A Trade Deal Comes

Jonathan McLeod

October 19, 2013 | 13 Comments

The EU and Canada have struck a monumental trade deal, in principle. It’s not official, the text isn’t finalized and neither legislative body has taken a look at the details, yet, but the way the leaders are talking this up, it would be quite a shock if it didn’t get implemented. It’s a deal that’s on a similar level as NAFTA in terms of scope and importance, and it is very likely to have deep, long-lasting effects on both parties.

And this is a very good thing.

NAFTA, and the FTA before it, set the basis of the economic stability and expansion that Canada has experienced since ratification in 1993 (or since 1988 for the FTA). These deals aren’t silver bullets – they don’t promise endless expansion and cushy well-paying jobs or all – but they are essential building blocks towards building a robust and sustainable economy.

It’s a wide-ranging deal, touching on such industries as manufacturing, pharmaceuticals, dairy and investment. It will open up Canada’s economy to foreign wealth while also giving our home-grown industries greater access to a massive international market. One of the best aspects of the deal is a commitment that should the EU enter into a more favourable deal with another trading partner, Canada will automatically get the same beneficial deal.

There are a few drawbacks, unfortunately. We have had to acquiesce to the intellectual property demands Europe, at least in terms of drugs. Prescription drugs will now get two extra years of patent protection, and the increased regulations will put upward pressure on the price paid by provinces and consumers. Sad that a deal steeped in economic freedom would have such a market-defeating mechanism built in, but politics is the art of the possible… or whatever some self-important politico once said.

My hope would be that the added economic growth that will come from this deal will result either in people and provinces being able to better afford drugs at higher prices, or that the feds will be in a better position to provide appropriate aid to those in need.

Another drawback is the entrenchment of supply management. Okay, entrenchment might be too strong  word, but dairy, eggs and poultry will still be protected. So we will still get the dual privileges of paying higher prices for these products and ensuring that there is a cap on production.

The dairy industry situation is particularly interesting, as Canada’s cheese lobby is a little up-in-arms. The cap on cheese imports is being doubled, roughly. I watched a story on CTV Newsnet about the Quebec cheese industry, and a representative for Big Cheese lamented that this would have a negative effect on Quebec’s cheese market. He’s wrong, of course.

Language matters. What he meant was that it might have a negative effect on Quebec’s cheese producers. The cheese market will be in much better shape, as consumers will have a wider variety of cheeses from which to choose. The market is far more than just farms and companies. We are all a part of the market, and we deserve equal benefit of legislation.

The whole method of talking about the effects of a trade deal are completely backwards. We have and will continue to hear stories about how the deal will hurt various industries, and no doubt there will be some “losers” in this. But this formulation assumes restrictive trade barriers as the default, and this is wrong.

Our legacy trade regulations with the EU are an infringement on freedom. It is the regulations that are affecting people – favouring some, hindering others. This trade deal is not actively hurting anyone; it is taking away government-enforced privilege from a select few. If we look at it the proper way, steps towards trade liberalization are bringing us back to a much better default – a default with less xenophobia and more economic gains.

Andrew Coyne offered up possibly the most succinct way to view this deal, or any deal that helps liberalize trade:

Today is a good day.

Comments

13 Responses to “A Trade Deal Comes”

  1. Credit to Stephen Harper | ThePolitic.com
    October 20th, 2013 @ 8:56 am

    [...] I have further thoughts on the trade deal at the Commons. [...]

  2. Mike
    October 20th, 2013 @ 9:22 am

    “Another drawback is the entrenchment of supply management. Okay, entrenchment might be too strong word, but dairy, eggs and poultry will still be protected. So we will still get the dual privileges of paying higher prices for these products and ensuring that there is a cap on production.”

    Entrenchment IS too strong of a word. I’m quite positive this is a test balloon for getting rid of the milk marketing board in it’s entirety. Not because the EU wants rid of it, because Stephen Harper wants rid of it, and wants to pass the buck when it comes to the political impact this will have in rural Ontario and Quebec.

    [Reply]

    Jonathan McLeod Reply:

    You’re right, ‘entrenchment’ was too strong. I think my point was still made, though.

    [Reply]

    Mike Reply:

    The fraction of the dairy market they are giving access to is tiny, and it is more than offset by the amount of beef and pork we are going to be able to ship to Europe now, so I’m CHOOSING to not get too upset at this point. IF the erosion to supply management continues, however I don’t think it’s fair to have this conversation without pointing out that EU and American dairy producers are heavily subsidised, and in reality their products are unfair competition.

