EU-Canada Free Trade Agreement Woes and their Brexit Implication

For the past five years the European Union and Canada have been negotiating the terms of a comprehensive free trade agreement. The Comprehensive Economic and Trade Agreement, or CETA, would effectively eliminate 98% of tariffs between Canada and the EU, leading some experts to predict an increase in trade of over 20%. CETA was in its final form, with a signing ceremony scheduled for this Thursday, October 26th, but the deal was blocked at the last minute by Wallonia, the French speaking region of Belgium.

CETA is what is known as a “Mixed Deal”, meaning that the deal covers not only areas that are the direct responsibility of the EU, but also areas that the individual EU states make decisions on such as investor protection. A deal that includes only aspects delegated to the EU can be ratified by qualified majority vote with approval by 20 out of the 27 countries representing at least 65% of the EU’s population. Ratification of a mixed deal is a much more arduous process that requires approval by all 27 nations. The difficulties with approving mixed deals are apparent in the failed ratification of CETA. In CETA’s case, every other EU nation has approved the deal. While the Belgian federal government is in support of the deal, their national laws state that they need approval by all five of their regional authorities to approve the deal, and the French speaking region of Wallonia is strongly opposed to CETA. Wallonia claims that the deal will have an adverse effect on the regions beef and pork farmers as well as environmental and labor standards. Wallonia also opposes the CETA dispute resolution court system that would be established, claiming that it would give multinational corporations more power to sue the EU.

Essentially, a multibillion dollar trade deal, which would impact over 544 million people in both Canada and the EU, is being block by a subset of 3.6 million Belgians which represent well under 1% of the EU population.

The struggles that CETA is facing now could foreshadow future conflicts with any future trade deals between the post-brexit United Kingdom and the European Union. This future deal between the U.K. and EU is likely to be extremely complex, essentially guaranteeing that it will be a “mixed deal” and therefore will need approval by all 27 member states, and by extension many of the member states regional governments. When this potential issue was brought up to with EU Trade Commissioner, Cecilia Malmstrom, she noted that, “If we can’t make it with Canada, I don’t think we can make it with the U.K.”

It is worth noting, however, that very little is known about a future trade deal between the U.K. and EU and that this deal likely won’t occur for another few years. Also of importance is that fact that while ratification of a “mixed deal” is very difficult, it is not impossible. The EU signed and ratified a mixed trade deal with South Korea in 2011.