

CETA poses a potential threat to the rigorous regulations on genetically modified organisms (GMs) in the EU. The Canadian government is actively advocating for a global acceptance of contamination from unauthorized GMs. Furthermore, Canada has a history of challenging the European GM ban, filing a WTO complaint in 2003.61More information on the WTO website: https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds292_e.htm Accessed: 12.01.2024. Now, the Canadian government invited industry representatives from Canada and the EU to a meeting prior the meeting of the CETA Bilateral Dialogue on Biotech Market Access Issues in 2020. The government explicitly asked for input that it could then exclusively present to the EU Commission in the Committee:62Consumers’ rights organisation Foodwatchhas reported this in their report: “CETA – An attack on health, the environment, consumer protection and democracy”, Berlin, September 2022. S. 26. https://www.foodwatch.org/en/5-years-of-ceta-new-foodwatch-report-gives-insight-into-the-trojan-trade-agreement-between-eu-and-canada. Accessed: 12.10.2023.

In addition, we invite you to provide us with a description of any GM events for which you would like us to request a status update from the Commission. The GM events that we receive will be consolidated and a list will be provided to the EU in advance of the Dialogue. If there are GM events that are considered a priority, please identify these together with a rationale as to why they are a priority so that we can convey this to the European Commission. A description of the benefits to farmers/industry/crops would be most helpful.63An email from the Canadian government to Canadian industry representatives as part of the 12th annual CAN-EU Biotech Dialogue Industry Consultation, 23.09.2020. Page 238. https://www.foodwatch.org/fileadmin/-INT/free-trade-agreements/documents/CETA_report_2022/A-2020-00090_Interim_Release.pdf. Accessed: 24.08.2022.

And industry delivers! Using the feedback it received from corporations, the Canadian Government formulated subsequent crucial messages for the EU concerning the CETA Biotech Dialogue meeting in 2020:

We have heard that the EFSA process is getting slower, despite recent initiatives to improve efficiency. As the majority of the world becomes more experienced in biotechnology product assessments, we expect the process to take less time. As you know, we are concerned that these delays could impede trade between Canada and the EU.

On one hand, the Canadian government criticises the sluggish pace of GMO approvals by the European Food Safety Authority (EFSA). It also expresses its hope that these procedures will be expedited, or else it warns of potential trade restrictions.

At this time, Canadian industry has expressed an interest in bringing to your attention two specific traits: one that has now been in the EFSA risk assessment stage for 8 years – Corteva (formerly Pioneer) canola event DP73496 (EFSA-GMO-NL-2012-109), and a second more recent one – NuSeed DHA canola, NS-B50027-4 (EFSA-GMO-NL-2019-160)

Then the Canadian government directly raises the lobbying interests of Canadian industry, and demands:

We hope these applications of interest will be processes by EFSA expeditiously and in accordance with the regulatory timelines that have been established.6412th Canada-EU Biotech Market Access Issues Dialogue 21 October 2020: Internal Briefing Canada. S. 20. Download: https://www.foodwatch.org/fileadmin/-INT/free-trade-agreements/documents/CETA_report_2022/A-2020-00090_Interim_Release.pdf Accessed: 18.10.2023.

It is evident that the CETA committees convene privately and are infiltrated by the concerns of Canadian and European industry lobbies. These parties are given preferential treatment and opportunities to assert their interests in negotiations, while other stakeholders, including consumer advocates and even elected parliamentarians, are excluded from the discussions.

Dairy cows feeding

Photo: Scott Bauer / Wikimedia.org

Example:
The Case of Tar Sands

While the example above is of the GMO lobby, the fossil fuel industry will surely act very similarly. The power and efforts of the fossil fuel lobby to shape regulations is a significant and widely recognised influence on government policies and environmental regulations. Fossil fuel companies, including oil, natural gas and coal producers, have historically held considerable sway over the regulatory landscape due to their economic clout, political influence, and extensive lobbying efforts. The CETA committees are a welcome gateway for them to continue this corporate access and influence.

The power of the Canadian fossil fuel lobby was already evident during the CETA negotiations. During this period, the oil companies succeeded in significantly watering down the EU Fuel Quality Directive. The European Union Fuel Quality Directive (FQD) is a significant regulatory framework aimed at improving the quality of fuels used within the EU. Enacted in 2009, the FQD seeks to reduce the carbon intensity of transportation fuels, mitigate climate change and foster a more sustainable energy future. The directive addresses both conventional fossil fuels and alternative fuels, establishing stringent standards to promote cleaner and more efficient energy sources.65The text of the FQD is available on the website of the EU Commission: https://climate.ec.europa.eu/eu-action/transport/fuel-quality_en Accessed: 23.12.2023.

