Why free trade with the EU goes nowhere

The provinces have been so eager to keep one another out, they’re reluctant to let European investors in

by Paul Wells

The occasion was a recent economic conference in Montreal. The place was crawling with reporters, but the president of Colombia was in town so none of the reporters bothered to attend one particular breakfast session. Well, almost none.

The topic at the breakfast was trade between Canada and the European Union. Guests included Roy McLaren, the former trade minister under Jean Chrétien, who runs something called the Canada-Europe Round Table. Also Ross Hornby, Canada’s ambassador to the EU.

But there was another, unannounced visitor. Mauro Petriccione, the director for bilateral trade relations for the European Commission. The Europeans’ lead negotiator for a proposed broad, deep trade and investment deal with Canada. The best possible source for information as these crucial talks begin.

But for the longest time Petriccione, a pleasant man with wavy hair and an impeccably tailored sports jacket, smiled blandly and resisted his colleagues’ attempts to draw him into their conversation. “I’ll keep it for the end,” he said.

While the visitor bided his time, Hornby explained the scale of the opportunity. Europe is Canada’s second-biggest trading partner after the United States. Canada is Europe’s 11th. Our exports to the EU are worth $36.1 billion. Theirs to Canada are worth $54 billion. We have $137 billion in direct-investment stocks in the EU. They have $133 billion invested here. And there is untapped potential: Europe trades less with Canada than with some other economies of similar size.

So let’s free trade! Easier said than done, said McLaren, who was fabulously gloomy. Protectionists remain good at protecting. “We have in Canada this ridiculous system of supply management in the dairy and poultry industry,” he said, “and the Europeans have an array of remarkably ingenious subsidies. If I had to guess I would assume that what we would see in the negotiation is that we’ll identify particular forms of protectionism that we cannot readily deal with in a Canada-EU bilateral negotiation.”

In other words, nothing would change. It wouldn’t be the first time: Canada and the EU spent the mid-’00s negotiating a trade agreement that fell apart over the usual subsidies on both sides, and on provinces’ refusal to abandon local preferences for their big-ticket procurement and service contracts.

The lead Canadian negotiator, who will face Petriccione at five negotiating sessions between now and the end of 2010, is Steve Verheul. He was Canada’s agricultural trade negotiator at the WTO round that just fell apart after most big countries—including Canada—refused to give up agriculture subsidies.

When Petriccione finally spoke, he had a lot to say. First he explained why the European Commission—its standing secretariat and the EU’s brain, if it has one—had spent two years dismissing the idea of trade talks with Canada. “Most people who are usually in favour of free trade, both in Canada and the EU, have been served,” he said. “They have free trade. They have no obstacles.” But those in other sectors who want protection have it and won’t give it up easily. “So if you ask the supporters, ‘Do you want to have an agreement,’ the answer is, ‘Of course, yes.’ You ask them how many resources they are prepared to commit to lobby to overcome the difficulties, then you get a much less convinced reply.

“On the other hand, if you ask the few who are still protected, they will commit any resources they have to keep the status quo.”

If this negotiation is to succeed, each side will have to give up what it hasn’t been prepared to give up before. Petriccione portrayed the Europeans as late but zealous converts. He always enters trade talks with a detailed mandate from European trade ministers. In 20 years, no trade negotiator has been given such a mandate more rapidly than he was for this Canada round.

“We are committed to this negotiation,” he said. “We are prepared to go into all the classic no-go areas. There can’t be any if we want to make progress.”

But with a veteran diplomat’s polished grace, Petriccione asked whether Canada is as committed. Can a complex federation sing from one song sheet? “I must confess we are watching with extreme interest . . . I think this is a huge test for Canada.” Some Canadians are certainly trying. Quebec’s Jean Charest has named one of his predecessors, Pierre Marc Johnson, as the province’s lead negotiator for the EU trade file as a demonstration of his seriousness.

But up to now the provinces have been so eager to keep one another out that they are reluctant to let European investors in on the same terms as locals. “I could take the easy way out and say it’s Canada’s problem to solve. But what I can add is that we have had region-to-region negotiations [between the EU and other international partners] that we have suspended because our partners would not offer us the benefits of an integrated market, equal to those that we were offering.”

That’s the fate that awaits Canada if we try to bargain down to the same old tired routines. The urbane Italian visitor was daring Canadians to go big or go home. “We will want equivalent benefits to those we are prepared to offer.” He nodded at his fellow Canadian panellists. “All I can say is, I hope that Roy, Ross and many others were dead right when they convinced us.”




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Why free trade with the EU goes nowhere

  1. I get the feeling after reading this that Petriccione is preemptively blaming Canada in case an agreement isn't reached.

    • Which is only a problem if he's wrong.

