Canada Frederick Pai Security, Trade and the Economy

For better or for worse: Unpacking CETA

The CETA (Comprehensive Economic Trade Agreement) was signed two weeks ago by Stephen Harper and the European Commission President, Jose Manual Barroso. This agreement will have a significant influence on the future of Canadian politics and economics, generally speaking, and the day-to-day lives of individual Canadians. By removing  98 percent of tariffs and other trade barriers between Canada and countries in the European Union (EU), CETA  is expected to both reduce the price of consumer goods and prompt changes in the employment market.

Understanding the fundamental principles of economics contributes to the understanding of how CETA will change the price of Canadian goods and services In short, prices of goods are determined by the supply of and demand for that good: the greater the demand for a good, the more expensive it is. Alternatively, the greater the supply of a good, the lower prices will be. By removing many of the quotas and tariffs that the Canadian federal government currently places on European goods, CETA is expected to increase the supply of European goods in Canada. With more suppliers in the market, prices for certain consumer goods are expected to decline.

For example, the reduction of import taxes on European cars and auto parts is expected to make European cars cheaper in Canada. Similarly, the prices of European alcohol, seafood, and various agricultural products in Canada will gradually decrease in price as well after the ratification of CETA. However, the ratification of CETA can take up to two years which means that changes in the price of consumer goods will be gradual.

Finally, in addition to anticipated decreases in the price of consumer goods, CETA is also expected to have a positive impact on the Canadian employment market. By removing trade barriers between Canada and Europe, Canadian goods will become more accessible to European consumers. Canadian firms in certain sectors may need to increase production to keep up with greater demand for their products. Increased production may lead to the creation of new employment opportunities. For example, CETA will increase the European import quota for Canadian beef and as a result, revenue for Canadian beef producers may increase by as much as one billion dollars a year. In Ontario in particular, the government estimates that CETA will create 30, 000 new jobs in the province.

That said, it is also important to consider the consequences for other Canadian producers. Indeed, some of the strongest opponents of CETA are the representatives of Canadian agricultural products, such as cheese, that stand to lose from a more competitive market. Since European farms create high quality cheese more cheaply than Canadian farms, Canadian cheese producers are worried about competition. By increasing the import quota of cheese, CETA may threaten the livelihood of some Canadian cheese producers.

[captionpix align=”right” theme=”elegant” width=”310″  imgsrc=”” captiontext=”An October 2011 protest on Parliament Hill by CETA opponants.”]

Unfortunately, CETA may also prompt an increase in the price of other consumer goods, especially pharmaceuticals. A[6]  recent report suggests that by increasing the duration of pharmaceutical patents, CETA may increase the cost of pharmaceuticals per Canadian. Those in favor of longer patents argue that they will create higher returns on research investments, and that long term, prices will return to normal. Nonetheless, in the short run, longer patents give pharmaceutical companies longer market control over certain drugs, which may increase the price of these drugs.

As a whole, CETA will benefit Canadian consumers more than Canadian producers. Canadians will likely have access to cheaper European goods as tariffs are reduced and quotas are increased. What’s more, CETA is expected to boost Canadian employment through an increased European demand for Canadian goods and services. Given that the ratification of CETA will not take place for at least another two years, it is unlikely that Canadians will feel these effects before 2016.

Frederick Pai
Frederick Pai is a Junior Research Fellow at the Atlantic Council of Canada. He is a third-year student at the University of Toronto where he is pursuing an Honours Bachelors of Arts in Political Science and Economics. His interests include Canada's role in international trade, Canadian foreign policy and the politics of South East Asia.