While this sounds positive, it has already been restricted in the legislative process. This relates to tar sands oils, which are extracted and exported from Canada on a large scale. Tar sands are the most carbon-intensive source of oil, with a much higher environmental impact than conventional crude oil. Research suggests that tar sands extraction and refining leads to 23% higher greenhouse gas emissions than average EU fossil fuels.66War on Want: CETA: The toxic EU-Canada trade deal. November 2016: https://waronwant.org/sites/default/files/CETA%20brief%2C%20newer%20Brexit%20version.pdf Accessed: 23.12.2023. And yet the large emissions of tar sands oil is not taken into account in the FQD.

The pressure from the Canadian Government and the Canadian fossil fuel lobby has probably also contributed to this. They used the CETA negotiations as a platform and bargaining chip to get the EU to water down its directive. In fact, the Canadian government itself invested around 27 million euros to publicly promote tar sands. This included – according to government documents – other outreach activities, including research to support Canadian lobbying against the EU Fuel Quality Directive.67Martin Lukacs In: The Guardian: Revealed: Canadian government spent millions on secret tar sands advocacy. August 2015. https://www.theguardian.com/environment/true-north/2015/aug/11/canadian-government-spent-millions-on-secret-tar-sands-advocacy Accessed: 23.12.2023.

Until today, Canadian oil producers benefit from the fact that the EU refrained from tightening the Fuel Quality Directive during the CETA negotiations. This would have effectively prevented the sale of tar sands oil in the EU.68Christelle Guilbert: EU opens door to Canada’s dirty oil. 11.05.2017: https://www.euractiv.com/section/ceta/news/eu-opens-door-to-canadas-dirty-oil/ Accessed: 23.12.2023. This was a very significant missed opportunity for climate protection and is an example of how the fossil fuel lobby is pushing through its interests via the CETA trade agreement.69Christelle Guilbert: EU opens door to Canada’s dirty oil. 11.05.2017: https://www.euractiv.com/section/ceta/news/eu-opens-door-to-canadas-dirty-oil/ Accessed: 23.12.2023.

Even more alarming is the fact that it will be very difficult for the EU to tighten the FQD in the future, and, if necessary, to include tar sands. When CETA (with its arbitration tribunals) is fully in force, Canadian companies could argue that it is “discrimination” if the EU subsequently differentiates between the calculation of the greenhouse gas intensity of fuels from conventional oils and those from unconventional oils such as tar sands, most of which come from Canada. As a result, a Canadian company could initiate an investment arbitration case and seek compensation (see “Investment: Flows, Stocks and Protection”). An expert report by the German Bundestag, which examined with this issue, reached the same concerning conclusion. It also pointed out that this so-called discrimination could be justified with reference to environmental protection goals.70Der Deutsche Bundestag, Unterabteilung Europa: Ausarbeitung: Auswirkungen des Comprehensive Economic and Trade Agreements (CETA) auf die Regelungen der EU-Kraftstoffqualitätsrichtlinie 2009/30/EG. 2016: https://www.bundestag.de/resource/blob/405394/68a781ac75465a66932367138b038749/PE-6-190-14-pdf.pdf Accessed: 23.12.2023. However, in view of past judgements, it is uncertain that an arbitration tribunal would find in favour of the EU’s right to take action to avert climate change in this way.

Aerial photo of tarsands oil refinery

Photo: Kris Krüg / Flickr.com

In a nutshell

This chapter of the report examines the complex relationship between trade agreements, standards, and climate protection in the CETA agreement.

The discussion explores the structure of CETA, which focuses on eliminating non-tariff barriers. The various committees play a pivotal role in its continuous evolution. The extensive rights of the committees and their impact on decision-making raise concerns about the democratic deficit. Committees can even amend the agreement without the involvement of the European Parliament.

The mutual recognition of standards could potentially freeze or weaken protection rules, and decisions by CETA committees, and could limit the EU’s ability to unilaterally raise standards. Furthermore, the lack of transparency in the CETA committees is worrying. Detailed minutes are not readily available, and key information on participants and decisions is absent.

