Thank you, Mr. Chair, and thank you to the committee. It's a pleasure to be here today.
As its name suggests, the comprehensive economic and trade agreement, CETA, is intended to be an ambitious agreement that will affect matters beyond international trade. Traditional trade barriers between Canada and the European Union are already very low. Our average tariffs are about 3.3%. The Europeans' are 2.2%. Even total elimination is not going to provide that much of a kick. The exchange rate changes more than that—sometimes in a day, these days.
What we are dealing with here are regulatory issues, non-tariff barriers, and governance issues. Now, in every bilateral trade negotiation since the NAFTA, Canada has been the larger party. It's been able to set the terms of the talks and work from its existing trade treaty template. But the CETA negotiations are different. The EU is a superpower, used to getting its way in talks with smaller partners.
Consequently, the CETA could result in major changes in the trade and investment rules, affecting a broad range of Canadian policies at all levels of government. In the brief time available, I will highlight some potential impacts related to investment protection, government purchasing, and public services—and if time allows, intellectual property rights and drug costs.
Investor rights agreements, such as the NAFTA chapter 11, go well beyond fair treatment. They grant special rights to foreign investors that enable them to bypass domestic court systems. Arbitral tribunals can order governments to compensate investors allegedly harmed by public policies or regulations. There have been 30 investor state claims against Canada under NAFTA and cases continue to mount. Canada has lost or settled five claims and paid damages of over $150 million.
Some of the most controversial features of the NAFTA investment chapter have not been included in previous EU trade agreements. However, the European Commission recently gained the power to negotiate investment protection agreements on behalf of the entire EU.
Early in the CETA negotiations, Canada put the NAFTA chapter 11 template on the table. The EU has now responded, quite recently in fact, and under pressure from some of the member states has been demanding an agreement with even stronger investment protections than the NAFTA in certain respects. It is also insisting that provinces and municipalities fully comply.
Under the NAFTA's most-favoured-nation rules, any concessions made to European investors in the CETA are automatically extended to U.S. and Mexican investors.
Canada's experience under the NAFTA is raising some concerns in Europe. Both the European Parliament and an official EU sustainability impact assessment have questioned the need for including investor state dispute settlement in the CETA.
In addition, under the investor state arbitration rules of the European energy charter treaty, a Swedish energy company, Vattenfall, recently launched some very contentious claims against Germany—the first investor state claims ever against Germany—related to the regulation of a coal-fired plant in Hamburg and Germany's decision to phase out nuclear power.
But public awareness is still low, and the CETA threatens to expand this controversial model of investor protection before citizens understand all the implications. Both Canada and Europe have mature, highly regarded court systems that protect the rights of all investors, regardless of their nationalities. There is little or no justification for including investor state arbitration in these negotiations.
Now I'm moving to procurement and public services. Unconditional access to government procurement, particularly at the provincial and local government levels, is the EU's top priority in these negotiations. The proposed restrictions would severely curtail governments' ability to use their purchasing power to enhance local benefits. The rules prohibit local development conditions, which are defined as offsets, even when contracts are competed for openly and do not discriminate against foreign suppliers.
Canadian governments could lose a valuable tool for creating employment, protecting the environment, and assisting marginalized groups. Furthermore, many Canadian public services are provided by provincial and municipal governments. European companies want market access to the provision of these public utilities.
The CETA would be the first Canadian trade treaty to cover municipal-level procurement, including vital services such as waste management, public transit, and drinking water.
The exclusion of local government procurement from previous trade treaties has definitely reduced the risk of litigation and demands for compensation from corporations when privatization schemes go off the rails. Under the CETA, once a local government decides to contract out a service, it would trigger powerful rights for foreign companies to challenge any perceived bias, any local development conditions, and any attempt to halt or reverse the contracting-out process.
European multinationals have successfully pursued investor state cases over failed privatizations in developing countries such as Argentina, winning damage awards of hundreds of millions of dollars. While the CETA may not force governments to privatize, giving new legal rights to corporations would facilitate commercialization and help lock in privatization. It would also interfere with the ability of future governments to expand or create new public services.
Now, as you've heard in previous testimony, the CETA would be the first Canadian bilateral free trade agreement since the NAFTA to have an intellectual property rights chapter, and it would go well beyond Canada's existing obligations under the NAFTA and the WTO. The leaked draft text contains some very aggressive EU demands. These include an extended term of patent protection that would add the time it takes for a drug to receive regulatory approval--which can be up to five years--onto the regular period of monopoly protection. It also includes longer terms of data exclusivity. Canada already has among the highest in the world, but they want it to go eight to ten years, which is the European standard. And it includes new rights of appeal that would enable the brand-name drug industry to delay the approval of generic drugs.
Any combination of these changes would reduce the availability of cheaper generic medicines and drive up costs to provincial governments and Canadian consumers. A study by two respected experts estimates these extra costs at $2.8 billion annually.
Brand-name drug companies claim that they need strong intellectual property protection to justify investing in research and development in Canada. Yet these same companies have consistently failed to fulfill previous promises, made during the NAFTA negotiations, to invest 10% of their sales in research and development in Canada.
More importantly, drug costs are the fastest-rising component of Canadian health care costs. Containing drug costs is absolutely essential, and the CETA intellectual property provisions could deal a critical blow to the sustainability of Canada's universal health care system.
That brings my opening statement to a close.
In these and other issues that I've discussed, the CETA negotiations are more concerned with limiting the ability of governments to regulate than with reducing certainly traditional trade barriers. And for that reason, it raises some very serious issues and puts the future of many important policy tools and public programs in question.
Thank you.
