What China and Canada can learn from CETA: Laying the groundwork, taking it slow, and keeping the public informed are keys to success.



by Robert Hage

The Hill Times
May 24, 2017

Canada has a problem. Since Pierre Trudeau’s government, Canada has been trying to diversify its trade away from the United States, first to Europe and second to Asia. China, with the world’s second largest national economy, is an ideal prospect. Canada just concluded the second round of exploratory free trade talks with the Chinese.

A recent national survey, however, indicates 88 per cent of Canadians are un­com­fort­able with the prospect of deeper eco­nomic ties with China. Is it possible to negotiate a free trade agreement with an authoritarian, controlled capitalist state without the rule of law?

Canada has shown it can adapt to different and challenging trade situations, and with preparation and wider public support, can likely do so again. Two years after Canada signed its first major free trade agreement with the U.S. in 1988, then-president George Bush embarked on free trade negotiations with Mexico, a developing country. Seeing a threat to its U.S. market share, in 1991 Canada proposed a trilateral agreement, giving birth to NAFTA.

NAFTA was the first free trade agreement between developed and developing countries. It required new measures. To meet concerns about the fairness of Mexico’s judicial system, NAFTA provided for special investor-state procedures outside the parties’ national courts. To respond to environmentalists’ worries that Mexico’s industrialization and lax laws would create serious problems, the parties negotiated and signed a separate environmental co-operation agreement. When labour unions argued that Mexico’s low wages would take away their jobs, Canada and the U.S. responded with another side agreement committing all parties to enforce the protection of labour standards. 

Canada and the European Union have just entered into the Comprehensive Economic and Trade Agreement (CETA). EU Trade Commissioner Cecilia Malmstrom told an Ottawa audience there has never been a more important time to defend “progressive trade policy.”

“Trade should not mean a race-to-the-bottom on standards or come at the cost of the environment,” she added.

Prime Minister Justin Trudeau embraced this approach, telling the European Parliament in February that CETA is a “blueprint for future trade deals.”

This blueprint does indeed offer guidance for the proposed Canada-China free trade agreement that both sides should heed. The first lesson is to prepare the ground, and public opinion, without setting artificial deadlines. The CETA process began in early 2007 when then-Quebec premier Jean Charest toured Europe calling for a free trade agreement. Canadian and EU leaders responded that fall, agreeing to co-operate on a joint study “to examine and assess the costs and benefits of a looser economic partnership.” 

The 180-page joint study went beyond tariff barriers to the breadth of bilateral co-operation in a wide variety of fields. The whole study was made public. The leaders then asked their officials to work together to define what the scope of this deepened economic agreement might be, and to identify the points for its successful conclusion. One key inclusion, at the EU’s insistence, was to involve the provinces—a first for Canadian trade negotiations. In May 2009 the leaders agreed to negotiate a “comprehensive and ambitious” economic partnership agreement with everything on the table. This preparatory and public process took a year and a half.

During a visit to Ottawa in January 2016, China’s vice-minister of financial and economic affairs, Han Jun, said China saw what he called “a rare historical opportunity” to negotiate a free trade agreement with Canada during Trudeau’s term. Han stressed that China needed Canadian agricultural produce and energy, but that China would come “with demands of its own.” It wanted the Harper government’s restrictions on Chinese state-owned investment in Canada’s oil and gas sector removed, and a commitment to build a pipeline to the West Coast to furnish petroleum products to the Chinese market.

A year later, China’s new ambassador to Canada, Lu Shaye, told the press that Beijing is “seeking unfettered access for Chinese state-owned firms to all key sectors of the Canadian economy.” He repeated Han’s demand that this include an end to investment restrictions. Lu concluded that China has no interest in talking about human rights or democracy: “We don’t want one side to use democracy or human rights as a bargaining chip to make the other side compromise.” These messages are not the way to change Canadian public opinion.

Canada and China began exploratory free trade talks in Beijing in February. Just before the second round began in Ottawa in April, China’s Ottawa envoy urged their quick conclusion. The government seems to agree to a two-year time frame. Finance Minister Bill Morneau said the government wants to “demonstrate progress in our first mandate” with a need to bring “urgency” to the discussions. At the same time, International Trade Minister François-Philippe Champagne encouraged Canadians to provide the government with their ideas on how it should proceed in Canada’s best interest, via the departmental website, in person, at an event, or by mail. 

This approach contrasts with the start of the Canada-EU process, where both sides began by publicly releasing a joint study and then a bilateral scoping exercise which outlined the opportunities that liberalized trade would bring for both sides. The joint study examined questions that citizens on both sides of the Atlantic needed to know: the impact of removing barriers, labour mobility, government procurement, electronic commerce, energy, environment, employment, and social affairs, to name a few.

There is no doubt that the negotiations took more time than expected. The agreement was finally signed in late 2016. Yes, there was opposition to signature on the streets of some EU countries and even in legislatures, notably in Germany, Austria and Belgium. Opponents focused on possible job losses, and fear that multinationals would use CETA to undermine how governments regulate, particularly regarding the environment and labour. EU and Canadian leaders were able to point to a transparently negotiated agreement which already included provisions on the subjects of concern. The parties amended the investor-state provisions (those drawn from the NAFTA text) to make those provisions more compatible with domestic legal practice. The groundwork that Canada and the EU had done at the start of the negotiations more than paid off in the end.

Second, Canada and the EU included human rights as part of their trade liberalization. Since 1995, the EU has had the policy of including or incorporating commitments to democratic principles and human rights in trade agreements between the EU and third countries. This EU requirement initially caused Canada some consternation. After all, Canada has been a democratic state under the rule of law for longer than a majority of EU members. Nevertheless, the EU prevailed—how can we negotiate trade agreements around the world, and now our first with a developed non-European country, they asked, and ignore human rights? What would that tell the others?

Canada agreed. Article 2 of the overlooked Canada-EU Strategic-Partnership Agreement accompanying CETA is entitled Upholding and Advancing Democratic Principles, Human Rights and Fundamental Freedoms. This 41-page agreement reaffirms the parties’ undertakings for furthering international peace and security and the rule of law. Canada and the EU agreed to consult on their adherence to, and implementation of, all articles under the oversight of a new joint ministerial committee. With CETA as the blueprint for Canada’s future trade agreements, it no longer seems possible to overlook human rights.

If experience is the best teacher, Canada should also look at the Australian experience in negotiating and signing its FTA with China in 2015. Greg Wood, Australia’s former high commissioner to Canada, wrote in an article that their negotiations were undertaken in “great haste” with his government setting itself a deadline and “imprudently meeting it.” The public and parliamentary consultations did not keep up. “If Canada is to draw one conclusion from Australia’s experience,” he wrote, “it’s for political leadership to take the Canadian people with them, openly in advance.”

Both Canada and the European Union call CETA the “gold standard” of trade liberalization. How it was put into place, and the public acceptance it enjoys, is something that Canada can mine in dealing with China.

Robert Hage was a Canadian diplomat for 38 years, most notably as Canada’s ambassador to Hungary and Slovenia. He is now a fellow with the Canadian Global Affairs Institute.

Image credit: Melanie Wenger, courtesy of the European Union

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