The potential impact of CETA on EU standards, autonomy, and the precautionary principle in environmental and consumer protection is alarming. The Canadian government may even attempt to prevent EU member states from setting higher protection standards than those in the EU.

There are various examples of potential risks and challenges associated with CETA, including impacts on health and environmental standards in areas such as meat exports, pesticides, forest protection, GMOs, and fossil fuels:

CETA aims to boost meat exports, possibly compromising climate goals. Flexible interpretation of standards, especially in hygiene inspections, may lower control standards for imported goods, posing risks to animal and human health.

At the same time ongoing debates in the CETA SPS Committee focus on Maximum Residue Levels (MRLs) for pesticides. Canadian representatives argue that European MRLs are too stringent, impacting trade. Canada seeks to influence EU regulations on neonicotinoids, with potential environmental consequences.

The CETA bilateral dialogue on forest products is used to challenge EU regulations on deforestation-free supply chains. Canada expresses concerns about the EU’s proposed regulation, potentially disrupting Canadian exports of forest products.

CETA poses a threat to EU regulations on Genetically Modified Organisms (GMOs). The Canadian government actively advocates for acceptance of in the EU unauthorized GM contamination. Industry representatives are invited to provide input, shaping crucial messages for the CETA Biotech Dialogue.

The fossil fuel lobby, particularly in Canada, significantly influenced the EU Fuel Quality Directive during CETA negotiations. Tar sands oil, with a higher environmental impact, is not adequately accounted for in the directive. The lobbying efforts of the Canadian government and fossil fuel industry during CETA negotiations may hinder future efforts to tighten regulations for climate protection.

Investment: Flows, Stocks and Protection

CETA’s chapter 8 sets out measures to liberalise investment between the EU and Canada and to protect investments against government regulations that foreign investors might consider detrimental to their profits. The chapter’s sections on investment protection, however, only come into force once CETA’s ratification has been finalised in all EU member states, which is still not the case. In contrast, the sections liberalising investment flows between the EU and Canada have already been applied since CETA’s provisional application in September 2017.

The chapter 8 provisions remove several barriers to foreign direct investment (FDI), such as performance requirements linking authorisations to transfer of green technologies or eco-friendly production processes. The chapter’s main lacuna is that it does not contain any provisions committing the partners to cooperate on climate-related criteria for in- and outflows of bilateral FDI. Such a progressive form of environmental investment screening, controlling bilateral FDI flows based on their environmental and climate impacts, would be an important element of a truly green trade and investment agreement.71See, for instance: António Cardoso Marques/Rafaela Caetano: The impact of foreign direct investment on emission reduction targets: Evidence from high- and middle-income countries, Structural Change and Economic Dynamics, Vol. 55, 2020, S. 107-118: https://doi.org/10.1016/j.strueco.2020.08.005

The FDI flows between the EU and Canada have been fairly volatile in recent years. While 2018 saw a sizeable increase in bilateral investment flows, the following year, 2019, witnessed huge divestment, especially of Canadian FDI in the EU (Figure 27).

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These divestments also affected the stock of FDI accumulated on both sides of the Atlantic. After an increase in 2018, FDI stocks receded to levels seen in the years before CETA’s implementation (this can be seen particularly clearly for EU FDI in Canada, where Eurostat data is less patchy than for Canadian FDI in the EU) (Figure 28).

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FDI run through EU tax havens

A special feature of EU-Canadian investments is the great importance of the two largest EU tax havens, the Netherlands and Luxembourg. The large majority of EU investment in Canada, as well as Canadian investment in the EU, is channelled through the Netherlands or Luxembourg (Figure 29).

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Both EU countries offer transnational companies the opportunity to create special purpose entities (SPEs), enabling profit shifting from FDI recipient countries to SPEs in the Netherlands and Luxembourg, thereby lowering their tax burden. The important role of tax havens in EU-Canadian FDI is an indication of huge fiscal losses for Canada and EU member states alike.72Arjan Lejour: Good tax practices in the fight against tax avoidance – The signalling role of FDI data, European Parliament, DG for Internal Policies, November 2013: https://www.europarl.europa.eu/thinktank/de/document/IPOL_IDA(2023)754198 The corporate tax revenues currently lost by profit shifting could be used to finance the energy transition, for example – if CETA contained appropriate provisions to stop these forms of corporate tax avoidance.

