From Economic Dialogue to CETA

Abstract

Canada's diplomacy since the enactment of the North American free trade agreement (NAFTA) has been marked by a double movement, strengthening relations with the United States and loosening ties with Europe. Unlike the United States, however, Canada is now showing great interest in securing a trade agreement with Europe.1 In 2009, following 10 years of negotiations, Canada reached a free trade agreement with the European Free Trade Association. For its part, the EU, which had initially shown little interest in an agreement with Canada, agreed to begin negotiations, which began their sixth round in January 2011. It is now expected that this agreement, called the comprehensive economic and trade agreement, or CETA, could be finalized and signed in 2 o 11.Canada has many good reasons to look for a strengthened trade partnership with the EU. Business communities support it, and Canada has always considered Europe a partner to counterbalance US influence and reduce its dependence on its powerful southern neighbour. The recent economic crisis that emerged in the United States, and its impact on Canada and the rest ofthe world, is a further inducement to revive ties with Europe. Yet the two most important reasons for the Canadian initiative are found in the weakening of NAFTA and the difficulty Canada has in finding its place in a world in which free trade agreements are proliferating, particularly in Asia. These phenomena force Canada to rethink its strategy in developing a competitive economy, its privileged relationship with the United States, and the international economic policy it should adopt to avoid being marginalized in a rapidly changing global economy.The multilateral route traditionally favoured by Canada is currently blocked, as are such regional projects as the free trade area ofthe Americas or Asia-Pacific economic cooperation. With NAFTA showing signs of weakness, Canada is looking for new bilateral partners but it is struggling to find worthy interlocutors. Asia is far away, and despite increasing trade flows with China, a trade agreement with the latter seems out of reach. It is in this context that Canada is attempting to revive economic and political ties with Europe.While a Canada-EU comprehensive trade agreement seems within reach, this recurrent transatlantic theme is reminiscent of someone (read Canada) frantically pushing on the replay button in a desperate attempt to trigger some new dynamics, without ever succeeding. Although Canada enjoys good relations with the EU, it does not constitute a priority for Europe, which is a global economic player much like the United States. One can wonder whether the interest and political will are strong enough for the EU and, if so, what negotiating clout Canada could display to reach a favourable agreement in this asymmetric situation. One can also wonder if this new Europeanization policy is genuine or if Canada's efforts to revitalize its relationship with the EU have more to do with the fact that it is looking to find an alternative to a stalling NAFTA model and reduce its dependence on the United States. Political and structural differences may ultimately prove insurmountable, as Canada has embraced the NAFTA regulatory model and a CETA could therefore trigger a clash between two irreconcilable approaches to economic regulation. These are this article's main arguments, which we divide into three parts: an overview ofthe stalling NAFTA model; a discussion ofthe options available to Canada; and the economic, political, and strategic issues involved in a CETA with Europe.A STALLING NAFTASince the mid 1980s, there has been political consensus in Canada on three points: the relationship between trade openness and competitiveness, the link between a thriving national economy and the international competitiveness of firms, and the prioritization of bilateral relations with the United States. Disagreements exist, however, on the way to link domestic economic policy with foreign trade policy, especially to ensure the growth of productivity, as well as to the place, within Canadian trade policy, of countries other than the US. …