It could so easily have been a horror story showing in cinemas on the eve of Halloween. Unfortunately for the European Union, this tale is not only the preserve of screenwriter’s imaginations. The nightmare was played out in headlines across the world and concerns the fraught process of signing the EU-Canada Comprehensive Economic and Free Trade Agreement (CETA). The deal will see the majority, about 98%, of all tariffs between the two countries eliminated. This could save EU exporters €500 million annually. The EU began negotiating the deal back in 2009 and was due to sign it in a ceremony on 27 October this year.
The problem for the European Commission, which was the driving force behind CETA, was that the deal is what’s called a ‘mixed agreement’. This means that the deal isn’t solely down to the Commission to sign, but also requires approval by the EU member states. This gives member states the power to veto the deal. Commission President, Jean-Claude Junker, bluntly called this “an error”. His reasoning became clear on 24 October, just days before the official signing ceremony for CETA was due to take place. The small francophone region of Belgium called Wallonia had refused to agree to the deal. This, in turn, meant that Belgium’s federal government couldn’t sign it off, and therefore nor could the EU. A tiny region of 3.6m people had stalled a deal that would bring together over half a billion others. Concessions were hastily made to Wallonia and CETA was signed 4 days later.
European Commission President, Jean-Claude Junker
All’s well that ends well? Not quite. The implications for future EU trade deals are could be very large. The problem is not so much the delay that Wallonia caused – Martin Sandbu is right to say that it “is a small price to pay for getting the deal right” – but the signal that it sends to potential EU trade partners. Do they want a trade deal with the EU? Of course. Do they want years, possibly decades, of EU-related headaches? Probably not. Potential trade partners will have to balance the time and not insignificant costs associated with conducting the negotiations against the possible benefits.
Some commentators have forecast the end of major EU trade deals, saying that CETA will be the high-water mark. Certainly the eagerness for large-scale, all-encompassing deals appears to be waning. Despite this, the EU should sign a trade deal with Japan by the end of the year and TTIP, though in need of significant re-drafting in the light of Brexit and concerns from NGOs, is not dead yet. In addition, deals with scores of African nations, countries in the Middle East, Indonesia, Malaysia, Thailand, the Philippines, the combined South American members of Mercosur, Morocco, Tunisia, New Zealand, and India are being negotiated by the EU. If large deals are going to be problematic, then there seems to still be the appetite in many countries for deals of some kind. Small, niche agreements with developing nations may be exactly what the EU needs.
Other commentators have suggested that the EU’s trade policy is in crisis. I would urge caution: as Donald Tusk told a furious Jean-Claude Junker, “calm down”. Get into the detail behind the doom-mongering headlines and you actually see there is a lot for the EU to be positive about.
Firstly, the leaders in Wallonia were worried about two issues. One; about the investor-state dispute settlement (ISDS) – the mechanism by which companies can appeal against potentially harmful actions by governments. Two; a minor issue surrounding CETA’s safeguards for the agricultural sector. In the latter case, the protections already existed in the deal and the Walloons were just emphasising their right to invoke these safeguards. In the case of the former, the ISDS, the CETA proposals are actually an improvement on the same concept in the similar TTIP negotiations with the USA. In CETA, the EU has asserted the right of governments to regulate, quelling some of the objections that have previously been raised. It also agreed to set up a dedicated process and court to arbitrate in these cases. Both of these points show that the EU is actually getting better at making trade deals.
Secondly, the objection by Wallonia is democracy in action. It legitimises CETA. It wasn’t a white wash, forced through by EU technocrats. The concerns of Wallonia were heard and responded to. “I am extremely happy that our demands were heard” said Paul Magnette, leader of Wallonia. What is even better for the EU is that the ‘demands’ did not involve changing the deal, but simply clarifying some of the points. Therefore, the deal stood up to scrutiny and met with the agreement of the people. Magnette further noted that, during the hold-up, CETA had been “debated in cafés, at the office, in the market. Who would have imagined that?”. For the sake of 3 days delay, I’d say that this was a good outcome for EU trade policy in the long-term.
Furthermore, CETA could possibly be a quick and relatively painless way of the EU and UK signing a trade deal. As a current signatory, some diplomats are suggesting that the UK could accede to CETA as a third party post-Brexit.
Lastly, it shows that the EU is institutionally capable of signing a large and complex trade deal. Yes, commentators have been quick to characterise the process as a nightmare, but who said it would be easy? Bespoke deals take time and effort. Signing this deal has been a hugely positive step for EU trade policy. Nations around the world will be watching and now know that they won’t be wasting their time if they begin negotiations for their own deal with the EU. These small bumps in the road to CETA will soon be forgotten.
Thomas Dempster is a Partner of The Channel Group
Before this, he worked for GlaxoSmithKline and as a theatre producer. Thomas enjoys playing cricket, cycling, and reading.