Committee on Exiting the European Union
Oral evidence: The Progress of the UK's Negotiations on EU Withdrawal, HC 372
Wednesday 17 January 2018
Ordered by the House of Commons to be published on Wednesday 17 January 2018.
Members present: Hilary Benn (Chair); Sir Christopher Chope; Stephen Crabb; Mr Jonathan Djanogly; Richard Graham; Peter Grant; Wera Hobhouse; Andrea Jenkyns; Stephen Kinnock; Jeremy Lefroy; Craig Mackinlay; Seema Malhotra; Mr Jacob Rees‑Mogg; Emma Reynolds; Stephen Timms; Mr John Whittingdale; Hywel Williams; Sammy Wilson.
Questions 546 - 633
Witnesses
I: Christophe Bondy, Public International Lawyer at Cooley (UK) LLP and former senior counsel to Canada on the CETA negotiations; Dr Lorand Bartels, University of Cambridge and Senior Counsel, Linklaters; William Swords, President, UK‑Canada Chamber of Commerce.
Examination of Witnesses
Witnesses: Christophe Bondy, Dr Lorand Bartels and William Swords.
Q546 Chair: Can I begin by welcoming our witnesses this morning and thanking you all very much indeed for coming and for giving up your time? Christophe Bondy, legal counsel during the CETA negotiations for the Canadian Government; Dr Lorand Bartels, University of Cambridge and adviser on trade to Linklaters solicitors; and William Swords, Chair of the UK‑Canada Chamber of Commerce, you are all very welcome. This is the second evidence session in which we have been looking at the CETA deal and it is part of a programme of work that we are doing looking at potential models for a future relationship between the UK and the EU. We have a lot of ground to cover, so if answers could be as succinct as possible while enlightening us that would be extremely helpful.
I was going to kick off by asking you, Mr Bondy, what the EU was like to negotiate with, as a negotiating partner.
Christophe Bondy: Our negotiations were always very cordial and professional. We dealt with the Commission, not directly with the member states. We knew that, at each step in the negotiations, the Commission was in ongoing discussions with the member states and, of course, the EU has a particular dynamic, because there is that relationship between the Commission, the Council and the Parliament, each of which element may be coming from a different direction. One knew that one had to keep an eye on what different voices were saying within the European Union as the negotiations went along. We began the negotiations in something like 2007 with scoping exercises, and the agreement finally came into force, provisionally, in September of 2017, so one ends up having quite deep and strong relationships with negotiating counterparts because of that long relationship.
Q547 Chair: Was that the amount of time you had spent together in a room?
Christophe Bondy: Yes, indeed.
Q548 Chair: To what extent did it feel different from other trade negotiations you have been involved in when you are just dealing with one other country? You referred to the dynamic between the Commission, the Council and the member states.
Christophe Bondy: There were always some complications relating to, for example, what competences the European Commission had. Along the way, the Treaty of Lisbon came into force. While at the beginning of the negotiation, the EU did not have a competency to negotiate investment issues or at least most investment issues, by the time the negotiation had launched, that had happened. There was also the issue of who exactly would be a party to the agreement and how the agreement would come into force. As everyone in the room probably knows, there was a bit of kerfuffle at the end, but there was certainly a placeholder at the beginning about who is actually a party to this agreement, whether it was a mixed competency agreement or solely in the competency of the Commission. Some of those issues are clearer now.
Otherwise, in terms of the negotiating process, the European Union is a very complex entity. One of the things that we had to do over the course of the negotiation was to have reservations set out, not only at the European Union level, but also at the level of each of the member states. There was a great deal of co‑ordination going on and work at each of those member state’s level. I come from a federal country, with provinces and territories, so we had our own co‑ordination to do at our own end.
Q549 Chair: You have talked about reservations. Can I ask all of you just to comment on this question? It is clear what CETA gives in terms of trading goods but, when it comes to services, there are some who say it provides a step forward on that front. There are others who say, in practice because of reservations and exceptions, there is very little in terms of services. It would be very helpful to us, because services are really important to the UK economy—they are 80% of our economy—to know what your perception is of the deal that was done in respect of services. Did you want to go first, Mr Bondy, and then I will bring in your two other witnesses?
Christophe Bondy: Given that I negotiated it, it would be helpful. I think it is a step forward in terms of services. I mentioned the issue with regard to reservations. In the WTO context, in the general agreement on trade and services, one has a positive list. That is that agreements on national treatment and market access apply to the areas that one lists. In the CETA context, and this was a strong moment in the negotiations, we wanted to have a negative list. That is the obligations apply across the board except for those things that are specifically reserved. Those things are that are specifically reserved are subject to a ratchet provision. That is, if one autonomously liberalises, then one is bound to that new level of liberalisation, so they will go away over time. The listing also provides transparency and it gives something over which one can negotiate.
I can say, over the course of the negotiations, there were some GATS epiphanies where some measures that the European Union member states had listed were actually GATS‑minus. Therefore, one could say they should be removed. I have to say, though, in terms of the services, listening to the discussion last week and this discussion about market access, there is some confusion here. You are confusing the term “market access” in trade terms with fluidity of access to the market. The second point goes to regulations. It goes to whether or not one can just walk into a different economic space and carry on business without complying with the local laws or without having to show compliance with local laws and regulations. That is something that CETA cannot do, which a free trade agreement does not do. That is something that the single market does, which comes out of the Services Directive.
Dr Bartels: I would agree with this and maybe just add that, on the point of market access versus what we are used to calling here the single market, one can conceive of market access in terms of maximum restrictions. You are only allowed to set up X number of banks or conduct X number of transactions. On the contrary, one can conceive of what we are used to referring to here as the single market in terms of minimum qualification requirements. If you meet these conditions, then you have the ability, in this case, to sell your services in another country. It is technically important, and Mr Bondy said the same thing, to distinguish between market access rules, strictly speaking, and rules on qualifications applicable in this case to service suppliers, which say when you are able to operate in another territory.
William Swords: I do not have much to add, over and above that, in terms of a traditional trade agreement, obviously it advances services provision and access. A customs union is a very different thing. In terms of services, CETA does advance other trade agreements, but it is not a customs union.
Q550 Stephen Crabb: Mr Bondy, drawing on your experience as a negotiator, how important would you say it is for the UK Government to have absolute clarity on what their desired outcomes are from the trade talks when they go into the negotiations?
Christophe Bondy: That is a fundamental step at the start of any negotiation. The start of a negotiation is a scoping exercise and an internal determination about what one wants in the creation of a mandate. Typically in a trade negotiation, one begins a dialogue with a potential partner to consider what the potential benefits to be drawn from this agreement are, what the attitude of the potential counterpart is and the things that we most need are. You set out a mandate. The European Union is doing it on its side and it would be the logical for the UK to do it on its side.
One of the challenges is when those two mandates are at complete loggerheads from the start. That is usually why, when you are thinking about entering into a trade negotiation, you pick your battles. If you decide that, actually, there is no way that these two parties can agree, because one knows from the start that they want to take a reservation against X, Y or Z, then one might look elsewhere. One of the reasons that Canada and the EU were able to enter into this deal was that there was that assessment at the beginning that they were on the same page about a lot of the objectives.
Q551 Stephen Crabb: When Michel Barnier talks of a Canada‑style free trade agreement being the only thing that is really on the table for the UK and that being a logical outcome of the red lines that the UK Government have chosen, how do you interpret that? Do you see that as simply a starting negotiating position from the EU or a statement of fact and practical reality?
Christophe Bondy: I think it is a statement of fact. The EU has two models. It has, in shorthand terms, the Canada free trade agreement, which is a very high standard of free trade agreement. Do not get me wrong: the Canada‑EU free trade agreement is an excellent free trade agreement. Free trade agreements are good at taking away express barriers like “No Canadian need apply to this job”, or “You cannot have more than X service suppliers of X kind and they are both occupied by locals” and that sort of thing. What it does not do is achieve the sort of deep regulatory participation and harmonisation that the UK has experienced in the EU over the last 45 years.
What the EU has as approaches to this are an FTA, where you have borders, separate regulatory space and not what that the UK has experienced in terms of access to the EU, especially since 1993 and the single market; you have that or you have Norway, where you are a rule-taker. You are not just harmonised. I have heard many people say, “It is going to be easy because we are harmonised”. That is day one, but what about day two? What about day 10? That is where the real issue is. For the EU, you are on the bus, you are in the sidecar with Norway or you are not. It is a dynamic process going forward. You come forward as the UK saying, “This is what we want or this is what we want”. As counsel in these negotiations, I would often tell my policy counterparts, “Tell me what you would like. Tell me what you want. I can tell you how to get there or what to do, but I need some policy direction”.
Q552 Stephen Crabb: What is the single most important piece of advice that you can give to the UK Government about its starting posture?
Christophe Bondy: The single most important piece of advice is to study what the benefits are that the UK draws from the European Union. Study how it functions. You have been participating in this for the last 45 years. I do not think this is a surprise. It was a British person, it was Baron Cockfield, who in 1985 set out in a White Paper 300 different measures that would have to be achieved to achieve the single market, which were implemented. As of 2006 with the Services Directive, there has been progressive liberalisation in trade and services across the European Union.
You have created, as I understand, something like 58 different impact assessments. I do not know what they contained entirely, but some of them contain, for each of those sectors, the laws and regulations that are the European rules of the road that sectors across the UK depend upon to do business. You are not moving from a situation like Canada in the EU, where there was a big wall up that we have knocked down. You can now step over the wall so there are opportunities. That is good. You have been living in a system that has had that bridge in place. You have been functioning with it in place for a long time and people depend upon it. Figure out what it is that you depend upon and how much you are willing to give up.
Q553 Stephen Crabb: Can I ask Dr Bartels quickly about the speech that Michel Barnier gave on 9 January? What is your impression about what he had to say about financial services? Is this a toughening‑up of the EU position on financial services? What can we realistically expect to get from this?
Dr Bartels: It was relatively accurate. If I could just piggyback off my Mr Bondy’s answer to your earlier question, it is not only important when you are negotiating to know what your position and interests are, but it is also important to know what the other side’s interests are. Linking that to Mr Barnier’s speech, I was struck once again by the emphasis on the apparent indivisibility of the four freedoms. I would just like to say that that is quite clearly not the case from an economic point of view. It is a very handy ideological, even religious, thing that one might say about how the EU operates, but there are plenty of examples of where the EU carves up these freedoms. The Ukraine agreement is one, when it comes to movement of persons. Reading this, on the one hand it is descriptive of the current situation but, on the other hand, in terms of the future situation, one has to read it with an eye to the ideological and negotiating imperative that it is clearly subject to.
Q554 Hywel Williams: Good morning. Can I ask you both about the negative lists of services that are excluded? I understand that this includes audio‑visual services. I suppose that is television and film production. Can you explain the thinking behind this specific exclusion?
Dr Bartels: I have to say that Mr Bondy, having negotiated this, is probably better placed to answer this question than I am, but I know that both Canada and the EU, largely at the behest of France traditionally speaking, are keen on an audio‑visual and cultural industries exclusion more generally. I might add that that does not always survive WTO scrutiny. A cultural industries carve‑out in NAFTA was essentially irrelevant in a WTO case in 1996. What is underlying this is culture.
