Wanted: free trade activists

Ottawa says it’s on the verge of a historic pact with the EU, but corporate Canada isn’t sold on the idea

Virginia Mayo/AP

Canadian Trade Minister Peter Van Loan wishes the mainstream media would pay more attention to the anti-globalization crowd. After all, if trade naysayers made the front page of national papers more often, then more people might realize Canadian trade negotiators are well on their way to making history with an ambitious plan to better integrate our national economy with the European Union. As Van Loan points out, the Council of Canadians, which claims a deal with the EU could threaten Canadian access to safe drinking water, recently held “a wonderful news conference” to voice its concerns—but it got virtually no media pickup. “I was actually disappointed,” Canada’s trade minister says, “because there should be more of a spotlight on these negotiations.”

True enough. If all goes as planned, Canada will become the first developed nation to land a free trade agreement with the economic grouping of 27 European nations sometime next year. The EU—the world’s largest market, not to mention home to the wealthiest pool of investment capital and some of the largest and most important companies on the planet—is already Canada’s second-largest source of trade and foreign direct investment. In 2008, Canadian exports to the EU totalled $52 billion. Imports amounted to $62 billion. But there appears to be plenty of room for growth. After all, the Canadian economy is 150 per cent larger than the Indian economy, which has similar trade levels with the EU. Furthermore, Europe trades about 25 per cent more with South Korea, which has a smaller GDP than Canada.

If a deal is reached, a joint government study published in 2008 estimates it could generate a $38-billion boost in annual bilateral trade (mostly in services) and provide Canada with a $12-billion gain in gross domestic product. And Van Loan insists the endgame is a pact with Europe that would go much further than NAFTA by allowing the free movement of labour and recognition of foreign professional standards while opening up government services and procurement to foreign players. That’s in addition to removing tariffs and other barriers that hinder trade in goods, services and investment, even in sensitive sectors such as agriculture.

Nevertheless, Canadian trade officials are frustrated by what Ontario’s chief negotiator Maurice Bitran calls the business community’s “dearth of interest” in this deal. At a recent information session in Toronto, Bitran and two federal counterparts pleaded for more visible corporate support and input for the deal.

Michael Hart, a former Canadian trade official and founder of Carleton University’s Centre for Trade Policy and Law, says corporate Canada is yawning because the cross-Atlantic business relationship is more about investment than trade. “Rather than sending things back and forth,” he says, “Canadian manufacturers tend to produce overseas what they think they can sell.” According to Hart, a deal with the EU that actually lives up to its billing will be more than a little surprising. He notes individual EU members already have World Trade Organization agreements with Canada, and there are few major tariffs to tear down. Finding other ways to improve trade and investment, he adds, is a waste of time because “what’s negotiable is not worthwhile, and what’s worthwhile is not negotiable.”

Business lobby groups beg to differ. Roy MacLaren, chair of the Canada Europe Round­table for Business, says private-sector support for a trade deal with the EU dates back to his days as Canada’s minister of international trade in the mid-1990s. The direct benefits, he adds, are obvious in any free trade deal between Canada and a market of 500 million people. As for indirect benefits, MacLaren says they include the potential to further break down Canada’s internal barriers to trade while setting a North Atlantic example that could stimulate multilateral talks.

Everything, of course, depends on the details. Keep in mind that the study used to sell this deal assumed “a successful outcome of the Doha Round, in which both non-agricultural and agricultural tariffs will be reduced by a substantial margin.” That didn’t happen, and what is actually negotiable in these talks remains an open question. Canadian trade negotiator Vincent Sacchetti recently promoted the trade talks to a business audience in Toronto with a presentation that suggested everything is on the table. But Canada is committed to protecting its supply management systems for dairy, poultry and egg products. And Europe isn’t expected to give up agricultural protections or cave on the issue of geographic indicators for products like champagne or feta cheese.

Chris Sands, a senior fellow with the Washington-based Hudson Institute who specializes in Canada, suspects Canada and the EU will strike a symbolic agreement that “does little, or nothing, to move the needle on trade and investment.” Sands, however, notes that Europe has agreed to not tax or block raw materials, low-end manufactured items and agricultural goods that selected developing countries sell in return for access to government procurement. And, he says, there is a chance that the EU will let its guard down for Canada, at least enough to reach “a reciprocal deal of some sort,” since our nation has become a rather attractive dance partner in a bilateral world.

Thanks to our national resources and relative budgetary restraint in Ottawa, Canada—once described by comedian Robin Williams as an apartment above a great party—has ditched its honorary membership in the Third World. As Van Loan pointed out to the Canada-Spain Chamber of Commerce on May 28, our nation currently enjoys the strongest fiscal position in the G7. Inflation remains under control, and our corporate tax rate is on track to become the lowest in the G7 by 2012. Canadian banks remain solid, and our nation has the highest proportion of post-secondary graduates among Organisation for Economic Co-operation and Development (OECD) countries. Canada is also ahead of the industrialized pack in terms of cost competitiveness.

Whatever happens, Sands warns Canadians to attach realistic expectations to this deal, noting the EU’s sovereign debt crisis has made Canadian exports “a bit pricey in European markets.” Indeed, as Van Loan was promoting the benefits of greater trade with Europe to the Canada-Spain Chamber of Commerce, the value of the euro was further hammered by a Spanish debt downgrade.

Van Loan argues the EU debt crisis is actually fuelling more European interest in reaching a wide-ranging agreement with Canada because economic recovery, which trade supports, “is part of the solution to the EU’s problems.” And he won’t “quibble” about the impact of exchange rates on the potential value of any deal. “Economic forecasting is hypothetical at best,” he says, noting the important thing is that these negotiations offer net benefits on both sides of the Atlantic, and the gains to Canadian GDP will be counted in the billions.

