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John Ivison: For Conservatives, road to economic recovery lies through EU trade deal

John Ivison: For Conservatives, road to economic recovery lies through EU trade deal

National Post – Full Comment: John Ivison  Apr 23, 2012 – 6:39 PM ET

What a difference a couple of years makes. For the Conservatives, cutting is the new spending and, in the words of Ed Fast, trade is the new stimulus.

The Canadian response to the financial crisis has been to grow domestic demand, aided by low interest rates, and re-orient trade relations to the emerging new world economic order.

The first course has been successful but households are now tapped out and interest rates are set to rise. The fate of the Canadian economy and, in all likelihood, the Conservative government rests on boosting exports that are still below pre-recession levels.

Those hopes rely on Canada concluding a comprehensive economic and trade agreement (CETA) with the European Union. This is not just because it would boost existing two-way trade of $92.1-billion by an estimated 20%, but also because the reforms needed to strike the CETA in areas like intellectual property, government procurement, labour mobility and agriculture will be required if the Conservatives are to make good on their ambitious trade agenda with other countries like Japan, India and South Korea.

“It’s foundational for the government,” said Jason Langrish, executive director of the Canada-Europe Roundtable for Business. “Even though the CETA might not deliver the longer-term export gains that some deals in Asia might, we need the reforms inherent in CETA to move forward with a wide-ranging trade agenda.”

The problem for the government is that the deal has hit a number of speed-bumps, some political and some technical.

The Tories have woken up late to the fact that their silence on the progress of the CETA has allowed their opponents to fill the information vacuum
The NDP has long (and with some justification) criticized the government’s lack of transparency on the trade talks. Former trade critic Peter Julian also expressed concerns about European demands for patent term restoration, which would add one to three years to the life of drug patents to compensate for the period when they are being tested and approved. He has argued it could increase drug prices for provincial governments.

But the party has a new leader, Thomas Mulcair, and a new trade critic, B.C. MP Don Davies, and there are no clear signals yet whether they will oppose the CETA, or back it with reservations, (The deal is considered broadly favourable for Quebec, so Mr. Mulcair will have to tread lightly).

While the NDP position is ambiguous, the Conservatives have noted that opposition to the CETA is rallying around leftist civil society and labour groups like the Council of Canadians and the CAW, who are stirring up discontent at municipal level by suggesting that under the deal, all local procurement will have to be offered up for tender internationally. (Mr. Fast has re-assured municipalities that they can continue to prefer local companies, if projects are below a certain threshold or deal with goods and services excluded from CETA).

The Tories have woken up late to the fact that their silence on the progress of the CETA has allowed their opponents to fill the information vacuum. They intend to rectify the situation later this week, when ministers will fan out across the country to sell the deal to Canadians, claiming it will benefit every region. Government sources say they will be spelling out those benefits and attempting to dispel the “falsehoods” raised by their opponents. The government will have been encouraged by a new study conducted by the Asia-Pacific Foundation that suggested 69% of Canadians are in favour of a free trade deal with the EU, compared to less than 50% for China, India and South Korea.

Aside from political opportunism, there are substantive problems that could yet derail a deal. Perhaps the biggest threat originates from so-called “rules of origin” guidelines, under which the Europeans are insisting that 60% of the final value of any product must be created in Canada. Given the heavily integrated nature of Canadian and American manufacturing process, this presents major challenges, particularly for the automotive and processed food industries, whose products tend to criss-cross the border.

It is no small irony that supply management, so often the target of free trade advocates, does not appear to be a major sticking point. There is agricultural protectionism on both sides, so the Europeans are not calling for wholesale reform of the practice of sky-high tariffs on imported chicken, eggs and dairy products. More likely, there will be a tweaking of the system that will allow more European cheese to enter Canada tariff-free.

As is usual with cases involving the departments of International Trade or Foreign Affairs, Canadians learned more from visiting dignitaries than their own government. The Danish Trade Minister, Pia Olsen Dyhr, was in Ottawa to hold talks on bi-lateral trade and the CETA. She said getting a good agreement is more important than getting a fast agreement, but added that 75% of the issues have already been finalized.

From the government’s point of view, a deal in 2012 is crucial, particularly given the prospect of new provincial governments in Quebec City and Victoria who may be less sympathetic to the trade agenda.

For the Conservatives, CETA represents the next generation of comprehensive deals and the surest way of ensuring that black ink becomes the new red when writing future budgets.

National Post

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