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Figures 30 and 31 provide a closer look at the Canadian sectors receiving FDI from the two most important EU investor countries, the Netherlands and Luxembourg. As can be seen, the top sectors receiving investments from the two EU tax havens are the management of companies, the manufacturing industry, wholesale trade, mining/oil and gas as well as the finance sector. As the huge management sector probably invests significant sums through private equity firms and other vehicles, it is not possible to identify the various sectors covered under this broad heading that are ultimately receiving the European funds.A review of Canadian FDI in the EU showed that the top recipient of investment is Luxembourg, followed by the Netherlands. The main sectors receiving Canadian capital in these two countries are finance and management as well as mining/oil and gas (Figures 32 and 33).

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The key sectors receiving Canadian and European investment point to the particular climate risks of these bilateral capital flows. Investments in the energy-intensive manufacturing industry or the mining, oil and gas sectors pose eminent risks to achieving both partners’ climate goals. CETA’s lack of a screening mechanism targeting capital flows to sectors with strong climate impact should therefore be a particular concern for policymakers.

Equally concerning is the huge share of investments channelled through EU tax havens. These capital flows are diminishing the fiscal revenues desperately needed to support the energy transition. An overhaul of CETA should therefore also encompass targeted measures to eliminate the possibilities for profit shifting and tax avoidance offered by EU tax havens.

ICS will enable lawsuits against climate action

CETA has largely been applied provisionally since September 2017, with certain notable exceptions. This is mainly because a few of its provisions fall under so-called mixed competence and therefore cannot enter into force until the parliaments of all EU member states have ratified the agreement. The most well-known of these are the provisions on investment protection, namely corporate rights. In CETA, these are dealt with through the Investment Court System. This system enables corporations to sue states for billions of dollars in damages if policy decisions reduce their profits.

These corporate rights and the arbitration mechanism used to enforce them, called Investor-State Dispute Settlement (ISDS), have rightly gained notoriety in recent years. The CETA agreement features a modified version of the ISDS, called the Investment Court System (ICS). However, the reformed ICS remains as risky as its predecessor ISDS – many of the lawsuits that have been filed to date through the ISDS could still be brought forward under the revised ICS framework.73See Nelly Grotefendt, Alessa Hartmann; PowerShift, Forum Umwelt und Entwicklung (Ed) “Under Pressure: Mit Konzernklagen gegen Umweltschutz”. Berlin, January 2019. https://power-shift.de/wp-content/uploads/2019/01/Under-Pressure-Mit-Konzernklagen-gegen-Umweltschutz-web.pdf Accessed: 06.10.2023.

Box 5:
ISDS and ICS in comparison – old wine in new bottles74For more Information on ICS and ISDS see: Eberhardt, Pia, et al. “CETA-Trading away democracy (September 2016) How CETA’s investor protection rules could result in a boom of investor claims against Canada and the EU.” https://corporateeurope.org/sites/default/files/ceta-trading_away_democracy-2016en.pdf Accessed: 14.06.2021; and Bonnitcha, J., & Brewin, S. (November 2020). Compensation under investment treaties. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/compensation-treaties-best-practicies-en.pdf Accessed: 14.06.2021

table graphic

This ICS mechanism undermines the fair and equitable application of the rule of law. It hampers states’ ability to safeguard the environment, consumers‘ and workers‘ rights, curtails the power of elected parliaments, and redirects vast amounts of taxpayers’ money to corporations. CETA’s enshrinement and centering of corporate rights also impedes progress on climate action: for instance, significant investors may use the ICS mechanism to ensure ongoing operation of pipelines, liquefied natural gas (LNG) terminals or the extraction of fossil fuels and other raw materials, despite the evident public interest in phasing out fossil fuel use.

Such claims may impede policymaking and discourage decision-makers from pursuing public interest environmental and climate action that could lead to disputes under CETA.75Polonskaya, Frivolous Claims in the International Investment Regime: How CETA Expands the Range of Frivolous Claims that May be Curtailed in an Expedient Fashion, 17 Aper Rev. Int’l Bus. & Trade L. 1, 2017, S. 11; Tienhaara et al., aaO (Fn. 6), S. 703. As of October 2023, at least 246 ISDS cases have been taken that are linked to fossil fuels or mining, out of a total number of 1,257 known cases.76These figures are calculations from the UNCTAD Investment Dispute Settlement Navigator: https://investmentpolicy.unctad.org/investment-dispute-settlement Accessed: 11.10.2023. This means that at least one in five ISDS cases have occurred in environmentally sensitive sectors, often targeting attempts to regulate them with/through public policy. Furthermore, in their latest report the Intergovernmental Panel on Climate Change highlighted corporate rights of action as a hindrance to energy transition.77Weltklimabericht 2022, 6. Sachstandsbericht “Climate Change 2022/2023” Arbeitsgruppe 3, Kapitel 14, S. 1506.

