Blessed Are the Cheese Importers
The huge victory that is the trade agreement with Europe, CETA, is likely to be entirely eclipsed in Canada by the Senate scandal. Still, the reality is that this trade agreement is far more consequential for Canadians, as it will affect what they can buy, where they can sell, and perhaps even slightly weaken that Orwellian-sounding program, “Supply Management”, which should be called the Dairy and Poultry Protection Racket, but that is a tangent from the story of the day, which is… Canada is First!
Observers are trumpeting that this is the first trade agreement between a member of the G8 and the EU. To be clear, the G8 includes Canada, France, Germany, Italy, Japan, Russia, the UK, and the U.S. Since France, Germany, Italy and the UK are members of the EU, Canada has only beaten out Japan, Russia, and the U.S. Woot! Still impressive? Maybe, but perhaps not so much.
Moreover, since an agreement is the result of a bargaining process, being the first to conclude an agreement can mean several things:
- Negotiators left out the tough stuff and dealt only with less controversial, less combative, and less conflictual issues, so that a deal could be reached more quickly.
- The Canadian government had a great deal of leverage so it brought the EU to its collective knees faster. (They really need that maple syrup?)
- The Canadian government was in a clear position of weakness and conceded whatever it was that the EU wanted quickly. (Cheesy concessions?)
- The other governments interacting with the EU may have other things on their mind. (Japan – recovering from the Tsunami; U.S. – the joy that has been budget politics; Russia – um, Putin’s focus on appearing shirtless and bullying his country’s immediate neighbours?)
The simple point here is that being first may be either meaningless – if there was no real race, coming in first is irrelevant – or it may actually be a bad thing, as Canada could have conceded far more for far less than was necessary.
To be clear, I am not opposed to a free trade agreement. Indeed, I am a big fan of lowering barriers, especially between advanced countries. I would like cheaper European products, and the Canadian markets would be better off with more competition and less collusion. I am just taking shots at a silly way to portray the agreement.
Which leads us to John Hancock’s piece at CIC last week. Hancock argues that this agreement will create such advantages for Canada that it will pressure the U.S. and then Asia to work on deals with the EU as well. I am not an expert on international trade, but I am a bit less confident about this. A deal with Canada is far easier for Europe than a deal with either the U.S. or “Asia”, as Canada is still, dare I say it, a relatively small and mostly irrelevant market. Sorry, but how many Canadian firms are likely to edge out European ones in European markets? RIM? I jest. But seriously, trade negotiations turn on the questions of who will be hurt by lower walls, and whether or not they are politically powerful. Will concessions cause significant “dislocations”? Does opening up Europe to more Canadian products endanger key sectors of the European economy? Probably not so much. Will doing the same for the U.S. or for China have minimal impact? Probably not. So, I just don’t believe that this is the first of many dominoes to fall.
The example of NAFTA and the Uruguay Round, cited by Hancock, is interesting, but the U.S. is unlikely to lead on such matters anytime soon. DC is paralyzed – when was the last time the U.S. signed a significant trade agreement? You don’t recall? Me neither.
My larger point is this: the CETA is a very significant agreement for Canadians, so much so that we probably do not need to overreach and argue that being first is super-special, or that it will lead to a new round of trade liberalization around the world. We should be focused on what it really means in the medium term. Will my cheese get significantly cheaper? Is there any way we can use this agreement to kill supply management? Ah, now I am the one who is over-reaching.