Christophe Bondy: Could I add to that on the issue of reservations? There was a reservation taken in the services and investment area: “The EU reserves the right to adopt and maintain any measure with regard to broadcasting transmission services”. The interesting thing about that reservation, and about many of the reservations in the services and investment chapter, is that they are taken on a national treatment basis only, not against MFN.
To get out of WTO or trade speech, the EU is a club. There are certain benefits that come from membership of a club. When the EU is articulating its lists of reservations, there were many things that were never in its contemplation that it would give to anyone but a member of the club. If the UK comes in now saying, “Actually, we want that benefit. We want to be able to fly from point to point in different parts of the EU. We want audio transmission services access”, or what-have-you, the MFN element of the investment and services chapter in CETA will kick in and you have to give in to Canada. That is across a range of elements. I have brought them for your viewing pleasure. These are not just Canada’s reservations, but these are hundreds of pages of the EU’s and member states’ reservations to services and investment alone. You have to go through this case by case to see. There will be other things to say on that.
Q555 Hywel Williams: Can I further ask you, therefore, given that you refer to it as a sort of protective measure, perhaps as the French are particularly keen on their cultural exclusivity—and perhaps Mr Swords might refer to this—what might be the effect of international co‑production, of which Canada does a substantial amount, and also exports of programmes, films and that sort of thing? If this is permanent—and I understand it might not be permanent—what might be the effect in the future of having that exclusion?
William Swords: I certainly have not come across it, in terms of my interaction and dialogue. I would refer to Christophe, in the context of anything specific he might want to add to that. Video games might come into play in terms of Quebec.
Christophe Bondy: There is also a distinction to be made between what a party is willing to commit to in a treaty and a decision it might take in practice. It might not want to take a commitment for a certain thing, but it might allow something in practice. There is a fair deal of that in the EU. This would probably be something to consider in relation to this. There are also distinctions between co‑operation programmes, in terms of the production of television programming, and the running of an audio‑visual service. You have to carefully parse the nature of the carve‑out.
Q556 Mr Djanogly: Good morning. What is your view on the grandfathering of CETA, so that the UK can remain a party to its benefits once we have left the EU, Dr Bartels?
Dr Bartels: It is often said that, on Brexit day, the UK will drop out of the EU’s third country FTAs. The idea is that the UK is only a party to these agreements insofar as they remain an EU member state. Now technically that is not true, although in substance it is true, so it is shorthand. Technically it is not true because these are mixed agreements. All FTAs are mixed agreements, except for the EU agreement with Kosovo. That means that the UK is a party to these agreements as a sovereign state, although of course there is the division of competence to think about. It does not amount to very much in substance, because the rights and obligations under these agreements, including CETA, only pertain to the UK insofar as it is an EU member state. Technically speaking, the UK will remain a party to a blank piece of paper. That is essentially the situation. Rolling over those agreements is the work of the department, as I am sure you have heard.
Christophe Bondy: Certainly with regard to the point of the UK not having any benefit from the agreement, CETA provides, in terms of its scope of application, that the agreement applies for the European Union to the territories in which the Treaty on European Union and the Treaty on the Functioning of the European Union are applied, and under the conditions laid down in those treaties. If you are not a member of those treaties, CETA does not apply to you and that is the same for every treaty that the EU has entered into, to my knowledge.
In March 2019, in technical terms, the UK will experience probably the single biggest loss of free trading rates in human history, because you will suddenly not have the benefit of all of the treaties that the EU has entered into, in addition to losing access to the EU.
Q557 Mr Djanogly: We have gone through the technical aspects of it. Looking at the more practical aspects of it, our trade department is basically saying that these 50 or 60 agreements are going to be grandfathered and they seem to be implying that there is not going to be too much of a problem with that. I would be interested in your point of view. Do you think that it is going to be a smooth process or that third-party countries—Canada, for instance—will turn around and say, “You are not the EU. If we are going to have direct agreement with you, we want X on top of what we currently have with the EU”?
William Swords: As it pertains to CETA, I would look at what Prime Minister May and Prime Minister Trudeau said last September. They are looking for a seamless transition to a post‑Brexit environment, effectively carrying forward the benefits of what is in CETA. Again, the intent is to have a seamless transition post‑Brexit, as it pertains to CETA.
Mr Djanogly: Canada will not be asking for CETA‑plus with the UK.
William Swords: No, I did not say that. Effectively, both Governments are setting forward that they want to have a seamless transition in a post‑Brexit environment. If you are coming at it from an external viewpoint, you do not yet know what you are going to be able to negotiate or agree with the UK in a post‑Brexit environment, because you do not know where the UK is going to be or what the UK will have vis-a-vis the EU in a post‑Brexit environment. The intent of both Prime Ministers is that Canada and the UK will move forward with a seamless transition. That is the intent, as stated by both Prime Ministers.
Mr Djanogly: You see that as being quite possible.
William Swords: I certainly see it as being achievable. If you look back at the trading relationship between Canada and the UK, it is extensive and deep. The historic relationships are extensive and deep. The Chamber of Commerce of which I am President has been in existence for nearly 100 years, so there are deep commercial ties between both countries. To the extent that the intent is to have a seamless transition, it is perfectly possible to have a seamless transition.
Christophe Bondy: There is probably a distinction between, if possible, entering into rollover agreements that try to hold things in their place, much the same as what the UK is thinking about doing with the EU during an extended negotiating period, and the ultimate deal that the UK enters into with a Canada, a Japan or any other third-party state with which the EU already had an agreement. As Mr Swords rightly says, the agreement that is negotiated will very much depend upon what the UK’s situation is vis-a-vis the EU. Traditionally for Canada, the UK has been a jumping‑off point into the EU, and being established in the UK meant that a bank, for example, could passport into the rest of the EU. The value of that could be significantly reduced, depending on the access that the UK has to the EU.
In addition, there will be issues with regard to rules of origin and tariff‑rate quotas for sensitive products. What I see is that, hopefully—and I think it makes rational sense for both sides—they will enter into some sort of freezing agreement, if possible. There are then going to be negotiations afterwards and I assume that there will be parallel negotiations with every other party with whom the EU has already done free trade agreements.
Mr Djanogly: I agree with you, but I do not see either of those answers falling into the seamless category.
Dr Bartels: Could I just elaborate? I agree with my witness colleagues on the substance. One can distinguish between what is going to happen on 29 or 30 March and what is going to happen at the end of the transition period. It is likely and possible—or maybe I should put it the other way round, possible and desirably likely—for there to be a seamless rollover of the existing arrangement with Canada on 30 March. That should take us until the end of the transition period.
Frankly, I do not really understand the reports that came through in the last few days of the new negotiation guidelines, where the idea was that, even if there is a continuation of EU law for the UK until the end of the transition period, somehow the EU is not necessarily minded to help out the UK with third-country agreements. That would essentially mean that you have free trade between the UK and the EU on current terms, but you would need to have rules of origin and other sorts of checks in place in order to prevent trade diversion for, say, Canadian products that go to the UK and then end up in the UK. It is meaningless to me. I really do not understand this at all, so I wonder whether the reporting is entirely accurate. Of course, the EU needs to be involved in all of this.
With EU assistance and good will, it is highly likely that there is able to be a seamless rolling‑over of third-country agreements until the end of the transition period, but I agree with my colleagues that that is quite different from what happens at the end of that transition period. That is not only for legacy‑hunting or opportunistic reasons, but it is also technical, to some extent. For instance, dividing up tariff‑rate quotas is an issue in the WTO. This is going to have to be done. Here one can foresee different outcomes depending on how helpful the EU is to the UK’s position.
Q558 Seema Malhotra: Thank you for coming to give evidence today. If I could ask my first question to Mr Bondy, I wanted to pick up on something that you said a little earlier, which was your advice to the UK Government to study the benefits the UK draws from the EU and study how the EU functions. Do you therefore believe that this has not been done sufficiently and, if not, why not? How would you describe it?
Christophe Bondy: I cannot really say whether or not it has been done sufficiently, because I am not fully aware of what has been done in terms of internal analysis. I know that, even before the issues of Brexit arose, a couple of years before, a series of studies were done by the UK Government about how the European Union functions. I guess my comment was prompted more by some surprise at hearing some comments from last week’s meeting to the effect that one only needs to enter into mutual recognition agreements. It suggested to me a lack of understanding about how the European Union functions, the different pillars of the European Union and the benefits that are drawn from that. That is all that I would say on that.
Q559 Seema Malhotra: You also highlighted the sectoral analyses/impact assessments, the rules of the road and what different sectors may depend on, in terms of the legal basis by which they may trade across the European Union. Would you be able to give an example of something that you think could be a particular risk for a particular sector that may have struck you from your review of the sectoral analyses?
Christophe Bondy: I have not studied all of the sectoral analyses in detail, but one of the more telling and pressing issues for the UK, I understand, is financial services. You are functioning in an environment in which you can passport. There is not perfect access in financial services, but that is dependent on a series of understandings and agreements. Therefore those would need to be replicated.
One of the questions I have myself is how these things can be done in isolation, because of the way things work in the EU. Taking account of Dr Bartels’ comment that sometimes it can be carved out, it is always carved out on a rules‑taking basis. If you are participating as, say, the Ukraine in certain aspects, it is because you are fully compliant with the EU‑determined rules, not jointly determined but EU‑determined. When we say EU‑determined, those rules were developed by the UK along with its other EU partners. They are broken up into common rules on a huge range of products and services, some elements of mutual recognition, but also a common playing field in terms of competition law, data protection and the environment. They all fit together. You would have to look at the specific mechanisms for each of those sectors, but also the general functioning and underlay of trade in services and goods in the EU.
Seema Malhotra: The rule‑taking point would be consistent for all the other models of having a trade agreement with the EU as a third country.
Christophe Bondy: It would not be for a trade agreement. The difference between a trade agreement and a single market is that, in a single market, there are rules that are deeply harmonised that are jointly developed for all member states. You can either be a member state of the European Union and be on the bus, or you are Norway and you are in the sidecar attached to the bus, but you are all going in the same direction. With a free trade agreement, you have regulatory autonomy and you have borders.
For Canada, it was a huge step forward to get rid of the walls that tariff barriers create, for example, or rules that say, “No Canadian need apply”. There are lots of those things. That is great but, if you step over the border, you have to show that you are compliant with the local rules in terms of provision of services. You have to show that your products meet the compliance rules in that new regulatory space. In practice, that can be a significant barrier, so these things are gradations. In a trading arrangement, if that is what the UK wants—if it just wants a free trade agreement and it wants to retain complete regulatory autonomy—it can do that, but there will be trade barriers in the sense of those regulatory conformity issues.
Q560 Seema Malhotra: That will be consistent whatever your free trade agreement, if you want access, partial or otherwise.
