The Gazette | Friday, June 20, 2008

Not much hope for Charest’s vision of Canada-Europe free trade agreement

PETER HADEKEL

At last week’s international economic forum in Montreal, there was plenty of talk about an initiative being pushed by Premier Jean Charest: a Canada-Europe free trade agreement.

Charest has made himself the leading proponent of a European trade deal and has urged the federal government to fast-track the idea.

He has even pledged that he will get any wayward Canadian premiers to climb aboard and support the process.

There are some signs of momentum: Foreign Affairs Minister David Emerson and France’s Economy Minister Christine Lagarde recently inked a deal backing the idea.

A joint study on trade issues is underway as a prelude to a Canada-Europe meeting in October, which supporters hope could mark the start of formal negotiations.

Charest figures that Quebec, with its French connection and its more European outlook, would be an economic winner in any such deal.

He has been saying for a while that the stars are aligned for a trade pact with Europe, and maybe they are, but only on this side of the Atlantic.

The idea comes at a time when Canadian manufacturers are looking beyond North America to build market share and improve their global competitiveness. That’s especially true since they lost their currency advantage against the U.S. dollar.

Protectionism is building among U.S. politicians, and border security is becoming a complicating factor in trade between the two countries.

Meanwhile, a survey released this week by consulting firm Deloitte showed that only a third of Canadian companies believe they are competitive on a global scale. Many more recognize the need to expand their global presence.

And while the North American Free Trade Agreement has been a boost to Canadian companies, the downside is that when times get tough south of the border, as they are now, Canadian exporters suffer from their dependence on one market.

But here’s the problem. There’s almost zero interest on the European side in doing a deal with Canada.

"What part of ’no’ does (Charest) not understand?" asks Michael Hart, a professor at Carleton University’s Centre for Trade Policy and Law. "The Europeans have said ’no’ every time they’re asked."

While France, for its own reasons, has supported the idea, "they’re not responsible for European trade policy," Hart says. "That’s done by the (European) Commission, which quite rightly has indicated they have no interest."

The Europeans have their hands full with their own internal issues and with integrating new member states. As well, there’s little incentive on their part to do a deal because they’ve been running healthy trade surpluses with Canada averaging almost $19 billion a year over the last five years.

Hart says the usual reason to negotiate a free trade agreement is to resolve long-running disputes standing in the way of commerce between the two sides.

For example, Canada had a number of serious trade problems with the U.S. that drove it to the table to make a deal back in 1988.

But no such issues exist in Canada-Europe trade relations, he says.

There would be major reluctance to put such matters as culture on the table. Europe would not want to make concessions on the contentious subject of farm subsidies and Canada would be unwilling to discuss its supply- management system in agriculture.

And the recent tiff between Bombardier and French competitor Alstom, over a contract to supply the Montreal subway, suggests that governments are still reluctant to open public sector contracts to greater foreign competition.

The European initiative isn’t new, and many have argued before that it would be a good way to diversify Canadian trade.

Pierre Trudeau pushed the idea of a contractual link with Europe when he was prime minister, but it never picked up steam because the priority for Canadian companies was always on building trade with the U.S.

Now, around the world, momentum for free trade has stalled. The Doha round of global trade talks is in trouble, and there’s little to suggest that this European initiative is anything more than a nice political talking point for Jean Charest.