The EU-Canada deal shows the limitations of diplomatic clout

Jonathan Lindsell, 18 August 2015

The draft terms of the free trade agreement between the EU and Canada have been out for a year and are still being poured over by lawyers and translators from both sides. Trade Commissioner Cecilia Malmström was overoptimistic in her prediction that this stage would be done by July. Next the European Council and Parliament will need to ratify it, as will the Canadian parliament and all 28 member parliaments before it comes into effect.

Negotiations on the EU-Canada deal began back in 2009 and have progressed well asides an argument over investor protection which drew considerable attention. Now, before parliamentary scrutiny, is a good time to review the deal’s other parts.

Membership of the EU is often sold in terms of international clout. The argument runs that you have to be part of a large trading bloc to extract favourable terms in free trade negotiations, or even to get negotiations started. This logic is often used to warn against Brexit and to criticise the Norwegian and Swiss alternatives to EU membership.

The EU’s $18.5tn economy is roughly ten times the size of Canada’s so the deal, the ‘Comprehensive Economic and Trade agreement’ (CETA), should be a clear demonstration of the overwhelming importance of clout. From CETA’s current terms, this is barely evident.

Canadian tariffs on 8.3% of agriculture won’t be removed, while the EU will keep tariffs on 6.2% of agricultural products. Canada will retain protection against European chicken, turkey and eggs, while getting considerable tariff-free access for its prime beef. The EU will retain some protection on pork, canned sweetcorn, wheat and beef above a tariff-free allowance. Mutual cheese and dairy access will improve.

Apparent Canadian victories also include exemptions from origin rules for fish, cars, textiles and some processed food, meaning Canada doesn’t have to prove these exports are Canadian to benefit from CETA.  Canada’s diplomats also achieved compromises over an EU favourite, the enforcement of geographical indicators like ‘Prosciutto di Parma’, ‘Gorgonzola’ or ‘Valencia oranges’. Many Canadian products sold under these names can keep them or add simple qualifiers (‘Gorgonzola-style’).

The EU has clear victories too, like a gradual reduction in tariffs on EU ships. Canada will eliminate all fisheries tariffs immediately, while 4.5% of EU products will only have tariffs eliminated after three to seven years.

In total, 98.6% of Canadian and 98.7% of European tariffs will ultimately be eliminated. A Commission document notes, “Overall, the result is balanced and reciprocal, and offers new opportunities while taking into account key sensitivities of both parties”.

We won’t really know how good the deal is for EU exporters until years after it comes into force, when we have data of it in action. Still, from the summary it would appear that this is an agreement between equals, with the much smaller partner barely disadvantaged by its relatively modest market size. The EU achieves very little beyond parity, and is disadvantaged in some respects. Could Britain, at twice Canada’s size, hope for as much or more?

Jonathan Lindsell is EU research fellow at Civitas. His study on the lessons of Switzerland’s global trading position will be released shortly.