Canadian Influence

An Escape Hatch From Trumpism

84938838 Trump Merkel Trudeau AP Photo
Maybe they should pay a bit more attention to the guy on the right. Source: AP Photo

On September 21, the free trade agreement between the European Union and Canada known as CETA (the Comprehensive Economic and Trade Agreement) entered into provisional force. Once considered to be the future of ever more liberalized global commerce, now, in a different political climate, CETA stands as an increasingly lonely sentinel, keeping alive the flame of a freer rules-based world trade system.

The leaders of successive European Commissions and Canadian governments who pursued CETA over a decade, as well as their trade negotiators, would have had no idea how CETA would be transformed by the ascendancy of Donald Trump as US president. In the era of Trumpist economic nationalism and corresponding protectionism, CETA has transformed into the only instrument of geostrategic symbolism that celebrates the trans-Atlantic relationship outside of NATO, and which offers new opportunity not only to European and Canadian businesses, but also to Americans.

CETA is an escape hatch from Trumpism for ambitious, expansionist and globally-minded companies. CETA can become a 21st century Silk Road of trans-Atlantic commerce with Canada at the crossroads.

The likelihood of a free trade deal between the United States and the European Union, the so-called Transatlantic Trade and Investment Partnership (TTIP), is virtually nil for the foreseeable future. Relations between the US and Europe have unquestionably worsened with President Trump, the European Union is now preoccupied with the Brexit negotiations, and the Trump Administration would not seem to have the political will to conclude TTIP.

Even if the United States were to decide to pursue TTIP anew ... it is hard to say whether Europe would then be ready.

CETA was the product of a sustained demonstration of political will and determination on both sides. In Europe, successive rotations of EU Commission leadership held their ground on a vision of a globally-engaged European project, fought off legal challenges and rebellious regional politicians, and the European Parliament rallied in support of CETA in the face of nationalist and anti-globalist popular resistance to trade deals. In Canada, partisan politics were set aside as successive arch-nemesis rival Conservative and Liberal governments equally supported CETA in recognition of the importance of exports to Canadian prosperity.

Even if the United States were to decide to pursue TTIP anew in the future after Trumpism, it is hard to say whether Europe would then be ready. Localist and populist economic nationalism is on display across EU member states and may only strengthen over time. It is possible that, in another time and under different circumstances, CETA might not have been possible, but it is ratified and in effect. It may end up the surrogate for TTIP.

A trade and investment agreement is only a piece of paper unless business itself has a vision for the possible and creates opportunity.

CETA means that EU companies can set up Canadian subsidiaries to enter the US market via NAFTA.

At the crossroads, Canada is a signatory of both the North American Free Trade Agreement (NAFTA) and of CETA. It is the only country in the world that spans and triangulates this colossal trans-Atlantic economic engine, through which Europeans and Americans can now enter each other’s market with the benefits of free trade and privileged market access.

Both NAFTA and its predecessor, the bilateral Canada-US Free Trade Agreement (FTA), are agnostic to equity ownership and focus primarily on rules of origin specific to sectors. CETA equally does not care who owns a business. This means that European companies or investors could either establish Canadian subsidiaries, acquire or merge with Canadian companies, make strategic investments or enter into strategic partnerships in Canada though which to enter the United States market via NAFTA. Or, in the unlikely event that NAFTA were to be blown up, via the bilateral FTA which is formally only suspended while NAFTA is in effect.

Similarly, American companies could do the same to obtain privileged free trade access to most of Europe. With full understanding of the agreements and smart-minded business planning, entire new vistas of opportunity open for companies in different sectors, including government procurement.

The real catalytic could be in job-creating mid-cap companies in growth mode that would not be able to readily afford to establish their own manufacturing facilities directly in either the United States or the EU respectively, but could achieve comparable results by investing in, acquiring or partnering with existing Canadian production at lower cost in the new trans-Atlantic free trade gateway hub that Canada becomes. It can be a game changer.

Rules of origin in these trade agreements dictate the proportion of parts allowable for any given product. Within that proportion, for example, American parts manufacturers could find important new markets by supplying Canadian assemblers duty free in an integrated supply chain, who, in turn, serve Europe duty free. Business growth for U.S. parts manufacturers gained by serving Europe indirectly through CETA would drive the creation of quality jobs and provide another compelling argument to retain and revitalize NAFTA.

In short, NAFTA makes CETA of value to European business and CETA makes NAFTA of value to American business. They are symbiotic.

To contact the authors: gastautor@handelsblatt.com

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