Provincial prerogative

Montreal daily La Presse reported last week that the Canadian federal government and European Commission might announce the conclusion of free-trade talks before mid-October.

This comes as welcome news to impatient executives, who feared only one month ago that “very significant gaps” remained in the Canada-EU deal.

The most contentious of issues between the two parties included financial services regulation, pharmaceutical patents and government procurement projects. Settlement on trade in agricultural products and livestock was also disputed, given its very targeted impact in particular Canadian provinces and European countries. For example, one of the biggest sticking points for Canada was access to European beef and pork markets, which faced resistance from Europe’s own meat suppliers in France and Ireland.

It seems, however, the prioritization of this file in recent months by Prime Minister Harper and European Commission President Jose Barroso has expedited the settlement of these remaining questions.

Prime Minister Stephen Harper met with European Commission President Jose Barroso alongside G20 meetings in Russia last month.

The Canada-EU Comprehensive Economic and Trade Agreement (CETA) will be the first free trade agreement to be signed by the European Union with an industrialized country. The Union’s current free trade agreements, signed in 1997 and 2002, are with Mexico and Chile, respectively.

The accord offers Canadian access to a market of over five hundred million people and is by far the most ambitious trade agreement Canada’s federal government has ever negotiated. As a “second generation” trade agreement, CETA goes well beyond reducing tariff barriers. In fact, CETA seeks to target non-tariff barriers by promoting the harmonization of trade regulations and procedures.

What’s more, this agreement is unique in that Canadian provinces were direct participants in the negotiating process. Indeed, Canadian provinces were arguably better represented than European countries. The Canadian delegation had over one hundred representatives, in contrast to the European delegation, which comprised only a dozen members of the European Commission.

The inclusion of Canadian provinces in this seemingly federal affair speaks to the unique nature of Canadian federalism. Though CETA is perhaps conceptualized as a national affair, it is important to recognize that many of its stipulations will address issues of provincial jurisdiction, including, but not limited to, government procurement, health care, and natural resources.

The Honourable Ed Fast, Minister of International Trade and Minister for the Asia-Pacific Gateway, meets with key representatives of the forestry industry to highlight iconic wood and wood products as one of many B.C. exports that will benefit from an ambitious Canada-EU trade agreement

Unfortunately, in contrast to their unprecedented involvement in negotiating CETA, the role of Canadian provinces in its approval and implementation remains decidedly unclear. This lack of clarity may indeed undermine five years worth of negotiations.

The Honourable Ed Fast, Minister of International Trade, discusses the Canada-EU trade agreement with key representatives of the forestry industry in British Columbia.

In short, provincial accountability for the implementation of CETA stipulations is not yet guaranteed. Though Canadian provinces have been heavily involved in the negotiations process, they are not, as yet, official signatories. Despite this provincial involvement thus far, historical precedent says that the Canadian approval and implementation will be left to the federal government.

Without formal mechanisms to guarantee the agreement’s timely implementation, Canadian municipalities and provinces may deliberately postpone politically unpopular conditions. Such behavior will do little to encourage European investors and the purported benefits of the deal itself will not be immediately apparent.

 

What’s more, any formal complaints by European firms or governments would be levied against CETA’s Canadian signatory, which is to say, the federal government. In this case, the federal government would pay for provincial mismanagement without any mechanism to ensure its redress.

This series of events has unfolded before under the terms of the North American Free Trade Agreement (NAFTA). NAFTA’s Chapter 11 stipulates that foreign companies may file compensation claims in countries where they have investments and feel a government action is unfair and discriminatory. In 2010, the Canadian federal government shelled out CAD$130 million to compensate Delaware forestry giant AbitibiBowater Inc. for Newfoundland and Labrador’s expropriation of its assets in the province.

One might argue that because provinces were not directly involved in NAFTA negotiations, provincial violations are more understandable. However, the federal government’s Continuing Committee on Trade Negotiations (CCTN) did allow for provincial inclusion.

It is clear that if Canadian municipalities or provinces fail to implement CETA stipulations, the federal government could very well be held responsible.

To encourage provincial alignment with the CETA conditions, the European Commission has reportedly required Canadian provinces and territories to sign a pledge to implement CETA stipulations in a timely and thorough manner. However, without formal mechanisms, compliance is far from guaranteed.

Options to enhance the extent of provincial “buy-in” include listing provincial commitments in the agreement as an annex of some kind, or requiring provincial governments to enact implementing legislation. However, short of including provincial governments as signatories – a highly unlikely option – each of these alternatives allows for provincial discretion.

While October may end five years of complicated trans-Atlantic negotiations, it may also represent the beginning of an equally complicated implementation process. It is clear that Canadian provinces will be as important to the success of this agreement as they were to its negotiations. For indeed, any delay or variation in provincial implementation will weaken the integrity of the deal as a whole.

While one must be wary of these risks, it is equally important for Canadians to congratulate the extent of provincial and federal cooperation that brought this deal to fruition. Though the Canada-EU Comprehensive Economic and Trade Agreement will be an important trophy for Prime Minister Harper, Canadian provinces ought to receive equal, if not greater credit for its ultimate success.

About Leah Nosal

Leah Nosal was a Program Editor at the NATO Association of Canada, where she managed the International Business and Economy program. She recently completed her B.A. (Hons) at the University of Toronto, where she studied International Relations and Political Science at the Munk School of Global Affairs. In the last two years, Leah has contributed in a research capacity to the G8 Research Group, Canadian Centre for the Responsibility to Protect, Engineers Without Borders Canada, and Grand Challenges Canada. Leah also has extensive international experience, including study in France and Indonesia. Her interest in Canadian international relations includes defense procurement, US foreign policy, and international trade negotiations.