  2. This subject dovetails quite nicely into what Gordon Campbell the Premier of BC is all gung ho right now about as well what with TILMA and all. The provinces really have to get their act together as it doesn't matter what the feds do as it is a provincail area when you get right down to it.

  3. Aw, I was actually feeling good about the potential for an agreement.

    (Thanks for sharing it, though!)

  4. I have an ache in my right ear that tells me there's a Wells/Coyne show-and-tell in the works.

    Tell Coyne to have Maclean's buy him a better mic.

    On second thought, don't.

  5. It's embarrassing that the EU – with it's mix of historical nations and languages and cultures – can offer access to an integrated market, whereas Canada can't reciprocate the offer between our own provinces.
    We must surely come across as petty unsophisticated country (provincial?) bumpkins.

    • It's worth emphasizing that several premiers have shown more seriousness on reducing internal trade barriers than anything we had seen for a long time. Charest is certainly among them, though he hasn't had to face any real crunch decisions (cough *supply management* cough) yet. Gary Doer, Brad Wall, Gordon Campbell itou. Yes, Gary Doer.

      But I told a conference on Canada-EU trade a year ago, exaggerating only a little for effect, that if this falls apart, it will be because Europe is a real country and Canada isn't.

      • LOL, that's a great line.

        Perhaps the prospect of the EU bonanza will force even the provinces into sense on internal free trade.

        • It's worth noting that the pressure for change is coming from the "Buy USA" kerfluffle
          and because of that may have an actual chance of creating movement on the issue.

          If you like that kind of thing.

          • Ah, right, good point. So maybe the reverse, as regards the EU, will have the same effect. I must say I'm surprised there hasn't been more coverage of this question in the media (our host excepted), so seemingly there isn't (yet?) much popular enthusiasm pushing the premiers to act.

            Would you not say, Sisyphus, that a treaty like this with fellow social democracies — many of them even more progressive than we are — is a very different kettle of fish than free trade with, say, Colombia? They may both curtail a domestic government's power to promote social change, but an EU treaty wouldn't provoke a race to the bottom; if anything, our own labour laws might need amping up to fit the EU pattern.

          • If, if ,if …. it were to include labour and environmental issues and agreements as part of
            the overall package ( to some extent it will be forced to ) I'd be able to crank up some interest
            and maybe even enthusiasm about it all. But to the extent it covers issues I care about, my years
            of well-earned cynicism tell me that it will be business interests determining what the labour and
            environmental concerns will be. And so it goes.

            It's about "free trade " which aside from the obvious agricultural ( food ) issues is already largely
            free. Mr. Coyne is not forced to drive a Chrysler and Suez can still try to privatize public resources.

            So, Jack , I can't deny that the prospect appeals to me more than any agreement with the monstrosity
            that calls itself Columbia but ,to me, any real optimism would be the triumph of hope over experience.

  6. Yes, its time the provinces get their act together. TILMA is way overdue.

    It kind of imposes another difficult balancing act for the embattled Iggy. Appeasing the beware-the-evil-MNC crowd and the beware-the-evil-Americans crowd at the same time. Though, I suppose he can just ignore the whole matter, for now.

  7. Is it just me, or is this column, like, the scoop of the season?

    I would suggest we all raise our hands and beseech far-thundering Zeus to make this come to pass. I will personally sacrifice a heifer, appropriately sprinkled with grain. I will dedicate a tripod of costly bronze.

    There are selfish personal reasons for wanting this to work, too, namely that overnight we'd go from Wafergates and puffins to a huge issue. Harper and/or Iggy and/or Layton could really make their mark on this file. Stephen Gordon's hit count would triple; we'd all learn the details of two subsidy systems; the abstract benefits and disadvantages of free trade could be thrashed out. In short, real politics would return to this country after a 15 year absence. A selfish reason for wanting this to work out, but a real one.

    • I don't think "scoop" is the right word for this column. It implies I worked harder to get it. All I did was show up for breakfast, zigging while colleagues zagged. Happens to everyone. But yeah, I was happy when I heard them complain later that the conference (which was five weeks ago; I've tucked my recording away for a slow week in the meantime) was turning out to be a snoozer.

      • The breakfast of the season.

    • Leave those young cows alone, Jack.

    • Jack, to the extent that a Canadian journalist chooses to focus carefully on the POLICY of politics, it is indeed a scoop. And a welcome one, indeed. Provincial obstructionism and supply management insanity deserve a much-publicized thwacking for their toxic effects on prosperity, and Mr. Wells, no knuckle-dragging evil neocon he, will earn a far better hearing on this valid point than would, say, other folks trying to raise it.

      • No knuckle-dragging and not a neocon, but don't kid yourself. I'm pure evil.

  8. So how did we ever get our existing free trade agreements off the ground? Was it just that the American obstructions dovetailed more nicely with ours than the EU's do?

