National Post | May 13, 2014
John Ivison: So far, Stephen Harper’s free trade deals not living up to the political hype
European Commission President Jose Manuel Barroso, right, shakes hands with Prime Minister Stephen Harper during a press conference following a signing ceremony to finalize a free-trade accord more than four years in the making, on Oct. 18, 2013 at the EU headquarters in Brussels.
The Prime Minister may announce the conclusion of marathon trade negotiations with the European Union in Brussels on June 4-5, when he’s in town for a previously scheduled G7 leaders meeting.
Then again, he may not.
The problem is that six months after the two sides signed an agreement-in-principle, they can’t agree on the final text. “Technical issues” over intellectual property, investor-state relations and management of the increased quota of European cheese that will be allowed into Canada are proving stubborn irritants.
The decision to sign the deal in late October was inspired by political considerations, namely the Harper government wanted to change the channel from the Senate scandal. But that put considerable pressure on Canada’s negotiators, who had not reached a consensus on some of the thorniest areas of disagreement.
For their part, European negotiators now have one eye on the comprehensive trade deal they have started discussing with the Americans.
“The U.S. is in the room, whether we like it or not,” said one trade observer.
People with knowledge of the negotiations say the deal is not in danger of unravelling. But there is considerable frustration that a process that was meant to be completed in the first quarter of the year is dragging on.
“You promised the greatest deal since NAFTA, so where is it?” said one person who has been involved in the process. “It’s starting to look a lot like Doha,” he said, referring to the failed multi-lateral trade round.
The problem for the government is that it has already claimed victory on its trade agenda, after signing deals with the EU and South Korea, not to mention on-going negotiations with the 12 member Trans-Pacific Partnership, Japan and India. It has also signed an investor protection and promotion agreement with China, which is seen as the forerunner to a wider trade deal.
Yet in almost all of these cases, the reality does not match the political hype.
The TPP is mired in finger-pointing. The U.S. may complain about Canada’s hardball negotiating tactics at the table, but the biggest impediment to success remains the inability of President Barack Obama to get “fast-track” approval, in the form of a Trade Promotion Authority that would effectively diminish the role of Congress.
Park Jin-Hee-Pool/Getty Images
Discussions on bilateral deals with Japan and India are proceeding at the pace of coastal erosion, while the FIPPA with China is stuck in the Canadian court system, thanks to a challenge by a First Nation from Vancouver Island.
None of this would matter were it not for the fact that the Governor of the Bank of Canada, Stephen Poloz, has said that Canada’s economic recovery “hinges critically” on a shift from indebted consumers to exports and investment.
The situation is improving. The fall of the Canadian dollar and a rise in U.S. orders is expected to help. RBC predicts the dollar will trade at US87¢ by the end of the year.
Exports have already started to tick upward, and in March they were up 7.3% year on year.
But they are still 5% below the pre-recession peak and Mr. Poloz has lamented the failure of Canadian companies to find foreign customers. “We have about $35-40-billion fewer exports than our models would have predicted at this time (in the global and U.S. recovery),” he told the Commons finance committee.
Clearly, this is not all down to lack of free trade agreements. The recession killed off about 9,000 export firms and an Ontario Chamber of Commerce report said only 6% of small businesses export.
As a new Chamber report on Canada’s trade position pointed out, far more damaging than lack of FTAs are other anti-competitive government policies that impose protectionist tariffs and quotas, discriminatory regulations and product standards, subsidies, ownership restrictions, local content requirements and poor intellectual property protections.
Even when FTAs are in place, a report released Monday by the Council of Chief Executives says they are under-used and often don’t produce the surge in trade volumes anticipated. The report suggested FTAs require companies to comply with rules of origin that force them to source inputs from local suppliers at a higher cost than they might be found overseas.
(The report proposes the bold idea of unilaterally eliminating all of Canada’s tariffs at a cost of $4-billion, in the hope it would spur a Hong-Kong style surge in output worth around $20-billion — a subject worthy of its own column).
There are good reasons why small companies don’t export, particularly to the countries where Ottawa would like them to: the high-growth Asian tigers. As the Chamber report points out, while the seven biggest emerging markets are growing at an average of 5.6%, they average 97 in the list of countries ranked in terms of “ease of doing business.”
But while free trade agreements may not transform an uncompetitive company, deals like the Comprehensive Economic and Trade Agreement with the Europeans may provide sufficient incentive for others to make the leap overseas.
To confound the doubters and create genuine opportunities for those Canadian businesses, the CETA needs to be signed, sealed and delivered by the Harper government.
As one astute observer of the trade scene noted: “We need a treaty, not a Tweety.”