Analysis of the possible effects of the CETA free trade agreement on the environment, human and animal health and democratic decision-making

Analysis of the possible effects of the CETA free trade agreement on the environment, human and animal health and democratic decision-making 2016:1

The National Board of Trade is a Swedish government agency responsible for issues relating to foreign trade, the EU Internal Market and to trade policy. Our mission is to promote open and free trade with transparent rules. The basis for this task, given to us by the Government, is that a smoothly functioning international trade and a further liberalised trade policy are in the interest of Sweden. To this end we strive for an efficient Internal Market, a liberalised common trade policy in the EU and an open and strong multilateral trading system, especially within the World Trade Organization (WTO). As the expert agency in trade and trade policy, the Board provides the Government with analyses and background material, related to ongoing international trade negotiations as well as more structural or long-term analyses of trade related issues. As part of our mission, we also publish material intended to increase awareness of the role of international trade in a well functioning economy and for economic development. Publications issued by the National Board of Trade only reflects the views of the Board. The National Board of Trade also provides service to companies, for instance through our SOLVIT Centre which assists companies as well as people encountering trade barriers on the Internal Market. The Board also hosts The Swedish Trade Procedures Council, SWEPRO. In addition, as an expert agency in trade policy issues, the National Board of Trade provides assistance to developing countries, through trade-related development cooperation. The Board also hosts Open Trade Gate Sweden, a one-stop information centre assisting exporters from developing countries with information on rules and requirements in Sweden and the EU. www.kommers.se National Board of Trade Sweden, November 2016 ii

1(30) Content 1 Summary... 2 2 The assignment... 3 3 Delimitation and method... 3 4 Background to CETA... 4 5 Analysis of the possible effects on the environment, human and animal health and democratic decision-making... 5 5.1 Explanatory memorandum and preamble to the agreement... 5 5.2 Reduction and elimination of customs duties on imports... 5 5.3 Technical barriers to trade (Chapter 4)... 8 5.4 Sanitary and phytosanitary measures (Chapter 5)... 9 5.5 Investment (Chapter 8)... 15 5.6 Services (Chapter 9)... 19 5.7 Regulatory cooperation (Chapter 21)... 25 5.8 Animal welfare (Chapter 21.4)... 27 5.9 Trade and sustainable development (Chapter 22), Trade and labour (Chapter 23) and Trade and environment (Chapter 24)... 28

2(30) 1 Summary The Government has assigned the National Board of Trade to analyse the possible effects of the CETA agreement on the environment, human and animal health and democratic decision-making. The Board has focused in particular on issues relating to future regulatory space and states right to regulate, and has conducted a review of the chapters in the agreement that are considered to affect these aspects. The Board collaborated with several expert authorities. The Board s overall assessment is that CETA protects the future regulatory space of the parties. It is considered that the agreement will in the long run provide certain positive effects on the environment and health, while we cannot foresee a significant risk of negative effects on these or on democratic decision-making. The Board s assessment is that the chapter on investment in CETA does not limit Sweden s right to regulate to any significant extent. The protection given to investors is already largely provided by Swedish law and the European Convention. In so far as Sweden s right to regulate is restricted, this is because the Lisbon Treaty moved significant powers regarding investment agreements from the Member States to the EU itself. The Board also believes that, given the similarity of protection afforded by both Swedish law and CETA, the risk of some form of chilling effect on EU legislative work is at most marginal. Regulatory cooperation in the Regulatory Cooperation Forum will neither change existing nor develop new legislation. Cooperation in areas such as the environment and health is already in progress today and should be seen as a resource to achieve better regulations at the national, regional and global level. The Board sees no risk of compromising current or future rules or standards within the EU or Sweden aimed at safeguarding the environment or human or animal health. As stated in the agreement, the purpose of CETA, to promote trade and investment, shall not reduce the protection level of environmental legislation. Every country has the right to maintain its own levels of protection and does not need to automatically approve a product that has been approved in the other market. The increased dialogue, e.g. information exchange on scientific matters, knowledge, methods and risk assessments, could help to provide strong protection for health and the environment. The Board believes that the chapter on services has little impact on the environment, health and democratic decision-making. In CETA, Sweden has merely bound commitments that are already existing law. Sweden has also retained regulatory space by refraining from commitments in certain sectors,

