Categories: Paul Wells

It’s far too modest to call this a free trade deal

Today Harper is in Prague to launch negotiations with the European Union. And critics are lining up.

by Paul Wells on Wednesday, May 6, 2009 11:25am - 57 Comments

From there events have moved quickly. Last October Canadian and European leaders assigned negotiators to “define the scope of a deepened economic agreement”—the subjects that would be on the negotiating table. Five months later, in March, the Joint Scoping Group came back with their answer: just about everything.

Tariffs are already low between Canada and Europe but the talks that are about to begin will consider eliminating all that remain. They’ll also look at trade in services, investment, procurement and regulatory co-operation. “We want to start with everything on the table,” Charest said, “and bring as much momentum into this as we can.”

That’s why it’s unduly modest to call this a free trade deal. “If we’re going to have a competitive society, the foundation of that will be labour mobility,” Charest said. So one goal will be a situation where Canadian professionals can work unimpeded in Europe, and vice versa.

You don’t have to think about this for long to realize that the hard work lies ahead and the likelihood of the talks breaking down is high. Since barriers to trade are already low in a lot of ways, “what’s left is the most sensitive,” Oram said. Topics like supply management and the Canadian Wheat Board, the baroque mechanisms by which Canada protects domestic agricultural production and prices. Municipal procurement, which would allow German and French manufacturers to bid on subway contracts in Toronto and Vancouver on the same basis as local manufacturers. Securities regulations.

Already Charest’s enthusiasm dims when I read this list to him. “There’s nobody in Canada or the EU who expects us to be able to crack that nut,” he said of farm subsidies on both sides. “We will still defend supply management.” What about a national securities regulator? “We have a disagreement with the federal government on that.”

And then there are all the charming peculiarities of European trade policy. Every restaurant in Paris has a line on the menu proclaiming that it serves only beef from the EU. Would they really let Alberta beef in?

So it could all fall apart. But if it doesn’t . . . Before long the only way Canadians will be able to let Europeans into our markets will be to let one another in as well. Trade liberalization with Europe will be a powerful force for removing the barriers between provinces, which in many cases are higher. “That’s one of the advantages of these initiatives,” Charest says. “It sheds a different light on our own relationships as Canadians.” No wonder the fans and foes of liberalized trade are lining up. This is big.

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http://www.jackmitchell.ca Jack Mitchell

Great piece, Paul, thanks — exactly the kind of background I’ve been craving on this. I can’t quite figure out what the hell this Globe story is about, but it seems like progress has been made even since this piece was written. (I pass over the insanely pedestrian instinct of the Globe in putting seals and a $12 billion trade deal into the same column.)
http://www.jackmitchell.ca Jack Mitchell

Man, it would be great to have an election on this — a real issue! Over here! A real issue! Yo!

Lord Kitchener’s Own

Who would be on the “No” side besides the NDP? The Bloc?

I don’t at all disagree that it would be wonderful to have an election on a BIG ISSUE. It just seems to me that this particular BIG ISSUE is an issue on which the BIG PARTIES probably agree more than they disagree, so it would really be an election about the small stuff at the margins.

I could be wrong though.

http://www.jackmitchell.ca Jack Mitchell

Ah, good point. Just my 1988 nostalgia kicking in. Hmm, the search for a Big Issue continues . . .

Wayne

Truly excellent news I had not expected things to go as quickly as they have on this file – The premiers involved along with the PM are certainly earning their political cookies on this file. The potential here for improving not only trade but international realtions is mind boggling and hopefully we can have something along the line of arbitration and dispute handling mechanisms, in order to sort out so many of those what at first seem like a minor irritants, only to get blown out of proportion by the ususal political cliques and cause more harm than good … much like the Seal Hunt thing these many years as if had we had a dispute settling mechanism back when the issue first started up we could have nipped this in the bud dealt with it a long time ago and had better relations.

Mike T.

It would be difficult to have such a mechanism without a dispute system built in, or at least attornment to an existing system specified.