Canada’s trade minister also won’t speculate on what will happen if any Canadian province opposes the deal. EU officials have said provincial support is required. And Newfoundland Premier Danny Williams recently indicated he may fail to sign on to any pact. “Frankly,” Van Loan says, “my greater concern is the ratification of any deal by EU member states. If there is a risk, that’s where it will be.”

But Joe Rosario, a trade expert with the University of Alberta’s Western Centre for Economic Research, thinks the trade minister should worry about provincial support—and not just out East. After combing through the text of draft negotiations leaked by the Council of Canadians, he found nothing to support the political hype attached to this deal. Rosario says western provinces will expect the elimination of non-tariff barriers to certain Canadian exports, such as quotas on beef and restrictions on canola, considered a genetically modified food. “But I read nothing of the sort. All the issues that will pose a real problem have been postponed to later dates.”

At this point, of course, anything in the draft text should be taken with a mountain of salt. “The real horse trading,” says one EU insider, “has not even started.” And when it is finished, this source says Canadians should not expect “to toast any deal with champagne from any nation other than France.” And if you have an issue with that, Canadian negotiators would love to hear about it before it is too late.




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Wanted: free trade activists

  1. As for indirect benefits, MacLaren says they include the potential to further break down Canada's internal barriers to trade while setting a North Atlantic example that could stimulate multilateral talks.

    Yay! Those are mighty fine indirect benefits. How about Canada being the free trade gateway between the NAFTA group and the Canada-EU group, whether or not "North Atlantic" ever comes to pass??

    But Canada is committed to protecting its supply management systems for dairy, poultry and egg products.

    WTF? Boo!

    • One would think Americans would react pretty quickly to prevent tariff-less goods from Europe to the US through Canada. I'm not going to double check but I would think that content rules already prevent it and aren't up for re-negotiation. Furthermore the article claims it's mostly services the deal will effect (since neither we nor Europe make much of anything anymore).

      I'm also curious as to why provinces would dismantle their interior regulations just because we signed another deal. They're usually in place to provide a business advantage to the province, which they won't give up just because somebody signed another agreement.

      In short those are pretty enormous "may"s in the artice.

      • If I am a corporation looking for a place to set up shop (especially, I guess, if I was offering services), wouldn't Canada suddenly become a whole lot more attractive to hire ten to three hundred people for my business? I can look to the EU and the NAFTA countries for suppliers and customers. If more and more world trade "spokes" lead to a Canadian "hub," surely that's a good thing?

        As to the provincial protectionist garbage, well, don't get me started on the provincial protectionist garbage.

  2. If a deal is reached, a joint government study published in 2008 estimates it could generate a $38-billion boost in annual bilateral trade (mostly in services) and provide Canada with a $12-billion gain in gross domestic product.

    Finding other ways to improve trade and investment, he adds, is a waste of time because “what's negotiable is not worthwhile, and what's worthwhile is not negotiable.”

    Who would like to reconcile these two statements? Anyone?

    • It is related to your first comment. These negotiations will have very little impact on Canada's trade in goods with the EU because many tariffs on goods (except for a very few products) are already near zero. The tariffs left to lower arelikely on products that contribute very little to overall GDP. on the other hand, tariffs on agriculutural products by both countries as you may know range from 150% to 300%. Canada says it is committed to protecting its supply managment systems for dairy, poultry and eggs and I understand that the EU will not do anything related to reform of its Common Agricultural Policy until 2013, if then. So what is negotiable is not worthwhile and what is worthwhile is not negotiable.

      • But how can a gain in trade of $38B (and GDP of $12B) not be worthwhile? If it's all negligible, where is all that extra economic activity coming from?

        • If trade with the EU ($75B in 2009) is considered alone, then a $38B increase in trade would be quite significant. However, when considered more broadly, $38B is not that significant as total Canadian exports and imports were $725B in 2009. As it concerns GDP, StatsCan has annualized first quarter 2010 GDP at $1.6T for this year in Canada. A Canada-EU trade agreement that adds $12B to the Canadian economy is negligible (0.75%) and well below growth in an average year (when not in recession of course). There is unlikely to be much in the way of extra economic activity because the deal is likely to have a greater impact on services than goods, which do not lead to a large increase in jobs and spin-offs.

          • OK. Thanks. Can we be in favour of the move, as negligible as it is, because at least it is in the right direction? Maybe this can be the start of a virtuous slippery slope that will force us to one day look hard at our agricultural policy stupidity and fix it?

          • I dunno. I'll take 0.75% year after year, thank you very much.

  3. I really hope this deal succeeds. Canada has many of the goods and services the rest of the world wants, and I am in favour of any move which makes us less reliant on the economic health of the Great Republic. I hope this deal leads to greater harmonisation with Europe in terms of commercial standards and labour qualifications. I hope greater cooperation with Europe leads to Canada completing metrication, as well as more Canadians becoming bilingual or multilingual.

    It would also be nice if this agreement led to some sort of Schengen Area border preclearance at some our major airports (Toronto, Montreal, Vancouver, etc.) which would allow Canadian flights to land in Schengen countries as domestic traffic. It would also be nice to have some of the European air carriers open up shop in Canada in order to service domestic routes, as currently our domestic airfares are some of the highest in the world.

  4. How about we get rid of our insane "Supply Management" system that drives up costs to Canadian families for milk, cheese and other food products? How can 'Conservatives' support such punitive programs against Canadian families that put our cheese, milk and eggs at 2-3 times prices in US border states? (Tilamook Washington cheese, $3.00 – $3.50- per POUND, as an example!).

    We DO need interprovincial free trade but we also need to let parents feed our kids at prices families can afford, instead of featherbedding the livelihoods of our inefficient producers.

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