    [Reply]

    Jonathan McLeod Reply:

    It’s true that EU and US subsidize their agriculture industries, but that’s not a bad thing for Canada. The result of the subsidies are cheaper goods for Canadians. The effect of the subsidies are that those governments (and, so, those taxpayers) are subsidizing our groceries. They’re essentially giving us money.

    Now that’s bad public policy, but it’s bad for those countries, not Canada.

    [Reply]

  3. Jared Milne
    October 20th, 2013 @ 2:27 pm

    Lower tariffs and better access to the European market for our manufacturers and exporters can only be a good thing, and I don’t have much sympathy for the angry cheese makers. If I were one of them, I’d be more inclined to spend my time reviewing whether my manufacturing processes need updating, what new markets are open for me under CETA, whether I’m doing business with the right shipping firm, etc.

    One of the things that really bothers me about the new CETA deal is its continuation of the investor-state dispute panels that allow private companies to sue governments for actions that they say interfere with or reduce profits.

    Canadian conservatives have been long decrying the judicial activism that they say comes from Canadian judges, but at least those judges have Constitutional backing for what they do, safeguards to keep their authority in check, such as the Charter’s notwithstanding clause, and Supreme Court judges now being screened by elected MPs.

    So what happens when the government of Quebec is sued for putting a moratorium on fracking operations? You’d think this would be a public policy issue for the people and government of Quebec to resolve, but instead it’s being taken out of the public sphere and ruled on by unelected, unaccountable trade bureaucrats:

    http://www.theglobeandmail.com/globe-investor/us-firm-to-launch-nafta-challenge-to-quebec-fracking-ban/article5337929/

    Or the moratorium on offshore wind farms in Ontario:

    http://www.sunnewsnetwork.ca/sunnews/politics/archives/2012/12/20121207-194824.html

    Many people have quite rightly complained about the power exercised by elected officials and political bureaucracies, but what about the power that is increasingly concentrated in the hands of these international trade organizations? Where’s the accountability for their decisions, or the public’s ability to dispute them? Stuff like that only gives ammunition to leftist looney-tunes like Hugh Chavez.

    As for the dismantling of the marketing boards, all I can say is that we should be careful what we wish for. I’m more inclined to support the marketing boards if they ensure local ownership of at least part of our domestic food supply, and support for the family farm. They may need reform to make it easier for new people to enter the market, but I’m less keen on just eliminating them.

    Certainly a lot oil and gas executives, many of whom would be cheering the new CETA, are leery of too much foreign control of our oil resources:

    http://www.theglobeandmail.com/news/national/protect-canadian-ownership-of-oil-sands-firms-executives-urge/article4568562/

    [Reply]

    Jonathan McLeod Reply:

    Jared,

    You bring up some interesting points, but I think some of your examples are off the mark.

    Re: Wind farms
    This is a Canadian firm suing the government; it’s a domestic issue. Further, they’re suing because the government is reneging on a promise. That’s going to happen regardless of free trade.

    Re: the Oil execs
    A bunch of Canadian execs are asking that the government block foreign competition. This is just rent-seeking, nothing more.

    Re: the Fracking issue in Quebec
    The complaint is:

    “Lone Pine says the Quebec government’s move to cancel a natural gas exploration permit for deposits beneath the St. Lawrence River last year was “arbitrary, capricious and illegal.”

    This is, in fact, a valid complaint (if there’s any truth to it), and companies, regardless if they’re from Deleware or Calgary need to be able to file grievances against the government. From what I’ve read, Lone Pine doesn’t have much of a case (this a blanket moratorium, not a trade issue), but that doesn’t mean they shouldn’t have the opportunity to challenge a decision to revoke a permit they had already been issued. Which brings us to…

    Re: The potential issue of activist tribunals
    This is, certainly, a concern, but I have yet to see this become a problem in practice… at least not for Canadian interests (for instance: we were dead wrong policy-wise on softwood lumber – though the law is vague – yet kept winning hearings. I’m not sure how we address this and I don’t know how we could set up a better arbitration hearing, but compared to the vast benefits of open trade, this is a minor thing.

    Hell, if we wanted to really do the wise thing economically (putting away political calculations or game theory analyses), we’d avoid trade deals altogether and just have free trade with everyone. Do that and there’s no concerns about trade tribunals.

    [Reply]

    Jared Milne Reply:

    “This is a Canadian firm suing the government; it’s a domestic issue. Further, they’re suing because the government is reneging on a promise. That’s going to happen regardless of free trade.”

