Originally published on June 24, 2013 by the Ottawa Citizen.
Prime Minister Stephen Harper is to be applauded for resisting pressures to wrap up the unfinished Canada-Europe Trade Agreement negotiations in time for a photo op at the G8 meetings in Northern Ireland.
Through no fault of the Canadian negotiators, who by all accounts have done a solid job under the direction, until recently, of the redoubtable Nigel Wright, the CETA negotiations are still incomplete after four years of work with some of the thorniest issues remaining. No one should be surprised or upset by this turn of events. After all, the first article of the negotiator’s creed is: the only thing worse than no deal is a bad deal.
For the past half century, negotiating with the Europeans has been problematic at best. When Britain joined the Common Market, Canadian exporters were faced overnight with high tariffs and the prohibitive levies of the Common Agricultural Policy on their shipments to what had been Canada’s second largest market, the United Kingdom. As the Kennedy Round of trade negotiations drew to a close, the Europeans were unable to identify any concessions they were prepared to make to meet Canadian interests, although there was some talk of permitting us to export raw salmon provided they could sell the smoked product back to Canada. Then Pierre Trudeau’s quixotic “Third Option” of closer economic ties to European proved to be a fiasco, a classic case of unrequited love. There followed the Turbot wars when the European Commission solemnly threatened to unleash the most terrible trade sanctions on Canada for Brian Tobin’s attempts to curb the devastation wrought by the European (Spanish) fishing fleets off Canada’s East Coast.
I have always found the Americans to be tough negotiators but on their worst days they proved more accommodating than the Europeans on their best. As a result, trade between Canada and Europe is relatively paltry (at less than 2 per cent of Europe’s total external trade) and unbalanced in Europe’s favour. As a share of Canada’s external trade, the whole of the European Union represents about as much as did the UK alone before it joined the Common Market, in a very distant second place to the United States.
As the CETA negotiators are finding, there are a number of reasons why dealing with the Europeans is so difficult. The first is geopolitical: despite the advance of globalization, both Europe and North America are predominantly regional in their economic activity. Trade within a united Europe continues to expand, despite current economic difficulties. Particularly since the Canada-US free trade agreement and its successor, NAFTA, trade within North America has also expanded rapidly, despite recent economic setbacks. Trans-Atlantic trade, meanwhile, has been the poor cousin, requiring more effort for less reward.
The second is a matter of policy: Europe’s success in dismantling barriers to the movement of goods and services and people within the union has been undertaken in the shelter of declining but still substantial barriers against imports from outside. The most egregious example remains the Common Agricultural Policy, an onerous and elaborate system to penalize agri-food imports while subsidizing domestic (particularly French) farmers. For the industrial heartland of Europe to have become a net agricultural exporter defies economic logic and damages the interests of efficient agricultural producers. Canada’s equally offensive but much smaller scale protection of our dairy farmers, particularly in Quebec, pales in comparison.
Third, it is simply very hard to negotiate with the European Union. In recent days, there have been reports of repeated instances of deals done at the bargaining table by the mandated negotiators from the European Commission only to be repudiated back in Brussels when one of the 27 (soon to be 28) member countries kicks up a fuss. As a negotiating technique, this may be seen as a cunning way to extract the maximum advantage but it is a poor way to reach a successful agreement. At the end of the day, the negotiator’s only coin is his credibility, his ability to deliver on agreements reached. Indeed, as we learned to our pain in the original Canada-US free trade negotiations, unless the guy on the other side of the table can commit to make concessions as well as simply make demands, the whole exercise is simply a waiting game until the real negotiators enter the picture (in that case, US Treasury Secretary James Baker).
Fourth, when Europeans look westward to North America, Canada appears as a small adjunct to the much bigger prize, the glittering American market. In round after round of negotiations over the past 50+ years, the ultimate European argument was always that they could not make such-and-such a concession to Canada without also giving it to the Americans for free. In the case of CETA, the negotiations are under the dark shadow of the USA-Europe negotiations that have now formally been launched. It is no wonder the European negotiators feel obliged to hold back significant concessions to parlay into exchanges with the much bigger American partner at a later date.
Finally, it must also be understood that these negotiations go far beyond matter of simple exports and imports to touch highly sensitive domestic policies of patent protection, government procurement, investment regulations and many other matters. The result is much greater complexity and the need to draw in a much wider range of stakeholders including, in Canada’s case, the provincial governments. To some degree, this has been true since the FTA broke the old mold of negotiation limited to tariff and non-tariff barriers to trade. But over the years the penetration has become much deeper and more intrusive into domestic policies.
Taking all this into account, the surprise should not be that the CETA has not been finally concluded but that the negotiations appear, despite all obstacles, to be very close to fruition. As usual, the most intractable issues are held to the end. In this case, one remaining and highly predictable stumbling block is the “sacred cows”—Canadian protection of (mainly Quebec) dairy farmers and European quota restrictions to protect (mainly French) beef producers. It will be highly disappointing if these last obstacles are not overcome in the very near future and agreement reached to expand Canada-European trade. This will not be the mega-deal hyped by the spin merchants, who are mesmerized by the total gross domestic product of the 27-member European Union and prefer to downplay the relatively small trade that actually occurs with Canada. Nonetheless, it has the potential to be a significant step towards the long sought goal of greater trade diversification and an important precursor to the much more important expansion of trade with the booming Pacific economies of China and India.
Note: As ambassador for trade negotiations, Gordon Ritchie was one of the principal architects of the Canada-US free trade agreement. He now serves as principal advisor at HK Strategies.