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Discussions between Canada and the EU towards a comprehensive economic and trade agreement represent a new generation of free trade agreements .
As part of an aggressive trade agenda, Canada has begun drafting the most comprehensive trade and investment agreement ever undertaken.
“That’s why it’s not being called a free trade agreement (FTA),” said Jason Langrish, executive director, Canada – Europe Roundtable for Business. “It goes beyond an FTA and is the most comprehensive agreement undertaken by both Canada and the EU.” If successful, the comprehensive negotiations will deepen bilateral economic integration, said Langrish, “but unlike with the U.S., there is not the same perceived threat to Canadian sovereignty.” In fact, Canada’s reliance on the U.S. market is one of the major reasons there is strong desire for a solid partnership with the EU.
Langrish said the agreement is now less about tariff elimination than it is about investment. In fact, the elimination of 90 percent of tariffs were agreed upon in the first round of negotiations. It is the other non-tariff issues and influences on trade that require sensitive and careful compromise. Both Canada and the EU are charting new territory with CETA.
Up until the CETA negotiations, the North American Free Trade Agreement (NAFTA) was the most comprehensive trade agreement Canada had undertaken. The CETA is a different beast, the timing of which is a combination of strong interest on the part of both countries and an economic situation that makes an agreement appealing to both sides.
From a Canadian perspective, the current economic and political climate in the U.S. has encouraged Canada to find alternative trading partners and to reduce reliance on the U.S. market. Increasing protectionist sentiment in the U.S. has created some uneasiness amongst Canadian businesses who rely primarily on U.S. markets. On the EU side, the Canadian procurement projects have become increasingly attractive and are something to which the EU wants access. Because procurement fails largely under provincial jurisdiction, the EU has maintained steady pressure on Canada to ensure provincial participation and support for CETA.
As a potential trade partner, the EU is attractive for many reasons. First, there is a great deal of alignment in the economies; both have similar levels of economic development and institutions. And the EU is already a strong trade ally of Canada’s, with large volumes of trade and investment already in place. “Large volumes encourage the development of agreements that remove unnecessary barriers to trade and investment,” explained Langrish. This is a driving force behind the CETA. “Numerous businesses that are heavily invested in Canada and the EU have pushed for the CETA, countering those who prefer the status quo,” said Langrish.
The global trade arena today is vastly different from when NAFTA was negotiated, resulting in a new generation of trade agreements. No longer do companies solely produce goods at home and simply ship them to overseas. Businesses today invest overseas, developing a facility that either produces for the local market, or produces goods that are shipped to other facilities for final assembly. Investment has become a bigger part of the equation than trade. For small and medium sized companies that do still produce at home and sell to the EU, issues such as standards, labelling and safety requirements are being addressed because there is little harmonization. This can be cost prohibitive for a smaller business, and may deter expansion. CETA will bring coordination to these efforts, making trade overall easier.
In comparison to other trade agreements, the CETA entails a new level of detail. The agreement will address labour mobility, government procurement and the elimination or harmonization of regulatory barriers to trade. Many of these areas fall under provincial jurisdiction, which has meant that the provinces have been involved in every step of the negotiations. This is a charge that was led by Jean Charest, the Quebec premier, and supported by the EU team; it is the first time that the provinces have been considered critical to the negotiations of an FTA. This is important not only for Canada, but for the EU who is looking to the CETA with Canada to provide a blueprint for negotiations with other developed countries. To date, the EU has limited is trade initiatives primarily to developing countries.
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