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This problem is now widely recognised and attempts are being made at various levels to address it. Most recently, the Organisation for Economic Cooperation and Development (OECD) has launched a process to examine how to minimise the danger posed by ISDS to climate policy. One potential solution that has been discussed is an exemption of climate policies from ISDS, so that countries would not be prevented from implementing progressive climate policies.78Joshua Paine, Elizabeth Sheargold: A Climate Change Carve-Out for Investment Treaties In: Journal of International Economic Law, Volume 26, Issue 2, June 2023, Pages 285–304: https://academic.oup.com/jiel/article/26/2/285/7071568 Accessed: 16.11.2023. The idea is not new,79Prof. Gus van Harten already tabled this idea in 2015: Van Harten, Gus, An ISDS Carve-Out to Support Action on Climate Change (September 20, 2015). Osgoode Legal Studies Research Paper No. 38/2015, Available at SSRN: https://ssrn.com/abstract=2663504 Accessed: 16.11.2023. but the fact that the OECD is now embarking on official process shows the need to address this issue, and possibly the current political momentum in favour of such a change. CETA, on the other hand, undermines precisely such efforts with its agreements on investment protection.

Box 5:
Gabriel Resources versus Romania

Gabriel Resources, a Canadian mining company, is seeking compensation of 6.5 billion US dollars (6.2 billion euros)80Gabriel Resources asks USD 6.5 billion from Romania in gold mine project lawsuit: https://www.romania-insider.com/gabriel-resources-damages-lawsuit-romania Accessed: 06.10.2023. from the Romanian state due to its objection to a proposed gold mine in Transylvania’s Roşia Montană. This amount represents more than two percent of Romania’s gross domestic product in 2022.81https://de.statista.com/statistik/daten/studie/270712/umfrage/bruttoinlandsprodukt-bip-in-rumaenien Accessed: 06.10.2023.

The mine project, if realised, would become the largest open-pit gold mine in Europe. Enormous masses of rock would have to be extracted and refined to obtain gold. To do this, 12 to 15 million kilograms of cyanide – an extremely harmful chemical – would be applied and released into the environment. The usage of cyanide is a very contentious issue, as in case of accidents it can infiltrate drinking water and pollute it, with serious implications for the local community and wildlife.

In July 2015, Gabriel Resources, submitted an arbitration request against Romania to the ICSID (the World Bank’s International Centre for Settlement of Investment Disputes).82Henry Lazenby: Canada’s Gabriel Resources files international arbitration suit against Romania. In: Mining Weekly, 22.07.2015, http://www.miningweekly.com/print-version/canadas-gabriel-resources-files-international-arbitration-suit-against-romania-2015-07-22 The company is claiming damages under Romania’s bilateral investment treaty (BIT) with Canada and the United Kingdom. The complaint submitted by Gabriel Resources refers to the Fair and Equitable Treatment (FET) clause. Investors are generally afforded a wide-ranging interpretation of the term “fair and equitable”. Additionally, the company alleges that the provisions concerning “indirect expropriation” and “discrimination” have been breached.83Gabriel Resources: Press release: Gabriel files for international arbitration against Romania, 21. 07.2015, S. 3. In mid-September 2023, it was announced that the verdict would be reached within the next six months.84Gabriel Resources asks USD 6.5 billion from Romania in gold mine project lawsuit https://www.romania-insider.com/gabriel-resources-damages-lawsuit-romania Accessed: 06.10.2023.

The CETA agreement could lead to similar lawsuits, given that the Investment Court System (ICS) has failed to effectively mitigate the pertinent clauses on “fair and equitable treatment”, as well as (indirect) expropriation and discrimination, which Gabriel Resources cites in their lawsuit.

