EU signs free trade deal with Canada but hurdles remain

The EU and Canada have signed a landmark trade accord brought to the brink of collapse by a Belgian regional rebellion that cast a pall over Europe's future trade policy.

After weeks of on-off talks, summit cancellations, delays, and even mechanical problems with his plane, Canadian premier Justin Trudeau finally arrived in Brussels on Sunday to sign a "historic" deal.

Supporters say Ceta will increase Canadian-EU trade by 20 per cent and boost the EU economy by €12 billion a year and Canada’s by C$12 billion.

For Canada the deal is important to reduce its reliance on the neighbouring United States as an export market. For the EU it is a first trade pact with a G7 country and a success plucked from the jaws of defeat.

The deal will eliminate tariffs on almost 99 per cent of goods. The beneficiaries would include, for example, carmakers or the EU textile sector, for which Canadian duties of up to 18 per cent can be imposed at present.

Service companies could also benefit and EU companies would be able to tender for public contracts at Canadian provincial and municipal level, the first time Canada has offered this.

Canada would be able to send larger quotas of pork, beef and wheat to the EU market, and EU dairy producers would be able to export more than double the current amount of “high quality” cheeses to Canada.

The eleventh-hour rescue of the Comprehensive Economic and Trade Agreement (CETA) was greeted with relief in Brussels but the affair has raised profound questions over a realm of policy that was once a byword for European integration.

Rather than beating the path for ambitious trade deals to come – notably with the US – the Canada deal risks becoming a high-water mark for European trade liberalisation.

"It is inevitable now that Europe will have to go through lighter and less ambitious trade agreements because of Ceta," said Hosuk Lee-Makiyama, director of the Ecipe think-tank in Brussels.

“First, we will receive less ambitious offers in return because our counterparts will not expect us to be able to ratify trade agreements. Second is that you will see a carve-out of several negotiation areas.”

Mr Lee-Makiyama believes the investment and service sectors will be gradually removed from future trade pacts, turning Europe away from the vogue for deals such as Ceta that encompass practically all aspects of economic activity.

This raises questions for Europe’s export-dependent economies, which are still struggling to overcome the legacy of deep financial crisis. Bigger trade deals are supposed to provide a bigger spur to economic growth. Any post-Ceta drift towards smaller trade deals would lower the potential economic gain.

But with anti-establishment sentiment rising, politicians do not regard trade as a vote-winner. Trade advocates say Ceta’s near-death shows just how much ground has been lost to non-governmental organisations that can bring thousands of protesters on to the streets to rail against globalisation.

The Ceta turmoil followed a decision of the European Commission – in the face of pressure from governments – to seek approval of the Canadian deal in each of the 28 EU member states. The pact was treated as a "mixed agreement" – requiring signatures from as many as 38 national and regional parliaments, as well as from EU institutions.

They may still do so. While Sunday’s agreement paves the way for 98 per cent of Ceta to be provisionally applied from 2017, it needs the approval of 38 national parliaments to be fully ratified. That process could take years.

Predicting the deal would eventually make it, Donald Tusk, European Council president, said the benefits from provisionally applying Ceta would be the “best form of education”. But he added: “after last week we have to be very cautious. No doubt. In today’s world anything is possible. This is democracy.”

Some officials believe the Ceta precedent will be impossible to reverse, blunting Europe’s power in future talks because any trade agreement with Brussels might not hold. Trade was previously seen as an exclusive EU domain, but the battle over Ceta points to a creeping renationalisation of the policy.

“The Ceta experience will make future trade negotiation harder because Europe’s counterparts will wonder who they are negotiating with,” said Peter Mandelson, former EU trade commissioner.

The ructions that nearly toppled the Ceta pact suggest that any EU-UK trade deal after Brexit would face similar hurdles. Indeed Britain’s vote was cited last week by Jean-Claude Juncker, commission president, as one reason EU leaders pushed him into making Ceta a “mixed agreement”. He still blames member states for it. “I will not comment on errors that others forced me to commit,” he told German television.

For future trade deals, Brussels is likely to step up national consultations during the negotiation process. But there would still be nothing to stop objectors in any single parliament emulating Walloon MPs, in defiance of the will of governments. – Copyright The Financial Times Limited 2016/

(Additional reporting, Reuters)