3(30) such as all services within public healthcare and education, and through optouts for public utilities which exclude public monopolies and exclusive rights. Privately-financed education and healthcare services are the only areas where Sweden commits for the first time, and which could lead to a greater influx of Canadian providers of these services in the longer term. In the area of animal welfare, CETA will formalise existing cooperation, which is seen as positive. The EU s new tariff rate quotas for beef in CETA will probably have no direct impact on Swedish beef production and the management of semi-natural pastures in Sweden. On the other hand, they could help to increase interest in Canada in producing beef without growth hormones. 2 The assignment The Government assigned The National Board of Trade to analyse the possible effects of CETA (the Comprehensive Economic and Trade Agreement) on the environment, human and animal health and democratic decision-making 1. According to the terms of reference for the assignment, the analysis could be carried out in collaboration with other expert authorities. The analysis should be submitted to the Government Offices of Sweden no later than 12 August 2016. 3 Delimitation and method Given the short period for referral back to expert authorities for consideration, we have limited ourselves to an overall analysis of the possible effects of the CETA agreement on the environment, human and animal health and democratic decision-making The terms of reference for the assignment mention that a number of independent analyses have expressed concern that the agreement does not adequately safeguard future regulatory powers and States right to regulate. We have therefore focussed especially on these questions. Section 5 of this analysis contains a review of selected parts of CETA: Article 2.4 (Reduction and elimination of customs duties on imports), Chapter 4 (Technical barriers to trade), Chapter 5 (Sanitary and phytosanitary measures), Chapter 8 (Investment), Chapter 9 (Services), Chapter 21 (Regulatory cooperation), Article 21.4 (Animal welfare), Chapter 22 (Sustainable development), Chapter 23 (Trade and labour) and Chapter 24 (Trade and environment). These chapters were considered to be the most relevant to the assignment. The different parts of the analysis differ in format and scope because of the short response time for the assignment. The Board has referred back to the 1 Assignment to the National Board of Trade Sweden to carry out an impact analysis of the free trade agreement between the EU and Canada (CETA), UD2016/11892/AME, received on 14.07.2016.

4(30) expert authorities for consideration and has gathered opinions which due to the short period of respond must be regarded as indicative and comprehensive. 2 The Board and the expert authorities find that, in order to make a complete analysis of the impact of the agreement, a more in-depth analysis of several parts of the agreement in consultation with the specialised authorities is needed, and also that the agreement have been in force for a certain time. The Commission s impact analysis (SIA) from 2011 3, Canada s environmental impact analysis from 2012 4, literature reviews and the Board s earlier statements 5 formed part of the basis for the analysis. 4 Background to CETA The Comprehensive Economic and Trade Agreement (CETA) is one of the biggest agreements ever negotiated by the EU and is part of the new generation of free trade agreements. Free trade agreements have traditionally dealt mainly with reductions in customs duties and other preferential measures for the parties. Since the early 2000s, however, a new generation of more ambitious free trade agreements has started to take shape; these are broader and affect more areas of trade policy than just reduced customs duties and the trade in goods. In CETA, the EU and Canada have agreed not only to abolish duties but also to reduce non-tariff barriers to trade, promote regulatory cooperation, improve market access in the service sector, facilitate participation by companies in public procurement, and promote personal mobility. Apart from these sections, CETA also contains provisions on geographical indications, a dispute resolution mechanism and three chapters on sustainable development, labour and the environment. CETA should be seen as an ambitious free trade agreement of the new generation. The negotiations between the EU and Canada started in 2009 and were concluded at the EU-Canada summit in Ottawa on 26 September 2014. Negotiations on the Investment chapter continued after this date. The final, legally reviewed, text of the CETA agreement was published on 29 February 2016. 6 On 5 July 2016, the European Commission submitted a proposal to the Council to adopt CETA as a mixed agreement, 7 with the implication that it 2 The Swedish Chemicals Agency, the Swedish Environmental Protection Agency, the Swedish Board of Agriculture, the National Food Agency, the Uppsala University, the Gothenburg University 3 Sustainability Impact Assessment, http://ec.europa.eu/trade/policy/policymaking/analysis/sustainability-impact-assessments/assessments/#study-geo-14 4 Initial Strategic Environmental Assessment - February 2012, www.international. gc.ca 5 E.g. ref. 120-1006-2007, 2011/01259, 2014/01443-5, 2015/02033-3, 6 The text of the agreement can be found under ec.europa.eu/trade/policy/in-focus/ceta. 7 When the EU negotiates and concludes an international agreement, the Union has either exclusive powers or powers shared with the Member States. Where these powers are exclusive, only the EU can negotiate and conclude the agreement. Where the powers are shared with the Member States, the agreement is concluded both by the EU and by the Member States a mixed agreement.

5(30) needs to be ratified by all the Member States before it can fully enter into force. As this could take a long time, the agreement is expected to apply provisionally. 5 Analysis of the possible effects on the environment, human and animal health and democratic decision-making 5.1 Explanatory memorandum and preamble to the agreement The Commission proposal for a Council Decision 8 sets out the reasons for the CETA agreement, affirming that the agreement is not intended to compromise the conditions for the environment, human and animal health and democratic decision-making: CETA is fully consistent with Union policies, including those affecting international trade. In this respect, CETA will not lower or amend EU legislation, nor will it amend, reduce or eliminate EU standards in any regulated area. All imports from Canada will have to satisfy EU rules and regulations (e.g. technical rules and product standards, sanitary or phytosanitary rules, regulations on food safety, health and safety standards, rules on GMO s, environmental protection, consumer protection, etc). It further states that The agreement also contains all the guarantees to make sure that the economic gains do not come at the expense of fundamental rights, social standards, governments' right to regulate, environmental protection or consumers' health and safety. The preamble to the agreement recognises that the provisions of this Agreement preserve the right of the Parties to regulate within their territories and the Parties flexibility to achieve legitimate policy objectives, such as public health, safety, environment, public morals and the promotion and protection of cultural diversity. 5.2 Reduction and elimination of customs duties on imports Possible impact on the environment of increased import competition for beef CETA will abolish most customs duties on food and agricultural products traded between Canada and the EU. 9 For some products, the EU and Canada have undertaken to improve market access through tariff rate quotas alone, i.e. duties will be reduced or removed only for a limited quantity of the product. This means that the effects of CETA in the form of increased import 8 COM(2016) 443 final. 9 The EU is to eliminate duties on 93.5 per cent of tariff lines for agricultural products and foodstuffs, while Canada will eliminate duties on 92.8 per cent of tariff lines, see http://trade.ec.europa.eu/doclib/press/index.cfm?id=974