On the other hand, lots of good it did us with softwood lumber.

peimac13

This will likely end badly. A lot of it still comes back to, why trade for something you already have? Does France want Canadian wine? Poland in need of Albertan beef? Quebec longing for Italian cheese? I don’t want to see the riot in St John’s if Spanish fish are slated for their store shelves.
We already trade for items that each other lacks. So again; why bother digging up the dirt?

http://www.jackmitchell.ca Jack Mitchell

Wouldn’t Polish beef still be cheaper in Poland, and NL fish cheaper in St. John’s? If our economies are similar, as (I think) they are, there wouldn’t be that much invading of each other’s turf on necessities, would there?

peimac13

Then we wouldn’t need to stop protectionism would we.

madeyoulook

I suppose you meant that we wouldn’t need to HAVE protectionism…

peimac13

Depends. Are labeling laws going to be forefront to any agreement? seems terribly silly but store here have been known to sell Idaho potatoes in PEI labeled bags. Take what you will over product quality but it’s a matter whether believe in supporting your own or buying cheap. As for trading unlike products or trading in areas in supportable competition, go for it.
Just hoping this isn’t another deal where we give them all our resourses cheap so we can buy the finished products and services back.
madeyoulook

If we are more efficient at selling raw materials (well, on account of, you know, having them), and “they” are more efficient than we are at producing something with the raw materials, then why on earth wouldn’t we sell them our resources and buy from them their products?
peimac13

You’ll also have to consider the environmental impact of being a resource solely exporter and net importer of finished goods. Land use is far greater and higher impact. (All those pictures of FT McMurray are beautiful aren’t they?) For a country behind on it’s carbon commitments, mowing down our forest to buy patio furniture isn’t of much long term benefit either. In the end, it’s being lazy. No ones willing to swallow a little extra to build and produce a manufacturing or production base because it’s so much easier to cut and dig than it is to develop and build.
Also, quite simply; what happens when we’ve sold all our resources? They’ll still have their own forests and mineral reserves but we’ll have a toxic legacy of selling out.
madeyoulook

Alas, the whole carbon commitment nonsense will not get me too excited, but I will cut myself off there immediately to avoid this becoming a global warming spat.

What you call being lazy an economist would call being efficient. Sell your strengths, cut off your weaknesses.

Also, quite simply; what happens when we’ve sold all our resources? Look, I have no problem whatsoever with a diversified economy. But to have the state force the consumer to favour an inefficient domestic supplier, or (maybe just as bad, maybe worse) force the taxpayer to support an inefficient domestic supplier, well, that’s just bonkers. If the domestic supplier wants to smarten up and get efficient and become more competitive than the foreign supplier, hey, congrats, go for it. But what do you call an uncompetitive company with no need, desire, drive to become more competitive? Lazy.

DT

you need to read the Wealth of Nations, all will become clear.

http://www.maderblog.com David Mader

This question – whether trade is beneficial where a country already produces the same goods as a potential trading partner – goes to the principle of comparative advantage, which has been called the only non-intuitive principle of free-market economics. In short, comparative advantage says that even if two countries produce the same (say) two goods, they’ll both be better off if each focuses on producing the one good they’re better at producing, and trading for the other. So if (for instance) we’re better at growing wheat than Poland, but Poland is better at making ploughs than we are, then we’re both better off if Canada grows and exports wheat to Poland, and Poland manufactures and exports ploughs to Canada.

Of course the result would be the relative diminution of the Canadian plough and Polish wheat industries, and so it’s no surprise that the strongest opponents of free trade are the groups (such as unions) that represent those whose jobs would be lost. These losses are real – on a personal level they affect thousands of workers and families; on a regional or societal level they affect the history and tradition of communities. The argument in favor of free-trade is that it brings benefits that off-set the losses, both in the short-term (inasmuch as it results in lower prices) and in the long term (inasmuch as the savings resulting from lower prices are re-invested in the domestic economy, resulting in the creation of new industries and, therefore, new jobs). The argument against free-trade is that the dislocation it causes is not worth the benefit; or, in other words, that the cost of trade-barriers is a fair price to pay for the personal and societal advantages of maintaining traditional domestic industries.
http://carnewsandviews.com jwl

“you need to read the Wealth of Nations, all will become clear.”

Or he could watch Free To Choose where Friedman uses a lead pencil to explain why trade is a good thing in about 2 minutes.

Sisyphus

What’s a lead pencil ?

http://carnewsandviews.com jwl

Something you write with.

Maggie’s Farmboy

Unfortunately, the pencil was made in a Chinese factory by displaced Yangtse River peasants. The paint on the pencil was contaminated with lead, contaminating both the peasants and Friedman, as well as Friedman’s grandchild, who chewed on it seconds after the video was filmed.

Wait, is this the rabble forum?

Sorry.
RL

Through the magic of the internet:

You might also went to check out the full series on ideachannel.tv.

http://www.jackmitchell.ca Jack Mitchell

Frankly, I was expecting more, from the way jwl built it up. My immediate thought was that we got along fine without pencils.

JimD

Friedman, what a hero. Trade is a good thing yes, but when it is promoted at the expense of everything else, not so much.

madeyoulook

Trade PERMITS everything else, my friend.

