By Leticia Lozano
At a recent business conference in Brussels, the Canadian embassy staff eagerly handed out EU-Canada flag pins, tickets to win a trip to Canada and glossy information packs touting the new trade agreement with Europe, which would “set the gold standard for trade agreements in the 21st century.”
This description of the Comprehensive Economic and Trade Agreement, or CETA, is a hope, more than a sentiment that is shared by the transatlantic business community, as a sense of wariness creeps in six years after negotiations started. Over a celebratory lunch in Brussels in October 2013, Prime Minister Stephen Harper and then-European Commission President José Manuel Barroso announced the pact would be sealed in 2014, only to find later that more negotiations were needed. Today, with an agreed text on the table, the European Parliament continues to struggle with questions such as how investors will resolve disputes, and how Greece’s feta cheese will be protected. This means ratification may be delayed until mid-2016 and an easy passage through the European Parliament is not assured.
EU Trade Commissioner Cecilia Malmström insists CETA is a done deal. “The Canadian agreement is closed, we are not reopening it because if we reopen it, I am sure Canada too would find other chapters that they want to reopen,” she said. “That would be extremely negative, because this is a good agreement,” the Swedish liberal told the European Parliament’s influential trade committee on May 6.
Referring to CETA as a “good agreement” is something of an understatement. The EU-Canada deal is the first in a series of sophisticated economic deals between the world’s major democracies that could dramatically reshape global trade and which include the Trans-Pacific Partnership, or TPP, between the U.S. and the Asia-Pacific region; and the Transatlantic Trade and Investment Partnership, or TTIP, between the U.S. and the European Union.
Launched in 2009, CETA negotiations have sought to produce an accord that supersedes beyond previous trade agreements that mainly dealt with tariffs. CETA would integrate the Canadian and European economies and open up markets and industries long closed to foreign companies, including some aspects of shipping. That aspect of the 1,600-page treaty is not lost on Lieselot Marinus, Director of Shipping and Trade Policy at the European Community Shipowners’ Associations, or ECSA, who views CETA as a historic pact. “This is very significant that maritime transport is addressed in a trade agreement for the first time,” she said. Indeed, eliminating 98 per cent of all Canadian and EU tariffs is seen as just the starting point of a deal that will liberalize trade for everything from machinery and chemicals to plastics and motor vehicles.
The current economy is ripe for such a deal to take effect. Canada’s exports to the EU have grown 66.2 per cent during the past decade to 27.36 billion euros in 2014, according to EU statistics office Eurostat. Europe’s exports to Canada grew 43.2 per cent during the same period to 31.67 billion euros last year. “If your economies are getting together and negotiating an advanced agreement, they are doing it because they already have a highly developed commercial relationship,” said Jason Langrish, Executive Director at the Canada-Europe Roundtable for Business. “What they are doing is wanting to take it to the next level, they are wanting to eliminate the remaining impediments.”
Canada’s traditional exports of raw materials, including silver and gold, have remained stable. So it is in other areas where the potential lies. Energy exports have skyrocketed 238 per cent during the past decade to 2.5 billion euros last year and there could be more opportunity as the EU seeks to diversify away from Russia. “There has been a broad boost in a range of sectors,” said Laura Cooper, an economist at Royal Bank of Canada. “Where we don’t expect to see much of a change is in raw materials, given that they are not subject to any tariffs and already account for about 45 per cent of Canada’s exports to the EU.”
With so much at stake, many industries are reluctant to speculate on how trade in specific sectors would develop once CETA is implemented. Potential economic benefits cited by a joint Canada-EU study supporting the 2009 launch of trade negotiations included a projected 20 per cent boost to bilateral trade and an approximately $12-billion annual increase in economic activity – roughly a 0.7 per cent annual lift to Canadian GDP. Overall, the European Commission estimates European exports will save about 500 million euros a year in import duties they no longer have to pay, while other benefits include allowing European companies to vie for public contracts in Canada.
