Prime Minister Stephen Harper has hailed the Canada-European Union trade agreement as an historic opportunity for Canada. The Comprehensive Economic Trade Agreement (CETA) will have far reaching impacts, touching just about every sector of the Canadian economy as well as millions of workers and consumers. Here’s a look at what the deal is, what it isn’t and who benefits.
What is it? Is it bigger than NAFTA?
Canada’s trade with the United States is many times larger, but the trade deal with the European Union covers a broader scope of trade issues. Both reduce tariffs on goods. But unlike NAFTA, it covers “sub-national procurement,” the public contracts of Canadian provinces and cities, so European companies can bid on hydro or subway deals, and Canadians can do the same in Europe – though the final deal will include many caveats and exceptions. The EU deal covers extensions of drug patents in Canada and bigger trade quotas for agricultural products. It also appears to cover services more broadly than NAFTA, including financial services, and allows more labour mobility, including efforts to work on recognizing each other’s credentials for professionals like architects and engineers – although the governments have only released sketchy details on those changes.
Is the deal done?
Canada and Europe touted an “agreement in principle,” but the deal is not done. It’s not even signed. There are still some details to negotiate, including parts of the “rules of origin,” which define what makes goods Canadian or European. The EU also insists on linking the trade deal to a broad – and uncontroversial – political treaty, but Canada hasn’t accepted that because the Harper government doesn’t like the idea of linking a trade agreement to a treaty calling for things like respect for human rights. Once a deal is really signed, it must be passed by the European Parliament, and the parliaments of all 28 countries in the EU – and three have signalled they won’t do that unless Canada lifts requirements that their citizens obtain visas before visiting Canada. And while Canadian provinces don’t sign the trade agreement, the EU will insist on hearing the provinces publicly endorse it, and eventually, the provinces must pass laws to make various provincial rules comply with the trade deal.
Cheese concessions, but no wine provisions for Ontario
The agreement will more than double the quota of cheese imported from the European Union to about 30,000 tonnes per year, which could take a bite out of Ontario and Quebec dairies’ market share. However, Ottawa has assured the provinces it will pay compensation to cheese producers, and that it will set up a marketing campaign for local cheese. The deal will also chip away at a trade barrier that currently protects Ontario wines and hard liquor, ultimately making European booze less expensive. Queen’s Park has not won any assurances that local vineyards and distilleries will be compensated.
A boon for beef, more for pork
The agreement includes guaranteed access to European markets for 50,000 tonnes of Canadian beef, a key objective of the Conservative government, which wanted to balance off concessions on European cheese. For pork producers, the number is higher at 80,000 tonnes. In both cases, some of the access will be phased in over time.
Drug prices could rise
The EU has long been unhappy with Canada’s legislation concerning patent protection for drug companies, believing it lags other countries and puts European drug makers operating in Canada at a disadvantage. Under CETA, Canada has agreed to adopt EU measures on so-called “patent term restoration.” Drug patents typically last for 20 years but if it takes more than five years between when a patent on a new drug is filed and marketing authorization is granted, the drug maker will now get an extra two years of patent protection as compensation. This could raise drug prices and cost provincial health plans, but the federal government believes the price hikes will be small and won’t kick in for years. And the government is considering compensating the provinces.
Cheaper BMWs and a new definition of Canadian-made
The outline of the agreement suggests big changes ahead for Canada’s auto sector, which is deeply integrated with the United States. Vehicles that are at least 50 per cent Canadian-made will enjoy open access into the EU market. Meanwhile, Canada will be allowed to import up to 100,000 vehicles a year that are at least 20 per cent Canadian-made. Considering Canada’s total auto exports to the EU are currently only about 13,000, that’s a big change. Sorting out how much of a car is Canadian-made could soon be a moot point, if the EU follows through with a similar trade deal with the U.S. For Canadian consumers, the end of a 6.1 per cent tariff on European imports will make German-made vehicles more affordable. The challenge will be making these new rules fit with Canada’s existing deep relationship with the U.S. when it comes to auto manufacturing.
Hire a European architect!
Recognizing foreign credentials is an issue that has dogged federal and provincial governments for years. Under the agreement, Canada and Europe will recognize professional certifications of each other’s jurisdictions. However, a closer look suggests there is still plenty of work to do on this front. It is being left to the professional organizations in Canada and Europe to work out their own deals to recognize credentials under “mutual recognition” agreements. Architects and engineers are the only groups considered to be close to such an agreement. Ottawa says accountants and foresters have also expressed an interest in working out an arrangement.
Bonds in the banking sector
Canada prides itself as a leader in financial services. While the U.S. and Europe took measures to support their banking sectors, Canadian banks avoided a bailout from taxpayers. The agreement proposes deeper links between the Canadian and European banking sectors. The EU estimates that half of the overall Gross Domestic Product gains it expects to receive from the deal will come from liberalizing the trade in services, including in the banking sector. Canada says the deal will open new markets for its domestic banking sector, while ensuring it can maintain government rules for the sector.
European takeovers get a break
Under the Investment Canada Act the Canadian government can review foreign takeovers based on a “net benefit” test. The minimum threshold for the review is being raised to $1-billion. Under the CETA that threshold will be increased to $1.5-billion, meaning the review won’t be triggered unless a takeover involving an EU company reaches that threshold. The change reflects “the special relationship Canada has with the EU,” the government said. However, the CETA does not alter Canadian ownership restrictions in the airline, cultural and telecommunications sectors.
By Bill Curry and Campbell Clark in Ottawa, Adrian Morrow in Toronto, Paul Waldie in Brussels