Gauging the Impact of CETA

Canadian Prime Minister

In the race between the United States and Canada over which country would be first to secure a free trade agreement with the European Union, it appears that Canada pulled ahead at the last minute, thanks in some part to the government shutdown that put US negotiations on pause.

Canadian Prime Minister Steven Harper and European Commission President Jose Manuel Barroso announced that a tentative deal had been reached earlier this week. On the surface, the Comprehensive Economic Trade Agreement (CETA) appears to be another step forward in Prime Minister Harper’s drive to diversify Canadian trade away from its traditional overreliance on the United States. CETA is being touted as a possible foundation for the prime minister’s political legacy, one on par with Brian Mulroney’s NAFTA agreement.

But what about the actual details of the deal?

Nearly all tariffs will be eliminated on both sides of the Atlantic, though many would argue that these tariffs were low to begin with, and several pre-existing import quotas will see increases. Affected industries includefood products (wheat, beef, pork, wine, fresh and frozen produce, processed foods), the automotive industry (Canadian producers can now export 100,000 cars annually), and primary resources such as mineral and metal exports.

Supporters of CETA often point to a bilateral study from 2008 that claims the new deal will be worth $12 billion to the Canadian economy and produce 80,000 jobs. Yet several media sources have discredited the study in question, arguing that the 80,000 job number is spurious as it assumes an impossible state of full employment.

CETA detractors argue that Canada buckled on several of its negotiating sticking points; seemingly in order to get a deal done before the United States. For one, the municipal procurement market has been opened up to foreign competition from European companies, and Canadian municipalities will no longer be able to favor local businesses. Drug patents were also extended by two years, which will increase health care costs for provinces in the long run, though this number came in lower than the five-year term that some Canadian politicians feared.

Another inclusion garnering some negative attention is the investor-state dispute mechanism that allows investors to file grievances in speciality tribunals rather than the public court system of the country in question. These clauses are generally used in countries that have underdeveloped legal systems as a way to provide additional assurance to potential investors. An investor-state dispute mechanism also exists in NAFTA, and it has been used to file 30 claims against Canadian law so far, resulting in a total payout of over $130 million from various levels of government.

The true extent of the deal’s impact on the Canadian economy will not be known for several years, but as it stands right now, many are predicting Canada’s existing $14 billion (so far in 2013) trade deficit with Europe to worsen. The Canadian dairy and cheese industry is also expected to be hit particularly hard over the short term.

It should be noted that the deal is still a long ways off from being adopted. Though many of the former sticking points have been agreed upon in principal, the final text of the agreement has yet to be prepared. After that, it must be translated and ratified in various European parliaments, which suggests at least two years before the agreement comes into force.

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