Recently the European Union (EU) Parliament finally approved of the Comprehensive Economic and Trade Agreement (CETA) with Canada after long negotiations. Despite the trade deal being finalized, the future of CETA is ambiguous and any economic impact of the deal will continue to be debated over. Let us look at some reasons as to why CETA is so controversial.
NAFTA
Signed and implemented in 1994, NAFTA eliminated the trade barriers between Canada, the United States, and Mexico. Although not as large scaled as NAFTA, expectations of CETA is likely based upon impacts of previous trade deals like NAFTA. As a trade deal, NAFTA is one of the largest trade agreement in the world given the partners involved, so the damages that are influenced as a result of NAFTA are greatly compromising to the world’s economies. Several major issues with NAFTA involved the fact that large firms in the U.S. took advantage of cheaper labor sources, particularly in Mexico, and relocated their factories, due to the greater accessibility offered through NAFTA. This resulted in thousands of job losses in the U.S. while workers in Mexico worked in underpaid conditions. The implementation of a trade agreement always accompanies an expectation for increased economic growth and increased GDP, however, many changes are not predictable even though many lives are affected under such policy changes. So just as how NAFTA brought about undesirable effects to the economy, it is understandable as to why so many are skeptical of CETA and its ability to facilitate future EU-Canada trade performances.
The US strengthening protectionism
Last month, Trump announced that there will be heavy border tax imposed on products of firms who attempt to move production operations out of the US. This in addition to Trump’s issued travel ban of Muslim countries makes trading with the U.S. more restricting. With the EU as Canada’s second largest trading partner after the U.S., the government was reasonable to turn to the EU for trade, and CETA helps stabilize that. That said, whether or not CETA really benefits people more is debatable.
Controversial negotiation and agreement process
CETA is now ratified by the EU Parliament, despite facing an overwhelming number of objections from various groups of both Canada and the EU. The negotiations for CETA began in 2014, but it was not signed on until October 2016. Even before the signing, CETA was met with protests from activist groups in Germany, Belgium and many more countries in the EU.
The Committee on Employment and Social Affairs suggested the EU Parliament vote down on the trade deal in December 2016. “Evidence shows that the agreement would contribute to widening the incomes gap between unskilled and skilled workers thus increasing inequalities and social tensions,” said the Committee. (The Huffington Post)
Some believe that CETA will not benefit the Canadian economy significantly due to the fact that only a small proportion of small sized Canadian businesses in beneficial industries export outside the U.S. After the EU ratification, CETA is now waiting to be approved by the Senate and is expected to be implemented very soon this year.