The promise of the Canada-Europe free trade deal has always been super-sized: a vast market of 500 million people in 27 countries.
Better access would give Canada a $12-billion-a-year economic lift, create 80,000 jobs and boost two-way trade by as much as 20 per cent, according to European Union estimates.
But the deal, now entering a final push of tense negotiations, is uncharted and potentially dangerous terrain for Canada.
For the first time, provinces, cities and the many agencies they control are integral partners in a trade agreement they have not signed. The federal government, of course, will do that, giving Ottawa sole ownership of the fallout.
The provinces are closely involved in the negotiations. They have also submitted lengthy annexes that detail which sectors they are willing to open up, and which ones they are not. But the provinces are not official signatories. Nor are the thousands of local governments, which will be bound by the terms of the deal.
That raises awkward questions. What happens if the City of Montreal balks at letting a European supplier compete for a subway contract to steer the work to Bombardier Inc.? Or, Saskatchewan chooses a local engineering firm to build new schools or hospitals? Ottawa would ultimately be on the hook for compensating the European bidder for the country’s failure to honour the agreement.
“There’s no way to force the provinces to fulfill the commitments they made during negotiations,” pointed out University of Ottawa political scientist Patrick Leblond, co-author of a new study with another political scientist, Patrick Fafard, also of the University of Ottawa.
Overlapping constitutional responsibilities between Ottawa and the provinces will make this, and all future trade agreements, problematic, professors Leblond and Fafard argue in the study, 21st Century Trade Agreements: Challenges for Canadian Federalism.
“This creates the very real possibility that one or more provinces will choose not to fully implement a prospective agreement. The resulting uncertainty will cause companies in both Canada and Europe to approach trade deals more cautiously, which means that it may take years to achieve the economic benefits of the agreement,” the report says.
It is hardly an esoteric question as Canadian Trade Minister Ed Fast heads to meet his European counterpart Nov. 20 in Brussels to push the deal toward a year-end deadline.
City council in Mississauga, Ont., voted unanimously earlier this year to seek a permanent exemption from the deal – a symbolic gesture that could nonetheless come back to haunt Canadian taxpayers.
Professors Leblond and Fafard point to two recent private arbitration losses by Canada under the North American Free-Trade Agreement as omens of what could happen. Ottawa wound up paying $130-million to U.S. forest products company AbitibiBowater Inc. (now Resolute Forest Products) to compensate for Newfoundland’s decision to expropriate the company’s assets in the province. Similarly, Exxon Mobil Corp. and Murphy Oil Corp. recently won a case over a Newfoundland requirement that it spend research and development dollars in the province. The company is seeking $50-million in that case.
All parties are going into the Canada-Europe deal with their eyes open, knowing full well the risks. Europe Union negotiators have reportedly asked that the provinces and territories sign a separate deal, pledging they’ll abide by the agreement. It’s not at all clear this would have any legal foundation.
Responsibility for so-called subnational governments isn’t an issue in Europe. Unlike Canada, European countries have delegated all trade, intellectual property and foreign investment policy to the European Union. So there are no grey areas.
The lure of a larger slice of Canada’s government purchasing market, worth as much as $200-billion a year, may outweigh trepidation about provincial and municipal commitment to the deal.
The provinces also know the risks. That is why they are working to keep key sectors off limits, as they did it a 2010 government purchasing agreement with the United States. Quebec, for example, has made it clear it will seek exemptions for Hydro-Québec, its liquor stores, as well as schools and hospitals. Ontario may seek to shield highways and urban transit.
Prime Minister Stephen Harper is desperate to show that his all-hands-on-deck trade push is gaining traction. The consequences of a future breach may be the furthest thing from his mind.