CETA undermines Canada’s ability to benefit from increased international trade

March 26, 2013

The comprehensive economic and trade agreement (CETA), now in the final stage of negotiations between Canada and the European Union, presents Canadians with dubious trade benefits and a number of serious downsides. The challenge for Canada’s pattern of trade is to move beyond a reliance on natural resource exports by developing its high technology sectors. Roughly speaking, Canada presently exchanges gold and diamonds for EU pharmaceuticals and motor vehicles, an imbalance that will only be reinforced by CETA.

According to the OECD “low-technology manufacturing will decline in importance in industrialized counties,” suggesting that Canada needs broader industrial policies that increase innovation and productivity. However, our prognosis suggests that CETA would reduce Canada’s policy options for developing our industrial sector. All levels of government would face increased restrictions on their ability to use procurement policies to support the creation, and regional adaptation, of cutting edge technologies among Canadian firms. Governments would also be constrained from requiring that foreign investors create jobs, do product research and development and create business opportunities in Canada.

Canada’s experience with NAFTA is a warning that CETA could further undermine Canada’s ability to reduce its reliance on natural resource-based exports. NAFTA has not, as promised, closed the productivity gap between Canada and the U.S. Furthermore, the evidence indicates that Canada’s exports to the U.S. are increasingly shifting from sophisticated manufactured goods to the export of petroleum products.

Moreover, recent research suggests that the net benefits of free trade agreements for industrial countries are grossly exaggerated since they lead to significant losses as well as gains. Harvard economist Dani Rodrik has estimated that the overall benefits to the U.S. of moving to free trade are minimal - for every $51 of benefits there would be $50 of job and income losses - leaving the economy with a net gain of $1! The fact is that all FTAs produce winners and losers. The federal government’s case for CETA is based on the shaky assumption that those who lose jobs or incomes will easily find opportunities elsewhere that leave them no worse off.

In any case, nowadays “free trade” agreements are really designed to reshape regulatory and policy frameworks to make them more attractive to foreign investors. So it comes as no surprise that the real winners in FTAs are multinational corporations. Propelled by FTAs, an increasing portion of the economic wealth being created in Canada and around the world takes the form of corporate profits while wages remain depressed. For example, real wages in Canada are at the same level that they were before NAFTA. Research by the Canadian Centre for Policy Alternatives indicates that under CETA Canada could suffer a net loss of up to 46,000 jobs, hitting the high value-added manufacturing sector particularly hard. When the impact of the high Canadian dollar on Canada – EU trade is taken into account these job losses could reach 150,000.

CETA is among what investors are calling a new generation of international agreements targeting policies that regulate the flow of capital internationally. They push for deeper international economic integration and the conformity of public policies with such agreements, including, in the case of CETA, the policies of provincial and municipal governments. Corporate interests and investor rights are thereby increasingly privileged over policies of democratically-elected governments. Ultimately this diminishes the ability of governments to serve the public interest.

International free trade agreements such as CETA regrettably reduce the ability of citizens and their governments to influence the terms of their integration into the global economy and to use trade to support domestic economic advancement. Canada would be better off without CETA, and for that matter all “free trade” agreements that demonstrably do not produce the benefits they advertise while subordinating our democratic choices to the priorities of multinational investors.

Roy Culpeper is Adjunct Professor at the Norman Paterson School of International Affairs (Carleton University) and Senior Fellow at the School of International Development and Global Studies (University of Ottawa). John Jacobs is a PhD candidate in the School of Public Policy & Administration/Institute of Political Economy (Carleton University), a research associate with the Canadian Centre for Policy Alternatives and the author of 2 reports on CETA.

This piece was first published in The Ottawa Citizen.