The future of CETA is at risk


Canada and the Europeans are unable to finalize the Comprehensive Economic and Trade Agreement, known as CETA, which provisionally entered into force on September 21, 2017. So in the not-too-distant future, we could celebrate its tenth anniversary.

However, there are still doubts about its viability. Well, first things first.

The «provisional» nature of the agreement means that not all its clauses are currently being implemented: this is due to the fact that only 17 EU member states out of 27 have ratified it.

Nevertheless, the main but not the only objective — the mutual elimination of trade duties on almost 99% of all goods and services — CETA fulfills. Other provisions include reducing non-tariff barriers (regulations that indirectly impede trade) by phasing out protectionist measures, opening Canada’s access to European companies to public procurement at all levels — from federal agencies to municipalities, and creating a special investment court to settle disputes and encourage investment on both sides. The authors of CETA also took care of workers: mutual recognition of qualifications and diplomas in a number of professions provides access to simplified employment procedures when migrating across the Atlantic.

How effective has such an innovative and ambitious deal actually been?

The dynamics of trade between Canada and the EU since 2017 are really impressive. Trade turnover has increased by 53% between 2017 and 2022, while trade in services has increased by 46%. According to Eurostat, Canadian exports to the EU amounted to €18.2 billion in 2017 and reached €29.7 billion in 2022. The same figure for Europe increased from €32.2 to €47.4 billion.

Moreover, the European Parliamentary Research Service (EPRS) estimates that the rate of utilization of preferences under CETA by EU countries increased from 39% in 2018 to 58% in 2021, and by Canada from 52% to 65%. In terms of mutual economic benefit, the Agreement has a positive impact on all its participants.

However, despite these impressive statistics, the rough edges that threaten to turn into problems in the relationship between the Maple Leaf Nation and the Old World remain and are becoming increasingly apparent.

In particular, after the unleashing of the sanctions war against Russia in 2022, European countries tried to compensate for the losses caused by the refusal of Russian exports. First of all, we are talking about hydrocarbons. The readiness of Canada to «save Europe» and replace Russian energy resources with Canadian ones was announced by Prime Minister Justin Trudeau after talks with German Chancellor Olaf Scholz in the summer of 2022.

And although Canada has significant hydrocarbon resources, it has not been able to fulfill the promise of its prime minister. Back in early 2023, Canadian opposition leader Pierre Poilievre accused the Trudeau government of making impossible promises. Since the country does not have the necessary number of terminals for the production and shipment of LNG. The accusation proved true: at the end of last year, Canada supplied Germany with 646.5 tons of gas — a very small fraction of the total 93.6 billion cubic meters of gas that Germany imported from Russia. The failure of Canadian energy policy in the European direction has somewhat shaken bilateral relations, but still has not caused any tangible damage to them.

But, as the saying goes, more on that next.

In March of this year, when CETA was ratified in the French Senate, only 44 legislators voted in favor, while 211 voted against it, thus rejecting it. Now the text of the treaty must return to the lower house for revision, but even there the mood of the parliamentarians does not allow to count on a favorable outcome for the supporters of CETA.

The reasons lie in Europe’s controversial environmental policy. French farmers have opposed liberal trade policy and CETA in particular, arguing that it only benefits Canadian competitors whose environmental standards are more lenient. A new wave of their large-scale protests began in January and has not subsided to this day.

In addition to the strict environmental standards adopted in the EU, the discontent of agricultural producers is provoked by the increase in financial aid to Ukraine and the influx of cheap Ukrainian grain, which makes local food uncompetitive. As a result, Brussels is trying to please everyone, simultaneously making concessions to farmers on the one hand, approving new aid packages to Kiev and considering the possibility of extending duty-free imports of goods from Ukraine until 2025 on the other.

Notably, a month earlier, in February, the EU announced a new «interpretation» of those clauses of the Agreement related to the protection of investors from environmental regulation due to fears of legal action against CETA signatory states if they introduce stricter environmental laws. The measure is aimed at pushing the remaining countries to ratify the treaty. However, it is unlikely that such leverage will work: national European authorities, and France in particular, understand the risks for business provoked by Brussels’ «green» course.

As a result, the likelihood of a scenario in which the French Parliament permanently postpones consideration of CETA, forcing the European Commission to suspend the Agreement even in its limited format, is gradually increasing. Which would actually mean its termination, at least until the international arena and European politics change. However, if it took eight years of negotiations to reach an agreement the first time, there is no guarantee that it will be possible to do it faster the second time under the new conditions.