Saturday, October 18, 2008

Free trade with the EU: It could be coming

Yesterday, Steve Harper and President Nicholas Sarkozy of France confirmed that Canada and the EU will enter trade talks aiming towards a free trade agreement or perhaps something more.

In general I am a free trader, in particular with other developed and democratic countries and so I would support any moves to give Canada access to markets other than the United States so we're not putting all our eggs in one basket, so to speak. There are likely going to be two major stumbling blocks. The first, which can be dealt with in relatively easy fashion, are common labour and safety standards and mobility of workers. Despite major differences there is room to come to some common ground in this area.

Since labour is a provincial responsibility here in Canada there will first have to be national standards here -- and that has been a stumbling block towards creating an economic union here. The provinces generally continue to defy Article 121 of the 1867 Constitution which anticipates free movement of goods, persons, services and capital. To cite just one example, it's shocking the EU can have common standards when it comes to the financial markets yet there remain 13 separate securities regulators in Canada -- and a stock dealer has to recertify if moving from one province to another; let alone a foreign national coming here to hang his or her shingle. European negotiators may well wonder -- if we can't get our act together, why should they drop their duties for us?

A similar issue will come up in terms of fisheries. While each country in the EU with access to the open seas has an exclusive economic zone, for trade purposes they're considered to be one area. They have enough problems allocating quotas for fishermen within the trade bloc, let alone figuring out how much outside countries can fish. Europeans haven't forgotten the turbot war back in 1995 and they'll exact a high price for access to their seas.

The second is going to be much more difficult, and that will be in terms of agriculture. On the one hand, there is Canada with its system of marketing boards and quotas with a guaranteed price. On the other is the Common Agricultural Policy which along with the Euro is one of the major pillars of the EU and a constant source of anger for developing nations as well as developed ones outside the bloc. Rather than quotas per se, they pay out amounts based on what is grown. This more or less guarantees an income for farmers but it also results in the most expensive subsidy regime in the world, even more distorting than the American "Payment in Kind" which pays farmers not to grow crops. Like other trade distorting régimes, commercial growing operations tend to benefit more than the family farmer even though the reverse is supposed to be true.

While CAP is being transitioned into more of a land stewartship system rather than paying out quotas for just about anything, it's still there. Farmers here criticize CAP as much as EU farmers hate our marketing boards. The idea behind both is to ensure lower prices for consumers but we know that's anything but the case -- and it hurts growers in third world countries who only want fair access and a fair price.

What will be the result? Who knows, but with America possibly becoming more belligerent in trade than they already are, we need other options. Personally, despite the EU's many problems, it's an admirable system because free trade has helped keep the peace between formerly warring countries and also ensured the continuation of democracy across most of Europe too. I'd rather trade with countries with a good human rights record than those with bad ones -- Chile and Mexico, for instance, both of which we do have trade agreements with but shouldn't have until they proved they had cleaned up their acts.

I don't think we'll adopt the Euro any time soon -- but having access to a market of greater importance to the world than the US can't hurt at all. It would send a message to Washington that we'll look out for number one if we have to.

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