This concern is backed up by the legal actions of Christophe Bondy – the former chief investment negotiator for the Canadian government during the CETA negotiations, who is now working for the private sector (Ruby River Capital) and representing claimants suing his former government employer. In the ISDS case lodged by Ruby River Capital against Canada under the NAFTA agreement Bondy uses CETA-like terminology around Fair and Equitable Treatment to make the case against the environmental assessment that denied the company its permit for liquified natural gas export terminal. The company he represents is currently demanding 20 billion US dollars as compensation for the forward-looking climate policy adopted by the state of Quebec.85For more information on the case see: Scott Sinclair: Toxic Legacy: Énergie Saguenay, Climate Action and Investment Arbitration. An international LNG company’s record-breaking NAFTA lawsuit against Canada confirms the dire threat of investor-state dispute settlement to climate action. 2023.

Image of an open mine at Roşia Montană, Romania

An open mine at Roşia Montană, Romania. Photo: Cristian Bortes / Flickr.com

Potential for oil and gas litigation under CETA

Canadian corporations have made significant investments in oil and gas ventures in the European Union, giving them a vested interest in their continuation. There are currently twelve Canadian companies operating in the EU’s oil and gas industry, with eight already extracting oil and gas in 2021.86More information: Emma Jacoby, PowerShift e.V. (Ed) Investorenschutz und Konzernklagerechte trotz Klimakrise? CETA, ECT und Umwelt sind sich nicht grün. Berlin, September 2021. https://power-shift.de/wp-content/uploads/2021/09/Investorenschutz-und-Konzernklagerechte-trotz-Klimakrise-web.pdf Accessed: 06.10.2023. In most cases, substantial capital is invested before the extraction of any oil or gas. €4.2 billion was invested in developing the Corrib gas field in Ireland, primarily held by two Canadian investors – Canada Pension Plan (CPP) and Vermilion.87DeRochie, Patrick & Scott, Adam (05.10.2020). Canada Pension Plan fuels the climate crisis with our own retirement savings. Canada’s National Observer. In the event that CETA is ratified and the Irish government enforces more stringent climate regulations in the future, for example a production ban or restriction, CPP and Vermilion could pursue legal action against the government for compensation under CETA. Patrick Costello, a Green Party member of parliament, took a case to Ireland’s Supreme Court, arguing that ratifying CETA would require a referendum in order to authorise the amendment of Ireland‘s Constitution, which he argued CETA infringed. In November 2022 the Irish Supreme Court ruled in his favour, with a majority concluding that ratifying CETA would be a breach of the Irish Constitution, due to the investor-to-state-dispute settlement rights in the agreement. However, a further part of the judgement identified a potential way out of this dilemma through amending certain domestic laws, and it remains to be seen whether the Irish government will follow this path.88More information: Éamonn Conlon (Éamonn Conlon SC Arbitration & ADR): Supreme Court Blocks Ireland Ratifying CETA. January 30, 2023: https://arbitrationblog.kluwerarbitration.com/2023/01/30/supreme-court-blocks-ireland-ratifying-ceta Accessed: 14.12.2023.

In the past, Canadian companies have been brought 65 claims against foreign states.89According to UNCTAD dates as of 31 December 2022, see https://investmentpolicy.unctad.org/investment-dispute-settlement Accessed: 31.10.2023. Furthermore, the potential for litigation under CETA is not limited to Canada and the EU. In fact, prominent US-American businesses like Exxon Mobil Corporation, which have a presence in both Europe and Canada, could initiate ICS lawsuits under CETA.90Deutscher Bundestag (2016): US-Unternehmen in Kanada im Kontext des Freihandelsabkommens CETA: https://www.bundestag.de/resource/blob/434760/922d9466d6502e1a4e135406458cf470/WD-5-049-16-pdf-data.pdf Accessed: 24.05.2023; Vermilion Energy (2021): Our Operations, http://en.vermilionenergy.de/our-operations/overview-operations.cfm Accessed: 24.05.2023.

Effective climate policies in Europe would undoubtedly reduce the profits of oil and gas ventures, along with other climate-damaging corporate activities. If such measures for climate protection were put in place by European governments, they could potentially lead to ICS cases under CETA. Alternatively, governments might not implement measures for fear of the financial impact of ICS rulings against them, which would in turn have a profoundly negative effect on the climate.

