CETA: A Trade Deal’s Success in the Face of Populism

On October 30, as the leaders of the European Union and Canada met to sign the Comprehensive Economic and Trade Agreement (CETA), protestors stormed the European Council headquarters in Brussels and threw red paint at security guards. Adamantly opposed to the passage of a free trade agreement, the protesters were making a last-ditch attempt to halt the tenuous deal, a product of years of negotiation.

Why was the opposition so intransigent? Protestors were spurred on by the growing populist sentiment that blames free trade agreements for job losses in industrialized sectors. As the world has become more globalized, trade connections between nations have become more controversial. Populist movements have found momentum in appealing to nationalist sentiments that oppose expanding global markets. While pockets of passionate opposition have succeeded in vocalizing their concerns, the governments involved in the CETA negotiations have continued to advocate for its overwhelming benefits. By lowering trade restrictions and setting a major precedent for future trade deals, the passage of CETA and subsequent expansion of international trade can stimulate economic growth for all parties despite growing antitrade rhetoric.

After more than seven years of negotiation, the CETA trade agreement between Canada and the European Union has won provisional approval from all involved parties. The passage of CETA will eliminate 98 percent of tariffs between Canada and the EU and remove other trade restrictions. The agreement will most likely benefit multinational corporations and boost economic growth for Canada and the EU. By allowing jobs to move freely through national markets, the treaty grants corporations the ability to expand and contribute to GDP. At the same time, the growth of multinational corporations poses risks to the strict food and environmental regulations in effect in certain European countries such as Belgium and France, as it is difficult for imports to meet these stringent standards. The treaty must now be approved by 38 member states and regional parliaments, including the United Kingdom’s, in order to be enacted in full force.

A drastic increase in trade between the European Union and Canada will foster economic growth for both countries by allowing jobs, companies, and products to move easily between Canada and the European continent. Trade between Canada and the EU will increase by about 20 percent, which should boost the EU economy by about 12 billion euros and Canadian economy by 12 billion Canadian dollars. For Canada, the deal cuts tariffs on industrial, farm, and food items and could drive additional exports of Canadian agri-food products worth up to about $1.5 billion Canadian dollars. The Canadian agri-food market is export focused, as 90 percent of farmers depend on world markets rather than on the domestic economy. The passage of the agreement will grant the export-dependent farmers access to a previously restricted multibillion dollar market.

In return for increased Canadian exports, European companies should save 500 million euros per year from cheaper and simpler methods of exporting wine, cheese, and other specialty European products.  Additionally, the Canadian government plans to open the process of public procurement by allowing the EU to bid on Canadian government contracts. This plan will reduce asymmetry in the market, as the EU’s public procurement process was previously accessible to the Canadian market. The Canadian services sectors in cargo shipping, maritime services, and finance will be opened to European firms – a change that will allow job movement and growth between the two parties.

Populist objections to the CETA trade deal reflect the growing opinion that globalization is at fault for increasing income inequality.

In the days before the signing of CETA, Wallonia, a French-speaking province in Belgium with a population of 3.2 million people, objected fiercely to the agreement. With the bargaining power of a populist movement, Wallonia forced the Belgian Parliament not to approve the treaty. According to EU policy, the treaty cannot be signed without the approval of all member states, so this move threatened the future of a trade deal seven years in the making with the power to affect more than 500 million Europeans and 35 million Canadians.

But why did Wallonia force the hand of the Belgian Parliament? Deindustrialization in the region has led to fears of agricultural competition. As Wallonia’s economy stagnates, its steel mills have begun to close, and the region has lost ground to Belgium’s Dutch-speaking Flanders. Wallonia and Flanders are traditional cultural and economic rivals, as Belgium is divided into a wealthier Dutch-speaking region that is frequently in conflict with the French-speaking Wallonia. In response to Wallonia’s economic decline, the D19-20 coalition, an antifree trade group created by small-scale milk producers in Belgium, united more than 90 member organizations in opposition to CETA. The effort culminated in persuading the Belgian Parliament to reject the deal based on the argument that milk prices had dropped from increasing globalization and threatened small milk farmers’ ability to remain in the market. The D19-20 coalition’s fierce opposition to CETA showcases how regional insecurities and economic turmoil can lead to the growth of populism and antiglobalization sentiment. The desire to protect individual jobs and regional power makes it simple to attribute economic struggles to globalization and to the resulting loss of regional identity. Other factors at fault, including the inability of the region to adapt to an evolving world, are much more difficult for provincial players to acknowledge. Globalization introduces cultural and economic influences that can irrevocably alter the composition of a region; as identity evolves, those who witness the shift find it challenging to accept the loss of singularity and influence.