Christophe Bondy: There are different elements of attempts at harmonisation. There is some harmonisation of regulation at the goods levels and some mutual recognition on the services side in the CETA model. With TTIP they went a step further with attempts at regulatory co‑ordination. Certainly as between Canada, the United States and Mexico with NAFTA, we have had that for 25 years. There have been elements of regulatory co‑operation and co‑ordination across a range of things, but there are still borders. There are still lines at the border.
Q561 Seema Malhotra: Could I just ask the opinion, both of you and of Dr Bartels, of the Institute for Government report that recently came out and was looking at existing agreements and possible precedents for an agreement that could go further than Canada as well, so to different models, regulatory alignment being one key issue it picked up on? It proposed a three‑tier model for UK-EU regulatory partnership. Have you had a chance to look at that and do you have views on their model and its feasibility, if I could put that to Dr Bartels first?
Dr Bartels: The important point in discussing any aspect of the future trade relationship between the UK and the EU is to remember that we start from a position of complete convergence, either by way of harmonised legislation or by way of mutual recognition of each other’s legislative frameworks. That means that, if one is talking about normal trade agreements, one has to bear in mind that the negotiations there start from the opposite point of view. That means, for instance, that one can look to WTO law, its rules on discrimination and its rules on members not imposing unnecessary barriers to trade on each other’s products.
If one looks at all this is a precursor to that report and if one looks at the current situation, which is one of complete convergence because of the single market, what we have is the EU and the EU member states recognising UK products and UK services as being equivalent to their own. Either there is harmonised legislation or mutual recognition. So long as those legal regimes continue, I cannot see any reason why the EU should not be obliged to continue this type of recognition. This is something that the EU negotiators do not accept, but it follows from WTO law, with one exceptions to do with financial services, for instance where there is a massive gaping hole in the prudential carve‑out. This is the starting point for understanding the Institute for Government’s report. The essence of it is that the more one diverges from the existing situation the less one can press the case that the EU is obliged to continue to recognise UK legislation, standards and so on. Continuation is the key concept here.
That puts the UK‑EU relationship in a completely different position from any other trade agreement. The only other trade agreement that I have encountered that has anything resembling the EU’s mutual recognition and to some extent harmonisation model is the agreement between Australia and New Zealand. Even that agreement has many more carve‑outs than what one sees in the EU. Aside from that, even NAFTA does not really do much. CETA certainly does not do much. There are many blank sheets of paper to be discussed, they say. Regulatory co‑operation does not really exist.
I would also agree with Mr Bondy that, if one looks at the EU’s practice when it comes to harmonisation and mutual recognition, it is in all cases an unequal playing field, where the EU is the gorilla that essentially says, “Take our rules”. Sometimes there is window dressing that is called mutual recognition, but it is not; it is harmonisation. There has not yet been a case in which rule‑making has existed in a free trade agreement, other than in the Australia‑New Zealand context.
Q562 Seema Malhotra: If I could just ask Mr Bondy, I am particularly interested as a practitioner in what your response would be if presented with such a model. How would it be managed? Clearly the divergence that would need to be managed could take place through different means, whether that is the UK amending or retaining EU law or divergence from ECJ judgments. There would then need to be a decision about whether or not there was divergence that could lose barrier‑free market access or may not be consequential for market access. I would be very interested in your view about the practicality of such a model.
Christophe Bondy: It would be very difficult, given the complexity of trade in goods and services, and the dynamic nature of regulatory change and standards, to do that on a continual basis. Challenges would be posed, as Dr Bartels suggested, to the extent that the UK wishes to diverge. I have heard comments to the effect that this would give the UK freedom to enter into a stripped‑down regulatory space. If that is the way the UK wants to head, and that is a policy and political decision ultimately directed by the British people, then this kind of convergence is going to be increasingly difficult to manage.
From a technical point of view, I find it difficult to assume that one would just have the same kinds of open borders. If there is not deep harmonisation, there need to be checks. This is not even talking about the customs union and being outside of that, and therefore needing rules of origin and checks on your products. This is also not to talk about to what extent this would be politically acceptable to Europe. Going back to the comment about your starting point for the negotiations, this is not the way it has ever functioned for the EU.
Q563 Richard Graham: Good morning, gentlemen. I want to try to ask you about the concept of mutual recognition and the difference between the likely ability of the UK to reach an agreement on mutual recognition with the EU in many areas and what happened with the CETA experience. First of all, Mr Bondy, can you tell us a bit about what the issue was from a Canadian perspective with mutual recognition in CETA?
Christophe Bondy: Mutual recognition is an important aspect in seeking to liberalise trade in services. What CETA does is to put in place a framework in which the different professions at issue can seek to reach agreement on mutual recognition. Those agreements can therefore become, over time, part of the agreement enforceable. The issue often is, and certainly was for Canada, that the central level of Government does not have the constitutional authority to suddenly, willy‑nilly, seek that.
Q564 Richard Graham: In a nutshell, basically Canada could not arrive at a mutual recognition agreement. Is that a reasonable shorthand?
Christophe Bondy: The ambition was different. The ambition was to set in place a framework in which that could happen, but that was also an issue on the EU side, because of different levels of regulation for professions across the EU. Of course, this is only one element of trade in services and one element of overall trade.
I heard last week the suggestion that mutual recognition agreements were the solution to everything but, in terms of European trade, they are only one piece of a much bigger puzzle. They are alongside harmonised rules and regulations. They are alongside a level playing field in terms of competition, data protection, environmental and social standards. They are something to assist, but only one thing.
Q565 Richard Graham: There is an absence of mutual recognition of professional qualifications. What impact did that have on the restrictions of the services agreement between Canada and the EU?
Christophe Bondy: In practice it means that, where one says that one has access to a particular profession, where there is no reservation taken on a national treatment or market access basis, a Canadian can show up and provide that service, but the Canadian still has to become a member of the local association. They have to become recognised somehow, so a doctor could not suddenly show up in Germany and provide medical services. They would have to somehow become certified through the German system. In practice that is a barrier.
Q566 Richard Graham: Dr Bartels, by the way, I agree that the Australia‑New Zealand agreement is probably the most interesting model for us to look at if we have to look at other models. In terms of the differences between the agreements that the EU has with Canada and Norway, the whole issue of regulatory alignment and mutual recognition is pretty key. How do you see that playing out in an EU‑UK negotiating context?
Dr Bartels: First of all, this may be unnecessary but it is a useful reminder. Mutual recognition has two quite distinct flavours. One is mutual recognition of conformity assessment, which is essentially testing, labs, law societies, certificates and that sort of thing. That is relatively easy to agree on; it is just saying, “Your labs can test your products and services against our standards”. What we are talking about here is far more difficult, which is the actual standards themselves. That depends on trust. Most countries, unfortunately, do not trust each other’s regulatory frameworks. That is just the reality.
How does it work in the situation of UK‑EU trade? Once again, it is critical to remember that, today and on Brexit day, there is trust by law. The obligation, and an obligation it is, is to recognise standards that apply to goods and services from other countries within the EU, with some exceptions. It is presumptive only but that is the starting point. That starting point does not go away, in my view, as negotiations continue on the future trading relationship. In my view—and I do need to say that not everyone agrees with me—this starting point is also protected by WTO law.
Q567 Richard Graham: Mr Swords, from your point of view, are your members in the UK convinced that this new access to Canadian public procurement markets is actually going to translate into large numbers of contracts or are there all sorts of rather less visible non‑tariff barriers, which might well prevent EU and UK businesses from actually winning any of these public procurement tenders?
William Swords: From the opinions that have been expressed to date, the membership is quite excited and optimistic by the opportunity that the agreement provides to them. In particular, a number of firms are already active in the Canadian marketplace in terms of bidding for contracts.
Q568 Richard Graham: Are you aware of whether anyone has won anything?
William Swords: Yes, there is a firm called Turner & Townsend that has contracted a £34 million contract for the central building in Ottawa, which they won against local competition. They are also looking at the fact that the Canadian Government have established an infrastructure bank to assist in financing projects around infrastructure and otherwise, so the membership is quite interested in and quite excited about that.
Q569 Richard Graham: Is the free movement of professionals, which there seems to be more scope for in the Japan agreement, something that in retrospect your members would have been interested in, had CETA provided it?
William Swords: CETA provides for the free movement of professionals connected to contracts and to work that is won in Canada. The additional access arrangements for movement of staff, which flow through CETA, are quite beneficial to our members on both sides of the Atlantic. They are quite pleased by what has been achieved by that agreement.
Q570 Richard Graham: Lastly, Dr Bartels, coming back to some of the aspects that have been suggested, sectoral agreements have been suggested might provide access to a partial single market. Do you see any value in that being an area to be explored in the UK‑EU talks?
Dr Bartels: If we are talking about sectoral agreements, we need to situate them within full free trade agreements meeting the WTO conditions, both in goods and in services. In goods that means that the agreements cover substantially all of the trades and, in services, the agreements cover substantially all the service sectors in theory. In reality, they do not, but that is the legal position. Within that framework we can talk about enhanced market access or recognition, for instance. Certainly the more recognition one can achieve the better.
Q571 Richard Graham: Are they conditional on a future full regulatory alignment?
Dr Bartels: According to which standard? In WTO law, which sets the overall framework, they are not. In logical or economic terms, they are not. In terms of the EU’s interests and negotiation position, they are.
Q572 Peter Grant: Good morning, gentlemen. If we are looking at CETA as a possible starting point for a relationship between the United Kingdom and the European Union, to what extent was the framework and the content of CETA tailored to the specific trading relationship that Canada had with the European Union and how does that differ from the relationship that the United Kingdom currently has with the EU?
Christophe Bondy: One point I would make in response to that is that there were comments last week to the extent that one always starts from a blank piece of paper. That is not actually the case. If you are starting with a free trade agreement model, Canada of course had its NAFTA experience and also subsequent free trade agreement experiences with Chile, Peru and other partners. The EU had previous free trade agreement negotiating experience with partners like Korea, so one must not start from a blank piece of paper. A free trade agreement will have a certain classic number of elements: national treatment of market access for goods, services chapters, procurement and so on. Then you try to say where you can achieve more access, better standards and some new issues you want to put on the table like e‑commerce. You start working from there.
The challenge here is the single market. Norway is a far different model from a free trade agreement. At the start of a negotiation, you typically have some level of convergence about what it is that you are ultimately seeking to achieve. There are always going to be difficulties and contentious issues, but you are starting out with some agreement about what it is that we are seeking to achieve here. Is it a free trade agreement or is it something else?
Dr Bartels: I would add that it is important to remember that free trade agreements are not only technical negotiations, much as I like that aspect of them as a lawyer, but there are economic interests behind them. The economic interests that sit behind free trade agreements of the usual type are a combination of export‑market‑seeking but, on the other side, domestically, protectionism. This is where the current negotiations between the UK and the EU will be completely different, because there is no protectionism. Of course, there is in certain sectors and services. It is not perfect, but it is nothing like a normal free trade agreement.
That means that, from an economic point of view, as well as from a regulatory and technical point of view, the situation is quite different. That economic difference persists even if the EU negotiation side shows you its doomsday chart and you end up, with all respect, with Canada as your starting point. That does not change the economic fundamentals and that means it is much easier for both sides, if they want to, to argue for freer trade than they would be able to in a normal trade agreement.
