On October 30th, Canadian Prime Minister Justin Trudeau and corresponding EU officials signed an ambitious trade deal to remove 99% of existing tariffs between Canada and the European Union (1). The finalization of the Comprehensive Economic and Trade Agreement, or CETA, arrives while a wave of anti-globalization movements sweep the globe, resulting in the unexpected results of the British referendum to leave the EU and the popularity of right-wing candidates championing protectionist policies in the United States, France, and many other states.
According to the European Commission, CETA is expected to increase overall EU output by 12 billion euros a year (2). While the trade agreement will have no effect on public goods in Canada nor EU member states, it is expected to ease the costs of trading goods and services for both EU and Canadian corporations. In fact, according to European Commission President Jean-Claude Juncker, European exporters of industrial and agricultural goods are expected to save up to 500 million euros a year as a result of CETA (3).
Despite the perceived economic benefits of the agreement, some EU citizens have expressed concern towards specific features that may compromise their governments’ ability to favor domestic corporations over Canadian ones. CETA includes a mandate for an Investment Court System, which would function as an independent judicial system through which investors may sue states for alleged discriminatory practices. In fact, the establishment of such a court was not accepted by multiple EU nations until changes were made to the clause to bolster governments’ right to regulate (4).
Another point of contention has been the elimination of 94% of EU agricultural tariffs, a move that prompted the Belgian region of Wallonia to temporarily halt the signing of CETA, until continued negotiations finally led to a breakthrough (5). Historically, French-speaking Wallonia has been a primarily agricultural and coal-based economy, as opposed to the more service-based northern region of Flanders. Along with Brussels, Wallonia and Flanders constitute the three regions of Belgium. From a juridical perspective, the three regional governments, along with the federal and communal governments, maintain specific privileges but are equal in certain economic matters, a division of powers that allowed Wallonia to postpone the completion of CETA (6).
For cities and regions similar to Wallonia who benefit primarily from non-service based industries, globalization and the resulting increase in trade have been viewed as major threats to economic and financial security. European Commission President Juncker, nevertheless, is optimistic about the potential effects of CETA, and proclaimed alongside Trudeau to be “setting standards which will determine globalization in the coming years” (7). This assertion, however, in the context of ongoing negotiations for TTIP and the impending Brexit, is difficult to defend.
Recent trends suggest that the world is moving towards a primarily service-based economy. According to the World Bank, services currently comprise 75% of the European Union’s economy and 80% of that of the United States (8). These statistics are not to say that industries such as manufacturing are not essential to western economies; rather, non-service based industries are becoming less reliant on human capital. In the United States, for example, factories are producing double the output they did in 1984, but with one-third fewer workers (9). The loss of American manufacturing jobs to improved technology and countries with lower working costs has incidentally stirred anti-globalization sentiments in the United States, particularly among working-class, white Americans.
These anti-trade sentiments present in the United States make it difficult to draw a parallel between CETA and the proposed Transatlantic Trade and Investment Partnership (TTIP) between the U.S. and the EU. While President Obama’s administration is a strong supporter of the agreement, president-elect Donald J. Trump has vehemently opposed the deal. On the other side of the Atlantic, Europeans are also expressing opposition to TTIP, with certain German and French politicians going as far as to say that talks are dead (10). While EU Trade Commissioner Cecilia Malmstrom has blatantly rejected these claims, she has asserted that the talks will most likely require the cooperation of the next U.S. president. With Mr. Trump’s position on the TTIP, the probability of an agreement being reached is not too high.
Similarly, while Britain has yet to trigger Article 50 to exit the European Union, high ranking EU officials face the difficulty of striking a delicate balance between maintaining strong economic ties with Britain and minimizing the risk of contagion. Unlike with CETA, Brexit negotiations involve the creation of trade barriers among parties with conflicting interests, not to mention the unprecedented departure of a nation-state from the European Union. While CETA indubitably will have a positive net economic benefit for the EU and Canada, the long-term effects of Brexit on both the EU and Britain are yet to be determined.
Moving forward, CETA is expected to come into partial effect next year, under the condition that it passes through the European Parliament (11). Following its passage through the European Parliament, it will need to be ratified by the individual governments of EU member states before it comes into full effect.
(1) "Ceta: EU and Canada Sign Long-delayed Free Trade Deal." BBC News. N.p., 30 Oct. 2016. Web. 02 Nov. 2016.
(2) "Questions and Answers (CETA)." The European Commission. N.p., n.d. Web. 03 Nov. 2016.
(3) Dendrinou, Viktoria. "EU, Canada Sign Landmark Free-Trade Agreement." The Wall Street Journal. Wsj.com, 30 Oct. 2016. Web. 02 Nov. 2016.
(4) Provost, Charlotte. "CETA Explained: How the Canadian-EU Trade Deal Is Stirring Up Controversy." NATO Association of Canada. N.p., 28 Oct. 2016. Web. 03 Nov. 2016.
(7) Bartunek, Robert-Jan, and Philip Blenkinsop. "EU, Canada Sign Free Trade Deal but Battle Not over." Reuters. Thomson Reuters, 30 Oct. 2016. Web. 03 Nov. 2016.
(8) "TISA." WikiLeaks. N.p., 15 Sept. 2016. Web. 03 Nov. 2016.
(9) Nutting, Rex. "Think Nothing Is Made in America? Output Has Doubled in Three Decades." Market Watch. N.p., 28 Mar. 2016. Web. 4 Nov. 2016.
Image: © Piccaya | Dreamstime.com - TTIP GAME OVER Activist In Action During A Public Demonstration Photo
Stephan Llerena is a member of the second cohort of the World Bachelor in Business, a three-degree undergraduate business program jointly run by the University of Southern California, the Hong Kong University of Science and Technology, and Bocconi University of Milan. His work experience includes interning at a top 5% U.S. criminal law defense firm and with North American diplomats in Hong Kong. He is fascinated by the roles of international trade, law, and relations in maintaining global stability and security.