Why free trade with the EU goes nowhere

The provinces have been so eager to keep one another out, they’re reluctant to let European investors in

The occasion was a recent economic conference in Montreal. The place was crawling with reporters, but the president of Colombia was in town so none of the reporters bothered to attend one particular breakfast session. Well, almost none.

The topic at the breakfast was trade between Canada and the European Union. Guests included Roy McLaren, the former trade minister under Jean Chrétien, who runs something called the Canada-Europe Round Table. Also Ross Hornby, Canada’s ambassador to the EU.

But there was another, unannounced visitor. Mauro Petriccione, the director for bilateral trade relations for the European Commission. The Europeans’ lead negotiator for a proposed broad, deep trade and investment deal with Canada. The best possible source for information as these crucial talks begin.

But for the longest time Petriccione, a pleasant man with wavy hair and an impeccably tailored sports jacket, smiled blandly and resisted his colleagues’ attempts to draw him into their conversation. “I’ll keep it for the end,” he said.

While the visitor bided his time, Hornby explained the scale of the opportunity. Europe is Canada’s second-biggest trading partner after the United States. Canada is Europe’s 11th. Our exports to the EU are worth $36.1 billion. Theirs to Canada are worth $54 billion. We have $137 billion in direct-investment stocks in the EU. They have $133 billion invested here. And there is untapped potential: Europe trades less with Canada than with some other economies of similar size.

So let’s free trade! Easier said than done, said McLaren, who was fabulously gloomy. Protectionists remain good at protecting. “We have in Canada this ridiculous system of supply management in the dairy and poultry industry,” he said, “and the Europeans have an array of remarkably ingenious subsidies. If I had to guess I would assume that what we would see in the negotiation is that we’ll identify particular forms of protectionism that we cannot readily deal with in a Canada-EU bilateral negotiation.”

In other words, nothing would change. It wouldn’t be the first time: Canada and the EU spent the mid-’00s negotiating a trade agreement that fell apart over the usual subsidies on both sides, and on provinces’ refusal to abandon local preferences for their big-ticket procurement and service contracts.

The lead Canadian negotiator, who will face Petriccione at five negotiating sessions between now and the end of 2010, is Steve Verheul. He was Canada’s agricultural trade negotiator at the WTO round that just fell apart after most big countries—including Canada—refused to give up agriculture subsidies.

When Petriccione finally spoke, he had a lot to say. First he explained why the European Commission—its standing secretariat and the EU’s brain, if it has one—had spent two years dismissing the idea of trade talks with Canada. “Most people who are usually in favour of free trade, both in Canada and the EU, have been served,” he said. “They have free trade. They have no obstacles.” But those in other sectors who want protection have it and won’t give it up easily. “So if you ask the supporters, ‘Do you want to have an agreement,’ the answer is, ‘Of course, yes.’ You ask them how many resources they are prepared to commit to lobby to overcome the difficulties, then you get a much less convinced reply.

“On the other hand, if you ask the few who are still protected, they will commit any resources they have to keep the status quo.”

If this negotiation is to succeed, each side will have to give up what it hasn’t been prepared to give up before. Petriccione portrayed the Europeans as late but zealous converts. He always enters trade talks with a detailed mandate from European trade ministers. In 20 years, no trade negotiator has been given such a mandate more rapidly than he was for this Canada round.

“We are committed to this negotiation,” he said. “We are prepared to go into all the classic no-go areas. There can’t be any if we want to make progress.”

But with a veteran diplomat’s polished grace, Petriccione asked whether Canada is as committed. Can a complex federation sing from one song sheet? “I must confess we are watching with extreme interest . . . I think this is a huge test for Canada.” Some Canadians are certainly trying. Quebec’s Jean Charest has named one of his predecessors, Pierre Marc Johnson, as the province’s lead negotiator for the EU trade file as a demonstration of his seriousness.

But up to now the provinces have been so eager to keep one another out that they are reluctant to let European investors in on the same terms as locals. “I could take the easy way out and say it’s Canada’s problem to solve. But what I can add is that we have had region-to-region negotiations [between the EU and other international partners] that we have suspended because our partners would not offer us the benefits of an integrated market, equal to those that we were offering.”

That’s the fate that awaits Canada if we try to bargain down to the same old tired routines. The urbane Italian visitor was daring Canadians to go big or go home. “We will want equivalent benefits to those we are prepared to offer.” He nodded at his fellow Canadian panellists. “All I can say is, I hope that Roy, Ross and many others were dead right when they convinced us.”

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