Of course, having said there is no protectionism I am simplifying somewhat, because there is opportunistic protectionism. The EU might conceivably like a slice of financial services but, if the EU wants to, it is much easier to face down opportunism than to face down a company that says, “If we have trade liberalisation, 20,000 workers are going to lose their jobs”.
William Swords: I would answer it slightly differently. One of the key characteristics of the CETA process was extensive consultation with industry and extensive consultation with business during the iterative phases of the agreement. There was backwards‑and‑forwards dialogue with the industry and all of the key participants while the document and the agreement were being crafted. There was extensive discussion and dialogue with the industry effectively to arrive at the agreed position for the country and, on top of that, extensive dialogue and discussion between the provinces and the federal government, again to arrive at what is an ideal, optimal position for the country going forward. Extensive dialogue is how I would characterise it.
Christophe Bondy: I would add to what Dr Bartels said. It seems to me that, looking at this as an outside observer, although I live in London so am affected, from an economic point of view one also has to take into account the economic value to the EU of the integrity of the European Union. German businesses doing business across the European Union draw benefits from that. If the European project becomes unravelled from trying to accommodate a different approach, the kind of access and the free flow of goods and services within the European Union will also be at threat. There is not just a political imperative on the part of the EU to maintain the rules of the road, but there is also a very strong economic one. As for trading with the UK or trading with the entirety of the rest of the EU, that is also something you will have to take into account. I will leave it at that.
Q573 Peter Grant: If you look at how the United Kingdom views its trading relationship with the EU and how Canada views its trading relationship, on the one hand they are both similar. The EU is Canada’s second‑biggest trading partner and the United Kingdom’s biggest trading partner. From the point of view of the UK or Canada, the EU is important. Looked at from the EU’s point of view, although Canada is not a huge exporter to the EU, what they export is stuff that the EU has to import. They tend to be minerals, metals and things that the EU cannot produce enough of to meet its own demand. A lot of what the EU imports from the United Kingdom they could produce for themselves, if they wanted to. Is that likely to create a difficulty, in that it is easy to sell to European businesses and to the European public. They have to import from Canada, because there are important things that we cannot make for ourselves, whereas imports from the United Kingdom might be seen, from European eyes, to be competing with businesses in mainland Europe. Is that something that is likely to lead to pressure on the European Union from the citizens to perhaps be a bit harder in the negotiation with the UK than it was with Canada?
Dr Bartels: I would answer that by reference to what I said before. Yes, there is that protectionist pressure, but it is opportunistic, because the status quo is that there is no protectionism of that kind between the EU and the UK. It is quite different from a status quo where protectionism is already built in and assumed by the domestic industry.
Christophe Bondy: On that point, I would say that no one ever saw an opportunity and did not act opportunistically in these types of discussions. You have hundreds of local service providers and local producers. Speaking in metaphorical terms, a free trade agreement is like two parties on either side of a river who are considering building a bridge across that river, because they think it will be in their economic benefit. That is what CETA does. It provides for Canada and the EU real economic benefits. What the UK’s situation is with the EU right now is that that bridge has been there for 45 years. Communities have been built up on either side of it, there are buildings on the bridge and you are deciding what part of it you want to blow up without bankrupting yourself. It is an issue of what part of it you are going to keep, if you can.
Dr Bartels: One can see the distinction in terms between opportunism and normal protectionism. Normal protectionism is a problem because, essentially, the Government need to tell people in their country that there is a risk that they are going to lose their jobs. That is essentially what trade liberalisation does. It is not a by‑product; it is the point. “You’re going to lose your job. Don’t worry; you will retrain”. That is the thinking. That is quite different from opportunism, which is looking at a new situation and saying, “Maybe we’re going to have some new jobs”. Facing that down by saying, “Do you know what? Maybe you are not going to have new jobs” is much easier than facing down the industry and saying, “Bad luck, you’re going to have to lose some jobs”.
Q574 Peter Grant: This is the final question from me, Chair. David Davis himself at one point referred to a possible CETA‑plus or a CETA‑plus‑plus as the basis for our ongoing relationship with the European Union. What are the specific benefits to the United Kingdom of exchanging full single market customs union membership for CETA with one, two or three pluses at the end of it? We can all see the disadvantages; what are the actual benefits that we would get from changing from single market membership to a CETA‑type relationship? Are there any?
Dr Bartels: There are some. They are not as easy to see as the downsides. One is that it enables the UK to have an independent trade policy and an independent regulatory policy. Doing this of course means divergence from the EU, so one always has to look at what costs that might imply in terms of UK‑EU trade but, in terms of third countries, there can be benefits.
An obvious example would be high tariffs. Look at the tariffs on fruit and some vegetables that are not produced in the UK, but are produced elsewhere in the EU, citrus for instance. There is no particular reason why the UK needs to have high duties on citrus. It is to protect the Mediterranean countries that grow citrus. It would be much easier to import those products more cheaply into the EU, with benefits to consumers. There are other examples like that as well, so all of those are a benefit. Of course, if the UK is to go down that route, or even more so with deregulation, let us say, which reduces costs, one has to balance those advantages against the costs that might come from not being able to trade to the same extent with the EU.
Q575 Mr Whittingdale: Can I come back to the initial question from our Chairman about your experience negotiating with the EU? You said that you were negotiating with the Commission rather than individual member states. Was there a Michel Barnier in your talks?
Christophe Bondy: Yes.
Q576 Mr Whittingdale: Who was that?
Christophe Bondy: It was Mauro Petriccione, a very nice man. He was the chief negotiator. That is who I am thinking of.
Q577 Mr Whittingdale: You have also said that you needed to be very clear about what you were seeking to achieve from the negotiation. When you started the negotiation with the Commission, was the Commission equally clear in their ambitions? Did you find that, as you would expect in a negotiation, both sides’ positions moved closer together as the negotiation went on?
Christophe Bondy: We were clear in relation to what it was that we were doing. We were seeking to develop a free trade agreement. In the context of a free trade agreement, there are always going to be differences of view about how much beef can come in, which geographical indications are going to be accepted, which reservations are going to be allowed against services, and so on and so forth. In terms of generally what it is that we are doing, that was part of the scoping exercise, yes.
You must also know that, in a free trade agreement negotiation, one fans out into about 25 different tables. Someone is dealing with rules of origin; someone is dealing with procurement; someone is dealing with services and so on. There are sub‑negotiators for each of those tables, lawyers who work with them and technicians from different departments. You have these parallel negotiations going on, which feed up to the chiefs. What tends to happen is that, over time, you get rid of the easy issues. You agree to some things and you can park them. It inevitably comes in the end to the most political and most difficult issues.
Q578 Mr Whittingdale: I assume that your negotiation did not take place with quite the degree of obsessive interest of the media and with the amount of attention of Parliament devoted to it that we are experiencing here. The Canadian media presumably did not devote every hour of their political programmes to discussing the progress of the CETA talks.
Christophe Bondy: No, it went in fits and starts. When there seemed to be significant progress or if things seemed to be breaking down, then it might pop up in the news. When we got to crunch points, it would pop up in the news and particular aspects of it could be more controversial in particular regions. These are always things that come down into the weeds. If all of a sudden you are talking about fisheries, some of the Atlantic provinces are more concerned. The level of media attention is a sui generis situation here in the UK.
Q579 Mr Whittingdale: When you set out your clear objectives about what you wanted to achieve from the talks, where did you fail? What ambitions did you have that you were not able to reach an agreement on?
Christophe Bondy: I am not really at liberty to reveal the secrets de délibération. We achieved a very high standard agreement. It achieves a significant level of access that Canada previously did not have in a free trade agreement context, in that it removes many of the express barriers. One can look to areas and say it would have been nice to get more, one area for example on temporary entry of workers. That is very important in terms of the provision of services. It means that companies can send intra‑corporate transferees, graduate trainees or corporate service suppliers over for a short period of time in order to service contracts, in order to assist with the setting up of a business, and so on and so forth. That was an area of negotiation that was particularly contentious, and the United Kingdom took a very restrictive position on temporary entry. Many of the standards in the CETA negotiation in terms of temporary entry the UK was well under. There were categories of temporary entrants that the UK would not even recognise, so many parts of the EU were much more ambitious in allowing temporary entry to facilitate trade and services than the UK was. If you want to change that please let us know.
Mr Whittingdale: I suspect we will not, but we will no longer be in a position to influence.
Christophe Bondy: I should clarify too that my position and my comments here today are in my personal capacity. I am not representing the Canadian Government.
Chair: That is well understood.
Q580 Mr Whittingdale: Can I just press you a bit? I understand that you cannot go into details of confidential areas of the negotiation, but would you say that Canada emerged with pretty much everything it wanted to get out of the trade agreement, or were there some disappointments?
Christophe Bondy: I think we achieved a high‑standard trade agreement that will give significant new access. On the tariffs side, as of September 2017, 98% of Canadian goods will be able to enter the EU market without tariffs. Canadian companies can bid on a market for procurement that is estimated to be valued at $3.3 trillion annually. There are estimates that the trade agreement will increase bilateral trade by 20% and boost Canada’s income by $12 billion annually. Some 80,000 new jobs are expected to be created. These are good things.
Q581 Mr Whittingdale: There are some areas that the trade agreement does not cover, particularly in services. One I noticed in our briefing was audio‑visual services. What happened here? Did you not wish to have it or did the EU create difficulties about reaching an agreement in that area?
Christophe Bondy: There were comments to that effect earlier about this being a particularly sensitive sector. When one has sensitive sectors, one takes reservations against those sectors.
Q582 Mr Whittingdale: Why is it particularly sensitive? Is it language?
Christophe Bondy: In the Canadian context, it is linked to culture. We live next to one of the biggest producers of entertainment products in the world and, in that context, it can be difficult to get a voice and so there is a long tradition in Canada of supporting a national broadcaster, our equivalent to the BBC, and national television programmes. In the EU, culture is a very sensitive thing, in particular for France but for other countries of the EU as well. It is just something that one takes into consideration.
Q583 Mr Whittingdale: I can recall having conversations with the Canadian Broadcasting Corporation where they were clearly very anxious about the extent of American influence into Canadian television, but you think that the same sorts of concerns influence this discussion.
Christophe Bondy: It is a sensitive sector.
Q584 Mr Whittingdale: You have talked about setting out what you wanted to achieve. Did you have what we would call red lines?
Christophe Bondy: Yes.
Q585 Mr Whittingdale: What were your red lines?
Christophe Bondy: I cannot tell you that.
Q586 Mr Whittingdale: Let me approach it from a different way. Was there, for instance, any suggestion that Canada should be subject, even indirectly, to the jurisdiction of the European Court of Justice?
Christophe Bondy: That was not the discussion. We were not seeking to become a member of the single market.
Q587 Mr Whittingdale: Even in terms of things like the regulatory alignment, which you have accepted.