6(30) competition will be limited for those products which are covered by tariff rate quotas; e.g. this applies to beef in the EU s case. Canada has also entirely excluded tariff lines from liberalisation within certain sectors (poultry, eggs, dairy products). 10 The Board has chosen to examine one aspect of the tariff commitments in CETA which has attracted attention: the EU s tariff rate quotas for beef. This is an important example of a market access issue related to Swedish environmental quality targets. If these tariff rate quotas give rise to increased competition which has a negative impact on Swedish beef production, this could affect the chances of achieving the Swedish environmental quality objective of a varied agricultural landscape. 11 The risk of Swedish beef production being affected by CETA is discussed in this section. The Swedish Board of Agriculture was invited to submit comments and views, which are reported below. The commitments made in CETA mean that the EU is to open new tariff rate quotas for bison meat and fresh and frozen veal and beef totalling 48 840 tonnes (carcass weight equivalent) when the commitments under the agreement are fully implemented after five years. 12 This is equivalent to 0.6 per cent of the consumption and production of beef in the EU in 2015. 13 If the entire tariff rate quotas were to be used for imports of prime cuts, the Swedish Board of Agriculture estimates that this would equate to 3.2 per cent of EU production of prime cuts. 14 Whether or not Canada will be able to make full use of these tariff rate quotas in the long term will depend on a number of different factors. Some conditions for Canada to be able to fill the tariff rate quotas for beef are that it should be able to produce enough hormone-free beef and that enough establishments should be approved for exports to the EU. 15 At present, four establishments in Canada are 10 So-called supply-managed sectors. The supply-management policy means that both the supply from domestic production and imports are regulated. 11 The Government s definition of the environmental quality objective of A varied environmental objective includes that the landscape is open and richly varied with significant areas of managed semi-natural pastures. See http://www.naturvardsverket.se/miljoarbete-i-samhallet/sverigesmiliomal/miljokvalitetsmalen/ett-rikt-odlingslandskap/precisering-av-ett-rikt-odlingslandskap/ 12 CETA also means that imports from Canada within the WTO tariff rate quota for high-quality beef of 11 500 tonnes (from Canada or the USA) will be duty-free rather than attracting 20 per cent duty. 13 The details of EU consumption and production are taken from the Short-Term Outlook for EU arable crops, dairy and meat markets in 2016 and 2017, winter 2016, http://ec.europa.eu/agriculture/markets-and-prices/short-term-outlook/pdf/2016-3 en.pdf. The figures for 2015 are estimates. 14 The Swedish Board of Agriculture assumes that 20 per cent of the carcass is made up of prime cuts and that it appears to be theoretically possible to use all of the new tariff rate quota volume in CETA for imports of prime cuts. 15 Note that the EU prohibition against beef from animals treated with hormones or other growth promoters is unaffected by the SPS Chapter of the free trade agreement, so the prohibition applies to Canadian beef also.