Canada’s finished automobile exports are acknowledged as a clear beneficiary of CETA. The 10 per cent tariff currently in place will be removed and Canada will have an alternative destination to the competitive North American market, where lower-cost Mexico is gaining share. Auto parts currently face a 4.5 per cent tariff in the EU. Canada, which exports 90 per cent of its auto production, hopes to develop an export market to Europe. Honda Canada officials have already said publicly they plan to export crossover CR-Vs to Europe, targeting foreign sales of 40,000 Canadian-made vehicles a year. Prime Minister Harper said “Europe will accept a great many Canadian-built cars, no less than 100,000,” during a March visit to a Honda plant in Alliston, Ontario. Dianne Craig, Chief Executive at Ford Canada, is equally upbeat, although less specific about targets. “Free-trade agreements matter,” she told CBC news in February, saying Ford plans to ship out of its plant in Oakville.
Canadian seafood such as lobster and shrimp also are expected to benefit from CETA; Europeans are the world’s biggest seafood consumers.
“We don’t really know at this point who will take most advantage of this but in terms of shipping volumes I think Canada will probably ship more (cargo) to the EU, which has a much larger market,” Mr. Langrish said. “But in terms of economic value, I think it would be equivalent.”
New investments will be key to renewed cargo flows between the two regions. “It’s not only that you are going to trade more goods, it’s also that you are going to build supply chains between Canada and Europe, you are going to establish centers of excellence. Say for instance Siemens may decide that it wants to put its North American renewable energy business in Canada because they have free-trade agreements with both the U.S. and the EU,” Mr. Langrish said.
Canada’s processed foods will face increased competition. EU producers have won protection for more than 140 cheeses, sausages and hams which were granted the exclusive right to be sold under traditional names such as gorgonzola and brie, so-called geographical indicators. Canadian and U.S. producers have argued the EU system is unfair because European immigrants have long produced such products as Greek feta and reject being forced to call their cheese ‘feta-style’. Under the deal struck for CETA, Canadian producers who made feta before October 2013 can continue to market it as such, but others will have to use the less appealing ‘feta-type’ label.
More trade means more shipping, and Mediterranean Shipping Company Canada expects cargo volumes to rise. In 2005, MSC invested in a terminal that handles 500,000 TEUs annually at the port of Montreal. MSC has just finalised an investment with the federal government and port authorities in Montreal, aiming to handle an additional 600,000 TEUs by the end of 2016.
“We are anticipating an increase in trade of up to 20 per cent more than what we are seeing today,” said Sokat Shaikh, President of MSC Canada. “We have increased our capacity by 30 per cent on our terminal side, and we have done the same on the capacity that we offer to the market in Montreal for the east coast of Canada. “ Three months ago, MSC was sailing three ships a week from the port of Montreal and is now sailing four a week. “We are preparing ourselves to accommodate this growth,” Mr. Shaikh said.
CETA is considered the first free-trade agreement to specifically address the shipping industry. In the treaty text currently awaiting ratification, some aspects of Canada’s cabotage laws have prompted concern from domestic short-sea carriers. Under CETA, foreign vessels will be allowed to reposition empty containers between ports in Canada on a non-revenue basis, and to provide feeder services – both bulk and containerized –between the ports of Halifax and Montreal. “The concessions offered are quite limited at this point and our greater concern is if there is further liberalization, the agreement could be expanded to a much larger Canadian marketplace, which would make it very difficult,” said Robert Lewis-Manning, President of the Canadian Shipowners’ Association, which is dedicated to domestic-flagged, short-sea shipping in Canada and has invested heavily to expand capabilities in the last 5 years. “We are concerned, and we are going to be working very closely with the Canadian government to ensure that further erosion does not happen,” he said, noting that Canada’s short-sea sector was not properly consulted while CETA negotiations were conducted.
On the European side, CETA is viewed as a good means to boost logistics efficiencies and as a legal precedent for other trade agreements worldwide. “It is not strictly cabotage that is being allowed in the sense that it is not allowing for local transport,” said Mrs. Marinus of the European Community Shipowner’s Associations. “We are mostly interested in being able to do feeder operations, which is also recognized in this document.”
Given such changes, the shipping industry awaits CETA’s ratification. First, the text agreed upon last year must be translated into the EU’s 24 official languages and legally ‘scrubbed’ to prepare its ratification. Optimists believe that the deal can be provisionally implemented by the end of 2016 or early 2017. Pessimists, by nature, wonder if, after so long in the making, CETA can ever become a reality.