Christophe Bondy: It is a different discussion. In the European Union context, you are either a member of an organisation where you jointly develop the rules and, in that context, have to have a single determinant final court for saying whether or not someone complies, whereas Canada and the EU remain two distinct regulatory spaces. It is not even a question that is on the table in the same way. With that being said, one also understood that, for a Canadian business being established in Europe, that Canadian business had to comply with European rules. Then ultimately being compliant is a question to be determined internally with EU law, subject to those rules being applied in a discriminatory fashion. That would be an issue to raise separately.
Q588 Stephen Timms: Just to pursue those questions a little bit further, were you always confident, Mr Bondy, that you would secure an agreement or were there moments of doubt in the process of negotiations when you felt it might all fall apart?
Christophe Bondy: The negotiations proceeded steadily. There are different image charts I have seen of the way that different countries proceed with negotiations. Some of them have a cloud of unknowing and you do not know. This is a very geeky trade negotiator thing, but the Canadian image is, “This is what we want. This is what we want. This is what we want. This is what we want”. You go through it and keep showing up to work. There will be issues that will arise along the way and you address them. As I say, one of the things that facilitated the discussions throughout was that we both knew what we were looking for in terms of the macro.
Q589 Stephen Timms: There were no real crises in the course of those discussions.
Christophe Bondy: There would certainly be discussions and things that blew up in the media. As you probably all know, there were issues about the coming into force of the agreement. I am an expert in investment treaty disputes. I was counsel to Canada in many of these disputes and I still principally do that work, so there was a lot of controversy about that aspect of that agreement. We put in place many deeper forms to the agreement to try to address some of those concerns.
Q590 Stephen Timms: Did it end up taking more or less time than you had expected at the beginning?
Christophe Bondy: It took way more time.
Q591 Stephen Timms: Roughly how long were you expecting it to take?
Christophe Bondy: Put it this way. I got involved in the negotiations in 2010 and there had been scoping exercises and things before the start of the negotiations. In 2010, we were going to try to close this. I do not know how many times I heard, “We’re hoping to close right after the next round”, and we ended up concluding the text before the legal scrub in 2014. The legal scrub went on into 2015. There were political issues about how it would come into force in Europe that dragged on into 2016, and it finally came into force in 2017.
Stephen Timms: The actual negotiations took about five years.
Christophe Bondy: It was seven years, 2009 to 2014.
Stephen Timms: That is five years, 2009 to 2014.
Christophe Bondy: Yes but, between 2014 and 2015, there were also continuous significant discussions about some elements of the text. Even in 2016, a framework agreement was put in place to address some issues.
Q592 Stephen Timms: When you started in 2010, roughly when did you think it would all be over?
Christophe Bondy: We were hoping at that point for a couple of years, but again that was based on scoping exercises that had started in 2007 and discussions about the basis. Usually in trade agreements, one of the first key issues is which model we are starting from. Whose model are we starting from? Once you agree, “Okay, we can start from that”, you work around the details. That is why I mean it is a bit misleading to think it took place only between 2010 and 2014.
Q593 Stephen Timms: Our Government say that an EU‑UK agreement can be concluded quickly, because the starting point—and you have mentioned this already—is currently complete harmonisation. Do you think that that will significantly speed things up compared to the process that you were involved in?
Christophe Bondy: I think it is a completely distinct situation. The main issue is that you are asking of the EU something that it has never given. You are asking to be part of the club but not to play by all the rules, or to have the benefits of the club but not play by all the rules. That will pose a huge political and economic challenge. Then you work that out into the UK’s continued participation in a range of rules‑making and administrative institutions. It is difficult to compare, because you are not asking for the same thing from the start. I am not sure what the UK is asking for, frankly.
Stephen Timms: From your point of view, it does not look like a quick exercise ahead.
Christophe Bondy: I see it descending into a lot of political acrimony. Look, it depends on the position that the UK takes. Michel Barnier has been very clear: do you want CETA with some additions or do you want Norway? In a sense, the starting point dictates that. The interesting thing—and I was mentioning MFN issues earlier—is that CETA has a most favoured nation exemption for the EU entering into other EEA‑type arrangements. If the UK wants to be Norway, you do not have to extend those benefits to Canada or other free trade agreement partners. But that means you want to be Norway.
Q594 Stephen Timms: You have explained to us that the CETA negotiations did not secure any mutual recognition on services, but just a framework through which that could be achieved in the future. Was that all that you intended at the start and how long do you think it is going to be before that framework delivers actual agreements?
Christophe Bondy: That idea was the starting point. There is also a chapter on domestic regulation in CETA, and again it is setting down some ground rules that regulations should be no more complicated than necessary, so it was intended from the start to put in place a framework. It does facilitate that over time. These agreements get rid of the obvious barriers and then, over time, tilt the playing field in the direction of more fluid access, but again there is always going to be a border.
Q595 Stephen Timms: How long do you think it might be before there is an agreement through that framework?
Christophe Bondy: I assume that those efforts are already ongoing. There are bodies that are set up as a joint regulatory discussion group. The thing is that it has to get down into the weeds. It has to be talking about pharmaceutical products and safety regulations on consumer goods, so that you get the right technicians in the room and they start to understand that different approaches might achieve the same standards. It is something that takes a long time.
Q596 Stephen Timms: Is there any public information about which area the first such agreement might be in?
Christophe Bondy: I am not sure if the Canadian Government, the UK or the EU have published that information. I am sure it must be available though.
Q597 Stephen Timms: Can I just raise one other topic? There have been some difficulties between the EU and the US over the exchange of personal data. I know that CETA does not cover data, but we were told last week that Canada already had a data adequacy designation from the European Commission, so that has been resolved. Do you know how that adequacy determination was secured? Did it happen alongside the CETA negotiations? Was it difficult or was it fairly straightforward?
Christophe Bondy: I was personally not involved in any of those discussions. I can tell you that CETA contains provisions relating to data, for example in financial services, in the transfer of processing of information, article 13.15: “Each Party shall permit a financial institution or a crossborder financial service supplier of the other Party to transfer information in electronic or other form, into and out of its territory, for data processing”. “Each Party shall maintain adequate safeguards to protect privacy, in particular with regard to the transfer of personal information”. There are provisions with regard to trust and confidence in electronic commerce, with regard to the establishment of or the protection of personal information. It is touched upon in the agreement, but I was not involved in these separate discussions.
Q598 Stephen Timms: Mr Swords, are you able to shed any light on this?
William Swords: I would just come back in a slightly different way, if I may. If you look at Toronto today, Toronto is now the second‑largest financial services hub in North America. That was achieved while it was a member of NAFTA. If you look at the Canadian banking system, it has been consistently rated as the soundest banking system in the world, by the World Economic Forum for the last five or six years. None of the Canadian banks needed a bailout. None of the Canadian banks needed state support. In the context of financial services, it is important to realise where Canada is coming from and where the Canadian system is coming from as it approached Europe. That was achieved and constructed alongside the US system and through the NAFTA process, so the context of where Canada is coming from, in terms of financial services, is important to bear in mind.
Q599 Sammy Wilson: Can I come in on the timing issue, Mr Bondy? You have mentioned the length of time it took for the Canada‑EU agreement, but are there not significant differences as far as the EU is concerned? First of all, we have a date for leaving, so there is a timescale already established there. Secondly, in your case it was adding to the trading experience of the EU. In our case, if we do not have an agreement, there are huge implications for EU trading with the United Kingdom. Thirdly, we are starting from a point where there is significant convergence anyhow. Does that not make the timescale that you were talking about for Canada totally irrelevant to the timescale that is likely to pertain in these talks?
Christophe Bondy: No, it just makes your timescale really scary. It certainly puts enormous pressure on the UK and the EU. Again, with regard to regulatory convergence, current regulatory convergence is a benefit that the UK currently has vis-a-vis the EU economy, but that is almost not the point. The point is what you are going to do on day two. What are you going to do on day 10? What are the institutions that are going to be in place that will allow you to manage that regulatory independence, going forward? That strikes me as something that could be incredibly contentious.
Q600 Sammy Wilson: One of the points you made was that the political acrimony could become the issue and that could drag out the talks. If the timescale is scary for the United Kingdom, is it not equally scary or perhaps scarier for the European Union, given some of the studies that have been done recently about the costs to the European Union of no deal? Therefore, some of the kinds of issues you have been talking about may well be overcome, because there is an impetus on the EU negotiators as well to strike the deal and strike it in time.
Christophe Bondy: You are going to have to ask the European Union negotiators about that, but I go back to my point that there is both a political and economic calculation, which must be going on in Europe, about maintaining the value to Europe and maintaining the integrity of the European Union. That is something that I can only imagine they are counterbalancing against their relationship with the UK.
Dr Bartels: I will just add a little bit. My approach to this is slightly different. The situations are radically different, as Mr Bondy says, but I would also say that the timescale is definitely able to be much shorter for a UK-EU agreement than for a normal trade negotiation. The reason for that is as I mentioned before. The economic fundamentals, in terms of what businesses are used to, what they are able to do, what the regulatory systems say and how they speak to each other, can all remain unchanged. That is totally different from any other situation. Yes, of course any negotiation can be dragged out, but it does not need to be dragged out in this case.
Of course, it is true that the EU is going to have to make a calculation. If it lets the UK slide out with almost all of the benefits, is there a risk that Poland or Hungary might go tomorrow? I do not think it takes very long to make that sort of calculation. That does not mean that there are not technical issues. I do not see establishing institutions to manage divergence as being nearly of the same degree of difficulty as having to haggle with every single industry on rules of origin because, if you do not, they are going to lose jobs. The situation is entirely different and I cannot see that looking at CETA’s seven years is of any significance at all to the situation.
Q601 Sir Christopher Chope: Dr Bartels talked about mutual recognition of regulatory standards. You said that you regarded the starting point following our leaving the single market as being protected under WTO rules, but then you have said that that might not be an opinion agreed by everybody. Can you expand upon that, please, because this is absolutely fundamental to those of us who believe that we will be better off relying on WTO rules?
Dr Bartels: Yes, I can happily. I will speak first of all about goods, because services are a little bit different. In the area of goods, two main agreements are relevant. One is GATS, which everybody will know about. The other is the Agreement on Technical Barriers to Trade. Both of these agreements prohibit discrimination between like products. The second of these, the TBT agreement, goes further and says that your domestic regulations cannot be unnecessarily trade‑restrictive, seen in terms of your policy objectives.
The point here is to say that the EU has regulations that admit UK products as being sufficient to meet its regulatory objectives on Brexit day. Why, on Brexit day plus one, would it be able to refuse to accept those UK products into its market? I would say that the onus is very much on the EU to say that it can no longer trust those products as being acceptable in the EU market.
What complicates this and where some people will disagree with me is that there are also provisions in this agreement encouraging mutual recognition agreements of other countries’ standards. Some people say they are carve‑outs, which mean that the EU is able to recognise another country’s standards but it does not have to. I do not see that as a carve‑out; I see that as an additional set of obligations, which do not undermine the obligation to be no less trade‑restrictive than necessary, which is fundamental to that agreement.
