Signing CETA is just the beginning

Congratulations Justin Trudeau, Donald Tusk, and Jean-Claude Juncker. You have finally signed the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), only a few days later than originally planned but not after Belgium’s Walloons gave you a good scare. Congratulations also to Trade Minister Chrystia Freeland for doing everything she could to save the deal, including leaving the negotiating table with the Walloons at the right time to force the Europeans to find their own solution to the CETA saga.

With CETA’s signature, the agreement can now come into effect provisionally until all of the EU member states’ national parliaments (and, in some the cases, the regional parliaments) ratify it. Until then, about 90 to 95 percent of CETA will be applicable. The most immediate impact for Canadian and European businesses will be the elimination of tariffs on most goods traded between Canada and the EU.

There are, nonetheless, a number of obstacles to trade that will remain. This is because, in addition to tariffs, CETA addresses a much wider range of issues with a view to increasing trade, labour, and investment flows between Canada and Europe.

Restrictions, differences, and duplications between Canada and the European Union relating to rules, regulations, standards, and procedures represent additional transaction costs for Canadian firms doing or wanting to do business with or in the European Union (and vice versa for European firms doing business with Canada). These costs ultimately reduce the economic welfare of Canadians and Europeans.

For example, if a Canadian-produced good has to obtain official certifications that it meets Canadian and European standards in order to be consumed in both Canada and the European Union, then it would make sense to develop a procedure whereby the enterprise producing this good would only need to have it certified once by one certification agency, which would be recognized by both Canadian and EU authorities.

Otherwise, the need to go through two separate certification processes — one in Canada and one in the EU — may prove too costly for a firm. This is likely to be especially true for small and medium-sized enterprises. This would be a lost opportunity in terms of trade and value creation (lost revenues and profits for the producer, lost variety for consumers, and so on).

If such so-called “second-generation” free-trade issues are not dealt with in CETA’s implementation phase, economic experts will most likely conclude that CETA has not performed according to expectations if they are asked to evaluate the agreement’s economic impact 10 years from now.

This is why stakeholders, especially the business community, on both sides of the Atlantic will need to closely monitor the implementation work being done to identify issues or areas that are not being dealt with properly and in a timely fashion. In other words, they will need to keep the feet of Canadian and EU politicians and bureaucrats close to the CETA fire.

To manage CETA’s implementation in an effective and timely manner, the agreement has actually foreseen a fairly complex institutional architecture of general and specialized committees composed of both Canadian and European officials.

However, in order to be effective at reducing regulatory and procedural obstacles to trading goods and services across the Atlantic, CETA’s institutional structure will need to be linked with the rest of the machinery of government operating at the federal and provincial levels in Canada and at the supranational and national levels in the European Union.

So, for CETA to be effectively and completely implemented and generate all its expected benefits, everyone on both sides of the pond at all levels of government will need to coordinate with each other on a regular basis.

Sunday’s signing ceremony should therefore not be the end of the road for CETA. Instead, it should be the beginning of a sustained process of close transatlantic co-operation to make the agreement a living one that will be able to adapt to the evolution of Canada’s and Europe’s economies and societies.

Patrick Leblond is senior fellow at the Centre for International Governance Innovation and CN Paul M. Tellier Chair on Business and Public Policy in the Graduate School of Public and International Affairs at the University of Ottawa. His recent CIGI paper Making the Most of CETA: A Complete and Effective Implementation is Key to Realizing the Agreement’s Full Potential can be found here

This article was originally published on 31 October 2016 in the Globe and Mail.

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