7(30) approved for exports of beef to the EU. 16 Other major prerequisites are that the price for beef on the EU market should be attractive and that there should be sufficient demand for Canadian beef on the EU market. The Canadians have also stressed that the EU rules for carcass decontamination 17 have a major bearing on whether the improved market access for beef in the EU can be exploited to the full. Some anti-microbial agents used in carcass decontamination in Canada are not approved in the EU, and this has been raised as a limiting factor. 18 The Canadian Cattlemen s Association has stated, however, that it should be possible within 5-10 years of the conclusion of negotiations on CETA to produce 50-100 000 tonnes of hormone-free beef, and even more in the longer term, which would then allow full use of the tariff rate quotas. 19 The chances of such a change may also be favoured by the fact that demand for hormone-free meat seems to be increasing within the Canadian market too. 20 In other words, it is possible that Canada will be able to make full use of the tariff rate quotas that the EU will apply to imports of beef, and that imports into the EU of beef from Canada could then increase significantly. If the EU s new tariff rate quotas for imports of hormone-free beef from Canada were to be fully exploited, what would be the effect on the EU market? The Swedish Board of Agriculture believes that the tariff rate quotas in CETA for imports into the EU will probably not have any great effect on the EU market because the quota volumes amount to so little (0.6 per cent) of EU production. Even if the entire tariff rate quotas were to be used for imports of prime cuts, the Swedish Board of Agriculture believes that the effect on the EU market would probably not be particularly great either. The Swedish Board of Agriculture therefore considers it unlikely that the EU s new tariff rate quotas for beef in CETA will have any direct impact on Swedish beef production. This means that the tariff rate quotas will probably not have any impact on the conservation of seminatural pastures in Sweden either. The Swedish Board of Agriculture notes that just over 50 per cent of Swedish consumption of beef is covered by meat produced in Sweden. The demand for Swedish beef exceeds the supply, and the prices to the producer are high. 16 European Commission lists of establishments, figures retrieved 04.07.2016; see https://webgate.ec.europa.eu/sanco/traces/output/non_eu_listspercountry_en.htm# 17 Decontamination means that the carcasses are cleaned with an agent to kill bacteria. 18 See e.g. http://ipolitics.ca/2016/05/11/livestock-carcass-washing-rules-remain-a-canada-euirritant-despite-ceta/ 19 EU - Canada Trade SIA (2011), page 61. 20 See e.g.http://www.producer.com/2013/10/aw-will-look-outside-of-canada-for-beef-producedwithout-growth-promotants/ and http://www.calgarysun.com/2016/04/29/earls-beef-decision-is-angering-alberta-ranchers-but-didcanadas-industry-drop-the-ball.

8(30) Of course EU beef production is affected not only by CETA but also by other free trade agreements which are in force, and in the long term also by the possible outcome of ongoing negotiations (e.g. between the USA and Mercosur) or new negotiations (e.g. with Australia). The Swedish Board of Agriculture notes that the total tariff rate quota volume for beef in all free trade agreements applied within the EU and in ongoing and future negotiations could be so large in the long term that it might affect the EU market and possibly Swedish beef production, and hence the conservation of semi-natural pastures.. In conclusion, a possible positive effect of EU customs quotas for beef in CETA might be to help to increase interest in Canada in producing beef without growth hormones. 5.3 Technical barriers to trade (Chapter 4) CETA is one of the new generation of free trade agreements that go further than traditional free trade agreements. The chapter on technical barriers to trade (TBT) is therefore a key area of the CETA agreement and is considered to be one of the most ambitious parts of it. It has been noted in a number of reports that there are many unnecessary barriers to trade between the EU and Canada arising out of divergent regulatory systems. 21 CETA has great potential to address these barriers in an effective way. Unnecessary differences in rules not only impede trade between the EU and Canada; they also affect the development of global rules and standards and risk holding back important solutions to global challenges, particularly in the environmental field. Chapter 4 contains provisions to promote closer contact between the EU and Canada in the area of technical barriers to trade. One example are assessments of conformity. 22 Chapter 4 refers to a separate protocol for assessments of conformity which is included as an annex to the CETA agreement. This means that the parties are expected to treat the bodies of the other party in the same way as their own and to recognise each other s test and trial results in the conformity assessment procedure. This means that a body within the EU can test EU products for export to the Canadian market according to Canadian rules, and vice versa, which will prevent both sides from needing to run the same test twice, thus significantly reducing costs for enterprises and consumers. 23 Cooperation to prevent rules from diverging between countries contributes to more effective trade because enterprises do not need to adapt their production and goods to the requirements of different countries. However, 21 Joint EU-Canada study of the costs and benefits of closer economic partnership European Commission and Government of Canada, 2008; for the Board s earlier statements on Swedish interests in economic relations with Canada, see e.g. ref. 120-1006-2007 and ref. 2011/01259-1. 22 Assessments of conformity may include product tests, inspections and certification. 23 The EU and Canada have agreed to recognise each other s conformity assessment certificates in areas such as electrical products, electronics and radio equipment, toys, machinery and measuring instruments. Although this does not match the way in which the EU works within the Union, it is a very big step forward in the EU s international agreements.

9(30) this does not mean that the EU and Canada cannot retain their own rules. Each country can retain its levels of protection and does not automatically need to approve goods that have been approved in the other market. It is only where EU and Canadian rules offer equivalent levels of protection that mutual recognition comes into play; what is known as equivalence. That means that only where products are considered to be as safe as EU products (because the Canadian rule is deemed to provide an equal level of protection to the European rule) can they gain automatic access to the EU market. 24 Article 4.6 contains a section on transparency. The purpose is the same as that of the WTO s TBT committee, which is to allow the EU and Canada to submit comments on each other s legislative proposals. 25 The chapter also provides for closer cooperation between standardisation bodies to allow them to exchange information on planned standards or to work together to harmonise standards, e.g. in the environmental field, where there is such a mutual interest. This should increase confidence in and knowledge of each other s rules and facilitate cooperation, and lead in the long term to better global environmental protection through joint solutions. 5.4 Sanitary and phytosanitary measures (Chapter 5) Background Trade in food and agricultural products carries certain risks relating to the spread of diseases, hazardous substances and plant pests. Legislation and controls are needed to guarantee good food safety, animal health and plant protection. Apart from pure health aspects there are major economic interests in maintaining good protection for animal and plant health and food safety. Such national rules do however affect trade. That is the reason for the WTO s SPS 26 Agreement, which stipulates how countries should draw up their health protection rules to safeguard the life and health of people, animals and plants. The WTO rules are of an overarching nature. A fundamental principle laid down in the agreement is that each country has the right to determine its own level of protection and that a country s safeguards should be based on international standards and a scientific risk assessment. 27 The countries can thus protect themselves but must do so in a way that disrupts trade as little as possible. The overarching nature of the SPS Agreement leaves room for countries to regulate their own imports of food and agricultural products. In order to trade in 24 Equivalence is also applied within SPS; see section 5.4 of this report. 25 However, CETA should not lead to over-hasty measures affecting safety, health, environmental protection or national security. 26 SPS stands for sanitary and phytosanitary standards. 27 Best available knowledge.

