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CETA or sustainable growth: it's time to choose

October 26, 2017

11-minute read

Is CETA a progressive trade deal? That’s the question I’ve been asked to answer on a six-city European tour to countries that haven’t yet ratified the agreement. It’s certainly the presumption of Canadian Foreign Affairs Minister Chrystia Freeland and others, who believe CETA should be a benchmark against which to judge a rewired NAFTA. But should it really? Or is this a distorted picture of what is going on in Europe and North America alike?

I think it’s an important question and an important time to ask it. Because even though CETA is now provisionally in force and mostly ratified in Canada, thanks to the Walloons in Belgium the deal can still be stopped if one or more member states decides to vote against it. It’s doubly important given the political context in Germany, Austria and elsewhere, with far right groups winning electoral ground by appealing to economic insecurities, many of which can be linked to the neoliberal reforms of the past 30 years that CETA and deals like it lock into place.

But it is also an awkward question, because we are told by Prime Minister Trudeau and DG Cecilia Malmström that CETA is the “most progressive trade agreement” ever negotiated. When Canada and the EU signed CETA in late 2016 they claimed it was a symbol of their “openness to the world” while other countries were turning inward. They said it represented a different kind of globalization that would work for everyone.

If they are right, then perhaps progressive parties should vote for CETA. And perhaps it should serve as a benchmark for the NAFTA renegotiation. But we know they are not right: we do need a new model of globalization, and CETA is most definitely not it.

A progressive government is concerned first and foremost with increasing the welfare of its people, but also of people around the world. It is internationalist and democratic. It believes in equality and will intervene in the economy to redistribute society’s wealth from those who have much to those who have less. No one should live in poverty; no one should be without decent work and a place to live.

A progressive government would apply a human rights framework to all its goals and priorities. It would put consumers first, and respond with precaution to possible threats to human and animal health and the food we eat. Perhaps most importantly of all, it would do everything in its power now to quickly transition off of fossil fuels so that future generations could avoid the worst effects of climate change.

Unfortunately, CETA in several important ways puts barriers between us and this vision of a sustainable, progressive future. Barriers impeding the regulation of services—including public services and finance—barriers in the form of extreme investment protections and a regulatory co-operation chapter that will, and is likely intended to, put pressure on governments to reduce standards to the lowest common denominator.

Public services and sustainable growth

The creation and expansion of public services is an effective lever governments can pull to stimulate sustainable growth in good, usually high-paying, frequently unionized, and in many cases badly needed jobs that can put upward pressure on incomes across the private sector. Women and men in public service jobs are also, at least in Canada, more likely to have wage parity whereas the gender pay gap is substantially more pronounced in the private sector. As such, the creation or expansion of public services should be a fixture in any progressive, feminist government’s tool kit.

CETA, on the other hand, goes further than any other Canadian trade agreement in liberalizing service sectors, essentially locking in existing levels of privatization and encouraging more of it in the future. For example, where countries have not taken limited reservations (or protections) for a service sector, they will not be able to limit the number of providers in that sector, create monopolies to provide the service, or insist that the service should be delivered by a certain type of entity such as a not-for-profit.

Public services are captured in CETA in ways that could have been avoided but weren’t—language that would have safely protected all public services, whether they are delivered today in the private or public sectors. But this language was rejected. As CCPA senior trade fellow Scott Sinclair explains, contrary to what the Canada and EU declared in their joint “understanding” of CETA’s interpretation, once any government chooses to privatize a service, they or future governments cannot bring these services back under public control without facing possible foreign investor claims for compensation.

In response to pressure from public sector unions, the EU and some member states took Annex 2 market access reservations that to some extent protect future changes to the regulation of public services. But no reservations of any kind are allowed against CETA’s indirect expropriation and fair and equitable treatment provisions, which also come into play when new public services are created.

What’s the risk? In Canada, after NAFTA was signed, several provinces that had been looking at creating a public drivers’ insurance program backed off because of threats from U.S. investors in the private insurance sector. This fear of ISDS lawsuits has since been integrated into provincial and federal trade departments, whose lawyers frequently have a strong influence on government policy, warning activist or progressive governments that they should avoid policies that would effectively and almost instantly make people’s lives better, as a public drivers insurance plan would have then, or a national public child care system would today.

So in this one important way, CETA interferes with one of the most promising tools our governments have—the expansion of public services or the creation of new ones—to foster sustainable growth in jobs that cannot be exported, that pay decently, and that provide services that people need right now: child care, long-term care, new public transit systems, etc..

Regulatory co-operation or co-optation?

