Last Sunday, after seven years of negotiations, the European Union (EU) and Canada signed a free trade agreement known as the Comprehensive Economic and Trade Agreement (CETA). The agreement provides for duty-free trade between Canada and the EU (for 98% of industrial products) and offers agricultural producers additional market access.
Getting to the point of signing this deal was far from easy. The negotiations had become a cliffhanger after a regional parliament in Belgium, whose approval was necessary as an EU member state, voted down the agreement. It had two primary objections: Belgian farmers did not want more competition from Canadian dairy products, and Belgians in general feared that agreeing to set up a special court for hearing foreign investor disputes would undermine national sovereignty, limiting the ability of local governments to enact environmental, safety, and health regulations.
Since protectionist sentiment and popular anxiety over trade agreements has become a global phenomenon—and a substantial factor in the U.S. presidential election—it is worth looking at what the EU and Canada did to get to the signing table, and what that might mean for global trade going forward.
First, negotiators made every effort to address specific concerns. The Belgian government reportedly promised additional support for its farmers. And the EU addressed the sovereignty concerns by allowing Belgium to challenge the validity of the CETA’s investment tribunal in the European Court of Justice.
Second, the majority of EU member states and the European Commission (the EU’s executive branch) agreed that demonstrating that trade liberalization was possible was important for future economic growth. World trade is slowing and popular opposition to international economic integration is strong, demonstrated most forcefully and recently by the British people voting in June for the United Kingdom to leave the EU.
Third, negotiators knew that the EU wouldn’t be able to negotiate a trade agreement with any other country (Japan or the United States, for example) if it could not find a way to close a deal with a country whose economy is one-tenth the size of Europe’s, and where wage rates and values are so comparable as to not be a concern. Since representing its member states on trade issues is one of the EU’s core competencies, signing a deal was vitally important to the future of European cohesion.
All of the factors that drove Europe to conclude this agreement provide insights for current trade challenges in the U.S. President Obama is trying to get Congress to approve just after the presidential election the Trans-Pacific Partnership (TPP) agreement, which would join the U.S. and 11 Asia-Pacific countries in a pact encompassing 40% of the world economy. Now is the time to resolve as many specific congressional objections to the deal as possible. It is impossible to renegotiate the TPP in the time available, so as with the last-minute negotiations between the EU and Belgium, both the administration and Congress will need to be pragmatic and come to an agreement quickly on outstanding issues.
For the U.S., the TPP is not just about stimulating U.S. and trans-Pacific economic growth. The Obama administration and congressional leaders share the view that the U.S. national interest will be seriously undermined if the U.S. abandons setting trade rules and permits others to fill the vacuum by setting lower standards.
Moreover, if the U.S. cannot get the TPP approved by Congress, negotiating an additional trade agreement with Europe (the Transatlantic Trade and Investment Partnership, or TTIP), as well as signing up South Korea, Indonesia, Thailand, Colombia, and other countries that have expressed interest to the TPP agreement, will not be possible.
While the CETA will cause some problems for U.S. trade—for example, U.S. cars will still face a 10% tariff in Europe, while Canadian cars will enter duty-free; and the CETA creates obstacles to market access for U.S. agriculture producers—it lights a path forward for the U.S. to actively negotiate agreements that enhance access to foreign markets for American products.
As for the EU and Canada, the signing of the CETA allows both sides to breathe a sigh of relief (at least for the present, as the CETA will be put into effect only provisionally, pending ratification by the 28 EU member states and Canada). It is also good news for the world trading system. The CETA was concluded against a backdrop of general gloom on the international trade front. It shows that progress can still be made.
Major EU member state governments announced a few weeks ago that getting the trade deal done with Canada was necessary before doing a much larger deal with the U.S. It will be up to the next U.S. administration to make that possibility a reality.
For these reasons, the EU’s ability to move forward with Canada is more important for global commerce than the specifics of their two-way deal would suggest. It might even be a signal to Congress to take the bold—but still possible—step of approving the TPP during the short lame-duck session after the election.
Alan Wm. Wolff served as a senior trade negotiator in Republican and Democratic administrations, is chairman of the National Foreign Trade Council, and is a senior counsel with the Washington DC office of Dentons.