EU free trade promises a mixed bag

By Devon Simpson

Prime minister Stephen Harper has recently announced a preliminary agreement with the European Union, which could be one of the biggest free trade agreements Canada has ever signed.
The deal grants far reaching access to the 500 million consumers in the EU’s $17 trillion market. It is expected to increase trade across the Atlantic by 20 per cent, add $12 billion to the Canadian GDP and create 80,000 new jobs.

Critics of the new deal such as the Council of Canadians and Canada’s largest trade union CUPE warn that local markets and small businesses could suffer damage as certain articles in the deal prevent municipal procurers from offering incentivized contracts to encourage a “buy local” policy. Of course, this works both ways, granting Canadian companies access to European procurement contracts.

The greater worry is the Investor-State Dispute Resolution clause which allows private companies the ability to launch legal action against federal and provincial governments if they pursue policies which detract from a company’s financial bottom line. This provision is already part of the North American Free Trade Agreement and has caused at least 30 lawsuits to be launched against Canadian governments costing taxpayers over $150 million.

Still, the main concern with this agreement is that the Canadian government’s democratic policy making is being undermined by the interests of multinational corporations. Government policies in areas such as the environment and health care could be challenged if they are damaging to corporate profits.

One of the biggest potential winners of this provision could be Alberta oilsands producers. The EU has engaged in a negative publicity campaign towards Alberta’s “dirty oil” and added additional taxes to petroleum from “unconventional sources” such as the oilsands. Investor-State rules could allow oilsands investors to seek legal action against this discriminatory pricing policy and seek financial compensation.

The real win for all Canadians in the new free trade deal is the diversification of trade away from the United States. A recent paper by University of Ottawa economics professor Serge Coulombe finds that Canada is ailing from a Canada specific form of Dutch disease termed “Canadian Disease.”

Dutch disease is an economic sickness in which a country’s currency becomes tied with commodity prices ­— in our case oil — and increases when the price of the commodity increases. This has a detrimental effect on the manufacturing sector as the currency rises and manufacturers can no longer offer internationally competitive rates.

“Canadian Disease” takes a more specific form. A depreciation of the American dollar, which has happened over the last decade, causes a relative appreciation in the Canadian dollar. Because the U.S purchases over 70 per cent of Canadian exports, a depreciation of the American dollar makes Canadian manufacturers uncompetitive in the U.S. market and drives them out of business.

By diversifying trade through a Canada-European Free Trade Agreement we can tackle the symptoms of Canadian disease by linking the competitiveness of our manufacturers to the relative value of more than one currency, insulating us from the shock of other nations’ currency depreciation. We do, however, need to be wary of the unwanted side effects of a large dose of free trade in the erosion of our democratic policy making process through Investor-State Dispute provisions.

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