Box 6:
CETA’s Interpretative Declaration – Climate commitments deleted

During autumn 2022, the CETA agreement was due to be ratified by the German Bundestag. The climate issue and concerns gained renewed attention during this process. The approval of the country’s Green Party MPs was necessary to achieve a majority vote. The Greens had previously declared their intention to reject the CETA agreement. In order to address their concerns, the European Commission created a so-called “Interpretative Declaration”, to explain contentious matters regarding investment protection standards and to fortify the fragile climate provisions of the agreement.91CETA Draft Interpretative Declaration as of September 2022: https://www.gerechter-welthandel.org/wp-content/uploads/2022/09/20220905_Draft-Decision-and-Declarations_CETA.pdf Accessed: 18.10.2023. The Greens made their approval contingent on this text, leading to the ratification of the CETA agreement by the Bundestag in December 2022.

However, the Commission needed to clarify the interpretative declaration with the remaining EU member states and its contracting partner, Canada. The clarification process was completed during 2023, without the involvement of the parliamentarians. Subsequently, the final leaked text revealed that almost all references to more binding agreements on climate protection had been deleted.92ETA Interpretative Declaration as of July 2023: https://power-shift.de/wp-content/uploads/2023/09/LEAK-PowerShift-Zusatzerklaerung-CETA.pdf Accessed: 18.10.2023. It appears that Canada played a key role in this weakening of the declaration, as stated in leaked cable reports from the Commission to member states.93Bericht der Sitzung des Handelspolitischen Ausschusses (Dienstleistungen und Investitionen) am 19. Juli 2023, p. 9. This once again shows the lack of interest of the parties to the agreement in making more significant commitments towards climate protection through trade. The text has been approved by the member states in the council and adopted as a decision by the Joint Committee in February 2024.

EU’s inconsistency – time to end exclusive corporate rights!

These corporate rights seem outdated in the context of CETA. After all, both the EU and Canada possess their own national, domestic courts that international corporations can utilise at any time, similar to domestic investors who are not granted the exclusive ICS route.Furthermore, Canada has re-negotiated a fresh rendition of the trade agreement linking all three North American nations (US, Mexico and Canada - USMCA), previously known as NAFTA. This new agreement no longer includes ISDS, at least between Canada and the US. The then Canadian Trade Minister, Chrystia Freeland, explained the reasons for this exclusion during a 2018 press conference:94Prime Minister Trudeau and Minister Freeland deliver remarks on the USMCA: https://www.youtube.com/watch?v=UROrmufEVD4, Minute 15:39 to 16:16. Accessed: 19.10.2023.

It [ISDS] has cost Canadian taxpayers more than $300 million in penalties and legal fees. ISDS elevates the rights of corporations over those of sovereign governments. In removing it, we have strengthened our government’s right to regulate in the public interest, to protect public health and the environment.
– Chrystia Freeland, Canadian Trade Minister (2018)

The Energy Charter Treaty (ECT), established in 1994, promotes and protects international investments in the energy sector. In the past the ECT has faced criticism for potential impacts on national sovereignty due to the high number of ISDS claims based on the ECT. In 2022, Germany, along with several other European states, withdrew from the Energy Charter Treaty. The European Union as a whole is also preparing to do the same.95Notification of withdrawal on 19 December 2022: https://www.energycharter.org/who-we-are/members-observers/countries/germany More information on the Energy Charter Treaty: Fabian Flues, Pia Eberhardt, and Cecilia Olivet (March 2020). Mythen rund um den Energiecharta-Vertrag entkräften Ein Leitfaden für Medien, Politik und Zivilgesellschaft. PowerShift, Corporate Europe Observatory (CEO), Transnational Institute (TNI), Berlin, Brüssel, Amsterdam. https://power-shift.de/wp-content/uploads/2022/02/Mythen-rund-um-den-ECT-entkraeften-web.pdf Accessed: 06.10.2023. Yet this highlights a deep inconsistency in the EU’s approach to investor rights. The EU is acknowledging that investment protection provisions/investor rights put climate protection at risk, and withdrawing from the harmful and much-criticised ECT, while simultaneously ratifying another agreement that includes the very same rights. This is both inconsistent and dangerous.

The presence of ICS in CETA fundamentally contradicts claims that the treaty supports positive action on climate change. The ICS is a relic of the era before the world became aware of the need to avoid climate chaos. It is far too dangerous to be implemented.

In a nutshell

CETA’s investment chapter is a risk to the energy transition.96https://power-shift.de/pm-juristisches-gutachten-zeigt-ceta-bedroht-die-energiewende-trotz-nachbesserungen
– Alessandra Arcuri, University of Rotterdam

The ICS, a modified version of the Investor-State Dispute Settlement (ISDS) in the CETA agreement, allows corporations to sue states for damages if policy decisions impact their profits. Despite the introduction of the ICS, it remains risky, as many issues present in ISDS could still arise.