A progressive government concerned with sustainable growth would also, I think, act in the most precautionary way possible when handling matters of food and consumer product safety, biodiversity preservation, and ecosystem survival. Surely taking the safest road in all of these areas is more important than protecting limited commercial goals.

Once again, under CETA, almost the exact opposite is expected to happen—in that precaution is a subservient goal to the right of companies to profit from their products, even if there is evidence those products, like GMOs, pesticides, and other chemicals, are causing harm to our bodies or the Earth.

The Canadian government is enthusiastic about CETA’s regulatory co-operation chapter, a first of its kind inside a modern trade deal. On paper it looks like a simple commitment to eliminate duplication and reduce costs to business while still maintaining high standards. In the North American experience of regulatory co-operation since NAFTA, however, we can point to regulatory delays and in some cases regulatory suppression or deregulation to suit industry’s wants—in direct contravention of the precautionary principle.

Regulatory co-operation is an important reason Canada watered down and eventually all but abandoned its commitment to the precautionary principle in the regulation of GMOs, pesticides, and other toxic chemicals. It’s one reason we have not moved faster on banning bee-killing neonicotinoid pesticides from our farms.

The key barrier that regulatory co-operation erects before us in our road to sustainable growth—the reason it is against anything we could call progressive—is that it puts a trade screen on all new public health and environmental measures. In other words, if a new rule is expected to affect commerce with an important trading partner, regulators are required to consider alternatives, or voluntary corporate measures. Trade department officials will direct the process of co-operations, not health and environmental ministries, based on input mainly from industry stakeholders, with a much more limited role for non-industry voices.

In the case of CETA, Canadian officials tell us their objective is to stop divergent regulations from being developed that would interfere with Canada-EU commerce. And the regulations can be very different, for good reasons. EU citizens are uncomfortable eating GM foods or feeding them to their livestock, EU decision-makers are committed to the precautionary principle such that there are stricter tests companies must pass before introducing new pesticides, endocrine disrupting chemicals and other toxics in food and consumer products. Canada, on the other hand, pretends there is not enough science to show a link between neonic pesticides and bee deaths, it allows substances banned in the EU to be sprayed on crops for export, and it wants the EU to regulate more like we do.

European Business lobby groups like that idea very much. They call it the next stage of globalization. Canada’s Freeland calls regulatory co-operation a “bread and butter” trade issue. But it has nothing to do with trade. It is about deregulation and is another reason progressives should reject CETA as being anti-sustainable growth.

The investment “court” system

Finally, and related to these two issues of economic security (sustainable growth) and precaution, there is the question of what our democracies will look like after CETA.

Germany is no stranger to investor-state dispute settlement (ISDS), with the two outrageous Vattenfall claims recently against environmental policies taken at the local and national level. In the latter case, the Swedish company is asking €4.7 billion in compensation for Germany’s decision to phase out nuclear power. A decision in that case, which was brought under an ISDS process in the Energy Charter Treaty, is expected by the end of the year.

Canada’s NAFTA experience with ISDS has also been bad. With 70% of all NAFTA challenges aimed at Canada, we have become the most sued developed country in the world. Corporations have successfully challenged non-discriminatory public-interest regulations, including a ban on a toxic gasoline additive (ethyl) and an environmental assessment that recommended against a massive quarry on the Bay of Fundy (Bilcon). Canada is also currently being sued under NAFTA for a moratorium on fracking under the St. Lawrence River—a dispute that nothing in CETA could stop from going ahead in Europe as well.

Instead of addressing the problems with ISDS, as Sinclair writes, “CETA only pays lip service to them while entrenching and expanding the ISDS regime through an Investment Court System (ICS). While the new system improves some procedural aspects of ISDS—for example, by making arbitrators less prone to conflicts of interest—the substantive protections afforded to investors are largely unchanged.”

The “fair and equitable treatment” clause in CETA is more expansive than in NAFTA, and the indirect expropriation clause is vague enough that it will likely still apply to regulatory changes that an investor did not anticipate but which affected their profits.

People opposed ISDS because it gave companies a free pass—it basically insures them, using public taxpayer’s money, for any potential changes in the business environment in the future. Workers, on the other hand, have no such protection in CETA (or anywhere else for that matter) against plant closures, toxic spills, or human rights violations. This is more obvious in cases of western mining activities in the Global South, but we’ve also seen it happen in Canada, where a forestry company walked away from the province of Newfoundland and Labrador without compensating its workers or cleaning up its mess, and with a $130-million NAFTA ISDS settlement from the federal government in its pocket.

All this suggests strongly we should expect even more ISDS cases under CETA’s investment court system, and they too will be against non-discriminatory public-interest decisions, i.e., government policies and regulations that affect domestic and foreign firms in exactly the same way. Even investment lawyers admit it will be business as usual for them under the investment court versus ISDS.

