Believe (some of) the hype
CETA seems likely to be historic for both Canada and Europe, GORDON RITCHIE writes.
On the day after the throne speech, Prime Minister Stephen Harper made a dramatic flight to Brussels to sign what he described as “the biggest deal our country has ever made.” This was a political masterstroke, diverting attention from a vacuous throne speech and the slow-motion train wreck that is the Senate.
It is obviously not by any measure the “biggest” deal. Under the original Canada-U.S. Free Trade Agreement, our exports grew from $90 billion to nearly $320 billion, more than nine times our exports to all 28 countries of the European Union combined. But the proposed CETA will build upon and be somewhat broader than the original FTA: the CETA will extend the procurement rules, which are now limited to federal purchases, to cover provincial and municipal authorities (reportedly with some very substantial exceptions) and to European state governments; and it will further loosen the investment rules by raising the review threshold to $1.5 billion, although recent experience has shown the government can still step in when absolutely required.
Furthermore, what was actually signed was not a trade agreement nor even an agreement in principle but a “declaration of a new era of EU-Canada relations.” The agreement in principle should follow shortly but in the case of the FTA it took another three months before the actual agreement was concluded and another year before it was ratified by both governments. In this case, approval will also be required from each of the 28 member states (several of whom are demanding visa requirements be removed first) and the Canadian provinces and territories. Trade negotiators like to say “the devil lies in the details.” It will be some considerable time before these crucial details are worked out. It will be a challenge to complete the process before, say, the next federal election in 2015.
On the basis of published reports, however, it is possible to make a preliminary assessment. The bottom line is that, setting aside the hype, the eventual implementation of the CETA should be a positive step toward a more constructive economic relationship with the largest single market in the world today. The elimination of most tariffs over a number of years should help keep down prices of European imports from automobiles to designer clothes to wine and liquor. Much of the roughly $700 million per annum the government now collects in duties could be passed on to Canadian consumers.
There will inevitably be some damage to Canadian domestic interests, although the prime minister has promised compensation. The CETA will give European drug manufacturers up to two more years of patent monopoly, less than the five years they wanted but enough to raise drug prices in Canada. The noisiest opponents, predictably, will be the politically powerful dairy producers. Imports of European cheeses will be allowed to rise by somewhat less than five per cent of the domestic market.
On the flip side, there will be significant export opportunities. In agriculture, where the Europeans run a notoriously protectionist regime, beef producers will eventually be able to ship nearly 50,000 tonnes more to the EU while pork producers nearly 70,000 tonnes more. In hard dollar terms, these are much bigger ticket items than the increase in cheese imports. In all, perhaps up to $1.5 billion of agricultural trade may benefit. There will also be scope for increased exports of fisheries and forest products.
In the automotive sector, the unresolved details of highly technical “rules of origin” will be absolutely critical. Canadian assemblers will be able to sell up to 100,000 cars containing more than 20 per cent Canadian content (however defined) while vehicles that are more than 50 per cent Canadian will enjoy open access. Meanwhile, cars imported from Europe will no longer face the current tariff of more than six per cent.
Other Canadian exports likely to benefit include aerospace, information technology, medical equipment and chemicals in addition to the current staples of metals and minerals, iron and steel.
Perhaps the most important elements of the agreement are those which have not been widely publicized having to do with trade in services. It is here that the Europeans see themselves making the greatest gains. Canadian financial institutions and other service providers are also highly optimistic. Agreements are also yet to be worked out for mutual recognition of credentials that may eventually allow Canadian engineers and architects to practise in Europe and vice versa. For the moment, this whole area remains very unclear.
What will be the overall impact? It is a bit of a mug’s game to try to put specific numbers on the impact of such agreements (the government estimates $12 billion of GDP). There are too many variables and the results are likely to be swamped by other developments — economic booms and busts, movements of exchange rates, etc. In the case of the FTA, despite predictions of disaster, Canadian employment boomed when the American economy, to which we had become more closely linked, took off like a rocket.
In the case of CETA, other factors are also at play. The European Union appears to have survived the latest economic meltdown without too much damage but growth remains painfully slow overall. Furthermore, the “preferential” benefits to Canada will be largely offset if the United States and the EU move quickly to reach a parallel, much bigger agreement.