    The Sun News article made it seem as though they were suing through a NAFTA trade tribunal. If it’s done through a Canadian court, then fair enough.

    “This is, in fact, a valid complaint (if there’s any truth to it), and companies, regardless if they’re from Deleware or Calgary need to be able to file grievances against the government. From what I’ve read, Lone Pine doesn’t have much of a case (this a blanket moratorium, not a trade issue), but that doesn’t mean they shouldn’t have the opportunity to challenge a decision to revoke a permit they had already been issued.”

    I always figured we had that already through the court system. And the court system has checks and balances that the trade tribunals don’t.

    If we need to clarify things so that foreign firms with investments here have the same rights in Canadian courts, that’s something I could actually get behind.

    “This is, certainly, a concern, but I have yet to see this become a problem in practice… at least not for Canadian interests (for instance: we were dead wrong policy-wise on softwood lumber – though the law is vague – yet kept winning hearings. I’m not sure how we address this and I don’t know how we could set up a better arbitration hearing, but compared to the vast benefits of open trade, this is a minor thing.”

    When it comes to softwood lumber, Gordon Ritchie, the guy who was the deputy chief negotiator of the FTA, he declared in 2004 and 2005 in the Globe and Mail that the softwood issue and the U.S.’s refusal to comply with the agreement as a “unilateral abrogation” of NAFTA that “tore the heart” out of the agreement. Lead negotiator Simon Reisman went so far as to talk about “retaliation” in the Globe that same year.

    I’m puzzled as to how we were dead wrong on softwood lumber-certainly some of our leading trade negotiators and trade agreement supporters don’t seem to think so.

    As for the hassle to Canadian interests, there is, for instance, the lawsuits launched against the Danny Williams government in Newfoundland & Labrador,by ExxonMobil and Murphy Oil for making them spend more research dollars in the province. And yet John Ibbitson, of all people, credits Williams as the maestro who turned his province around:

    http://www.theglobeandmail.com/news/politics/danny-williams-a-proud-newfoundlander-walking-the-talk/article1315917/

    And then there’s this…

    http://www.huffingtonpost.ca/2013/09/04/eli-lilly-lawsuit-nafta-canada_n_3861869.html

    “Hell, if we wanted to really do the wise thing economically (putting away political calculations or game theory analyses), we’d avoid trade deals altogether and just have free trade with everyone. Do that and there’s no concerns about trade tribunals.”

    Okay, but how far do we take free trade, exactly? Does that mean that opposition to the Northern Gateway pipeline would be out, since it’s interfering with our being able to export fossil fuels to China? Do laws regarding minimum safety or environmental standards count as impediments to trade?

    I think we could stand to more clearly define what would and would not be an impediment to trade in such a case. The catch is that, just as some business interests might try to undermine their competition through political connections, they might also try and attack what they view as impediments to trade.

    That said, I wish that many progressive groups and activists would stop demonizing businesses and markets as a whole-markets have played an essential part in the creation of wealth over the years, we’ve seen the failure of Communism, and the owners of businesses big and small have just as much variety in their opinions and beliefs as the rest of us. Indeed, part of the reason I raise these types of concerns is that these problems, as I’ve said before, just give ammunition to the Chavezes of the world.

    [Reply]

    Jonathan McLeod Reply:

    We were wrong on softwood because we were cutting logging companies a deal on stumpage fees (which is bad both economically and environmentally). This didn’t break the rules of NAFTA, technically, but it was, in effect, a subsidy, and, to borrow a phrase, tore the heart out of fair and free trade in the industry.

    It doesn’t matter what any negotiator says; we shouldn’t have been cutting these companies a break. It’s corporate welfare, and it was cheating Canadian taxpayers.

    The issues with the pipeline are environmental issues, not trade issues. If we want to prohibit a pipeline (which I’m sympathetic to, but haven’t taken a stance either way), that’s fine… as long as we don’t prohibit it only for foreigners.

    I’m not suggesting we get rid of any rules, regulations or laws that might have an impact on trade. I’m saying we apply these rules fairly to all, regardless of where you live.

    [Reply]

    Jared Milne Reply:

    “We were wrong on softwood because we were cutting logging companies a deal on stumpage fees (which is bad both economically and environmentally). This didn’t break the rules of NAFTA, technically, but it was, in effect, a subsidy, and, to borrow a phrase, tore the heart out of fair and free trade in the industry.”

