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Canada-EU trade deal will result in job losses, lower wages, and worse inequality

September 16, 2016

2-minute read

In Europe this weekend over 100,000 people are expected to protest the proposed Canada-EU Comprehensive Economic and Trade Agreement (CETA). They are the latest in a series of massive, anti-free trade actions, including a 150,000-strong demonstration in Berlin last October. Earlier this month, German activists launched a constitutional challenge against CETA with 125,000 signatures.

If you thought CETA was “completed” in 2013, and then again in 2014, and then again in early 2016, you’re both right and wrong. The Harper government celebrated the deal’s conclusion three times, even if it was never officially signed into international law. The Trudeau government hopes to finally do that in October, with Trade Minister Chrystia Freeland calling CETA a progressive “gold standard” agreement, despite a long list of decidedly non-progressive provisions.

The current and former federal government also both share the belief CETA will boost Canada’s GDP by $12 billion. But an important new report from the Global Development and Environment Institute (GDEI) at Tufts University fundamentally challenges that claim. As they previously did with the Trans-Pacific Partnership, the Tufts team uses the UN’s Global Policy Model to assess the likely impact of CETA on jobs, wages and inequality, which have all been ignored in previous economic impact assessments. Their findings paint a grim picture for Canadian workers and the economy.

First, the bad news

There have been only a handful of quantitative studies of CETA so far, all of them financed by the European Commission and government of Canada, and all based on computable general equilibrium (CGE) models. Those models, as Jim Stanford has thoroughly critiqued, make a number of highly unrealistic assumptions, such as full employment, lack of capital mobility and equal sharing of projected income gains.

Even with these extremely optimistic assumptions, earlier projections put the GDP gains from CETA at between 0.03% and 0.76%. But since these studies were published before the text was completed, they don’t actually reflect the scope of tariff elimination and services liberalization in the final agreement, let alone higher drug costs from intellectual property rule changes.

Now, the worse news

The new Tufts study of CETA uses an economic model that actually accounts for the likely impacts on inequality, employment, wages and more. Four things stand out from their results.

First, the study finds that CETA will transfer 1.74% of national income from labour to capital in Canada. That means any economic gains from CETA will flow overwhelmingly to owners of capital rather than to workers, which will exacerbate inequality. Notably, the projected effect of CETA on inequality is significantly worse in Canada than in any major EU country.

Second, as labour’s share of income declines, so too does employment. The study projects a net loss of 23,000 jobs in Canada in the first seven years of CETA, as exporters and other business owners pocket their gains without investing a commensurate amount in the Canadian workforce (as previous studies assumed).

Third, due to rising inequality and unemployment, the average income in Canada is projected to fall by up to €1,788 ($2,650) by 2023. Again, it will be workers who feel the brunt of income losses, not the owners of capital.

Finally, due to job losses and wage cuts in a period of already stagnating incomes, the projected effect of CETA on overall economic activity is far more negative than previous studies have suggested. According to the new study, Canada will actually experience slower GDP growth under CETA than it would outside of the agreement. The cumulative loss of income in Canada over the first seven years of the agreement is projected to be 0.96% of GDP. Basically, if workers have less money to spend, the economy shrinks.

Time to think again

This new study from GDEI provides some much-needed perspective on the Canadian government’s CETA cheerleading. Not only will the likely macroeconomic gains from CETA be smaller than previously thought—or even negative—but the aggregate effect on workers in Canada will undoubtedly be harmful.

As governments in Europe debate CETA’s merits this fall, and people take to the streets in protest, it may be time for Canadians and their representatives in parliament to take a second look at this supposedly “progressive” agreement.

Hadrian Mertins-Kirkwood is a CCPA trade and energy researcher. Follow Hadrian on Twitter @hadrianmk.

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