10(30) these products, however, the exporting country often needs to be approved by the authorities in the importing country. The SPS chapter of CETA is based on the WTO s SPS agreement One way of facilitating trade in food and agricultural products is to agree with other countries on more effective application of SPS measures, and that is the context in which the SPS chapter of CETA should be viewed. The chapter builds on the WTO s overarching SPS Agreement and is intended to minimise unnecessarily complicated, time-consuming and potentially overlapping areas of rules and procedures between the EU and Canada. 28 The idea is that the chapter should also contribute to greater cooperation, exchange of information and dialogue between the parties, thus strengthening confidence in each party s SPS measures. This is a positive thing and should facilitate trade in the longer term. The purpose of the chapter is thus to ensure that the parties respective SPS measures do not create unjustified barriers to trade. This means progressing further with the implementation and application of the WTO s SPS Agreement, which both the EU and Canada are already bound by. 29 What the EU and Canada have agreed on in the SPS chapter of CETA is to clarify the framework within which SPS measures should be taken. The rules in the SPS chapter of CETA provide clarification to enhance predictability for both authorities and enterprises. The entry into force of the agreement is therefore expected to facilitate trade between the parties. CETA does not change health protection law in Canada, the EU or Sweden, nor does it restrict the right to determine the level of health protection that each party wishes to have within its territory. For example, the SPS chapter states that the parties should notify each other of emergency measures. 30 After the decision to take such a measure has been made, the party concerned has 24 hours to notify the other party. 31 There is thus nothing in CETA to prevent the EU from taking steps at short notice to safeguard human, animal and plant life and health. The SPS chapter in CETA can be seen as the most ambitious SPS chapter among the EU s completed free trade agreements, and the Board s view is that it is positive for Sweden. 28 The SPS chapter is also based on the veterinary agreement between the EU and Canada from 1999 (Agreement between the European Community and the Government of Canada on sanitary measures to protect public health and animal health in respect of trade in live animals and animal products). 29 Article 5.4 affirms the respective rights and obligations of the EU and Canada under the SPS Agreement. 30 Article 5.13 CETA. 31 Consultations must then be held within 10 days if the other party requests this.

11(30) Content of the SPS chapter in more detail The Agreement contains an article on regionalisation, i.e. how the importing party can decide that a region may be considered free from an animal disease or plant pest that exists in other parts of the exporting country. 32 The article covers principles for animal and plant health. A number of animal diseases are listed, and the parties are to agree at a later stage on the procedural steps to apply to regionalisation decisions concerning these diseases. 33 Regionalisation (also called zoning) is important because it means that imports from disease or pest free region of an exporting country can be allowed even if there is an outbreak in other parts of that country. The SPS chapter contains an article on equivalence. The term means that the parties acknowledge that differently designed measures may provide equivalent protection against a specific risk. The recognition of equivalence may cover all or parts of a piece of legislation, with or without supplementary conditions. 34 Recognition of equivalence reduces duplication of effort, both for competent authorities and for exporting enterprises. Equivalence can result in simpler certification, for example. 35 Principles and guidelines for how the parties should proceed in the future when authorities are to evaluate and recognise equivalence will be agreed between the EU and Canada at a later stage. 36 The parties have agreed on a number of acknowledgements of equivalence 37 covering products of animal origin (genetic material, meat and meat products, animal by-products, shellfish etc.). The highlighted areas where equivalence has been recognized mainly concern ways of ensuring freedom from microbiological risks. 38 The equivalence decisions do not touch on issues such as growth hormones or antibiotics in animal production. It should also be noted that the agreement ensures that the salmonella guarantees (extra import controls to protect against salmonella) between Sweden and Finland will continue to apply. The intention is for the parties to agree between them on equivalence in parts of the legislation that concern plant products. However, this will take place at a later stage. 32 This has to do with the approval process for exports because recognition of the zoning decision may be a condition of approval for export. 33 See Annexes 5-B and 5-C, which cover e.g. the commonly occurring Newcastle disease (in poultry), which has also appeared in Sweden several times in the past 20 years. 34 Article 5.6 CETA and Annexes 5-D and 5-E. This assumes that the exporting country can objectively demonstrate that the measure achieves the importing Party s appropriate level of SPS protection. 35 See Article 5.9 on health certificates. 36 See Annex 5-D. There are some already agreed principles for what is required to maintain existing equivalence agreements where the importing country changes an SPS measure for which there is a recognition of equivalence. 37 See Annex 5-E. 38 This applies, for example, to inspections for trichina, or how to provide protection against TSEs (transmissible spongiform encephalopathies). Trichina worms are a parasite that may be present in pork and can be transferred to humans. TSEs are prion diseases in cattle, sheep and goats, some of which can infect a person.

