Blogs & Comment

Newfoundland is holding the Canada-Europe free-trade talks hostage

The province’s boycott of CETA negotiations is an ominous sign for trade deals yet to come

Dutch women holding large wheels of cheese

Cheese war with Europe: Dutch gouda at the 2013 Gruene Woche agricultural trade fair in 2013 in Berlin. Gruene Woche is the world’s largest agricultural trade fair. (Sean Gallup/Getty)

Sir John A. Macdonald, who would have turned 200 this year, advocated a single central government for Canada, without the bother of provincial legislatures: “one government and one parliamentfor the whole of these peoples,” he argued during debates over Confederation. Our first prime minister also made ample use of the now-obsolete power of “disallowance,” which gave him the ability to overrule the provinces whenever he liked.

So we might have expected the Old Chieftain to make short work of Newfoundland and Labrador’s recent gambit to extract $280 million from Ottawa in exchange for its co-operation in the Comprehensive Economic and Trade Agreement (CETA) with the European Union. If it doesn’t get its money, the province claims it will refuse to enforce CETA and drop out of all future international trade negotiations. Newfoundland’s brinkmanship is introducing considerable uncertainty into the delicate CETA process. 

Unfortunately for the current federal government, the power of the provinces today vastly exceeds their influence in Macdonald’s day. 

When Canada and the EU first sat down to hammer out a trade deal in 2009, the Europeans insisted the provinces be at the table, since many of the topics up for debate—procurement, labour mobility, agriculture—lie within provincial jurisdiction. This new status gives the provinces unprecedented clout. One of the biggest sticking points in CETA was the EU demand that Newfoundland relax its rules requiring fish to be processed provincially. To get the province to give ground, Ottawa initially tried tying a billion-dollar federal loan guarantee for the Muskrat Falls hydro project to a change in the fish-processing rules. Former Newfoundland premier Kathy Dunderdale flat out rejected that threat. When continued pleading didn’t work, Ottawa then offered to share the cost of a $400-million fisheries fund. But while the feds understood this deal to be contingent on actual harm occurring to the fishery business, Newfoundland now wants the feds’ $280-million share regardless.  

It makes no sense for either party to scupper a deal as big as CETA. Bailing on it would surely cost Newfoundland more in lost trade opportunities than any federal fund could provide. No doubt a typically Canadian compromise awaits, but Newfoundland is playing a good hand: If the province carries through on its boycott, Ottawa—the sole Canadian signatory to the deal—is still responsible for footing the bill for any fines. Expect the feds to concede the most.

While we wait to see how much Newfoundland is able to extract, note that Ottawa offered two other similarly vague compensation deals to get CETA through: One on drug prices, tied to a lengthening of patent protection, and another to the dairy industry as protection against an increase in duty-free European cheese. Keep your eye on the cheese deal. CETA’s compensation spats may be a preview of the future endgame for solving Canada’s thorniest trade dilemma of all—the total elimination of supply management.

“The removal of supply management will be a huge trade issue when it finally goes down, and it certainly will in the next 10 to 20 years,” says Saul Schwartz, a professor at Carleton University’s School of Public Policy & Administration in Ottawa. Newfoundland’s fight can be seen as a dry run for when the federal government finally bows to international pressure and dismantles the antiquated rules that protect Canada’s provincial dairy, poultry and egg markets from foreign competition. 

With the provinces gaining enhanced ability to dictate trade negotiations, and with Quebec and Ontario heavily invested in supply management, Ottawa is going to have to find new ways to deliver on trade deals that individual provinces dislike. Strong-arm tactics didn’t work for the fish industry. Neither did money with strings attached. Expect the same result when it comes to supply management, Schwartz says: “Eventually, the federal government is just going to have to start cutting cheques.”