Paul Wells

Also brush up on the definitions of “procurement” and “services.” Office supplies to subway cars, accountants to lawyers, able to build transatlantic markets. That’s where things get interesting.

Kaplan

Great column, Wells.
Sisyphus

Given the current economic shambles in Europe , especially central and eastern , and the pressures of internal protectionism ( Sarkozy , prime suspect ) complications will abound. And , since free trade is usually understood as lowering tariffs on widgets but is rarely really about that, the longer it takes the better.
The Council of Canadians’ only public objection is that the process will not be open to public scrutiny and debate. Which it never can be – making sausages and all.
So we are left with trusting the business bureaucrats to conduct themselves honourably in the broad interests of their respective citizenries. I feel really good about that.

Kenneth

The Council of Canadians is against free trade INSIDE Canada too.

Sisyphus

Oh, I think everybody is in favour of free trade. Except when they’re not. I think they called it TILMA until some provincial premiers decided they didn’t like it much after all. But they’re still all for free trade.

http://www.progressive-economics.ca/2008/05/24/internal-trade-hypocrisy/

JamesHalifax

Good column.

Hopefully this will work out and ease some of our dependence on the American Market. The yanks are great customers, but when that customer is in financial trouble….those who sell to them will be hurting as well. Seems Harper and some Premiers saw this potential difficulty a while back.

As well, Harper has been busy working on similar deals in South America.

It’s reassuring to see a column about a policy that will help Canada, as opposed to a political Party.
JamesHalifax

Further thought.

The Council of Canadians are full of whack jobs and socialists. Any organization that had Maude Barlow as its leader….you know is kooky.

Council of Kooks would be more appropriate.

Brad

Ad hominem. Use specific arguments on specific details of their points. I know it takes a little extra effort, but it will be good for you.
Sisyphus

Sorry, Mr. Halifax. I must have missed it…. the thought… further or otherwise.
RagingRanter

That the Council of Canadians opposes something is enough to make me in favour of it. No further contemplation necessary. It was their incredible persuasive powers that sold me on bulk water exports.

JamesHalifax

Brad noted:

‘Ad hominem. Use specific arguments on specific details of their points. I know it takes a little extra effort, but it will be good for you.”

Easy Brad…..take pretty much EVERYTHING that comes from this group of nuts…..and you will see all you need to know. That’s what Google is for. Good luck.

Sisyphus:

If you missed it, that is your failing not mine. Unless you ARE a fan of the Council of Canadians….you wouldn’t comment unless you knew what they stood for. I’ll provide the Cliff Notes Version.

Ahem:

Council of Canadians Charter – “All Canadians are selfish and Deluded…except those who belong to the Council of Canadians. We believe everyone who does not adhere to our ideology is mentally deficient and should not be allowed to share this planet with us. Anyone who is successful, has become so on the backs of others’ labour. Anyone who is friends with America…is our enemy.

yaddah…yaddah…yaddah……

It goes on and on. They’re all nuts. (or clones of Linda McQuaig)

James Connors

No improvement to your initial argument.

Do you have a point you wish to make?

matt

I want to work in Paris without writing crazy exams. I want to buy French wines cheaply when I return home. And I want to eat Alberta beef when I’m there. I want to be served by Eastern Europeans everywhere I go, whether it’s in Saskatchewan or London. I want a common carbon trading market. And this will do all of that.

sf

Why buy carbon when you can get some in your own backyard?
Maggie’s Farmboy

Well, in Canora Saskatchewan you can be served coffee by someone with a Ukrainian accent. Is that good enough?

RagingRanter

We had that in Manitoba 30 years ago. I think I was 12 before I became aware that some people don’t have Ukrainian accents.

sf

This is what we need. Not only is it good in its own right, we also need it to put pressure on the US, when they want to ban our lumber, we can sell it to the Euros. And we can retaliate against the US by banning imports that can be bought from Europe, at least until the US backs off.

Not that we should be having trade disputes at all, but we need some leverage.
madeyoulook

Super column, Paul. Lays out the issue well, and does not spare the Canadian protectionist hypocrisy as we attempt to proclaim ourselves free traders.

Indeed, a MAJOR additional benefit of more international free trade for Canada will be the imperative of finally recognizing the importance of domestic free trade, the absurdity of supply management, the nutty wheat board…
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will

I can’t for all of my life understand the sensitivity around farmers. Every damn trade talk is inevitably sidetracked by disputes over what qualifies a cucumber or a banana. For instance, according to the US Congress, catfish from asia aren’t actually “catfish”, only catfish grown by Americans are “catfish.” Every country has its own ridiculous constellations of agricultural interventions, though.