    According to Mel Hurtig’s writing on the deal, as quoted in his book “The Truth About Canada”, our lumber exports now face export limits and a 15% export tax if “prices are too low” or “exports are too high.” If that’s the case, are we really any better off?

    “I’m not suggesting we get rid of any rules, regulations or laws that might have an impact on trade. I’m saying we apply these rules fairly to all, regardless of where you live.”

    In looking at that Eli Lilly link I posted, there isn’t anything in it that suggests that a Canadian-owned company wouldn’t be facing the exact same issues if they were the ones whose patents were being struck down by the courts. So where exactly is the protectionist discrimination in this case? Our courts are simply applying legal principles established in Canadian law, which apparently don’t work the same way as U.S. courts. We have separate constitutions and legal systems, and we’re simply applying our own rules here, the same way we would if it was a Canadian company that was complaining. So where’s the discrimination here?

    [Reply]

    Jonathan McLeod Reply:

    “According to Mel Hurtig’s writing on the deal, as quoted in his book “The Truth About Canada”, our lumber exports now face export limits and a 15% export tax if “prices are too low” or “exports are too high.” If that’s the case, are we really any better off?”

    Wait, you’re saying that our protectionist policies led to protectionist policies by the US? Of course, we’re worse off. Free trade would be better. So, in the end, our softwood policy was wrong economically, environmentally and politically.

    Eli Lily is claiming that the patent decision contravenes a section of NAFTA. It seems like it probably doesn’t and their case should be thrown out… but I can see how they would make an argument under NAFTA, it’s just unpersuasive.

    I prefer to wait to see what the full arguments are and what the final ruling is before deciding if this is an indictment of the NAFTA tribunal.

  4. Jared Milne
    October 20th, 2013 @ 2:55 pm

    Just as a sidenote, I’m quite alright with increased trade with Europe and have no problem with it.

    I add this part because it seems like criticizing certain parts of a free trade deal means that you’re automatically labelled as “anti-trade” in some circles, even if you’re fine with other parts of the agreement.

    [Reply]

  5. Jared Milne
    October 25th, 2013 @ 7:23 pm

    “Wait, you’re saying that our protectionist policies led to protectionist policies by the US? Of course, we’re worse off. Free trade would be better. So, in the end, our softwood policy was wrong economically, environmentally and politically.”

    Looking at the summary of the dispute on Wikipedia, the dispute has gone back and forth between the U.S. International Trade Commission, the WTO, the London International Court of Arbitration and the NAFTA dispute panels.

    Note that the U.S. used its domestic laws to override the orders the NAFTA panels made to the U.S. International Trade Commission, saying that its provisions, notably that ‘Section 129′, trumped NAFTA. In the end, we had to negotiate and many of the tariffs on our lumber remain in place.

    Oh, and the NAFTA panel ruled that our “subsidies”, such as they were, weren’t even eligible for countering tariffs under U.S. law.

    Everyone from Elliot Feldman (a former director of the Canadian-American Business Council) to trade negotiators Simon Reisman and Gordon Ritchie, former ambassadors Allan Gotlieb and Derek Burney, and long-time lumberman Gordon Gibson all panned the deal. I should also point out that none of these guys are likely to be fishing buddies with Mel Hurtig, and yet they all agree with him on it.

    http://en.wikipedia.org/wiki/Canada%E2%80%93United_States_softwood_lumber_dispute

    In short, NAFTA didn’t seem to be much help. And I’d have thought that, since the Crown owned that timber, the government could set whatever price it wanted. I’d have had no problem with foreign-owned lumber companies, manufacturers or whoever buying it, if they paid our prices.

    “Eli Lily is claiming that the patent decision contravenes a section of NAFTA. It seems like it probably doesn’t and their case should be thrown out… but I can see how they would make an argument under NAFTA, it’s just unpersuasive. I prefer to wait to see what the full arguments are and what the final ruling is before deciding if this is an indictment of the NAFTA tribunal.”

    Even if Eli Lilly and Lone Pine have weak cases, I’m really bothered by the fact that these companies think they can do this to begin with. Our laws and our constitutional rules are quite clear, but they end up getting challenged by companies under NAFTA. Does that mean that Canadian law, or decisions made by provincial governments regarding how they develop their natural resources, are impediments to trade? The companies certainly seem to think so.

    Stuff like this gives ammunition directly to the claims made by Linda McQuaig and others that NAFTA is a “bill of rights” for corporations.

    [Reply]

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