12(30) The SPS chapter contains a provision to the effect that the parties should recognise the principle of pre-listing, i.e. that imports should be allowed if the production facility has been checked and approved by the authorities in the exporting country without the authorities in the importing country conducting their own inspections. Here again, the aim is a more effective application of SPS measures to avoid duplication of effort for both enterprises and authorities. The principle of pre-listing is important from a resource perspective because inspections from the importing country can be both costly and time-consuming. In practice it means that the EU and Canada recognise that they can rely on each other s authorities i.e. the importing country accepts that the authorities in the exporting country can check and certify that specific import requirements have been met, just as well as the importing country s own authorities. The SPS chapter also covers special import requirements concerning plant protection. An annex establishes a process for the parties to set up and continuously update their special import conditions for major plant products, with a list of regulated plant pests that affect them. 39 The list should be based on information from the other party. A formal dialogue should be initiated between the parties to establish special import conditions for plant products (phytosanitary measures). The intention is to define specific import conditions later. In other words, CETA does not entail any reduction in the level of plant protection. This is positive, as protection against plant pests that can harm forests is important to Sweden. Through CETA, the parties undertake to strive for more transparency in the SPS area, in the form of better exchange of information. 40 The idea is that this should increase confidence in each other s health protection rules and authorities. A Joint Management Committee for Sanitary and Phytosanitary Measures (JMC) is also set up. 41 This committee will meet when necessary, normally once a year, and should consist of regulatory and trade representatives from both sides. 42 Issues that cannot be resolved in the Committee may be referred, at the request of either party, to the CETA Joint Committee, to which the JMC also reports. 43 Part of the mandate of the JMC is to review the annexes to the SPS chapter at least once a year and decide on any changes to them. This means that the EU and Canada will continue to strive for simplifications in the SPS area through constant cooperation at the expert level. 44 39 See Article 5.7(8) and Annex 5-G 40 See Article 5.11. 41 See Article 5-14. 42 Sweden is part of the Potsdam configuration for Canada and can therefore attend the meetings of the JMC under the veterinary agreement and, in the future, probably the JMC meetings under CETA also (according to the Swedish Board of Agriculture, ref. 2016/1126-3). 43 See Article 5-14(6) and (9) The CETA Joint Committee is headed by the Canadian Trade Minister and the EU Commissioner for Trade. 44 See Annexes 5-D and 5-C.

13(30) Finally, the entire SPS chapter of CETA is covered by the dispute resolution mechanism established in CETA. 45 This means that questions of interpretation and application of the SPS provisions can be referred to arbitration, which is a means of pressuring the parties to implement the SPS chapter. Handling of specific SPS-related market access problems During the negotiations between the EU and Canada on CETA, some concrete specific SPS-related trade problems were also discussed. This part of the negotiations means in practice that the parties prioritise each other s cases, expedite ongoing processes or undertake to propose changes at home in accordance with their own domestic legislative procedures. The JMC created joint work plans, and already a work plan on market access for meat has been adopted. As a result of this, Canada has expedited the approval procedure for exports of beef from the EU to Canada. In 2015 Canada conducted inspections in some EU Member States in order to draw up a country approval for the whole of the EU for beef and pet food. 46 This allows establishments in the EU that are interested in exporting to Canada to apply to be listed. 47 Canada has moreover agreed that the authorities in the EU Member States (including the Swedish National Food Agency) can carry out inspections and list approved establishments (cf. pre-listing) for exports of beef. The EU in turn completed the approval process for lactic acid treatment as a cleaning method for beef carcasses in 2013. 48 The EU has also undertaken to proceed further with the process of risk assessment on recycled hot water in abattoirs, and will develop a proposal for a regulation on this. Work is on-going in the EU expert committee PAFF to decide on the specific conditions under which it is safe to re-use such hot water. 49 The precautionary principle and SPS The precautionary principle is not mentioned explicitly in CETA, nor in the WTO s SPS Agreement. On the other hand, it is expressly mentioned in the EU s key legislative act for food safety. 50 The question of what this means has been raised in the SPS context when the EU invoked the precautionary principle in connection with the so called hormone dispute. 51 In this dispute, the WTO s 45 See Article 29.2 CETA. 46 Sweden is one of the 4-5 Member States inspected. 47 Sweden is approved for exports of beef, and there is one establishment listed (telephone call with Matthias Schädlich, Swedish Board of Agriculture, 14.07.2016). 48 Commission Regulation (EU) No 101/2013 of 4 February 2013. The method, which reduces the risk of salmonella and VTEC (verocytotoxin-producing E. coli) in particular, was of interest to Canada and had already been evaluated in 2011 by the EU risk assessment authority EFSA. See also section 4.2 of this report. 49 National Food Agency, report of meeting of the Standing Committee on Plants, Animals, Food and Feed (PAFF), biological safety section, 17 March 2015. 50 Article 7 of Regulation (EC) No 178/2002 of the European Parliament and of the Council. 51 EC Measures concerning meat and meat products (hormones), WT/DS26/AB/R, WT/DS48/AB/R, 16 January 1998.

