CETA and Canadian Agriculture: The Race to Cheap

19327583_303

It has been quite a week for Canadian trade negotiators. Over the last seven years the CETA agreement, which stands for Comprehensive Economic and Trade Agreement has been negotiated between Canada and the European Union. The Prime Minister was all ready to fly to Europe this week to sign the agreement. However, it all came for not with International Trade minister Chrystia Freeland leaving the negotiations in exasperation.

 

The days that followed were about the on and off again CETA agreement. In fact, as I write this it looks like the CETA agreement will be signed shortly with the European Union coming to some agreement with the Belgian government to get it passed. Earlier, the agreement was scuttled by the region of Wallonia in Belgium, which disagreed with CETA. The Constitution of Belgium made it that all regions in Belgium had to agree to trade agreements. It resulted in a huge scramble leading up to some agreement today.

 

It is always an interesting debate in agriculture when it comes to free trade. In 2016, free trade has got a lot of critics. For instance, our American friends have heard a lot of election vitriol from Donald Trump, Bernie Sanders and Hillary Clinton over NAFTA and the TPP. I’ve always said that if the Americans are against a trade agreement, it’s pretty well over. You cannot have the richest economy in the world against an agreement and hope it comes to fruition. The world simply doesn’t work that way.

 

I’ve always felt that free trade agreements are a “race to cheap.” What I mean by that is selling commodities at export prices are generally the lowest in the world. For instance, when my soybeans are exported on the high seas, the price that I receive would be similar to any other ship of soybeans on the high seas. The price of the soybeans would essentially be the lowest common denominator. (Lowest price) That’s what I call the “race to cheap”.

 

This flies in the face of many farm people especially in Western Canada who rely specifically on exports. That’s one reason that Western Canada is a bastion of political support for free trade. However, I’d prefer to see much of those agricultural commodities processed in Canada with value-added going back to the farm. After that, if you wanted to trade in process goods on a free trade basis, it makes more sense to me.

 

CETA would eliminate 98% of tariffs between Canada and the EU. Of course, this is not welcome by everybody, some of who are in our supply managed agricultural sector. According to the financial Post, an approved CETA could increase income for Canada by $12 Billion annually. It is the biggest trade agreement that Canada has signed since NAFTA.

 

Under CETA, Canada will be facing more cheese imports, which amounts to about 2% of Canadian milk production, which will no longer be needed. There have been adjustments made by provincial boards across Canada for this new trading reality, but it may not be enough. According to my colleague, Dr. Sylvain Charlebois, the Dean of the Faculty of Management at Dalhousie University, it may create a significant breach to our dairy quota system. This will have obvious implications for the Eastern Canadian agricultural economy as a whole.

 

I say that because our Canadian supply management sector has been the leader in our greater agricultural economy. With income stability over time, it’s led to constant re-investment in the sector, much of it in the last 10 years into farmland. If CETA represents a breach in the protection of that industry, what happens next? The Liberals may take this opportunity to go further in the name of competitiveness to open up the Canadian dairy market further. As that Republican candidate says down south, “many people are saying that”.

 

Over the years, I have not. What I have said is that the Canadian supply managed sector has its problems and they need to fix them. However, with agreements like CETA opening the floodgates to foreign products, I can see this accelerating. The “race to cheap” is just too intoxicating for some in government to resist. ┬áPrime Minister Trudeau’s negotiating strategy seemed a little shaky at the end with CETA; we’ll see what happens next with a future possible signing ceremony.

 

So give me that value added agricultural processing over free trade any day. However, that’s not how the world works all the time. With CETA almost a reality, there will be many in Canada saying what a good idea it is. Keep in mind, when you see that European cheese on the shelf, my words. It’s a “race to cheap”. There are better ways to get there.

Comments are closed.