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PBO lukewarm on CETA in new impact assessment

May 2, 2017

2-minute read

A new study from the Office of the Parliamentary Budget Officer confirms the Canada-EU Comprehensive Economic and Trade Agreement (CETA) offers only modest benefits for Canada and may come with significant costs.

The PBO impact assessment acknowledges its limitations. Firstly, if you’re concerned about labour, the environment, domestic sovereignty, government procurement, or any of the other non-trade policy areas included in CETA, then you’re out of luck. The PBO study is only narrowly focused on trade in goods and services.

Secondly, the PBO arrives at its estimates using a problematic computable general equilibrium (CGE) model that makes a number of unrealistic assumptions, such as full employment. By ignoring factors like job losses and environmental externalities, the CGE model is a blunt tool for assessing a trade agreement’s potential economic consequences.

But even if we take the PBO projections at face value, the study paints an uninspiring picture.

CETA will have “a small, but positive, overall effect on Canada’s economy” of about 0.4% of GDP in the long term, claims the study. That’s equivalent to $220 per person, which sounds good in theory, but it’s not the same as real money in your pocket, and the PBO doesn’t do any distributional analysis.

In other words, there’s no guarantee that the benefits of trade will be evenly distributed to workers and consumers. In fact, past experience suggests the benefits of free trade accrue to wealthy corporations and investors at the expense of workers.

At the sectoral level, according to the PBO, CETA will provide small benefits to Canadian exporters in agriculture, mining and some other sectors, but those exports will be offset in the aggregate by greater imports in areas like textiles and autos. Overall, CETA is projected to increase Canada’s trade deficit with the EU by $2 billion. The exchange of relatively unprocessed commodities for high value-added manufactured goods could drive further deindustrialization in Canada.

In the crucial area of pharmaceuticals, the PBO estimates an increase in royalty payments to foreign companies of $71 million per year (rising to $209 million by 2037). The study acknowledges but doesn’t include increased drug costs for Canadian consumers under CETA, which previous research estimates at around $800 million per year.

Overall, besides the smaller estimated boost to GDP—the PBO says about $8 billion, the government says $12 billion—there is little new here. The PBO basically affirms earlier CGE studies that promised modest gains for Canada under CETA, while ignoring many of the harder-to-measure costs associated with implementation.

The PBO’s study of CETA nonetheless comes at a crucial moment. Implementing legislation for CETA (Bill C-30) is before the Senate foreign affairs and trade committee, the same group which recently raised concerns about Canada’s process for negotiating and implementing free trade agreements. I’ll be presenting to that committee about CETA on May 3rd.

You’d be forgiven for thinking CETA was a done deal. After a decade of premature celebrations, the Canadian House of Commons and the EU Parliament finally ratified the agreement this winter. CETA proponents expect the deal to be applied on a provisional basis as soon as July 1st.

But even then the deal’s future is unclear. In addition to passing through the Senate in Canada, every single EU member state must still ratify CETA, a process that may take several more years. And if one of those member states—think Belgium, Austria or, depending on election outcomes, France or Italy—fails to ratify? Well, the whole deal might just fall apart.

If that happens, we’d be wise to come back to this PBO report for some perspective.

Hadrian Mertins-Kirkwood is an international trade and climate policy researcher at the CCPA. Follow Hadrian on Twitter @hadrianmk.

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