How Little Wallonia Put a Freeze on the Biggest Trade Deal in History
October was the month, 2016 the year. It was all set to be signed, and then, nothing. But then it was on again… It is both frightening and comical to realize that the biggest free-trade deal in history, the Comprehensive Economic and Trade Agreement (CETA), has come to a crashing halt due to the structure of Belgium’s federal system. With all national decisions requiring the concurring votes of each of the three regions of Belgium for validation, things can be made difficult when one of the three decides to break from the status quo. This is exactly what has happened, and in this case, it not only affects Belgium, but hinders free trade for the whole of Europe. Before addressing today’s CETA, let’s look at how it came to be.
The Comprehensive Economic and Trade Agreement has been in the works since 2009, but it had really begun in 2004 when Canadian and European delegates agreed that it was time to phase out the Trade and Investment Enhancement Agreement (TIEA). From the beginning, TIEA was always meant to be a temporary guide toward the ultimate goal which was a much broader and ambitious CETA. However, it was not until October 2013 when this became official and former Prime Minister Stephen Harper and President of the European Commission Juan Manuel Barroso made the breakthrough, that those common interests were finalized. With the key area of focus being the elimination of 99% of tariffs between the two countries, both Canada and Europe are primed to generate billions in increased revenue, large influxes in employment levels, and the creation of many new jobs. In particular, Canadian automobile companies along with beef and pork producers will gain significant access to European markets. Gastronomically, the deal is also appealing for Canada as pricing of imported meats and cheeses from Europe will be lowered in addition to a greater variety of those products being imported for the first time. Finally, investment opportunities in business and resources will open up on both sides of the Atlantic, with those already in existence receiving enhanced protection. It is specifically in this area of foreign investment however, that is the double-edged sword to this agreement and has the Walloons second-guessing the entire treaty because of its potential severity.
In addition to increased foreign competition to their dairy farmers, the Belgians have been most fearful of what is called the investor-state dispute settlement system, which has been included in the trade deal. They are not the only ones as this particular mechanism has also been criticized heavily by European protectionists and other states, specifically the UK in years prior. The essence of this system is that it permits multinational corporations to go before a tribunal and sue the country they are investing in for losses in revenue. Wallonia, among others, fears that North American corporations will come after their governments claiming that their losses are a result of the local regulations in play. Such has been happening for years, with the most famous case being the Phillip Morris lawsuit against the government of Uruguay in 2010 for profits lost due to the anti-smoking legislation the country had passed.
There is no question that Canada recognizes the legitimacy of European fears and the credibility of the argument. Having been in a similar situation since the creation of NAFTA where it has lost hundreds of millions of dollars in 37 lawsuits via American corporations, no one can accuse Canada of not having experienced such things. Being the patient and compromising country that it is, Canada has agreed to establish a permanent tribunal made up of both Canadian and European judges, as opposed to ad hoc tribunals accused of being less transparent. This reinforces how Canada is always willing to come to the rescue and present concessions to its partners for the betterment of the international community. However, this seems like it is still not enough of a guarantee for the Walloons, and it unfortunately keeps the potential of world’s largest trade bloc in a position of limbo.
When it looked as if the French-speaking region of Belgium was going to stand pat, Minister-President Paul Magnette dramatically announced that the Wallonian parliament would pass a resolution that will permit CETA to be moved on to the ratification stage without it having to agree to the investor dispute mechanism. Visions of success have been reignited for Canada and the dreams of becoming a great power have been reassured. However, Wallonia’s deal with the Canadian government in no way brings the end of disputes involving CETA. With Prime Minister Trudeau having signed the deal in Brussels on October 30th, Belgium has made a general agreement to the treaty, but this excludes the section with the investor dispute mechanism still in place in its current form. Having this section pass through all of the remaining European parliaments in order to ratify the trade bloc, will also be a difficult task as well. This could mean that the legality of CETA will be challenged in the coming months and jeopardize its entire existence. Thus, the path to the largest trade bloc in history has nearly reached its end, but Canada has quite a lot of negotiating to do in the coming months. It must find a way to reshape the clause that has been causing so much grief, in order to put an end to the negotiations once and for all.
This is an agonizing position for Minister of Trade Chrystia Freeland, but not one she feels that Canada cannot overcome, as such a deal will be absolutely huge for its position on the world stage. After the United States, the European Union is Canada’s next biggest trading partner and source of foreign investment. Access to one of the biggest markets on the planet, organized along a comprehensive and coordinated series of rules is something that our neighbours to the South have never managed to achieve with Europe. In reality, America’s attempt at free trade with the EU through the Transatlantic Trade and Investment Partnership (TTIP) is even more unlikely than CETA to ever become a reality due to major differences in ideology and societal norms between the two. This is something that could not be more evident than in the recent election of political outsider Donald Trump as the next President by an angry and staunchly conservative middle class. What this means for Canada, is that it becomes the only country to have established a free trade bloc with the two largest economies on the planet in both the United States (NAFTA) and the European Union. Canada’s position on the world stage will move even higher after CETA is ratified because access to goods, investment, and revenue will occur, the likes of which the country has never seen.
Thus, the deal is done, and both Canada and Europe are almost certainly on their way to expanded markets barring the small headache which is the court for investor dispute settlements. The lesson for Europe out of this is to recognize that it almost allowed its perpetual fear of the “demon” that is capitalism, to stand in the way of an important deal. It must not let this happen again if it wishes to keep pace with rising powers such as South Korea, Indonesia, and Brazil, who are much more willing to accept downfalls in the face of potential for success . As we can see, no deal, system, or government is perfect in this world. Canada has chosen to look past the minor tribulations and demonstrate its patience toward Europe, and for this, it will be rewarded. Only time will show us how CETA will transform Canada into a great power in this inherently globalized world.