Big news in the slow-moving and acronym-filled world of international trade!
Canada and the European Union finally signed off on CETA – the Comprehensive Economic and Trade Agreement – on October 18. Strictly speaking, it’s just an agreement in principle. But even this is big news for a process that has been inching along in various forms since the Canada-EU summit in Prague in 2009. And of course, Prague built on the five years of preparatory work started after the Canada-EU summit in Ottawa in 2004.
You can be forgiven if you can’t remember the Prague or Ottawa summits. Only the most hardened trade enthusiasts were even paying attention when they happened, and that was years ago.
The agreement may even come into force in a few years, after the text is finalized, translated into the 24 EU languages, and ratified by each side. Right now, somewhere in Europe, someone is probably trying to figure out the Maltese and Estonian words for “maple syrup with a minimum soluble solids content of 66 per cent as determined by refractometer.”
Economists often criticize the mainstream media for reporting on trade deals like they were hockey games. Countries “concede” access to foreigners, and “win” access to new markets. Countries become “winners” or “losers.”
This is nonsense from an economics point of view. The winners and losers aren’t usually countries, but groups of people. Usually there is a small and well-organized group of insiders benefiting from a trade restriction, and a large group of regular folks paying the price.
Take cheese as an example. Canada has a system of “supply management” in place to favour Canadian dairy farmers. According to a Conference Board of Canada report, foreign cheese is only allowed to be imported tariff-free up to five per cent of the Canadian market. After that, a shocking 246 per cent tax is applied. A $10 block of foreign cheese would end up costing you $34.60.
The result is that cheese prices are higher than they need to be in Canada, and that the 99.9 per cent of Canadians who aren’t dairy farmers end up paying a chunk of their food budget to Canada’s approximately 12,500 dairy farmers. A Globe and Mail story on the “Free the Cheese” campaign pointed out that two litres of milk cost $2.99 in Ottawa while the same amount was $1.83 (Canadian) in Buffalo. High-cost basic foodstuffs affect low-income Canadians particularly hard.
CETA increases the limit for tariff-free European cheese exports to Canada from 13,000 tonnes to 29,000 tonnes. That is what most media outlets reported, and it sounds pretty good, until you realize that the rest of the 420,000-tonne Canadian market will remain a protected profit haven for Canadian dairy farmers.
Astonishingly, NDP Leader Thomas Mulcair came out in public against even this modest increase in cheese imports and said the government was throwing dairy farmers “under the bus.” Does he not realize he is essentially saying he is in favour of high food prices for regular Canadians to benefit a small group of farmers? Undoubtedly, he’ll have a lot of ads in the next election saying he is standing up for the little guy, even after doing his best to keep the little guy’s pizza bill as high as possible.
The Europeans, of course, pushed for access to the entire Canadian dairy market. Some unconfirmed media reports suggest that Canada paid a stiff price in the negotiations to keep the “supply management” system in place for the bulk of the market; i.e., to maintain the right of Canadians to be over-charged for cheese. According to these reports, the bargaining chip was extending European pharmaceutical patents for two years. This could end up costing health budgets over a billion dollars a year.
You can follow the same logic for plenty of other goods covered in CETA. Allowing more European cars into the country delivers more competition, putting more pressure on North American car makers to offer good products at good prices. Over 99 per cent of Canadians benefit, while the losers are well-connected car companies and auto unions.
So what does this mean to Yukoners? The federal government tried to put out a report on the benefits for the Yukon. But it looks like the summer intern messed up “search and replace” in the official online version. The report says the Yukon “diamond industry” will have duty-free access to Europe, and we’ll get new markets for our seafood exports as well as our “chemical and plastics” industry. Our “scientific instruments exports” to the EU will have their 6.7 per cent tariff eliminated.
The more significant impact will be on what Yukoners buy. We are the ultimate outsiders. We don’t have much in the way of auto factories, industrial machinery mills or giant cheese farms. Our mining industry has never succeeded in lobbying Ottawa for its own version of “supply management,” so it has nothing to lose from free trade with Europe.
If CETA delivers more competition and lower prices to Canadian consumers, then Yukon consumers will benefit.
Politicians from factory towns or dairy regions in the East may scream about CETA, but our politicians should vote for it. And they should get cracking on eliminating the tariffs driving up the prices of the other 380,000 tonnes of cheese Canadian families eat.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Twitter @hallidaykeith