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Five reasons Canada should NOT ratify a Canada-EU free trade agreement

Originally posted in Troy Media, April 26, 2013

Jock Finlayson of the Business Council of British Columbia recently wrote a column for Troy Media on the virtues of the Canada-European Union free trade deal. He listed five reasons why he thinks the Comprehensive Economic and Trade Agreement, or CETA, should be ratified as soon as possible.

But there are at least as many reasons why Prime Minister Stephen Harper should walk away from the CETA negotiations. Most relate to the ways that CETA is not about trade at all but about making dubious policy reforms that constrain our economic, social and environmental policy options in the future.

First of all, a procurement chapter in the Canada-EU deal would forbid the provinces and cities from favouring local goods and services in transit, hydro and other large infrastructure projects. Say goodbye to the 25 per cent local content rule on subway purchases in Toronto or Montreal, which creates spinoff benefits for local manufacturing. Buy local food policies in public buildings and cafeterias could also be banned.

More than 50 Canadian municipalities and municipal associations have asked to be excluded from CETA for these reasons. The backlash is not about favouring Canadian over European companies but about giving up the ability to use public spending to achieve local or sustainable development objectives. The losers will be small- and medium-sized companies that benefit from this kind of strategic procurement.

Second, we know the EU will not accept a deal with Canada that does not extend patent protections on brand-name pharmaceuticals. Even the federal government estimates the changes could increase drug costs in Canada by up to $2 billion annually by keeping cheaper generics off the market for longer. Undoubtedly this cost will be offloaded to consumers who already pay too much for prescription drugs in Canada.

Third, there is the Canadian and European desire to include a NAFTA-like investor-state dispute settlement process in CETA. Canada is the sixth most sued country in the world under this regime, which grants foreign firms the right to sue national governments when environmental, public health and other policies have the indirect effect of lowering profits. For example, U.S. energy firm Lone Pine Resources has filed a $250-million NAFTA lawsuit for a Quebec moratorium on shale gas development (fracking) while the environmental impacts of the controversial extraction method are assessed.

The Australian government, hit by a similar lawsuit against plain packaging rules for cigarettes, has stopped negotiating these kinds of investment protections in its trade deals. Based on a leaked copy of CETA’s investment chapter, we know the Canada-EU deal will create even more opportunities for European firms to demand compensation when regulations interfere with profits, even if those regulations do not discriminate between Canadian and European firms.

Fourth, we learned recently that CETA could undermine Canada’s banking rules. The EU wants its banks and other financial companies to be able to sue Canada for regulations that lower their market access or profit-making opportunities. This could include a ban or stricter regulations on selling certain types of derivatives or other risky financial products in Canada.

Canada’s banking rules are lauded globally for protecting the Canadian economy from the worst of the recent financial crisis. Typically Canada would negotiate a carve-out or exception in its trade deals for prudential measures but European negotiators are resisting. If the EU gets its way, CETA will create a chill on government policies designed to stabilize Canada’s financial sector, making us much more vulnerable to crises in the future.

Finally, there is the poor economic case for the Canada-EU deal. Europe is a big market but a largely open market, too. According to a Canada-EU joint study on CETA, the deal will increase Canada’s already high trade deficit with Europe by $8 billion annually. Jim Stanford, economist for the CAW, points out in a 2010 report that CETA can only reinforce the poor quality of Canada-EU trade, where we export raw or barely processed goods and re-import them as finished manufactured goods. Stanford predicts CETA could reduce Canada’s GDP by between 0.5 and 3 per cent.

Canada does not need CETA. The agreement as proposed will trade away basic notions of democratic governance for very limited gains for a handful of Canadian export sectors. The best case scenario is for the negotiations to fall apart.