CETA: Canada-EU Trade Agreement

21 10 2013

Canada and the European Union have reached an agreement in principle for a free trade agreement.  I would hold off on opening up any celebratory bottles of champagne, as many important details remain to be negotiated before the process of ratifying this rather modest agreement can even begin. Once the finalized agreement is signed, it must be passed by the European Parliament, and the parliaments of all 28 countries in the EU. Three of these nations have said they will withhold support until Canada removes the visa requirement from their citizens.  Canada’s ten provincial legislatures will also have to endorse the agreement, as it involves matters of provincial jurisdiction.  I wish the Canadian federal government the best of luck in their negotiations with the provinces.

I’ve been blogging about CETA for a long time. See here, here, and here.  I even organized a conference on CETA in 2011. When the CETA negotiations first opened, there were wildly optimistic predictions about the degree of liberalization the agreement would provide for. I recall that many Canadians thought the agreement would give Canada a sort of EU-associate status similar that enjoyed by Iceland, Switzerland, and Norway. Others suggested that the agreement would lead to mobility rights for Canadians similar to those enjoyed by citizens of EU countries, which would have given Canadians the right to settle and work in the EU and vice versa. There was a lot of discussion of the elimination of all barriers to investment and the mutual recognition of qualifications for doctors, accountants, and other professions. Canadians across the political spectrum welcomed the idea of rebalancing Canada’s trade away from the United States and towards the EU.

The draft agreement that has been described by the Canadian media in the last few days is much more modest. Indeed, it isn’t really accurate to describe it as a comprehensive free trade agreement. Instead, the agreement merely modifies the regime of managed trade that relates to many commodities.  Consider dairy products. Visitors to Canada are often struck by the fact that cheese is extremely expensive. Canadian visitors to supermarkets in the EU are often impressed by the range of cheeses from EU countries on offer. In an ideal world, Canada would fling open its gates and allow EU cheese to be imported freely.  Alas, that’s not what this agreement provides for. Instead, Canada will increase its annual import quota of cheese from the European Union to about 30,000 tonnes per year from its current 15,000 tonnes. In return, the EU will allow Canadian beef producers to export up to 50,000 tonnes per year.  Based on the media reports I’ve seen, the draft agreement does not even deal with the vexed issue of the food quality regulations governing beef: Canada permits the injection of growth hormones into cattle, whereas the European Union does not permit hormonally enhanced beef to be sold within its borders. The media reports of the draft agreement are silent on this important issue. Moreover, we haven’t heard anything about whether the agreement will require the EU parliament to abandon its plans to effective ban oil from Canada’s tar sands.

The provisions regarding professional qualifications are equally disappointing, as the agreement will simply authorize Canada’s highly protectionist self-governing professional bodies to enter into mutual recognition agreements with their European equivalents if they so choose. I predict that few agreements for the mutually recognition of qualifications will result.

The agreement’s provisions regarding capital mobility are somewhat more substantial but still underwhelming.

Under the Investment Canada Act the Canadian government must review foreign takeover of Canadian companies is the value of the takeover is over C$334million. In the past, there was uncertainty over whether the government would allow particular takeovers to go ahead.  Under CETA, the statutory requirement for a review of takeovers by EU companies will not kick unless the total value is greater than $1.5-billion. The change reflects “the special relationship” between Canada and Europe.  Actually, the relationship doesn’t seem to be that special, if the threshold for EU companies is only 50% greater than the proposed threshold for non-EU companies (C$1billion). Non-EU companies would include state-owned enterprises in the People’s Republic of China. Moreover, the proposed agreement would not alter Canadian ownership restrictions in the airline, cultural and telecommunications sectors. 

In recent years, Canada’s budget for economic diplomacy has been cut. Indeed, Canadian diplomats recently went on strike because they were so angry about the reduction in funding for embassies and other overseas operations. Perhaps a more robust foreign service would have had the resources to produce a more impressive agreement.

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