14(30) Appellate Body stated that the precautionary principle should be considered to be an integral part of the SPS Agreement, e.g. in Article 5.7 of that agreement. 52 The precautionary principle is thus taken into account in the application of the WTO s SPS Agreement. The ruling of the Appellate Body in the hormone dispute as well as the relationship between the precautionary principle and the SPS Agreement and its principles of scientific risk assessment have been the subject of extensive discussion, including in connection with other disputes in the SPS area. 53 It is nevertheless important to remember that a central principle laid down in the SPS Agreement is that WTO members are free to define the level of protection that they wish to maintain on their territory. Given this, the Agreement states that when measures are taken to maintain the desired level of protection, they should be based on international standards and a scientific risk assessment, and should distort as little trade as possible. The WTO s dispute settlement body has explained that the level of protection countries apply when they regulate in the SPS area should be applied in a consistent manner. The Appellate Body has also stated that the fact that measures must be based on a scientific risk assessment should be interpreted to mean that there must be a rational relationship between the scientific risk assessment and the measure at issue. In summary, CETA means that the EU and Canada affirm their rights and obligations under the WTO s SPS Agreement. 54 CETA does not alter the fact that both the EU and Canada have the right to determine their own level of protection. Hence CETA does not affect the possibilities of the EU to take protective measures in the SPS area. The increased dialogue and exchange of information between the parties through the JMC, e.g. on scientific evidence, methods and risk assessments for SPS measures, may also help to maintain and improve effective health protection. 55 52 Extract from paragraph 124 of the report from the Appellate Body: First, the principle has not been written into the SPS Agreement as a ground for justifying SPS measures that are otherwise inconsistent with the obligations of [WTO] Members set out in particular provisions of that Agreement. Secondly, the precautionary principle indeed finds reflection in Article 5.7 of the SPS Agreement. We agree, at the same time, with the European Communities, that there is no need to assume that Article 5.7 exhausts the relevance of the precautionary principle. It is reflected also in the sixth paragraph of the preamble and in Article 3.3. These explicitly recognize the right of Members to establish their own appropriate level of sanitary protection, which level may be higher (i.e. more cautious) than that implied in existing international standards, guidelines and recommendations. 53 The EU lost the case because the Appellate Body held that the measure was not based on a risk assessment. The content and status of the precautionary principle in international law are also disputed, and the Appellate Body chose not to comment on the status. The four elements set out in Article 5.7 of the SPS Agreement are as follows: i) The measure must be adopted in a situation where relevant scientific evidence is insufficient; ii) The measure must be adopted on the basis of available pertinent information; iii) The country in question must seek to obtain the additional information necessary for a more objective assessment of risk; and iv) The country must review the measure within a reasonable period of time. 54 See Article 5.4 CETA. 55 See Article 5-14(2)(f).

15(30) 5.5 Investment (Chapter 8) Background In the assignment from the Government, the Board is asked to analyse the effects of CETA on democratic decision-making. The Board has interpreted this to mean the effects of CETA on Swedish government bodies and their right to regulate. In this context the right to regulate is the ability of the State to pass laws and take decisions without the risk of having to pay compensation. The Board analysed these effects in detail in an earlier report. 56 As the change from Investor-State Dispute Settlement (ISDS) to the Investment Court System (ICS) basically is a question of rules on how and where a dispute should be settled and not about the substantive protection the Board does not consider that ICS alters its earlier assessment. The Board sent the request for consultation to the Legal faculties at Gothenburg and Uppsala Universities. The Swedish Chemicals Agency and Swedish Environmental Protection Agency also submitted comments. 57 The responses are annexed to this analysis. Both Uppsala and Gothenburg Universities point out in their responses that an international treaty by its nature restricts the ability of a State to take decisions. Uppsala University observes that a conflict between a treaty and a domestic decision does not mean that the treaty has an automatic impact on democracy. Decisions taken by the Swedish Parliament (Riksdag) are subject to international law, and if a Riksdag decision conflicts with CETA, it is a matter of two democratic standards in conflict with each other. Uppsala University believes, however, that CETA does not restrict Sweden s right to regulate in any significant way, and in so far as this right is restricted, it is because the Lisbon Treaty moved substantial influence over investment-law agreements from the Member States to the EU itself. As explained above, in this context the right to regulate means the ability of the State to pass laws and take decisions without the risk of having to pay compensation. Such monetary compensation may be imposed if the investment court decides that the State has acted in breach of CETA and if the action caused the value of an investment to decrease. So the right to regulate is not a de facto restriction on the ability/right of States to pass laws or take decisions. The Board s report focussed on the two key articles fair and equitable treatment and right to compensation in case of expropriation. These articles 56 National Board of Trade. (2015) The Right to Regulate in the Trade Agreement between the EU and Canada and its implications for the Agreement with the USA http://www.kommers.se/documents/dokumentarkiv/publikationer/2015/publ-ratten-attreglera.pdf 57 General informal comments on potential environmental effects of the CETA agreement and the draft analysis from the National Board of Trade, Swedish Environmental Protection Agency; Analysis of the CETA agreement, Swedish Chemical Agency, ref. 6.1.g-H16-05817.