The Investor-State Dispute Settlement (ISDS) mechanism provides investors with vaguely formulated rights without binding obligations, while offering limited protection for public interest and restricted access to arbitration for affected parties. Additionally, the mechanism allows for potentially high compensation amounts, which can redirect taxpayers’ money to corporations. This undermines the rule of law and hampers states’ abilities to protect the environment and public interests. The ICS has a negative impact on climate action, as corporations could use it to challenge policies that favour environmental protection.Furthermore, CETA has the potential to lead to oil and gas litigation involving Canadian companies investing in the EU. These companies may sue governments for compensation if strict climate regulations affect their ventures.

The Interpretative Declaration of CETA, which aims to address concerns and strengthen climate provisions, does not sufficiently do so.

Additionally, there is an inconsistency in the EU’s approach to investor rights, as they withdrew from the Energy Charter Treaty but ratified CETA, which includes similar rights. The inclusion of ICS in CETA is contradictory to positive action on climate change.

Recommendations

In the context of heightened global tensions and the imperative to address climate change, the nexus between trade and the climate has become a crucial focus for researchers, policymakers and environmental advocates. Trade agreements, such as CETA, are under scrutiny due to their potential impact on greenhouse gas emissions and environmental governance. The EU, a major trading power whose ambitious climate goals are outlined in the European Green Deal, holds a key role and significant potential to shape greener trade practices globally. The EU initially promoted CETA as a progressive agreement with strong commitments to environmental protection and climate change. However, critics – including experts, researchers, and civil society groups – have raised many concerns about its environmental impact, particularly on climate.

These concerns have been significantly substantiated in this study. Our detailed analysis tracks trade patterns before and after the provisional application of CETA in 2017 and the work of the committees established under the agreement. Our main outcome is that CETA does not appear to be a climate-friendly agreement. Since its application, trade in climate-damaging goods between the EU and Canada has increased and the agreement does not provide any binding provisions mitigating its impact on global warming.

We make the following recommendations for a revision of CETA

  1. Include strong provisions on climate protection:
    Provisions on climate mitigation and adaptation must be included in all chapters of the agreement. CETA must be subordinate to climate goals and international obligations to achieve net zero emissions.
  2. Restrict or end trade in harmful products:
    Trade in climate-damaging goods such as oil, coal, timber, meat and plastics must be reduced or phased-out entirely. CETA should contain clear rules for limiting or banning trade in harmful goods. It should also include binding mitigation measures supporting the decarbonisation of production methods, supplemented by commitments to provide technology transfer and financial assistance.
  3. Disempower undemocratic committees:
    The power of CETA committees to change parts of the agreement after ratification has to be restricted. These committees must be committed to transparent processes to curb the influence of corporate lobbyists obstructing climate measures. Meeting minutes, correspondence and other documents have to be accessible for the general public. Elected representatives must be given the opportunity to actively participate and to vote on proposed changes to the agreement.
  4. Include environmental investment screening and reject Investor-State
    Dispute Settlement:

    CETA needs an environmental investment screening mechanism to control bilateral investment flows based on their climate impact. Such a mechanism should be included because the emissions-intensive manufacturing industry and the mining, oil and gas industry are among the top sectors receiving bilateral investments in the EU and Canada. In addition, the Investment Court System – a revamped Investor-State-Dispute Settlement mechanism – must be removed from CETA. These corporate rights to sue states unduly raise the cost of strong climate legislation – or may even prevent the adoption of respective laws and regulations – due to the threat of excessive compensation payments.

The ongoing ratification process of CETA within the EU presents an opportunity to assess how trade agreements, especially those involving environmentally committed partners, truly influence climate outcomes. In this respect, our evaluation demonstrates that CETA shows hardly any sign of having a positive influence on essential climate outcomes – despite rhetoric to the contrary.

At the same time, there is still an opportunity for political intervention, as CETA’s ratification has not yet been completed in many European countries and the agreement is therefore not yet fully in force (see figure 35).

Our recommendation in this regard: As long as trade agreements do not support and help deliver ambitious climate targets, they should not be ratified.

Map of EU countries showing CETA ratification

Endnotes

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