CETA takes centre stage at Canada, EU summit

The European Union and Canada are holding a summit in Brussels on Monday and Tuesday, with Prime Minister Justin Trudeau meeting EU counterparts after the NATO and G7 meetings. Centre stage in the discussion is the landmark bilateral trade agreement, the Comprehensive Economic and Trade Agreement, or CETA, which has driven an increase in two-way commerce, including a 15-percent boost in EU exports to Canada in 2020 alone.

While the bilateral relationship is largely positive, there are irritants, including the EU ban on the import of seal products. Yet, relations are fundamentally cooperative, building from a series of economic agreements since the 1970s and joint membership of bodies such as the Group of Seven and Group of 20.

In 1976, the then-European Economic Community and Canada signed a framework agreement on economic co-operation, the first formal agreement of its kind between the European body and an industrialized third country. The Delegation of the European Union to Canada office also opened then in Ottawa.

In 1990, extending the scope of their dialogue, European and Canadian leaders adopted the Declaration on Transatlantic Relations. Most recently, in 1996, a new Political Declaration on EUCanada Relations was signed at a summit in Ottawa, adopting a joint action plan identifying additional specific areas for co-operation.

Building from these agreements, CETA, which covers around a fifth of the global economy, and took the best part of a decade to negotiate, was signed in October, 2016. Ninety-eight per cent of all tariffs on goods traded between the two powers were eliminated, and the deal was billed as “the most ambitious trade agreement the EU has ever concluded.” Most tariffs were removed when the agreement came provisionally into force in 2017.

CETA assumed a particularly high profile during the Brexit negotiations between Britain and the EU. Many Brexiteers saw the deal as the template for what became last December’s EU-U.K. Trade and Co-operation Agreement.

The EU has negotiated a wide range of external trade agreements for member states, but for many Brexiteers it was this “Canadian model” that stood out. Part of the reason for this is that it allowed Britain to completely leave the Brussels-based club, including the customs union and single market, and allow London to do bilateral trade deals with other countries, plus multilateral ones such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

However, as glorified as CETA is by some Brexiteers, the model has also brought costs for Britain given the different starting positions of London (previously a member of the EU for more than four decades and embedded into many its structures) and Ottawa. Whereas CETA represents a net level of integration between the EU and Canadian economies, the new EU-U.K. deal has been a sharp break (or “hard Brexit”) between the entities.

Moreover, CETA does little to enable some key business sectors, including financial services. CETA also does not eliminate border controls – although it does incentivize use of advanced electronic checking to expedite customs clearance.

In a further potential challenge, the Canadian-style deal ended Britain’s preferential access to more than 50 markets outside Europe with which the EU has trade agreements. While many of these have now been renegotiated bilaterally, there were no guarantees that London would obtain terms as good as before.

While Brexiteers also suggested that negotiating a Canadianstyle deal would be relatively easy, this belied the challenges involved initially with CETA. Indeed, in 2016, after about seven years of negotiations, there was a near complete breakdown of CETA talks. This came when the legislature in Wallonia – a region of Belgium with a population of around 3.5 million – indicated to Canada that its opposition to key provisions of the proposed deal were “red lines.”

While these concerns have since been largely smoothed, Canada’s then-international trade minister Chrystia Freeland asserted at the time that an agreement was now “impossible.” The EU’s then-trade commissioner Cecilia Malmstrom also said that “if we can’t make [a deal] with Canada, I’m not sure we can make [one] with the United Kingdom.”

Taken over all, it is CETA that sits at the heart of the renewed partnership between Canada and Europe.

While this same agreement became a key point of debate in the Brexit dialogue, the balance of advantages and disadvantages of a Canadian-style deal with Brussels are different for London than Ottawa given the deep integration of the British and European economies in the postwar era.