End of CETA, end of European trade deals

In an emotional statement Friday, Canada’s minister of international trade Chrystia Freeland announced she was unable to reach a deal with Paul Magnette, the premier of Belgium’s Wallonia region over the Canada–European Union (EU) Comprehensive Economic and Trade Agreement (CETA). 

“It is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement — even with a country with European values such as Canada… I personally am disappointed but I think it’s impossible. We are returning home,” she said.

As a result, the Belgian federal government is not going to get the legal support that it needs to sign CETA, which has been in the making for seven years now.

This means that the Council of the EU, which represents the member states, is not able to ratify CETA. CETA will now be put to sleep for the foreseeable future because it is not at all clear at this time how CETA could be modified further to satisfy the Walloons and others in the EU who oppose the agreement. So everyone now goes home, or stays home, including Prime Minister Justin Trudeau, who was expected to travel to Brussels on Oct. 27 to sign the agreement.

Already, Canada and the EU have made several attempts to satisfy critics’ concerns around CETA. For instance, Canada has accepted the EU’s proposal to create a permanent tribunal to settle disputes between firms and states, with judges who would be appointed by the federal government and the European Commission, leaving no say to firms, instead of the original proposal to use the traditional ad hoc arbitration model.

Canada and the EU have also added language in the CETA text to reinforce the notion that governments’ legal and democratic prerogative to adopt laws and regulations that they think are best for their society and economy cannot be challenged by firms using CETA’s investor protection provisions. This language was made even stronger with a joint declaration issued last week by Canada and the EU, in response to the Walloon threat, that will become an integral part of CETA and therefore have legal validity. In recent days, additional attempts, not made public, have been made by Canada and the EU to mollify the Walloons in order to get them to change their position and allow CETA to go ahead. 

Seven years of intense negotiations are now highly likely to go down the drain. Canada’s future economic growth prospects will be diminished as a result. Canadian firms will lose a great opportunity to gain easier and cheaper access to an economy the size of the United States that is already Canada’s second largest economic partner. 

For the EU, the repercussions are even greater. As Freeland said earlier this year, if the EU cannot get a deal done with Canada, who “the heck” will it be able to do deals with?

The Walloons have now sent an important message to the populist right and left in Europe: We can stop Europe’s globalization! In the context of elections in France, Germany and the Netherlands next year and a referendum on constitutional change in Italy, where in all these cases populist parties that are anti-EU and anti-globalization stand a decent chance of winning, it is doubtful that EU political leaders will try to change the rules of the game in favour of allowing EU institutions to ignore blocking minorities. Otherwise, they would be accused of ignoring le peuple. Leaders of populist parties would again lament that the EU elites are out of touch with the concerns of their populations.

This means that the Transatlantic Trade and Investment Partnership (TTIP) that the EU was negotiating with the United States is also dead. Until now, we thought it was going to be the Americans who would kill the deal, but it is the Europeans who have done it in the end.

It also means that Britain is in for a very hard Brexit. Once it has negotiated its exit from the EU, the UK has to negotiate its economic partnership with the EU. It is hard to imagine under today’s circumstances how the Brits are going to get a good deal. It is even entirely possible that they might have to trade with the EU under World Trade Organization rules for years to come. This is not quite what the Brexiteers expected. 

Even more worrisome for Canada and the rest of the world is the fact that, in the EU, we have now lost a key player in maintaining borders open to international trade and investment. The Americans are also very likely to be reluctant to negotiate and sign international trade and investment agreements in the coming years — in light of the ugly politics of the soon-to-be over U.S. presidential campaign. Who will lead the fight against protectionism and economic nationalism around the world? Canada cannot do it alone.

As a trading nation that benefits from open borders, this should be of great concern for Canadian political and business leaders.

Canada is now zero-for-two in its mega-regional trade deals, with CETA’s failure and the very likely failure of the Trans-Pacific Partnership (TPP). What should we do? Certainly, reactivating our trade negotiations with the Japanese is now a must. The recent announcement of Canada and China exploring the possibility of launching free trade negotiations is also good news; however, we should not fool ourselves into thinking that such negotiations will be easy and that the outcome will be anything like CETA or TPP. The scope of a free trade deal with China is likely to be much more limited, though welcomed.

One last possibility for Canada’s new trade agenda may be to focus on modernizing the North American Free Trade Agreement (NAFTA) with the U.S. and Mexico. In fact, there might be an opening to convince Hillary Clinton, who will likely be the next president, and her Democratic party to adopt many of the progressive provisions found in CETA. The Americans might be amenable to such a modernization of NAFTA. It may even convince some moderate Republicans, who are generally pro-free trade, to support such an endeavour.

With Europe out of the picture for now, our political and business leaders will have to get creative if they want to keep the global trade agenda alive.