The European Union is opening the doors to freer trade at precisely the moment that free trade is under the most serious threat since the Great Depression, writes Geoff Kitney
Amid an increasingly loud appeal by political populists for a return to trade protectionism, the free trade agreement between the European Union and Canada has provided hope that free trade deals are still possible.
The ratification on Wednesday by the European Parliament of CETA (Comprehensive Economic and Trade Agreement) clears the way for the provisions of the agreement to begin being implemented – removing tariffs and duties on trade between the EU and Canada on a wide range of goods and creating common rules for trade in services, government contracting and intellectual property.
Today, Canadian Prime Minister Justin Trudeau addressed MEPs in Strasbourg. He said: “CETA is not only about commerce, imports and exports, about profits. It aims to improve people’s lives”.
The irony of the European Parliament’s vote is that the Europe Union – not long ago seen as a protectionist institution – is opening the doors to freer trade at precisely the moment that free trade is under the most serious threat since the Great Depression.
Whether this will come to be seen as the beginning of the fightback for trade liberalisation or the last gasp of one of the most important aspects of the globalisation process remains to be seen. The signals coming from the Trump administration are not encouraging.
However, the signal that the approval of CETA sends will be welcomed in the United Kingdom which, more than any other nation is looking to a future in which trade liberalising agreements with other nations will fundamentally determine whether Britain faces a prosperous future or a bleak one.
The willingness of potential partners to free trade agreements to resist the populist push for protection of domestic industries and the exclusion of foreign goods – and foreign people – is critical to the May government’s long-term goal to make Britain a global leader of trade liberalisation.
But while there is much to encourage Britain in the progress of CETA against the protectionist tide, warning lights are also flashing.
One key aspect of the CETA agreement will not be implemented immediately – and possibly not for years.
This is a provision which would allow businesses in either the EU or Canada to take legal action to prevent – or claim compensation from the impact of – decisions by governments on either side of the Atlantic which corporations claim would hurt their businesses.
The so-called Investor to State Dispute Settlement (ISDS) provisions in CETA have been the most hotly contested aspect of the negotiations, with Canadian corporations demanding its inclusion but EU members states strongly resisting.
In the end, it was agreed by both parties that the ISDS process would operate within limited rules and with an independent court to consider them (unlike in US-negotiated FTAs in which the US has insisted on tribunals nominated by the affected companies).
Many of the EU’s 28 member states are under strong domestic political pressure over the ISDS provisions which are seen as a threat to the national sovereignty of member states. Opponents of the ISDS provisions argue that they would undermine the ability of national governments to legislate to protect their citizens from the impact of potentially hazardous or unsafe products or processes.
For the ISDS provisions in CETA to come into operation the rules by which the independent tribunals operate and the issues on which they can adjudicate will have to be approved by each of the EU members states separately – a potentially long and cumbersome process. But the EU and Canada agreed to implement the FTA ahead of the finalisation of this process.
The ISDS issue is an important one for Britain as it is certain it will be a big issue on the table in the negotiations that it will have to engage in to ensure the UK has liberal access to foreign markets once it has left the European Single Market.
With foreign corporations insisting their governments ensure that their businesses are protected from so-called “sovereign risk” in their business operations in the UK, the danger for the May government will be that it could be seen as putting UK sovereignty at risk if it agrees to ISDS provisions which are not very limited in their scope.
Given that Britain is leaving the EU in large part to regain sovereignty lost to the EU by reason of its EU membership, any trade agreement that is seen as undermining UK sovereignty would be politically dangerous for the government.