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Talking Trade blog

CETA derailment: Fear of Canadian cows, ISDS and more

Published 26 October 2016

The backlash against trade agreements appears to have claimed another victim—the Comprehensive Economic Trade Agreement (CETA) between the European Union and Canada currently lies in tatters following repeated rejections by the regional parliament of Wallonia in Belgium.

Some readers may be wondering how a regional province with 3.6 million citizens has had the power to veto an agreement with ramifications for more than 500 million Europeans (and 35 million Canadians).  As with many things related to the EU, it gets complicated, but basically in the past, trade negotiations were handled at the European level while investment was dealt with at national level. 

This system worked reasonably well when trade agreements dealt largely with reductions in tariffs (and excluded the most sensitive products like certain agricultural items).  Member states had hundreds of individual bilateral investment treaties (BITs) in place to outline the rules and regulations for investment.

However, this bifurcated system got increasingly unwieldy as trade got more complicated.  Companies do not split goods, services and investment into three different “baskets” nor do they want to go looking to different places for the rules and regulations that cover these issue areas.  They are not interested in having discussions at the EU level for goods, splitting talks on services between the EU and member states, and dealing directly with member states for investment.  This is especially true if the member states themselves have uncoordinated policies for services and investment.

So the EU tried to centralize this cumbersome system in the Lisbon Treaty, which was signed in 2007 and entered into force in 2009.  It moved jurisdiction (or “competence” in the EU language) for investment to the EU level. 

Except that it did so without—as is clear today—really locking down with everyone exactly what this meant in practice.  This has given rise to two problems that are playing out in trade.  First, the EU-Singapore FTA remains stuck at the European Court of Justice, waiting for a formal ruling on competence.  Second, the treaty also said that some elements were “mixed” giving the national level continued jurisdiction. 

To head off growing political pressures on the “mixed” elements, the EU Commission President, Jean-Claude Junker, agreed to send CETA back to national level parliaments for approval in July.  This meant that suddenly 38 different legislatures had effective veto power over the agreement and one of them, Wallonia, has chosen to use it.

There appear to be four broad reasons for Wallonian rejection of CETA.

First, there are many that genuinely fear a wave of Canadian dairy flooding into the market post-CETA.  This is, of course, nonsense.  The Canadian dairy industry itself admits that the sector is primarily geared towards filling domestic requirements, with limited exports anywhere.  The idea that somehow Canadian dairy farmers are salivating at the opportunity to ship cheese and whey to the 3.5 million potential Wallonian customers in Belgium post-CETA and put domestic dairy out of business is crazy.

Second, CETA has been seized upon once again to hammer the issue of investor state dispute settlement (ISDS). 

Complaints about ISDS in CETA are especially puzzling because investors are unlikely to ever use the provisions.  It is not like the Canadian or European governments are likely to be unfairly seizing investor assets regularly, causing injury and failing to properly compensate investors for any such inappropriate grab.  If, however, some future government suddenly started engaging in such behavior, it seems prudent to have such restraints in place.

But more important, CETA has gone a long way towards addressing the actual problems with ISDS—the mechanisms for administering the provisions.  These have been markedly improved under the agreement.

Hence a rejection of CETA over ISDS is tossing out the baby, the bathwater and the entire bathroom. 

If CETA were to eliminate ISDS on the grounds that it will not be used between advanced industrial democracies, it will make it much harder to put the provision back into trade agreements with other parties in the future.  It suggests that “we” don’t need this between us, but we do need this with “you.”  Nor would just dropping ISDS clear the way for approval, since ISDS complaints are not the only issue on the table.

Wallonian rejection of CETA is, third, about showing “sovereignty” and “democracy” in action.  Perhaps.  But it should be noted that CETA took seven years to negotiate.  During that time, the government of Wallonia, parliamentarians, companies, NGOs and interested citizens had ample time and opportunities to weigh in with comments and issues. 

Finally, the agreement appears to have been rejected because some in Wallonia “just don’t like it.” 

While these four reasons for Wallonian rejection of CETA may be overcome somehow—Canada’s Prime Minister Justin Trudeau is apparently en route to Brussels in the hopes of still signing the agreement—they are not, sadly, unique.

Fear of foreign cows (or foreign competition however remote or unlikely), fear of ISDS (again, however remote or unlikely), fear of losing sovereignty, and “I just don’t like it” are increasingly widespread. 

The consequences, as we have raised before, need to be carefully considered.  If Wallonia rejects CETA, then what?  What is Wallonia offering in its place?  Nothing at all?  Does Wallonia expect to grow and thrive, content with servicing the 3.5 million domestic citizens on its own?  How? 

If CETA is rejected, the implications, of course, for most other trade agreements for the EU are equally dire.  Although Canada likes to paint itself as a cheerful, inoffensive little country, it is also a fairly tough negotiator and CETA contains some elements where Canada retained some problematic bits of its own.  Nevertheless, Canada is correct in suggesting that a deal with Canada is surely one of the easier trade agreements for the EU (and much less problematic than with the United States in TTIP as our companion post from today shows). 

Ultimately, the Wallonian rejection of CETA is not just about what one regional province does in Europe.  It is, perhaps, a symbol of the larger discontent with globalization.  Saying no and protesting against trade agreements has become the easiest outlet for venting fear and frustration. Especially at a time of slowing global growth, this is deeply troubling.  The inability of political leaders to articulate better reasons for moving ahead with trade deals is likely to have lasting consequences—for Wallonia, for Europe, for Canada, and, possibly, for us all.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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