While lower prices can hurt small producers, they also help the consumer and alleviate poverty, as illustrated in the Sustainability Impact Assessment. Rather than allowing Wallonia to halt the deal for the entirety of the EU and Canada, the Belgian Parliament argued for a compromise and created a four-page addendum to address regional concerns. The addendum primarily protects certain food products in Wallonia from competition. The Belgian Parliament also pledged to have the Court of Justice of the EU review the arbitration system established under the deal in order to determine its legality, as small farmers in Wallonia are concerned with losing disputes in arbitration to multinational corporations.

Populist objections to the CETA trade deal reflect the growing opinion that globalization is at fault for increasing income inequality. The reactions to CETA also set probable precedent for backlash against the Transatlantic Trade and Investment Partnership (TTIP). The TTIP is a trade deal currently under discussion between the EU and the United States, and it will likely be worth 545 euros per year per European citizen. In spite of this fact, more than three million Europeans have signed an anti-TTIP petition. Many Europeans view CETA as a practice for the potential TTIP, and the power of Wallonia to nearly halt the deal illustrates just how strong antitrade sentiment has become. Though CETA indisputably provides economic benefit to both parties, overwhelming populism, as demonstrated in Wallonia, has made it clear that the chances for TTIP are slim. Wallonia could also highlight the ability of other regional powers to derail trade agreements, such as Catalonia in Spain and Scotland in the UK. While previous trade deals have promoted economic growth and lowered consumer prices, job loss in the industrial sector is undeniable, with previous deals doing little to nothing to cushion economies from this effect.

However, CETA is a new form of trade deal that aims to preserve existing regulatory policies as well as address concerns about job loss and health and food safety standards. Europeans are generally suspicious of trans-Atlantic health and environmental safety standards, and provisions within the deal alleviate those concerns. One such provision protects 145 European geographical indications in the Canadian market that illustrate the source, quality, and value of European exports. The deal creates a template for future trade deals between countries with advanced economies, as it is simpler for regulators to recognize the rules of other countries and create protections for workers and the environment. For example, beef farmers in Belgium mistakenly believe the Belgian market will be consumed by large Canadian beef consumers, but in reality the CETA deal limits imports from Canada to 0.6 percent of the EU’s total beef consumption in order to prevent that very problem. Because the Sustainability Impact Assessment models prove that the negative impacts of trade liberalization would surround sensitive agricultural products, the agreement does not remove all tariffs around these products, including beef.

CETA is a broad protection-based trade deal that sets the standards for globalization. Unlike traditional deals between poor and wealthy countries, the agreement should escape the usual concerns over lack of regulation and transparency. CETA also provides trade neutrality and diplomatic neutrality to the EU and Canada, as it reduces European and Canadian dependence on the United States without increasing dependence on eastern countries. A major trade deal already exists between the US and Canada (NAFTA), while the US and the EU have long been key trading partners. Before the passage of CETA, both countries were largely dependent on the US economy for economically-essential trade. By lowering barriers between two economies previously reliant on the US, the EU and Canada grant themselves autonomy in making major economic and trade decisions. While the deal provides tremendous benefit to both countries, populist antitrade sentiment continues to thrive in the face of CETA’s success thus far. The sense of individual subjugation to a multinational agenda has propelled the growth of far-right and far-left populist movements in a number of European countries, including Finland, Latvia, Hungary, and Austria. These parties hold enough sway to take control in a number of upcoming elections, in which they, unlike the Belgians, will most likely succeed.