Nov 4, 2013

What’s the Canada-EU trade deal all about?


Chances are, you’ve heard about the Canada-EU trade deal. It’s hard to miss, what with the federal government hard at work staging photo-ops and events across the country, promoting the deal as a major win.

The official sales pitch focuses on the trade aspects of the deal – lowering or eliminating tariffs between Canada and the EU and opening up economic opportunities for Canadian business with improved access to the European market. But this deal is about more than just facilitating trade.

The agreement-in-principle signed in Brussels in mid-October is on a true-to-its-name Comprehensive Economic and Trade Agreement (CETA) that touches on virtually all aspects of economic life, including many that are only loosely related to trade.

It’s a real problem that such a broad agreement is negotiated behind closed doors without any meaningful public debate. Conservative ministers have made it clear this is a done deal and Canadians won’t have an opportunity to provide input on the content of the agreement or even vote on the deal in the next federal election. This complete lack of transparency goes against the very nature of democracy.

The federal government has refused to release the full text of the signed agreement-in-principle so far, despite pressure from a number of civil society groups united under the umbrella of the Trade Justice Network. Instead, the materials made available are little more than marketing brochures outlining the official sales pitch.

Even the technical summary tabled in the House of Commons on October 29 is missing potentially important details. And new information coming in, such as the news that EU exporters will save three times the amount of duty that Canadian businesses can expect to save, only confirms critics’ concerns that the federal government has been overstating the benefits and minimizing or outright ignoring the costs.

Without all the details, some of which are still being negotiated, it’s simply not possible to assess how good this deal is (or isn’t) for ordinary Canadians. But what we have seen so far raises some red flags, particularly around pharmaceuticals, and government purchasing and regulatory abilities.

A major concession Canada made to secure the deal is to extend the patents of brand name drugs by two years. This will delay the introduction of generic drugs to the market, which often cost a fraction of the price of their brand name counterparts. The move further enriches the already very profitable Big Pharma companies, at the direct expense of our public healthcare system and of Canadians in need of affordable prescription drugs (estimated at between $850 million and $1.6 billion annually).

Guaranteeing longer monopoly power for pharmaceutical companies goes against the spirit of free trade, which is supposed to be about fostering competition and through competition, improving productivity and lowering prices for consumers.

The Canada-EU trade deal also appears to undermine local and provincial governments’ authority to use their own spending as a tool for local community development, and for reducing their carbon footprint by buying local. Under CETA, sub-national government contracts, which have been exempt from previous trade agreements, including those for building new infrastructure, transit and utilities, must be open to European companies.

There will be some notable exemptions to these rules, such as allowing Quebec and Ontario to [correction (Nov 6)] partially “grandfather” their existing requirements of a minimum of 25% domestic content for transit vehicles, but the deal will make it impossible for future provincial governments to introduce similar local procurement preferences.

Update (Nov 6): A more careful reading of the technical summary of the agreement published on October 31 reveals that Ontario and Quebec’s purchasing rules for transit vehicles are being weakened from the current requirement of 25% “domestic content” to 25% “Canadian value”. This might have significant implications for domestic manufacturing of transit vehicles. Stay tuned for more analysis by my colleagues at the National Office of the CCPA.

Thus, some decisions that have so far been made by elected bodies after a healthy amount of public debate will now be legislated under CETA.

Additionally, the Canada-EU trade deal will give investors the power to sue local, provincial and federal governments if government legislation threatens their profits. Investors would be able to challenge environmental, financial or regional development regulations, bypassing domestic courts and taking their claims to quasi-judicial tribunals instead, with taxpayers on the hook for damages.

Both Canada and the EU have strong court systems that do a good job balancing the protection of investors’ property rights with the public interest. It is unclear why special investor-state tribunals are needed at all, and their lack of accountability is a concern.

The Canadian experience under NAFTA, which provides for similar investor-state tribunals under Chapter 11, has shown that these provisions have a chill effect on regulators.

What will the overall economic impact of the deal be? Some large numbers are being thrown around in the government’s promotional materials for CETA, but research we have done at the CCPA suggests that the economic benefits of this trade deal are being exaggerated while the costs and consequences minimized (here, here and here, with a good summary of the major issues by Scott Sinclair here).

In reality, tariffs between Canada and Europe were very low to begin with in all but a few strategically protected sectors such as agriculture. In addition, the volume of our trade with the EU is about one tenth of our trade with the US. All this points to relatively small economic gains from the much-touted tariff reductions, concentrated in a few industries.

Still, if this deal were just about opening access between Canada and EU’s markets, CETA would be a lot less controversial. The main thing we’d have to worry about is making sure people working in the industries that will be negatively affected (cheese-makers, for example) were properly compensated.

But the trade measures in CETA are bundled with provisions that expand corporate and investor power in a host of areas, often directly at the expense of the public interest (for example, by undermining provincial and local governments’ ability to legislate in the public interest). It’s unclear whether this broader agenda benefits the majority of Canadians.

New BMWs and French perfumes may be a little cheaper, European fine cheese and wines may be more easily available, but for many ordinary Canadians, the more expensive prescription drugs will more than outweigh these potential savings.

The bottom line is that the Canada-EU trade agreement, like any other public policy, involves trade-offs and will create both winners and losers. Canadians deserve the opportunity to take an objective look at both the benefits and the costs before making a decision, instead of being presented with a done deal they’ve had no input on.

UPDATE (Nov 6): Corrected an error in my earlier description of the Ontario and Quebec purchasing rules for mass transit. (Thanks, Scott Sinclair for pointing this out!) Talk about how important the actual wording of the agreement is! One more example why Canadians need to see the full text of this deal.

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