Opening Statement of a presentation by Daniel Schwanen, Associate Vice-President, Trade and International Policy, C.D. Howe Institute, presented at the invitation of the Standing Committee on International Trade of the House of Commons.
THE CETA NEGOTIATIONS WITH THE EUROPEAN UNION: A STRATEGIC OPPORTUNITY FOR CANADA
I appreciate the opportunity to appear before the committee.
Much of what I will say draws on a Backgrounder on the Canada-EU negotiations published last month by the C.D. Howe Institute, of which the Clerk of the Committee has an electronic version.
J’ai préparé ma présentation en Anglais aujourd’hui, mais il me fera plaisir de répondre aux questions dans les deux langues officielles.
As members of the Committee are aware, the European Union is the world’s largest, and one of the richest and most sophisticated markets. And the EU economies remain potentially dynamic, in spite of the drag on economic confidence caused by current Eurozone turmoil.
The European Union is also negotiating or has signed agreements with many partners of interest to Canada, including Mexico, Korea, the Caribbean and India.
These facts make the successful negotiation of a comprehensive trade and economic agreement with the EU a strategic necessity for Canada.
Apart from this overarching interest, I would like to draw the attention of members of the Committee to some important qualitative aspects of our relations with the EU.
First, the EU-Canada relationship reflect a greater emphasis on two-way direct investments and on cross-Atlantic trade in services, relative to goods trade, than does our trading relationship with the United States and Asia, for example. Except for automobiles, where our exports are weak, our goods trade with Europe also takes place in sophisticated products.
These features – the importance of investment and services and sophistocated goods – explain the natural focus of the negotiations on movement of key personnel, protection of intellectual property, access to public sector procurement, and non-discriminatory application of regulation and access to services markets proper.
A little-noted fact is that Canada runs a trade surplus with the EU in commercial services – which include legal, architectural and engineering services for example. To me, these features of our trade with Europe indicate that achieving more open trade and investment relations with the EU is a chance to parlay our advantages in our more traditional exports to new and perhaps unheralded areas of strength.
A Canada-EU deal would also mean more competition on both sides of the Atlantic. Open international trade and investment, within accepted rules of fair competition, so long as governments do not relinquish the ability to regulate and set standards in the public interest, or to help the disadvantaged, is beneficial for sustainable jobs, innovation and economic growth.
Conversely, restricting trade — given intensifying global value chains, within which products are “made in the world” by combining inputs and expertise from many different countries — increasingly means shooting ourselves in the foot. This fact is increasingly recognized in the official trade policy statements of countries such as Australia or Sweden.
And at a time when public expenditures will be severely constrained, enhancing the ability, through a more competitive environment, for governments pursue more innovative or less costly ways to deliver services, without sacrificing key policy goals, is a good thing. And the CETA talks certainly do reflect the need to foster a more competitive and open environment in, for example, public procurement.
I agree with those who say that this is the biggest non-WTO deal for Canada since NAFTA. NAFTA resulted in stronger and more competitive Canadian industries overall, including a number that were expected to wither and die, and many of those industries now employ a larger and more sophisticated labour force than ever before.
Many specific issues on the table with Europe are different from before, with NAFTA, but they remain fundamentally about the rules of competition. Through evolving agreements worldwide, as well as through regional integration in Europe and elsewhere, these rules are rapidly changing.
If we don’t think through how we want to deal with these leading-edge issues, with Europe, we will inevitably face them in other forums, such as through the Trans-Pacific Partnership. So the CETA is an opportunity for Canadians and for all levels of government to decide how they want these new issues to be addressed more generally, not just in the context of our relations with Europe.
To be clear: focusing on fairer, more open competition between Canada and the EU should never mean being forced to adopt European policies, rules, standards or regulations. These likely would not be the best, or the best for us, or be compatible with the objectively more important regulatory cooperation exercise we are undergoing with the United States.
Nevertheless, this is a chance for us to devise a framework within which irritants caused by different levels of protection, or competition, or regulations, in different sectors, can get solved.
The key is maintaining or enhancing Canada’s ability to achieve important policy objectives. Exactly how we do this may be subject to what is considered fair, under international standards and agreements.
Certainly, for example, our trading partners, and not just the EU, have concerns about the effective period of market exclusivity in Canada for patented products. Canada sould consider committing to reach high international standards in this area, provided it can be satisfied that it can do so over time and while enhancing innovation that will raise the welfare of Canadians, and preserving its ability to be active in the marketplace in the pursuit of legitimate public policy goals.
Concerning the ability of governments to regulate, the CETA will most likely affirm in a robust way government’s ability to regulate in a non-discriminatory way in the public interest. But it is important that Canada and the EU devise a proper framework to deal with products that the EU blocks or seeks to block on account, not of the intrinsic characteristics of the product, but on account of objections to how a product is made.
In the absence of internationally agreed rules, Canada should uphold the position that trade bans are not the first or best way to deal with concerns about policies in force in another country.
A framework agreement confirming that one of the parties may review the effectiveness of the others’ regulatory process, in areas where the other party has expressed special sensitivity, or containing a mechanism to engage in consultations and joint fact-finding on issues of interest, would be a proper way to deal with what could be an attempt by one party to extra-territorially impose its own regulatory standards on another.
To cite my writing on this, “Canada and the EU need to find mechanisms to address these issues in a fact-based, non-discriminatory way, that treats government restrictions as a last resort.”
I hope I’ve been able to sketch the strategic and economic importance of the CETA for Canada, and some principled way to deal with potential obstacles to reaching such an agreement. I’d be happy to answer any questions.