Strategy

Business without Borders: Continental Divide

Is Canada’s new trade agreement with the European Union forward-thinking or a last gasp of the past?

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Ed Fast, minister of international trade, calls CETA “Canada’s most ambitious trade agreement.” (Photo: Sean Kilpatrick/CP)

After nearly three years of measured, cordial talks, negotiators on both sides of the Atlantic are privately hunkering down to deal with the finer points of a high-stakes international trade game.

Most details remain under wraps after the recent completion of the ninth formal round of negotiations, but the Canada–European Comprehensive Economic and Trade Agreement (CETA) is already being hailed as the landmark deal of a generation. For Canada, it represents the biggest, most significant bilateral initiative since NAFTA, and in the words of International Trade Minister Ed Fast, it is “by far, Canada’s most ambitious trade agreement.”

“It offers huge opportunities,” Fast says. “It’s an expansive agreement that is not only restricted to goods. It will include services, it will include procurement, it will include investment provisions. We expect it will also include provisions on the environment and on labour. This may become the gold standard agreement if we do this right.”

Fast insists the Canadian government won’t be boxed in by any set deadline, but officials are quietly eyeing a mid-2012 completion date. Negotiations have moved to focused, intense talks on a sector-by-sector and issue basis.

While there is no shortage of critics complaining about a secretive process and provisions of the agreement that could have negative impacts, Fast believes the CETA is one important piece of a larger puzzle to improve Canada’s position in an increasingly complex, competitive world market. Without losing sight of blossoming markets like Asia, India and Brazil, Fast says Canada still views Europe as a top trading partner. It is the world’s largest trading bloc with 500 million consumers, including 100 million from former eastern European countries where a middle class continues to grow.

While it may be too early for firms to begin hatching new business plans, Fast is seeing increased mobilization and a real awakening to the potential benefits of doing business in Europe. He expects the agreement will boost bilateral trade by 20%, grow Canada’s economy by $12 billion a year and create 80,000 new jobs.

Opponents of CETA—who range from environmental groups to community activists and municipalities—worry the sweeping package will threaten local democracy and procurement practices, promote privatization of drinking and waste water services, and cause prescription drug prices to climb. But the pro-side argues the deal will make Canada the only country with preferential trade and investment agreements with both the U.S. and the EU. They expect greater investment in Canada and new opportunities in Europe in a broad range of sectors that include agricultural, manufacturing, aerospace, chemicals, plastics, aluminum, wood products, fish and seafood.

Jason Langrish, executive director of the Canada Europe Roundtable for Business, says both the economic and political stakes are high, with credibility on the line for ­leaders on both sides.

“This is a generational trade development. Basically, every 25 years you do a really big deal and it eats up a lot of political capital, and this is the deal that’s going to eat up the Harper government’s capital,” he says.

The proposed Canada-EU agreement is complex because it includes the provinces and involves rules that govern commercial exchange like intellectual property, rules of origin and public procurement. With official rounds completed in late October, negotiators are now moving into smaller, focused meetings to hammer out remaining issues. If that goes according to plan, the text could be ready for ratification in 2013.

Langrish rejects the notion that Canada is hitching its economic wheels to a troubled region, pointing to the fact the vast majority of trade occurs with the healthy economies of Europe—Germany, Sweden, the Netherlands and Belgium.

“We need to be in these places like China and India, but it’s exaggerated as to how much we can do. In the United States and Europe, we have national treatment, we’re treated exactly the same as a local firm so we have real immediate economic opportunities. So we need to separate potential from reality,” he says. “There is huge potential in Asia, and we need to be there, and there is huge potential in Brazil, and we need to be there. But they’re still fairly state-driven economies, which limit the opportunities for Canadians, whereas the real, more immediate realities in opportunities exist in places that think and act the way that we do.”

But Michael Hart, who holds the Simon Reisman chair in trade policy at the ­Norman Paterson School of International Affairs at Carleton University, sees the CETA as a “last gasp of the past” for those ­hoping to rekindle a relationship with the EU instead of setting sights more firmly on new, emerging markets.

“Europe is not where the future lies. The future is more likely to lie across the Pacific than across the Atlantic,” Hart says. ­“Secondly, we are very much part of the North American economy. We’re deeply integrated into that economy, and it is together with the U.S. that we’re making progress in gaining access across the Pacific, which is the future. To now negotiate a comprehensive agreement which may very well conflict with our interests in North America and the Pacific is of questionable benefit.”

Suggesting the agreement has been overhyped by the players on both sides, Hart says he’s not convinced the so-called biggest deal ever is in Canada’s best interests.

If the proposed agreement has some trade experts scratching their heads, it has some activist groups reeling. Lending loud voice to the opposition side is Maude Barlow, national chairwoman of the Council of Canadians, who is as much riled about a process that lacks meaningful public input as she is about potential impacts of the deal. She accused the EU of staging a “resource grab” in an agreement that could have far-­reaching effects on local economic development and farmers. Europe is “sinking fast”—and she believes it’s a mistake for Canada to tie itself more closely to that part of the world.

“Europe is in a race with China and trying to stay as a superpower in light of the crisis it’s in,” she says. “It’s seeking access—­permanent access—to our resources. Everything from potash, to pulp and paper, to diamonds, to fish, uranium—you name it.”

One element of fierce contention is a ­proposal to extend eight-year intellectual property protection for data by two years, which critics like Barlow maintain would drive up the cost of pharmaceuticals. But Russell Williams, president of Canada’s Research-Based Pharmaceutical Cos., says CETA will lead to more innovation, research and, therefore, better health care. Right now, Canada has a $1.3-billion share of the annual $100 billion invested globally in life sciences research, and Williams said CETA has the potential to make that figure grow.

The EU’s 27 member states now stand as Canada’s second-largest trading partner in goods and services. With a GDP of nearly $16.8 trillion in 2010, the EU is also the second-largest source of foreign direct investment in Canada, and the EU accounts for almost 25% of Canadian direct investment abroad.

Perrin Beatty, president and CEO of the Canadian Chamber of Commerce, insists there is no “either the U.S. or Europe or Asia” proposition going forward: Canada needs thriving economic exchanges with all three.

“Many companies are already ready to pursue the opportunities to which they expect enhanced access, while others are turning more slowly toward the potential of more trade and investment with the EU, or between the EU and the U.S. through Canada,” he says. “While the U.S. remains our No. 1 economic partner by a long shot, and will almost certainly remain so, trade statistics show ­Canadian companies have been diversifying trade and investment away from the U.S. to other markets, including Europe, over the past decade. If anything, the negative impact of the 2008–2009 financial and economic ­crises on U.S. demand and outward investment have galvanized quite a number of Canadian businesses to look more aggressively at diversification. Businesses should be paying close attention to Europe.”