There is something similar in the services agreement. It does not allow one country to get the benefits that other countries gets as members of a club like the EU, so it applies somewhat differently there, although it applies between third countries to a large extent. Whatever Canada gets the UK should be able to get for like services and so on, but that is a slightly different scenario. The most important point is that, for goods, my view is that mutual recognition, as it currently exists, should be guaranteed as ongoing under WTO law. Of course it becomes much more difficult the more UK regulations start to diverge from EU regulations.
Q602 Sir Christopher Chope: Can I also ask about this issue of competence? Does the EU have exclusive competence in this area or not? We have had a quote given to us that, as of September 2017, the EU Commission described how the “debate on the best architecture for EU trade agreements and investment protection agreements is ongoing”. What is the best legal opinion on this?
Dr Bartels: On competence from the EU side, the key development in EU law and EU competence to strike trade agreements so far has been the opinion of the Court of Justice of the EU on the EU‑Singapore agreement. In that advisory opinion, the ECJ said that the EU had exclusive competence in the area of trade. Of course we know that, and what that covers is a range of issues where it was not certain that these issues would fall within the scope of that competence. What was left out was a critical thing for that agreement, for CETA and, quite possibly, for a UK agreement, which is investment. That is probably what the Commission is referring to when it says these discussions and thinking are ongoing. Of course, the Commission has always been very keen to say that what the Treaty of Lisbon says about investment means that all investment is within the trade policy under article 207 of the treaty. What the Court has said interrupted it a bit or whatever the metaphor is.
Sir Christopher Chope: Areas covering investment would have to be subject to all of the 30‑plus jurisdictions approving.
Dr Bartels: That is the current position, yes. I should also mention that there is another request for an opinion from Belgium, at the behest of Wallonia, on investor state dispute settlement, which these days is the principal means of enforcing investment provision. The reason that it is hard to give a definite answer to all of this is that not everybody would agree that the European Court of Justice’s reasoning on these points was perfectly clear, and it may have an opportunity to refine its thinking on these points. The result at least is clear, as we know it today, which is that investment is an area of shared competency, at least.
Q603 Sir Christopher Chope: What is the timescale for it being able to revise its opinion on this? You refer to a reference from Belgium relating to Wallonia. Is that something before the European Court of Justice at the moment or what is the status of that?
Dr Bartels: It is, but it is on a slightly different issue, which is to do with access to justice not undermining national courts’ abilities to determine investment matters and so on, so it does not actually touch on the competence issue from the same perspective. We will just have to wait; I do not think the timescale is going to be short for this. Also, politically speaking, the court has probably gone as far as it is prepared to do. I cannot really see that investment will be treated as an exclusive EU competence. That ship has pretty much sailed.
Q604 Sir Christopher Chope: Just as a general philosophical question, do you think that the European Union is interested more in protecting its own markets or is it actually really keen on promoting global free trade on a liberal basis, on the basis that it gives mutual benefit to everybody who participates?
Dr Bartels: I think it is both, really. The calculation in a trade negotiation is how to help your domestic industry both at home and abroad. If you are asking whether the EU or how far the EU would be prepared to sacrifice domestic industry in order to help a third country, simply for that altruistic reason, the answer would have to be not very much. You could say the same about every country in the world.
Q605 Mr Rees-Mogg: Good morning, gentlemen. Dr Bartels, can I ask one follow‑up question on something you said earlier on the transition/implementation period and the standing of existing free trade agreements? If the UK has left the European Union on 29 March 2019, with what Mr Bondy said about the agreements applying only to the territories of the European Union, how do those agreements continue in the implementation/transition period?
Dr Bartels: They do not. What I was saying about the UK benefiting only to the extent of its status as an EU member state essentially leads to the same conclusions. These are the two main reasons why these agreements do not benefit the UK. There would need to be a positive act or protocol agreed by all parties.
Q606 Mr Rees-Mogg: You said that was easier to do for the implementation/transition period than beyond that. Why is it easier to do it for two years, rather than to do it for five years or however long it takes to agree a further and perhaps detailed agreement?
Dr Bartels: The reason is that, if you take Canada as an example, Canada’s expectations under CETA, to some degree, depend on the trade relationship between the UK and the rest of the EU. When I said that it is easier to achieve a rollover until the end of the transition period, this is on the assumption that the transition period continues the current arrangement. Essentially there is no cost for a country like Canada, and a great benefit in not having any disruption, in continuing its participation in what will continue to be an internal market and customs union, which it is familiar with, until the end of the transition period. The reason that one cannot say that Canada might have the same interests following the transitional period is that we do not know and Canada does not know what is going to follow the transition period.
Q607 Mr Rees-Mogg: The argument about continuity and avoiding confusion applies beyond the transition period, at least to some extent.
Dr Bartels: It does, but there is an essential point to make about trade agreements, which is that most trade in the world these days is not in final products that are consumed in the country of destination, but in intermediate products, which then become parts of final products, which are then exported. A good example would be Northern Irish wings that go into Canadian aeroplanes that end up in the United States. From that point of view, if Canada is exporting intermediate products to the UK, which are then converted into final products that are sold on into the EU, it is obviously a massive problem if those final products cannot be sold into the EU. In that respect, the UK operates as a manufacturing hub. It is exactly the same if Canadian service suppliers setting up in the UK cannot then sell those services into the EU as easily as now. From a Canadian point of view, what it is getting out of the agreement with the UK is much less, because the downstream market has disappeared.
Q608 Mr Rees-Mogg: What I wanted to ask further is that you gave very interesting evidence on the benefits of being out of the single market, the regulatory benefits of being able to do deals with other countries. I wonder if you could expand on that and what the difficulties are that come from regulatory alignment with the EU, when you are trying to do trade deals with countries.
Dr Bartels: If the UK wants to reduce its costs of production by deregulating, and thereby is able to export more to third countries that are not so fussed, let us say, about the UK’s production standards, then moving away from alignment and deregulation is an advantage to the UK in that respect. The same applies in terms of imports: if the UK is prepared to lower its standards and thereby allow imports from other countries that meet different standards, for instance on production of chickens, to take an example, then that is of benefit to UK consumers.
Q609 Mr Rees-Mogg: Different standards are not always lower standards, are they?
Dr Bartels: No, that is right. There are two different types of divergence. One type of divergence is when it is a zero‑sum game. A classic example now would be headlights for cars. If the US says, “Your headlights need to be made of xenon” or “need to point in this direction”, and the EU says, “No, it has to be some other noble gas and point in a slightly direction”, if you are making a car you have to choose. That is different from standards that are in the form of quantities. If you say, “You can only call this a jam if it has 25% fruit”, then you are able to meet that standard but, if another standard says it has to be 50% fruit, then you can meet the first standard and also meet the second standard at the same time. That distinction between zero‑sum choice standards and standards where you can meet both at the same time is fairly important.
Q610 Mr Rees-Mogg: Standards can also be used as a trade barrier.
Dr Bartels: Yes, you might devise a standard that requires a product to use inputs or a production method that is prevalent in your country, for instance.
Q611 Mr Rees-Mogg: If we were to maintain regulatory alignment, then the difficulty third countries would face is that their imports to us would still effectively be bound by all the EU standards and obstacles to trade that there are from third countries with the EU. Therefore, the benefits of free trade and being outside the customs union would be lost to us and we would be a Norwegian‑style rule‑taker.
Dr Bartels: Yes, but of course there might still be benefits from having lower duties, if we are talking about a free trade agreement like with the EEA countries. Of course, you are quite right that the benefits of accessing a more deregulated market would disappear, because the rules would be the same.
Q612 Mr Rees-Mogg: The biggest advantages potentially come from removing non‑tariff rather than tariff barriers, because average EU tariff barriers are relatively low, even now. We discussed that in relation to Canada last week with the REACH regulations. The tariffs on chemical products under CETA have gone, but the chemicals still have to be registered with REACH, which is a big barrier when Canada has absolutely first‑world, copper‑bottomed, proper standards, because Canada is a very safe market. REACH becomes a non‑tariff barrier to protect EU businesses.
Dr Bartels: That is absolutely right. You could say the same about SPS standards for health and safety of food, which often, particularly when it comes to conformity assessment, are fairly high barriers into the EU. That is definitely true, but I would balance this by saying that, from a third country’s point of view, it can actually be an advantage to meet only one set of standards. If we are talking about the first type of zero‑sum game standards, it may be that the cost‑benefit analysis is that it is better to have higher UK standards that meet the EU standards and only have one production line than to have lower UK standards, sell more there, but have two production lines.
Q613 Mr Rees-Mogg: That is a business decision that companies can make and it is quite interesting that there are some agricultural producers that meet a Walmart standard, because that means they can sell to all the countries Walmart does business in and they meet all the subsidiary standards as well. Mr Bondy, I see you want to come in, but I also want to ask you a specific question, then you can add what you want as well. Canada, through NAFTA, has some regulatory alignment. What effect, if any, did that have on the CETA negotiations?
Christophe Bondy: To the extent that the CETA negotiations were not seeking to achieve the deep level of regulatory alignment that the UK has with the rest of its EU partners, it was not really an issue. There were certain things that were built into mutual recognition of regulations in the agreement. There was a recognition that there was going to need to be conformity assessments over time.
To Dr Bartels’ point, both for historic and economic reasons, Canadian regulations have grown up in a certain environment and there may be a North American way of doing things. I would hazard a guess that Canadian regulations may be generally higher than in the US, although I may be wrong in specific cases. There may be a certain way of doing things that is not imposed. There is not that kind of political union between the US and Canada, but it is just a matter of practicalities. That is because the US is our biggest market. They are our anchor tenant. One tends to trade with other countries that are proximate geographically and close in terms of values and habits, and that are rich. Canada pays attention to its relationship with the United States. The UK has historically paid very close attention to its relationship with the EU.
The point that I wanted to add before, when we were discussing the ability to enter into trade agreements, is that the EU has gone out and sought trade agreements around the world as a unified market. It has the weight of the richest single market in the world and therefore has a very significant negotiating power in those negotiations. One would go from being 27% of the world economy, or whatever the exact figures are, to in the range of 3%. That is the challenge that the UK will face, going into the world to negotiate on its own. It will have less negotiating weight, because it does not have the same size of economy, simply.
Q614 Mr Rees-Mogg: Does that not make the fundamental assumption that trade negotiations are essentially about reforming protectionism rather than free trade? If you actually think that opening up your markets is enormously beneficial, this argument that you need negotiating power does not matter; what we want to do is ensure that British consumers have access to high quality and cheaper goods. Opening our markets is enormously beneficial for them. All the EU does, because it is basically a protectionist organisation, is delay that process.
Christophe Bondy: In a trade negotiation, as Dr Bartels mentioned earlier, one is always seeking to consider the advantages or disadvantages. One of the advantages is the size of the market one is going to get to trade off against the potential competition that one might experience, and so it can only be part of the discussion about what it is worth to us to give up some of the barriers that are currently in place to get rid of particular levels of tariff, for example. Going back to Dr Bartels’ point, I can also see an advantage to the UK in entering into these agreements. Historically, one of the reasons that the UK has been an attractive place for investment from abroad is that it is a jumping‑off point into Europe, precisely because it has that deep regulatory integration.
