EU-Canada trade pact faces new hurdles amid Brexit aftermath

Risk of veto increases as agreement goes to national Parliaments for approval

The European Union put its landmark free-trade accord with Canada on a slow track for approval, increasing the risk of a veto amid an anti-globalization backlash across Europe.

The European Commission, the EU’s executive arm, proposed that its first trade agreement with a fellow member of the Group of Seven leading industrialized countries face ratification by national parliaments across the bloc of 28 member-states.

This marks a retreat from an initial goal to require backing only by governments and the European Parliament.

The decision follows last month’s U.K. vote to leave the EU and warnings against bypassing lawmakers by countries such as Austria that underscore popular disenchantment with supranational decision-making.

The reversal, which goes against the commission’s own legal opinion, also signals a longer and more difficult road ahead for the planned EU-U.S. trade agreement for which the Canada pact will be a model.

“We call upon the member states, who have all asked for this agreement, who have all welcomed it, to also show the leadership to defend it vis-a-vis their parliaments and their citizens,” European Trade Commissioner Cecilia Malmstroem told reporters on Tuesday in Strasbourg, France. “This is a really good agreement.”

The EU and Canada projected as recently as February that their Comprehensive Economic and Trade Agreement, or CETA, would take effect in 2017.

Malmstroem said on Tuesday that she wants the deal to be applied provisionally before all national ratifications are completed.

Beyond lengthening the approval process, the ratification route through national and even some regional parliaments hands any one of them veto power.

However, Marie-Anne Coninsx, the EU’s ambassador to Canada, told The Canadian Press Tuesday that the European Commission’s decision to proceed with CETA as a “mixed” agreement won’t derail the timeline that will see the vast majority of the deal come into force early next year.

The mixed designation means that each of the EU’s countries must ratify the deal, but the European Parliament’s approval will lead to “provisional application” of the pact.

Coninsx said that means 90 per cent of deal will take effect early next year, and Britain for the time being will remain bound by the treaty while it enters into its long negotiation to leave the EU.

German Chancellor Angela Merkel, a Christian Democrat whose Social Democratic coalition partner criticized the commission’s original stance on CETA, signalled support for a stronger national role in ratification.

“Requiring national parliaments to vote on free-trade agreements isn’t a novelty,” Merkel told reporters in Berlin on Tuesday.

The political pitfalls risk undermining the credibility of the EU as it sidesteps stalled World Trade Organization efforts to open markets by seeking commerce deals with individual countries or groups of nations. Negotiations on the EU-Canada agree- ment, the bloc’s most ambitious to date, began in 2009.

The accord would end 98 per cent of tariffs on goods traded from the outset and 99 per cent after seven years.

Each side would dismantle all industrial tariffs and more than 90 per cent of agricultural duties. Markets for services and public procurement would also be opened.

“I continue to be very, very optimistic about this,” Prime Minister Justin Trudeau told reporters in Montreal. “The approach the EU is moving forward on is a positive one.”

The EU is Canada’s No. 2 trade partner after the U.S., and Canada is the EU’s 12th-biggest, according to the commission. EU-Canada trade in goods was € 59.1 billion ($84 billion) in 2014, while services commerce totalled € 27.2 billion ($39 billion).

In an effort to win over European skeptics, the two sides amended the draft in 2014 to scale back protection for foreign investors. The provisions on so-called Investor-State Dispute Settlement are also being inserted into a draft EU-Vietnam trade pact completed last year and will be the model for treatment of foreign investors in the planned EU-U.S. deal, the Transatlantic Trade and Investment Partnership.