Tomorrow's Economy

Why Ceta is a good and necessary agreement

24 November 2016

Ceta has become a political bogeyman for those angry about other issues

Umberto Marengo

The signing of the Comprehensive Economic and Trade Agreement (Ceta) between Canada and the European Union last week is set to open a new political battle in Europe. In a nutshell, the Ceta scraps virtually all custom duties between EU and Canada, facilitates trade in goods, services and labour mobility, introduces mutual recognition of certain professional qualifications, and a public court for some limited cases of investment protections.

Despite seven years of negotiations, the ratification process is mired with political obstacles. The agreement opened an animated policy debate on two key issues: first, should Europe keep opening up its market and, second, what is the right level of democratic control on trade deals?

Part of European public opinion instinctively sees trade liberalisation as an economic and social threat. Resisting Ceta, and its sister agreement with the United States (TTIP), has become tantamount to rejecting ‘the globalisation of the elite and corporations’.

Are such concerns justified? Bilateral agreements like Ceta are TTIP are the result of the WTO’s inability to overcome the deadlock between developed and emerging countries. Market opening in the first phase of globalisation opened up opportunities for growth and exports for emerging economies, but it also created distribution costs (winners and losers) in developed economies like Europe. Globalisation also has political costs. Trade integration spells interdependence and therefore requires countries that used to set the rule of the game (such as Europe and the US) to share some degree of sovereignty.

This time, however, free trade opponents are barking up the wrong three. If the measure of an agreement’s success is its ability to leverage common rules to shape international trade and globalisation, then Ceta is the most successful trade agreement ever negotiated by Europe. Ceta explicitly provides for the protection of public services, health, and products’ geographical indications, and to prevent environmental dumping. Europe and Canada maintain intact their right to regulate their markets and mutual recognition of standards is limited to those areas where both sides consider their respective levels of protection equivalent.

Ceta is an example of how Europe can leverage new partnerships in the world to promote an ‘open’ and ‘social’ economy. Of course, Ceta also creates winners and losers and requires political trade-offs. Who should then be making such choices?

Trade policy has always been the exclusive competence of the EU and therefore these decisions are and should be decided by the council of the European Union and the European parliament. This has been also the position of the UK government, which strongly supported Ceta. However, the commission decided to consider the Ceta a ‘mixed’ European and national agreement, requiring the approval of each of the 28 national parliaments (and in some cases regional).

This decision does not democratise trade policy and threatens to block it instead. First, democracy means negotiation and compromise, not distributing veto power to all parties. Second, Europe needs a single strong voice to defend its economic model. In the past, European national divisions could be leveraged as a strength. After the war, Europe’s business partners wanted access to the single market and unanimity rule helped to protect the interests of all member states. Today’s situation is the reverse. Europe actively seeks access to international services markets while at the same time demanding the adoption of social and environmental standards that are more costly than (or just different to) the status quo. Without a single, credible voice Europe is condemned to irrelevance.

Ceta’s ratification process is set to be controversial but its approval is in the best interest of the EU and the UK. The political and distributional effects of globalisation have long been minimised or ignored. In reaction to this, the Ceta has been hijacked into a political battle that has little to do with the actual agreement, and instead it voices a much wider problem, namely the difficulty of reconciling open markets and democratic national preferences.

However, blocking the most successful deal in European history would not substantially increase democracy and instead make it impossible for Europe to continue to promote its model of an open and social economy.

Photo credit: klauscook / Shutterstock.com