Death by a thousand regulations hurting trade
New era of policy means Canada needs to work to ease those rules, forge new deals
Bob Lowe has spent the past 40 years raising cattle on his farm near Alberta’s foothills and he reckons his beef has been exported to just about every major market in the world — except one.
“I’ve never sold a thing into Europe,” said Lowe, who manages 5,000 head of cattle on 24,000 acres of land south of Calgary. “It’s not worth it.”
It’s not that the opportunity isn’t there. After an outbreak of African swine fever wiped out much of China’s hog herd, the superpower went on a global protein-buying spree. European meat exports to China soared, leaving an opening for Canada, armed with a new free trade deal with the European Union, to backfill the void.
European food exports to Canada have soared since the Comprehensive Economic Trade Agreement (CETA) came into effect, but long-standing regulatory barriers have continued to block the flow of trade in the other direction.
“It ticks you off a little bit,” said Lowe, who is also vice-president of the Canadian Cattlemen’s Association. “Trade is a two-way street. You win some and you lose some, but a good deal benefits everyone and at this point CETA is benefiting Europe more than us.”
As Canada moves to ratify the new North American free trade agreement — closing two years of arduous relations with its largest trading partner — analysts said Ottawa’s
next task is to shift its focus from negotiating trade pacts to ironing out the regulatory barriers that prevent exporters from using them.
This challenge, combined with the need to reinforce rules-based trade through institutions such as the World Trade Organization, reduce provincial trade barriers and sort out relations with China, will require a new kind of engagement, said Meredith Lilly, the Simon Reisman chair at Carleton University’s Norman Paterson School of International Affairs.
“One of the really big issues is that we are entering a period where a number of countries are erecting trade barriers for a variety of reasons,” Lilly said in an interview. “This isn’t just an American story. The use of non-tariff barriers, regulatory barriers, phytosanitary barriers, death by a thousand regulations is happening with increasing frequency around the world. Canada is waking up and wanting to diversify at almost the worst possible time in global economic conditions.”
The practice of exporting beef under CETA provides is one of the more stark examples of how individual market regulations can hinder trade.
The deal, which provisionally came into effect in September 2017, expanded the quota of Canadian tariff-free, fresh and frozen beef allowed into the EU to 50,000 tonnes from 20,000 tonnes over six years. In exchange, Canada doubled its quota for European cheese to 18,500 tonnes.
European producers used up almost every gram of their expanded market access in Canada, but Canadian exporters were not able to use any of their frozen beef quota in 2018, and just 3.1 per cent of their chilled beef allowance.
Some of the things choking the flow of trade include European health and quality standards require beef to be grown without hormones, prohibit the use of certain products to wash bacteria from meat, and add a testing requirement to assure “Eu-compliance,” Lowe said.
“Until recently, there was only one veterinarian in Alberta even qualified to give EU certification,” he said. “And anyway, we believe in the use of science to grow the safest, most efficient beef. With Europe we can’t do that. Meeting the requirements costs too much.”
In all, European exports to Canada rose 14.5 per cent in 2018 while Canadian exports to the EU rose at half that rate.
Such barriers are also on the rise beyond Europe. For example, Saudi Arabia has cut off purchases of Canadian wheat and barley after its diplomatic row with Ottawa. And India, one of the largest buyers of Canadian pulses, began hiking tariffs on peas and lentils in 2017 amid an excess of domestic supply.
Regulatory hurdles have also emerged as a key irritant for Canadian
companies looking to enter China’s massive market, after Beijing blocked purchases of Canadian canola following the Vancouver arrest of Huawei Technologies Co. Ltd. executive Meng Wanzhou.
On the plus side, with the United States-mexico-canada Agreement close to finished, and both CETA and the 11-nation Comprehensive and Progressive Agreement for Trans-pacific Partnership (CPTPP) in place, Canada now has trade frameworks covering 62 per cent of world GDP and with all the major economies except China and India, said Nicolas Lamp, a law professor at Queen’s University and a former dispute settlement lawyer with the WTO in Geneva.
“We are in now a position to use our good informal relationships with other nations to get rid of impediments to trade,” he said. “It’s not sexy, but it’s where we are likely to have the most impact.”
At the same, analysts said, Canada will need to resist the rise of “managed trade” and the erosion of multilateral deals by bilateral pacts.
For example, pork and beef exports to Japan initially soared under CPTPP and were expected to climb further, but the U.S. has since negotiated a stand-alone deal with the country that eliminated Canada’s advantage. And the recent Phase One U.s.-china trade deal includes a commitment from Beijing to purchase an additional Us$200-billion worth of American goods and services, which economists said could distort global markets and redirect purchases away from Canadian producers.
“Certainly, the use of managed trade solutions and the use of quotas by the U.S. with countries that Canada also wants to export to is very threatening for us,” Lilly said. “It’s threatening with China, it’s threatening with Japan.”
For a small trading nation such as Canada, such actions mean shoring up multilateral bodies such as the WTO — which was weakened after the U.S. paralyzed its top trade court by blocking the appointment of new members — is essential.
Canada and the EU recently established an alternate mechanism for managing trade disputes that has since won the support of 15 other nations, including China.
“Efforts like this are important and hugely valuable to Canada,” Lamp said.
“Our main trading relationship is with the U.S. under NAFTA, but our other trade flows, with China and India, for example, are still governed by WTO rules. We have to stay engaged.”
Amid ongoing international trade turmoil, one of the biggest trade opportunities for Canada may be at home. The International Monetary Fund has estimated that free trade within Canada would boost per capita GDP by almost four per cent.