My question is, why? Most countries that talk about “trade deals” are at the point where agriculture contributes less than 1% to GDP, yet most still spend oodles to protect it. Most of the EU’s resources (46% of the annual budget) goes towards the CAP and paying farmers to *not* farm their land.
Geoff

I can’t for all of my life understand the sensitivity around farmers.

Two answers, Will. First farmers vote. In the US, a lot of the “purple” states are in the midwest, so if you’re George Bush or Barrack Obama and you want to carry Iowa, you leave those farm subsidies alone.

I worked in Germany one summer and I remember visiting these wee little heavily subsidized farms. The Germans have long memories, and (the argument went) the farmers were subsidized to ensure self-sufficiency in the even of war. If don’t grow enough food to support your own population, you’re vulnerable to a modern day sort of siege.

Of course the dirty secret the Europeans don’t like to talk about is that their subsidies (and ours) are keeping third world farmers poor. African countries can’t afford to subsidize agriculture, so even though they can produce the same product at lower cost, there’s no market for their goods.

Sean

And don’t forget that rural votes carry more weight in many jurisdictions. In the US, a senator from a state with 1Million people has just as much voting power as a senator from a state with 20Million. And the same distortion of influence applies to MPs in Canada. In fact, we Canucks work hard at maintaining this imbalance, because it reduces the cost of buying the greatest share of ridings when we have elections!

The odds of all parties in a country agreeing to unite on farming issues is low – it’s more politically rewarding to compete for the “overweighted” votes.

SAB

This is great overall…

But Charest HAS to know in his heart that a National Securities Regulator makes sense and that it should be HQed in the 416. Fragmented securities regulation and stupid barriers to international investment diminish the value to Canada of these kinds of trade agreements.

Sean

I would actually disagree on the location. I’d park it in Montreal – one of the key benefits that could come from an EU/Canada deal would be that Canada would be the one jurisdiction that would allow for free flows of capital, good and services to the EU on one side and US on the other. If you park a national regulator in Montreal, you’d attract a different level of investment by finanical players of EU countries to that city, and put a stake in the heart of Quebec nationalism – The direct investment in jobs/HQs, combined with the fact that eased US access is dependent on NAFTA could combine to create a situation where most rational quebecois would be led by their wallets (and the charms of being a hub of Euro-ness) to finally put secession dreams to rest…

Or am I just being optimistic?

SAB

Too optimistic – a national securities regulator doesn’t create investment, it can only impede it. A national securities regulator makes sense because it simplifies the playing field so that a mutual fund company or investment bank or US investor only has to leap through a single hoop in order to invest, sell funds, whatever.

The activitiy in securities regulation will occur where the money is not the other way around. They could set up the National Securities regulator on the moon and most of the staff would have to be based in (or fly to) Toronto anyway – the bulk of the money flows through here and locating a securities regulator elsewhere will not change that. In the US it’s HQed in Washington but in practice the bulk of the staff are in New York.

madeyoulook

a national securities regulator doesn’t create investment, it can only impede it.

Well, then, either Quebec or Ontario would be perfect locations for the ongoing impeding of investment. Toss up, really. It would fit right in in either place.

James from Vancouver

My bet is this is Harper’s issue #1 – free trade. Ignatieff’s issue on EI is going to be dealt with by June despite protestations by the CPC in the HoC. I think ideology-wise everything else Harper has put forward has really turned on him, but this is something to really debate. Problem for Harper is that this issue is not black and white at all – which is what he thrives on. This issue has a million different facets, I think Ignatieff might be better poised to explain in ordinary yet believable terms what a deal could entail. We’ll see what happens.

Great piece, I really enjoyed the article.
sweetwoe

Nice summary of current situation but I do not understand how Mr. Wells feels the CWB protects domestic agricultural pricing. Although there is a basis for a discussion about the appropriateness of a producer directed monopoly (preferably by people who know the theory and reality of the stuation), it shouldn’t be based on incorrect inneundo.
Lord Kitchener’s Own

I find it interesting that the Council of Canadians means of objecting to this has been to call it ““NAFTA-plus with Europe”.

Personally, I hear “NAFTA-plus with Europe” and my initial reaction is “Yippee! Where do we sign???”

madeyoulook

Experience has told me, LKO, that any bellyaching from the Council of Canadians leads to an initial reaction of “Yippee! Where do we sign???” But that’s just me.

RagingRanter

No, it’s not just you.

Wayne

same o same o aint just you

JamesHalifax

James Connors wrote:

” No improvement to your initial argument.

Do you have a point you wish to make?”

I guess the point would be simply that if James Connors doesn’t understand something the first time, it is really no use trying to explain it to him a second time.