16(30) have potentially the greatest impact on the State s right to regulate. The articles were compared with Swedish law including the European Convention on Human Rights and Fundamental Freedoms (the European Convention ). The assumption was that if these articles provided greater protection than CETA, they could restrict the right to regulate of the Swedish State. Fair and equitable treatment The Board s report showed that the article on fair and equitable treatment 58 in CETA did not provide any protection that was not already there in Swedish law and, in many cases, the Swedish constitution. Examples might be the right to a fair trial, protection against discrimination and protection against arbitrary treatment. As long as the relevant laws remain in place, and assuming that the State abides by them, the article does not restrict the right of the Swedish State to regulate. The basis for protection in the article on fair and equitable treatment which is called reasonable expectations has traditionally been a source of uncertainty as there was an element of discretion in what arbitration boards considered to be included. In CETA, the element of reasonable expectations has been so severely restricted that, in reality, it offers only marginal protection for investors. Uppsala University summarises this by noting that an abstract assessment of the article suggests that it does not restrict Sweden s ability to take decisions. Expropriation The rules in CETA concerning the right to compensation in the event of direct expropriation (i.e. where the State directly nationalises private property) are broadly consistent with Swedish law. 59 The section of the article on expropriation concerning indirect expropriation (such as the revocation of a licence) might possibly provide greater protection than is given by Swedish law, partly because there may be areas covered by the article which are not covered by Swedish law. Apart from the protection against indirect expropriation provided by Swedish law, there is also a certain protection via the European Convention on Human Rights (ECHR). Even now, for example, Sweden can be charged under certain circumstances with breaches of the rules on indirect expropriation, which has to be considered when Sweden passes laws or takes decisions. 60 Given the limited case-law from Swedish courts and the ECHR on indirect expropriation, it is unclear what level of increased protection the expropriation article in CETA offers to foreign investors in Sweden. What case-law there is suggests that the extra protection provided by the article is 58 Article 8.10 CETA 59 Article 8.12 CETA 60 Because Sweden opted to pay compensation to the foreign shareholders for the shut-down of Barsebäck, there was no call for a process like that currently being pursued by Vattenfall against Germany.

17(30) very limited. All in all, therefore, the article probably has little impact on Sweden s right to regulate. Uppsala University finds no material differences between the rules on expropriation in CETA and Swedish law. Gothenburg University emphasises that the wording of this article in CETA makes it clear that the decrease in value must be substantial and that a requirement for the impact to be manifestly excessive has been inserted; together, these restrict what may constitute indirect expropriation. The right to regulate If a dispute should arise between a State and investors, the investment court must consider Article 28.3 of CETA, which lays down the right to regulate. Among other things, it makes it clear that the parties to the Agreement (Canada, the EU and the Member States) retain the right to regulate in areas such as public health, security, the environment, public morals and cultural diversity. Apart from clarifying the right of the parties to regulate in these areas, the right to regulate is also covered separately in the sections on environmental and labour law. Gothenburg University emphasises in its response to consultation that the balance between the State s right to regulate and the investor s legitimate expectations of the State touches on the areas covered by the right to regulate. Uppsala University considers that Article 28.3 merely codifies the existing legal position and does not add anything. Joint working group and interpretation CETA gives the parties the opportunity, via a joint working group 61 (Joint Committee), to lay down binding interpretations of the Agreement that the investment court must follow. According to Gothenburg University, this results in effective system control, which safeguards the right to regulate for legitimate public policy objectives. The working group also reduces the risk of the parties not daring to legislate (so-called regulatory chill ). Uppsala University points out, however, that the working group could theoretically imply that Sweden s right to regulate is adversely affected in cases where the position of the Member States, or a majority of them, on a specific issue differs from Sweden s, particularly in areas where Sweden has not ceded competence to the EU. In the latter case, however, it is the relationship to Union law rather than CETA that affects Sweden s right to regulate. But the fact that the EU can be the respondent in a dispute based on Union law is still an improvement compared to the situation prevailing today. The investment court and the question of competence The parties to CETA have provided the investment court with clearer rules to abide by than was the case in previous investment protection agreements, reducing the risk of decisions running counter to the intentions of the 61 Articles 8.31(3) and 8.44(3)(a) CETA