The United States has finally agreed to a grand bargain that the European Union has been pursuing for years – a free-trade agreement that, once completed, would be so large as to effectively replace the World Trade Organization as the standard setter for the rules governing international trade. A U.S.-EU deal would cover almost half of global GDP, more than $30-trillion – a staggering sum.
Will Canada's negotiations with Europe be left behind unless Ottawa makes some dramatic concessions in its own negotiations with the EU, as some suggest? It's doubtful.
Barack Obama does not seem serious about free trade. There is little to indicate that he has a real interest in concluding trade deals, let alone with the EU.
The deal announced with the EU is the first of Mr. Obama's presidency. During this time, the Office of the United States Trade Representative has been focused on the enforcement of existing agreements, not the negotiation of new deals.
Even if we assume the President is sincere in his desire to conclude a deal with the EU, provisions that will ensure U.S. states open their public procurement markets to European firms – the No. 1 priority for the EU in the current Canada-EU Comprehensive and Economic Trade Agreement (CETA) – will be required. European negotiators are likely to demand concessions in automotive and agricultural subsidies and trade that will be difficult for the President to swallow.
Should the President make these hard decisions, will Congress approve such a deal – especially given that the President does not have fast-track negotiating authority (the ability to send trade agreements to Congress for approval or rejection without amendments or filibustering)?
Highly unlikely. A U.S. Congress that is unable to negotiate a lifting of the debt ceiling seems unlikely to agree on the most wide-reaching bilateral free-trade agreement in history.
The Europeans must surely be aware of this, but they are also keenly aware that the scale of their relationship with the United States demands an updated architecture that will allow the two to set the terms of trade in light of the failure of the WTO process and the rise of China. They are right to want to do so.
The EU will be in a far stronger negotiating position with the Americans with the CETA in hand. They will have a template for many of the things that they intend to ask for in their negotiations with the United States, and U.S. exporters will complain that they are at a competitive disadvantage to their Canadian counterparts.
A U.S.-EU agreement will be good for Canada, as it can help clean up the outstanding rules of origin that are used to determine whether a product qualifies for export status in a free-trade agreement – notably for autos, textiles and food products.
These goods are produced in the highly integrated NAFTA marketplace, making it difficult to assign a level of Canadian content required to meet the rules of origin thresholds demanded of the Europeans in the CETA.
With a U.S.-EU free-trade agreement in place, the EU could be pressured to accept the rules of origin for these same goods with a NAFTA designation. Canada will be in a strong position to negotiate given that the EU would then have free-trade agreements with all three members of NAFTA.
So the good news is that the deal that so many said would never be announced has been announced and, when completed, will be positive for Canada. The bad news is that we should expect to wait a long time for it to be signed.
Jason Langrish is executive director of the Canada Europe Roundtable for Business.