    • I'm so glad you asked, Steve M. American obstructions dovetailed very well indeed with ours, as Colleague Geddes pointed out a few weeks ago in a blog post that really serves as a must-read complement to my column above.

      You know all those "Buy American" provisions that have been scaring Canadian industry because they mean we might not get into the US market? Turns out Canada had a chance to avoid them by writing sub-national (state and provincial) procurement into the FTA and NAFTA. But the provinces had no interest in that at all. As Gordon Ritchie explains to Geddes:

      http://www2.macleans.ca/2009/06/18/why-canada-lef

      So interprovincial protectionism has already hurt us in our trade relations with the Americans, and is the likeliest cause of failure in our trade relations with Europe. Note that Ritchie flatly assumes any attempt to fix this state of affairs is so certain to fail as to constitute "foolishness."

      • PW: would you draw a straight line between Charest's enthusiasm for reducing provincial trade barriers in his campaigns as federal Tory leader to his present enthusiasm for European free trade?

        • No, I wouldn't be clever enough. But it's an interesting question. I'm amazed to discover there are still people who remember fondly, as I do, the legendary "Let The Future Begin" PC '97 platform. Now that you've reminded me, I still don't think there's a straight line to be drawn. I think Charest in general is a free trader, but when I've asked him about any links between 1988 (Muldoon's free trade comeback) and today, he says it's not that simple.

          In general though, I think he would feel disappointed if he left office without accomplishing some big signature piece of change. And without this project, he has very little that might qualify.

  9. It's also fair to say that although the "obstructionism" is often presented as a concern for "saving jobs" it's really a
    concern for local business interests ( and political contributors ). It's easy to say that procurement should be open
    to all suppliers until you dig down a bit to see that it really means a wholesale electrical supplies operation in
    Regina will go out of business because Saskatchewan hospitals decide to go with a supplier from Trieste.

    Especially when the wholesaler is somebody's cousin.

    Of course, Catherine Swift ( and others ) will tell us to cut taxes. That darn old playin' field, ya know.

  10. Yay – a representative of the MSM – other than David Olive – finally wakes up to the pros and cons of what Harper was trying to deep six before the October election.
    As a Brit who lived through those pros and cons of the UK joining the EU before I left for this land – as well as a Canadian – I hope – that the EU has by now past the Lake of wine and mountain of butter stage – and that Brussels is managing to find common standards that don't stand existing national standards on their heads.

    What I really like about these negotiations is – while they are trying to get the provinces on side – maybe Harper and Prentice will overlook the environmental pre-requisites that the EU now requires of anyone who wants to get cosy with them…between Obama and Brussels – we might actually get those two guys to think seriously about Climate Change.

  11. Interprovincial trade barriers are so deeply entrenched in Canada's political economy that no amount of pressure from Ottawa will get the premiers onside for a free trade agreement with the EU.
    Canada's economy is a mix of highly regional/provincial economies under the control of regional economic élites who have very strong control over the regional/provincial élites.
    In fact, one unintended consequence of NAFTA has been a rapid erosion of our national economic élite, one that was already on the ropes by the late 1980s. The lack of a strong and dynamic national economic élite has allowed the regional/provincial élites to remain dominant long past their usefulness to the national economy.
    The Canadian government is to blame for this predicament because our Prime Ministers, except for Trudeau, have always been unwilling to take on the regional/provincial economic élites and their allies, the premiers. They can't even manage to set up a national securities commission!!
    Free Trade with the EU is not about to happen very soon.

    • Do you mean to say the Family Compact and the Chateau Clique are alive and well and living throughout all the provinces? Because if, in effect, that's what we have, I think saying so will get more Canadians on board.

  12. I live in a big poultry/dairy region in the BC interior….with the recession taking serious chunks out of peoples property equity not to mention their jobs, the dairy/poultry people are busy snapping up bargains, buying lakefront properties, other businesses, other farms……the amount of money these supply management pricks have is obscene….they call themselves businessmen but they are nothing more than government employees at the top of the food chain….all the benefits zero downside….the average person has no idea why they pay $4.50 for a jug of milk while its $1.85 a hundred miles south in the US.

    • Good to hear someone with another comment with a vague and narrow view of world trade and food production. I would assume John you probably eat off of the dollar menu at BK six times a week. What about freezer pizzas John mmmmm…… butter product delisicous. I do agree that inflated quota prices have driven assets to atrocious levels. So has urban encrochment from people who use "below cost of production food" to subsidize there living. If you cared a little more about it John you might take the time to look a little deeper into what this is about and stop believing that supply management is a scapegoat for our lack of ability for competing on the world market. If what you believe is the case it supply management would have been long gone by now. If you want to pay $1.85 for milk move John, it ain't that far. You probably have better access to a white castle as well.

      • "below cost of production food"

        You seem to be confusing Canada with Venezuela. In Canada, there is no such thing as "below cost of production food".

        Nice try.

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