The final point I would make about these trade agreements is that there is a perception that there are somehow low‑hanging fruit out there that the EU has not taken advantage of. I am not sure if any of you have been engaged in trade negotiations with India. If there are no trade agreements between the EU and other parts of the world, oftentimes it is for a very good reason.
Mr Rees-Mogg: As Dr Bartels pointed out, there are some genuinely low‑hanging fruit, which is removing tariffs on all those citrus products that the UK does not produce, to the benefit of British consumers.
Q615 Stephen Kinnock: Good morning, gentlemen. I wanted to focus a bit on this issue of the starting point for negotiations. You have made it absolutely clear that there are two basic models: it is either an EEA or an FTA model, such as the one with Canada. Taking that as the starting point, we therefore assume that the withdrawal agreement on which Parliament has been promised a vote in October will contain a chapter on the future relationship, and that chapter will either be an EEA model or a Canada‑type model. Given the Prime Minister’s red lines—she says that the UK has to leave the single market and the customs union—we therefore assume it has to be a Canada‑based model.
What I am interested in is, given the time constraints there are, how much detail you think there needs to be in that future relationship chapter of the withdrawal agreement to get the talks to a jumping‑off point that realistically delivers a new deal by the end of the transition period, which we assume will be in December 2020. If you could maybe cast your mind back to where you were in 2010, Mr Bondy, when you were starting the process of negotiating with the EU, what sort of detail should we expect and what we would say would be a credible starting point, as defined in the future relationship chapter of the withdrawal agreement?
Christophe Bondy: It would tend to be set out more at the high macro level in a kind of mandate. The European Union has become a lot better over the last several years at being transparent in its approach to trade agreements. It will tend to publish a mandate and therefore you have the objectives set out at a very high level. The challenge that I see here is that elements of the mandate, these so‑called red lines, are fundamentally at odds. I do not know if it so much that you would have a detailed chapter; before that you need some kind of common direction. If you want more detail, I guess you would drill down into all the institutions, administrative bodies and rule‑making processes of the European Union and say that you want to have these or a parallel version of them, as part of the ultimate agreement. That would be well beyond what a trade agreement usually achieves. It would be more Norway‑less.
I go back to this point. Dr Bartels was talking about the fact that there is going to be conformity, but there are still borders. With a trade agreement, you have to verify whether or not the products entering the country have conformity. Where do they come from? Do they meet rules of origin? The challenge in the EU‑UK context is about the basic assumptions about what we are seeking here.
Q616 Stephen Kinnock: If we are looking at Canada‑plus‑plus‑plus, we assume that the pluses there are in the services sector, particularly given that 80% of the British economy is in the services sector. Is it safe to assume that those plus‑plus‑plus areas will not be fleshed out in any detail in that future relationship chapter of the withdrawal agreement that will be before us this autumn, given your experience of the negotiating tactics? One assumes that the European Union will want to keep things as vague as possible.
Christophe Bondy: It is very difficult to make a comparison here. You can drill down into all of the underlying institutions of the European Union and say, “These are the things we would like to keep. These are the institutional arrangements and these are the regulatory arrangements. These are the bodies we still want to be a part of”. You could have your list at that level and I assume you will have a very different list. In that kind of a listing process, you may not have all of the details, but then the devil is in the details. To what extent does the UK want to start making and maintaining rules of its own? To what extent does it want to continue, together with its other EU partners, to generate the rules it has been generating for the past 45 years?
Q617 Stephen Kinnock: Mr Barnier has talked about that chapter of the withdrawal agreement basically being what he calls scoping and principles. You have used the term “scoping” as well. Can you say a bit more about what that actually means? How much detail is there in a scoping exercise? When you started in 2010, you had done some pre‑talks scoping, which it seems is basically what we will have by the time we get to this autumn. What does that actually look like?
Christophe Bondy: There is a document available that was published in 2007‑08, which you can go back to, which was the scoping exercise between the EU and Canada, which set out the grandes lignes, the grand directions, of what we are seeking to achieve. In a free trade agreement context it is easier, because one has a series of classic elements to a free trade agreement, but we are going to add elements about labour standards, for example. We are going to have environmental standards, we are going to have e‑commerce and add something on financial services. There will be objectives set out, but they are fairly broad‑brush at that level, but broad‑brush does not mean unclear.
Q618 Stephen Kinnock: On the ratification process, it seems pretty clear that issues like investment will be considered as a mixed competence and therefore subject to ratification by 35 national and regional parliaments. It therefore seems to be highly unlikely, if not impossible, that that ratification process would have been completed by December 2020 or whenever the end of the transition period is. What is your view of where that would leave the UK in those areas that have not been ratified? Is there any precedent for a country being in that sort of position, where it has had a clear relationship and has moved out of it, but the new reality has not yet been ratified? I guess that is a sort of vacuum. I just wonder if there is any precedent and what happens then in terms of default positions.
Christophe Bondy: Trade arrangements usually have provisional entry into force. The situation that we are in, in the CETA context, is that, as of September 2017, CETA provisionally entered into force with regards to all of those elements of the agreement, which was about 95% of the agreement, which were within the exclusive competence of the European Union. As we speak, the tariff barriers are done. As we speak, the rules with regard to access are all in place and all that good stuff.
I assume that, if there was some process that needed ratification at the EU member state level, those elements of the agreement that needed that ratification would be parked and would not come into force until ratification was achieved at all 35 national parliament levels. They are not just national parliaments; there are some national assemblies. There is a precedent in free trade agreements of provisional entry into force.
Q619 Stephen Kinnock: I have one final question. I am sure you are familiar with the phase 1 progress report on the negotiations and the terminology around Northern Ireland that talked about legislative and regulatory alignment being the default. Do you think that that phase 1 agreement is compatible with a Canada model for Brexit? This is to the whole panel.
Dr Bartels: I can take a stab at that. One has to read paragraphs 49 and 50 of that report very closely. One way of reading it, which is the way that most of the commentariat reads it, is to say that the whole of the UK must now be aligned with EU law, because that is the only way that Northern Ireland can be aligned with EU law. Essentially the pass is then solved and the question becomes what “alignment” means. Here I would say that “alignment” is a term of art in EU FTAs. It is an alternative to “harmonisation”. Both together are called “approximation”. This is in CETA, for example, so “alignment” does not mean the same thing as “harmonisation”.
I was actually giving evidence on this point in the trade committee a few weeks ago. I am not saying anything about the politics of this, which are obviously extremely complicated and sensitive, but my reading of those two paragraphs, 49 and 50, is that what is said for Northern Ireland does not necessarily have to apply to the rest of the UK. The provision that says that Northern Ireland will have access to the rest of the UK market does not say that the rest of the UK will have the same access to the Northern Ireland market. It is written as being about exports, not as being about imports. I could envisage a situation—this is speaking purely technically—whereby Northern Irish products come into the rest of the UK through a sort of blue channel, but Northern Ireland functions as a proxy for the EU, or essentially is close enough, for products from the rest of the UK going into Northern Ireland and from Northern Ireland to the rest of the EU. This is a technical possibility. The political obstacles are obviously enormous.
Q620 Chair: Just to ask the question another way, the Government say they wants to have an open border with no checks and no infrastructure between Northern Ireland and the Republic. That is what the guarantee that Stephen Kinnock just referred to means. If there was a CETA‑type agreement between the UK and the EU that would not be compatible, given what you have said earlier. A one‑word answer will do.
Dr Bartels: No, it would not be compatible.
Chair: It would not be compatible, so there would have to be checks.
Dr Bartels: Of course, completely, but it might be useful just to say what those checks are on. The checks are on VAT, so taxes that are applied on the border. The checks are on products and whether they can be sold. The checks are also on rules of origin to make sure the products are coming from the right region.
Q621 Craig Mackinlay: I want to come back to some of what Mr Rees‑Mogg said. This is really to you, Mr Bondy. When you had your very early scoping days or even before that, I assume the Canadian Government had some idea of where it wanted to be. You raise that as a fair criticism, as we do not have that type of narrative coming out of the UK Government in their relationship with the EU, as yet. Would you say that the Canadians’ view of where this should go and how open it should be, with Canada being an open global economy, very entrepreneurial and all those good free aspects to it, came to the table with more on offer than the final deal that resulted? Was it willing to be more open, to offer up its financial services and all the rest of it, but it was during these negotiations that the EU closed some of these free‑trading avenues down?
Christophe Bondy: No, I would not say so. In any negotiation, one has a series of objectives, but they will depend in part on how things play out in the negotiations and what is on the table. Again, I cannot reveal any secrets from the negotiations.
Craig Mackinlay: I was hoping that, if I asked the question in a different way, you might.
Christophe Bondy: Yes, I know. Sorry. Canada achieved what it wanted to achieve. One of the interesting things about the approach that Canada took, and the EU along with it in its negotiation, was that it wanted to integrate into that trade dialogue a strong social agenda, understanding that there is a lot of fear about free trade agreements. The irony, which may become clear from the discussion here, is that they are not about imposing your regulations on the other party. They retain that separateness, subject to some mutual recognition, but also integrating into the agreement environmental and worker minimum standards, and many things that give people a sense that these agreements are about opportunities for everyone. That is an agenda that the Canadian Government have certainly been pushing very hard to try to maintain open trade, understanding that they cannot be considered in isolation but have to be considered along with a much broader social agenda.
Q622 Craig Mackinlay: You were closer to these negotiations than probably anyone I have ever met. Would you say the EU’s approach to this was fair, rational and open to free trade, or was it somewhat more obstructive, intransigent and looking to protect itself, on balance, in the way it came to these talks?
Christophe Bondy: I do not think that they would have engaged in these negotiations over a period of 10 years unless they wanted to gain access to the Canadian market and to provide access to their own market, and that is what was achieved. They were seriously engaged. There were some challenges along the way with regard to reservations. When one drills down into particular local markets that have always been protected, and “Are we going to keep this reservation or not?” there were endless discussions. The reservations took a long time, but we achieved a good result.
Q623 Craig Mackinlay: This is probably something for both you, Mr Bondy, and Dr Bartels. We have the most favoured nation clause within CETA. Britain and Canada share the same head of state; we have similar common law systems; we have kith and kin links. I could envisage that we might like a rather closer relationship than CETA and that you have with the EU, because there is a closer bond and more of a potential for closer working. That would be prevented if Britain and Canada came to that type of ideal agreement in the future. You would be prevented from doing that because of the observations and what you have signed up to in the most favoured nation clauses of CETA. Now, assume that does not work both ways. Say Britain and Canada said, “Yes, we are very happy to recognise each other’s financial services”. We heard from Mr Swords about the strength of the Canadian banking system and everything else. The EU said, “Ah, you have to offer that to us, but we do not want to take it up”. Could it be that, by signing CETA in its current form, you have clipped your own wings for more international free trade in the future?
