The EU's ill-fated free trade agreement with Canada is in jeopardy once again following a vote by the national parliament of Cyprus to reject the agreement.

And resolution of the ensuing legislative headache may end up revolving around one of Cyprus's most celebrated agricultural products - halloumi cheese.

Lawmakers in Nicosia voted last Friday to reject the Canada-EU trade agreement (CETA) by 37 votes to 18, casting the final ratification of the accord into doubt.

The deal has been signed off by both the European Council and the European Parliament, and CETA has been provisionally in force since September 2017, but the accord still needs to be legally ratified by the parliaments of each of the EU's member states.

So far, only 14 member states have completed the ratification process, with Cyprus being the only country so far to have actively rejected the deal. The Belgian region of Wallonia initially blocked the EU's signing of the deal back in 2016 before obtaining additional safeguards on issues of concern, while a recent CETA ratification vote only just scraped through the lower house of the Dutch parliament.

Leverage to gain GI status for halloumi?

Opposition parties within the Cyprus parliament cited a number of reasons for voting against the deal, one of which was reported to be the fact that the agreement does not give adequate protection against non-Cypriot products which use the name halloumi cheese.

It seems likely that Cyprus is using its veto on CETA ratification as leverage to push the halloumi issue up the agri-political agenda. The rubbery dairy speciality is not a registered Geographical Indication under the EU's system of protection for regional food names, so the EU has no means of pushing for halloumi to be added to the 143 EU GIs already protected in Canada.

Cyprus wants to gain EU protection for halloumi, and submitted a request for GI status as far back as 2015. But the Commission is widely understood to be delaying granting approval for the GI until the Greek and Turkish communities within Cyprus reach a settlement to enable reunification of the island. This is reflected in the fact the GI application would cover both the Greek and Turkish names for the cheese type (Halloumi / Hellim).

The Cypriot government is now expected to try and turn the tables on the Commission and demand action on approving the halloumi GI as a quid pro quo for signing off on CETA.

But this in turn would provoke controversy, as halloumi-style cheeses are now manufactured around the world, and there would be strong opposition to any attempt by the EU to claim sole rights to the name for Cyprus. The move would be especially unpopular in Australia and New Zealand, both of which are currently in the process of negotiating their own FTAs with the EU.

Ironically, the United States - which is at loggerheads with the EU over most GI-related issues - is one of the few countries in the world where 'halloumi' is protected as a "protected Cypriot product".

CETA tariff concessions at risk

In the meantime, the Cyprus government has said it will submit the issue to parliament again in the autumn, and it is hopeful of a more positive vote the second time around.

If the rejection persists, the European Commission would have no alternative but to launch a procedure to disapply the terms of the EU-Canada agreement, pending its legal winding-up. But this disapplication would have to be done by means of a Council vote which could be blocked by a qualified majority of member states.

Under the EU-Canada FTA, tariffs on 91% of agri-food products were removed immediately the deal took effect, with most others being phased out or reduced. EU cheese exporters are benefiting from a tariff rate quota for exports to Canada which is progressively increasing from an initial level of 13,500t per year to a final 32,000t per year when fully phased-in.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.