Business without Borders: A breakthrough in Europe?

Canada's on the verge of a trade deal with the EU, the government says. Show us, say exporters.

Canadian Trade Minister Peter Van Loan wishes the mainstream media would pay more attention to the anti-globalization crowd. After all, if trade naysayers made the front page of national papers more often, then more people might realize Canadian trade negotiators are well on their way to making history with an ambitious plan to better integrate our national economy with the European Union. As Van Loan points out, the Council of Canadians, which claims a deal with the EU could threaten Canadian access to safe drinking water, recently held “a wonderful news conference” to voice its concerns — but it got virtually no media pickup. “I was actually disappointed,” Canada’s trade minister says, “because there should be more of a spotlight on these negotiations.”

True enough. If all goes as planned, Canada will become the first developed nation to land a free trade agreement with the economic grouping of 27 European nations sometime next year. The EU — the world’s largest market, not to mention home to the wealthiest pool of investment capital and some of the largest and most important companies on the planet — is already Canada’s second-largest source of trade and foreign direct investment. In 2008, Canadian exports to the EU totalled $52 billion. Imports amounted to $62 billion. But there appears to be plenty of room for growth. After all, the Canadian economy is 150% larger than the Indian economy, which has similar trade levels with the EU. Furthermore, Europe trades about 25% more with South Korea, which has a smaller GDP than Canada.

If a deal is reached, a joint government study published in 2008 estimates it could generate a $38-billion boost in annual bilateral trade (mostly in services) and provide Canada with a $12-billion gain in gross domestic product. And Van Loan insists the endgame is a pact with Europe that would go much further than NAFTA by allowing the free movement of labour and recognition of foreign professional standards while opening up government services and procurement to foreign players. That’s in addition to removing tariffs and other barriers that hinder trade in goods, services and investment, even in sensitive sectors such as agriculture.

Nevertheless, Canadian trade officials are frustrated by what Ontario’s chief negotiator Maurice Bitran calls the business community’s “dearth of interest” in this deal. At a recent information session in Toronto, Bitran and two federal counterparts pleaded for more visible corporate support and input for the deal.

Michael Hart, a former Canadian trade official and founder of Carleton University’s Centre for Trade Policy and Law, says corporate Canada is yawning because the cross-Atlantic business relationship is more about investment than trade. “Rather than sending things back and forth,” he says, “Canadian manufacturers tend to produce overseas what they think they can sell.” According to Hart, a deal with the EU that actually lives up to its billing will be more than a little surprising. He notes individual EU members already have WTO agreements with Canada, and there are few major tariffs to tear down. Finding other ways to improve trade and investment, he adds, is a waste of time because “what’s negotiable is not worthwhile, and what’s worthwhile is not negotiable.”

Business lobby groups beg to differ. Roy MacLaren, chair of the Canada Europe Roundtable for Business, says private-sector support for a trade deal with the EU dates back to his days as Canada’s minister of international trade in the mid-1990s. The direct benefits, he adds, are obvious in any free trade deal between Canada and a market of 500 million people. As for indirect benefits, MacLaren says they include the potential to further break down Canada’s internal barriers to trade while setting a North Atlantic example that could stimulate multilateral talks.

Everything, of course, depends on the details. Keep in mind that the study used to sell this deal assumed “a successful outcome of the Doha Round, in which both non-agricultural and agricultural tariffs will be reduced by a substantial margin.” That didn’t happen, and what is actually negotiable in these talks remains an open question. Canadian trade negotiator Vincent Sacchetti recently promoted the trade talks to a business audience in Toronto with a presentation that suggested everything is on the table. But Canada is committed to protecting its supply management systems for dairy, poultry and egg products. And Europe isn’t expected to give up agricultural protections or cave on the issue of geographic indicators for products like champagne or feta cheese.

Chris Sands, a senior fellow with the Washington-based Hudson Institute who specializes in Canada, suspects Canada and the EU will strike a symbolic agreement that “does little, or nothing, to move the needle on trade and investment.” Sands, however, notes that Europe has agreed to not tax or block raw materials, low-end manufactured items and agricultural goods that selected developing countries sell in return for access to government procurement. And he says there is a chance that the EU will let its guard down for Canada, at least enough to reach “a reciprocal deal of some sort,” since our nation has become a rather attractive dance partner in a bilateral world.

Thanks to our national resources and relative budgetary restraint in Ottawa, Canada — once described by comedian Robin Williams as an apartment above a great party — has ditched its honorary membership in the Third World. As Van Loan recently pointed out to the Canada-Spain Chamber of Commerce, our nation currently enjoys the strongest fiscal position in the G7. Inflation remains under control, and our corporate tax rate is on track to become the lowest in the G7 by 2012. Canadian banks remain solid, and our nation has the highest proportion of post-secondary graduates among OECD countries. Canada is also ahead of the industrialized pack in terms of cost competitiveness.

Whatever happens, Sands warns Canadians to attach realistic expectations to this deal, noting the EU’s sovereign debt crisis has made Canadian exports “a bit pricey in European markets.” Indeed, as Van Loan was promoting the benefits of greater trade with Europe to the Canada-Spain Chamber of Commerce on May 28, the value of the euro was further hammered by a Spanish debt downgrade.

Van Loan argues the EU debt crisis is actually fuelling more European interest in reaching a wide-ranging agreement with Canada because economic recovery, which trade supports, “is part of the solution to the EU’s problems.” And he won’t “quibble” about the impact of exchange rates on the potential value of any deal. “Economic forecasting is hypothetical at best,” he says, noting the important thing is that these negotiations offer net benefits on both side of the Atlantic, and the gains to Canadian GDP will be counted in the billions.

Canada’s trade minister also won’t speculate on what will happen if any Canadian province opposes the deal. EU officials have said provincial support is required. And Newfoundland Premier Danny Williams recently indicated he may fail to sign on to any pact. “Frankly,” Van Loan says, “my greater concern is the ratification of any deal by EU member states. If there is a risk, that’s where it will be.” But Joe Rosario, a trade expert with the University of Alberta’s Western Centre for Economic Research, thinks the trade minister should worry about provincial support — and not just out east. After combing through the text of draft negotiations leaked by the Council of Canadians, he found nothing to support the political hype attached to this deal. Rosario says western provinces will expect the elimination of non-tariff barriers to certain Canadian exports, such as quotas on beef and restrictions on canola, considered a genetically modified food. “But I read nothing of the sort. All the issues that will pose a real problem have been postponed to later dates.”

At this point, of course, anything in the draft text should be taken with a mountain of salt. “The real horse trading,” says one EU insider, “has not even started.” And when it is finished, this source says Canadians should not expect “to toast any deal with champagne from any nation other than France.” And if you have an issue with that, Canadian negotiators would love to hear about it before it is too late.

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