Christophe Bondy: I do not think so. If you want to give us more access on temporary entry, please do. As I said, in the CETA negotiations it was the UK that was under‑par vis-a-vis the rest of the EU on that particular issue. The other point about MFN is that, generally speaking, MFN does not apply to recognition in the services context. You have to make a distinction between discriminatory behaviour—“no Canadian need apply”—and simply, “These are our standards”. A Canadian shows up and has to show that he or she meets that local standard, like everything else. That second thing is not a discriminatory barrier; it is an issue relating to whether or not there is mutual recognition.
CETA has a provision in the financial services chapter so that, if the EU were to achieve equivalence in certain areas of financial services, it would have to turn to Canada and give Canada the opportunity to show equivalence as well. Over time, those things tend to create a much more liberal international regime, which is a good thing. I am not sure and cannot say, as I sit here, that if Canada and the UK were sitting down to do a deal they would do a better deal. CETA is already a very high‑standard deal of its kind.
Dr Bartels: I essentially agree. There is an MFN clause in CETA, which of course applies to both sides. The carve‑outs to the MFN clause are important. There is a carve‑out, as Mr Bondy said, for recognition. It is actually an incredibly badly worded carve‑out. One could read this as meaning recognition of conformity assessment and certification. It is extremely badly written and is much worse than the one in the Korea agreement, but it could also be read as a carve‑out for recognition. This goes back to an earlier distinction I made to do with domestic standards and recognition of another country’s domestic standards equivalent to your own, not market access.
Chair: Dr Bartels, I am sorry; I need to bring in a colleague who has to go in a moment, if you will forgive me. Jeremy Lefroy.
Q624 Jeremy Lefroy: Thank you very much. I just wanted to raise the question of the strategic partnership arrangement in CETA and perhaps ask Mr Bondy how important that was considered as part of the overall package. Was it included very broadly?
Christophe Bondy: Strategic partnership agreements are something that the EU tends to enter into with its free trade agreement partners. It was more in the sense of an EU ask. Canada’s objective in relation to that strategic partnership agreement was simply to ensure that the language in the agreement and the conditions in the agreement were as clear as possible. That is what we pushed for, but it is a broad‑level commitment to continue to collaborate in other areas outside of the purely economic area. I personally was not engaged in the SPA negotiations. That really was quite a separate process. I know that one of the things that Canada was seeking to achieve and did achieve was to ensure that the language used was as clear as possible.
Q625 Jeremy Lefroy: Could you perhaps give us the main headings of the SPA? Was it security, aviation and things like that?
Christophe Bondy: Yes, it was collaboration, peace and security. If you will give me a moment, I can pull it out and read them off.
Dr Bartels: I can say something about it while you are looking. It is essentially a co‑operation agreement, which means what it means. These agreements tend to be much more important for EU‑developing country agreements, because co‑operation there means money. For a north‑north agreement, such as between EU‑Canada, it does not really mean very much. You could do it anyway. What was important in the strategic partnership agreement, from the EU’s point of view initially at least, was human rights conditionality. The Canadians successfully managed to water that down to nothing.
Q626 Jeremy Lefroy: I would have thought, given Canada’s rather good record on human rights, that that would have been something that Canada would have been extremely keen on. Perhaps you could elaborate.
Dr Bartels: All I can tell you is that it was not keen on it at all. In the end, the human rights clause is there and its enforcement provision violates standing EU policy on this, so they should not really have signed up to it. The enforcement provision says that we recognise that a violation of certain human rights violations, like genocide, may be a reason for terminating CETA and of course the co‑operation agreement itself, which does not mean a lot. Of course, CETA can be terminated anyway without any reason, so it is essentially a cross‑reference to nothing.
Q627 Jeremy Lefroy: Given that the UK is looking for a deep and special partnership alongside a trade agreement in areas that are incredibly integrated at the moment, such as aviation and security, you do not see the Canadian SPA as any kind of model for a UK one.
Dr Bartels: No, it is entirely different.
Christophe Bondy: It is a reflection of something very different, 45 years of deep integration, which was based on previous and parallel relationships. Just to answer your question about the titles for the agreement, they are human rights, fundamental freedoms, democracy and the rule of law, international peace and security, the effect of multilateralism, economic and sustainable development, justice, freedom and security, political dialogue, and consultation mechanisms.
Jeremy Lefroy: It is sort of motherhood and apple pie, basically.
Christophe Bondy: It is to some degree. I do not think Canada’s respect for human rights is in any way an issue, here or anywhere else. I think Canada’s objective in this agreement was to make the language as clear as possible.
Q628 Jeremy Lefroy: In summary, when the press or the politicians talk about wanting CETA‑plus‑plus‑plus, we have to be very clear that we are not talking about CETA and the SPA plus‑plus‑plus, because the EU and the UK will need a much more concrete and defined SPA than Canada and the EU, in areas that have already been discussed. We need to be very clear about the different parts of the trade agreement and the strategic partnership agreement. Canada is possibly a model for the trade agreement, for some people, but in no way for an SPA.
Christophe Bondy: Your level of co‑operation with Europe, as Europeans, is much deeper. That is not to say that Canada and the EU are not already strong partners, but it is just that the nature of the relationship is different. There are things I was also pointed out about judicial co‑operation, for example, recognition of judgments and so on. Look at how the EU functions across a range outside of the purely economic and trade things.
Dr Bartels: I would just add that it is also a question of legal basis. The more different areas you have the more legal bases you will have to identify, under the EU treaties, from the EU point of view. That may mean it makes sense to split different areas into different agreements. The reason for tying them together would be the dynamic that nothing is agreed until everything is agreed, but it is not necessary to have everything in one agreement.
William Swords: The only thing that I might add and maybe clarify is that, with over 30 years of dealing with Canadians, Canada is a global leader in terms of environmental protection, in terms of equality law and in terms of human rights. I would not like to leave this session without making that point. The country is a global leader in these areas. It was just to highlight that point.
Dr Bartels: It is well known. It is publicly on the record that Canada was arguing against the original version of the human rights clause. I am not saying something prejudiced. It is a fact.
Q629 Wera Hobhouse: In general, it was mentioned earlier that we already have a very strong bridge connecting the UK with the EU, whereas Canada was starting to build, let us say, a footbridge, while we have a two‑lane motorway. We now need to look at which lane we want to close. I seem to have heard Dr Bartels say that it would not be in the interest of the EU to close any of those lanes. Which lanes do you think, from an EU point of view, they will never close, because it would be very foolish for the EU? Although they want to protect their integrity, it would be very foolish to close that lane.
Dr Bartels: I am glad you put it that way, because that is a much more helpful way of describing the issue than to see CETA as the starting point, which is just the wrong way to think about this. For trade in goods, the EU has a surplus with the UK. I cannot see that the EU has any interest in having barriers at Calais. From the EU’s point of view, it really does want as frictionless trade as possible. The real dynamic from the EU’s point of view, leaving aside what I see as ideology and integrity of the single market—I just do not buy that from an economic point of view—is services versus people. Services are the cherries to be picked, and the EU is essentially saying, “You accept our people or we will not accept your services”. It would most certainly close that lane, because the rewards are very great.
Christophe Bondy: This is an issue internal to the EU. I have made comments before about the EU’s interest in maintaining the integrity of the European system as a whole and of the economic benefits, as well as the political benefits that flow from that. That is what I would be thinking of, even in relation to trade in goods. It also goes to which approach you are taking. If you have a free trade agreement approach, you will have barriers at the border.
Q630 Craig Mackinlay: Mr Bondy, one of the most difficult areas when you were having the negotiations was perhaps wheat and agricultural products. If I am right, you do not have zero tariffs for a few years yet. How was it finessed that Canadian standards on wheat production, the massive bread basket of the world, were meshed in and in alignment with EU standards? Should you want to have a different type of herbicide, a different type of pesticide or a different technique for land management that does not quite conform to the EU’s requirements, how has that been finessed, so that you can diverge away from the day of the agreement? What happens when you import or export wheat to the EU? Where is it checked or is it accepted that the standards of Canadian wheat are perfectly good enough today and are always likely to be? How was that bit finessed in particular?
Christophe Bondy: I do not know the specific details of that particular discussion but, in general, there are two distinct things. How much are we going to let in, and what standards do they have to achieve to be allowed to come in? On the second point, you can have systems where the EU’s rules will be verified in Canada against the wheat. You would take a sample and determine whether it meets the acceptable level for a particular pesticide. If it does, that is okay and it can go on.
That is the thing: in a system that has two different regulatory standards, you have to have ways to get around the fact that you need to comply with both. In terms of that distinct discussion about wheat and whether there was a distinctive question between standards and quotas, I am not sure. Otherwise, it is just a question of whether we want to have competition for Canadian wheat in our market.
Q631 Chair: Finally, Mr Bondy, did I hear you correctly refer earlier to the biggest loss of trading rights in human history? Can I just clarify what you were referring to?
Christophe Bondy: I go back to the fact that the EU defines its free trade agreements for itself as applying to the territories in which the functioning of the European Union applies. In real terms, absent rollover agreements for every one of those agreements, and also for all sorts of other agreements we have mentioned beyond, apparently as of March 2019, those agreements will no longer apply to the UK. We will hopefully go into transitional arrangements to maintain the benefits of those agreements in force. I agree that it is in the interests of the counterparts as well—for Canada and others—but then, after that, there will be a series of negotiations. One does not know what will come out of those negotiations.
Quite frankly, when I first heard that the UK was considering leaving the EU and would have to re‑engage or re‑negotiate all of these trade agreements, 50‑odd agreements, my first reaction was to be really tired. It was the idea of having to go back and do that work all over again. It is going to be a new discussion, because things have moved on. Some of these agreements were signed 15 years ago and that is the part of the UK’s current ramping‑up on that front.
Q632 Richard Graham: Mr Chairman, can I just say that, Mr Bondy, as you are a lawyer, to be precise your phrase was missing the word “potentially” the greatest loss? Nothing has been decided yet, so you are rather pre‑empting it if you have decided that that is the conclusion before the talks have even got going.
Christophe Bondy: Sure, the UK can decide not to leave the EU. That is a “potentially”.
Q633 Richard Graham: You have already conceded that it depends on what happens in the negotiations, so it would be helpful, for the record, if you would just qualify that your comment was made on the assumption that there is no free trade agreement at all.
Christophe Bondy: In strict terms, the UK will lose all of those free trade agreements on the day it leaves and it will enter into Band‑Aid agreements and bridging agreements. Hopefully, depending on its discussions with all of those existing free trade partners, it will achieve some way of bridging the gap and it will then have to enter into subsequent negotiations to see what it can get from each of those states with which it was already a partner. In that sense, it is a massive loss.
Richard Graham: Mr Chairman, separately as a group, we should choose to comment on the extent of the negativity of the assumption.
Chair: We are not going to get into a Committee discussion.
Stephen Kinnock: He has articulated his opinion very clearly.
Chair: What is self‑evident is that, unless the negotiations that the UK is going to have with the EU replicate in every respect what we have currently because of our membership with the EU, then the outcome is going to represent less than what we have currently. I understood that to be the point that you were making. Anyway, these Committee witness sessions are not quite for debate among members, so this is a perfect moment at which to thank our three witnesses for giving your time and your evidence, which has been fantastically helpful.