Why then do our progressive leaders claim that the investment “court” will kill ISDS? It’s the complete opposite: CETA legitimizes ISDS by giving ad hoc arbitration a flimsy veneer of judicial credibility. CETA institutionalizes ISDS in such a way that it will be difficult for future governments to ever pull themselves out of the system.

The investment court system is a clumsy rebranding of ISDS. Progressives cannot allow themselves to fall for the lie being spread by the European Commission and Canadian government about how ICS makes CETA progressive.

Political backlash to neoliberalism

On a more immediate, political question, progressive parties should consider how the public, how their voters, will respond to their position on CETA, which has sparked massive opposition across the political spectrum in most European countries.

The Tufts University study on CETA’s likely economic impact in Europe and Canada couldn’t be clearer: trade and investment liberalization is likely to suppress job growth and lower labour’s share of national income, albeit marginally. This was, after all, the NAFTA experience. Trade expanded significantly, but wages not so much. In Mexico, the labour share of income dropped by a quarter from what it was before NAFTA.

Farm prices collapsed for many sectors in Canada. Consolidation in the beef, pork, and grains sectors have put all the power and control over production into the hands of a handful of trading firms. For many Canadian farmers, export-led growth turned into a dependence on trade under terms set in corporate headquarters in Brazil or the United States. But across the economy consolidation was a much more important result of NAFTA than increased trade flows. As Jordan Brennan tells us, with consolidation comes a concentration of power and wealth at the top. The money is literally trickling down, leading to highly unequal outcomes across North America and even within each NAFTA country.

In other words, deals like NAFTA and CETA contribute to inequality, and inequality can have dangerous political outcomes. We’ve seen the fallout in the rise of strongmen like Trump, and nationalist responses like the extreme-right Alternative for Germany, who speak directly to people’s economic insecurities in order to push regressive, divisive policies that take us much further away from where we need to be on climate change, international solidarity, and equality.

If progressives are seen to be supporting these deals, which pit worker against worker, why would voters believe their parties have the solutions to the crisis in our overall economic systems?

Sustainable growth is clearly not growth guided by the imaginary invisible hand that currently takes from the have-nots and gives to the haves. It is one where collective human agency plays a much bigger role in guiding economic growth in ways that would be either very difficult or far too costly under our existing free trade regime and deals like CETA.

In France this week, I spoke to an elected member of En Marcheabout the government’s intentions on CETA. President Macron and his party clearly want to ratify the deal, but now they are saying that in future EU deals the European Commission has to do a much better job of accommodating the Paris Agreement and other sustainable development goals into the text. On October 25, environment minister Nicolas Hulot announced France would seek a “climate veto” in CETA to protect measures designed to reduce greenhouse gas emissions from trade or investment claims on behalf of the oil industry.

This posture is both a vindication of the progressive European opposition to CETA and a cop-out by Europe’s leaders. It simply pushes further into the future a problem we need to solve today—a problem that agreements like CETA, with their excessive corporate protections, only make harder to solve.

Canada’s now two-year-old Liberal government came to power in 2015 promising progressive change and a new vision of “inclusive growth.” They could have looked harder at this free trade deal CETA, which had been negotiated entirely by the most right-wing government Canada has seen in a long time, and wondered whether it was compatible with their vision for progressive change.

If they did wonder that, they didn’t dwell on the question for very long. With a minor adjustment to the investment chapter—at the European Commission’s urging— and a written “understanding” of questionable legal value, CETA was transformed magically into the most progressive trade agreement ever negotiated.

In fact, CETA—like all similar agreements before it, and like the agreements the EU is pursuing with Japan, Australia, Mexico and soon Britain—is a chain tied to our ankles as we try to swim our way out of the deep and rising waters of climate change, the inequality trap and growing democratic malaise.

It seems to me progressives have no choice in the matter. They must oppose CETA or they cannot claim to be supportive of sustainable growth and development. The two things contradict each other.

The good news is that while the government of Canada has put CETA behind it—locked the chain and swallowed the key—many European countries, including Germany, France, Ireland, the Netherlands, Slovenia, and Austria, still have an opportunity to pause ratification, to demand changes or to reject CETA outright.

Why not? What good reason is there not to reopen the agreement to make sure it is a tool for truly sustainable growth, or, if that’s not possible, so that at least it doesn’t get in the way of our plans for a better future for everyone? If even this cannot be done, then CETA must be voted down and forgotten to history. We don’t have time to postpone progress any longer.

Stuart Trew is Senior Editor of the Monitor and a researcher with the CCPA’s Trade and Investment Research Project.

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