Does CETA’s saga spell the beginning of the end of EU trade policy?

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Cecilia Malmström and Chrystia Freeland, respectively EU and Canada trade chiefs [Twitter]

The CETA saga reveals that a commercial policy steered from the 28 capitals is not a workable solution to tackle the global economic challenges of the 21st century, write Guillaume Van der Loo and Jacques Pelkmans.

Guillaume Van der Loo is Researcher at CEPS and Jacques Pelkmans is Senior Research Fellow at CEPS.

Last Friday (14 October), Paul Magnette, the Minister-President of the francophone region of Belgium (Wallonia), declined to give the consent of his government to the federal Belgium government to sign the landmark Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada.

As a consequence, the Trade Council meeting on 18 October was not able to adopt the decision to sign and provisionally apply the agreement, which in turn will prevent the EU from signing the agreement next week at the EU-Canada Summit in Brussels.

This veto evoked the image of Wallonia as the provincial village where Asterix, the titular hero of the French comic book series, fiercely resisted the entire Roman Empire.

While the opponents of CETA praised Mr. Magnette’s stubborn ‘non’, the European Commission and all the member states, including the federal Belgium and Flemish governments, expressed deep frustration with this move.

But the veto not only illustrates the complex – and sometimes surreal – federal system in Belgium, it also reveals a much more fundamental problem at EU level, calling into question the EU’s ability to conclude any ambitious trade deal.

The motives of the Walloon government and parliament to block CETA are mainly derived from a groundswell movement against TTIP by NGOs and other civil society organisations, many of which have partly transferred their attention to the CETA debate.

Whereas it is a positive development that these trade agreements have sparked such an intensive debate, many of the objections, accusations or assertions against CETA are plainly incorrect.

Two key arguments of the anti-CETA camps are the ISDS system and the risk of lowering EU food, health, environmental and social norms.

It is already noteworthy that these two principal objections against CETA are not levelled against other on-going EU FTA negotiations, such as those with Japan, and were not used against the EU-Korea FTA or the negotiated FTAs with Singapore and Vietnam.

With regard to ISDS, CETA has introduced a new, far more acceptable and restrictive model of ISDS than the earlier (so-called NAFTA) model, which in turn was better than the first generation of ISDS in bilateral investment agreements (BITs) which were, no doubt, biased towards investor interests.

This new system has stronger language on the right to regulate, breaks away from the current ad hoc arbitration system to a permanent and institutionalised dispute settlement tribunal and includes strict ethical codes and an appeal system.

Moreover, this new investment protection system will replace the eight ‘old generation’ BITs in force between individual member states and Canada. If the opponents against CETA’s investment protection system are consistent, they should call for the termination of the 1300 existing BITs of EU member states, which do not include such protective measures.

Moreover, the EU and Canada also made a commitment to the establishment of a permanent multilateral investment court, although the realisation of such a court seems unlikely in the near future.

On the other argument, there are no objective grounds for the fear that the level of protection of environmental, social and food safety norms would be at risk. It is at best assertive.

Nowhere in CETA is there a duty or implication that the EU’s ‘right-to-regulate’ might be undermined or negatively affected. The parties’ right-to-regulate is protected generally (in the preamble) but also explicitly in ISDS (Art. 8.9), financial services (Art. 13.16), regulatory cooperation (Art. 21.2), labour and trade (Art. 23.2) and environment and trade (24.3), not to mention several annexes.

Regulatory cooperation is clearly voluntary for the parties (again Art. 21.2). A high level of (health, safety, etc.) protection is explicitly the starting point of regulatory cooperation and Parties commit to guarantee it. The Regulatory Forum cannot itself regulate or impose rules. Also the claim, for example by Minister-President Magnette, that public services would not be sufficiently protected under CETA is manifestly incorrect. Indeed, the EU routinely excludes public services from trade agreements.

The CETA saga also reveals a much more fundamental problem, namely that a single region (or member state) can torpedo a trade agreement for the entire EU.

The recent decade has witnessed a creeping but crucial shift in EU trade policy. Whereas EU FTAs used to be concluded as ‘EU-only’ agreements, a practice has now developed in which FTAs are concluded as ‘mixed’ agreements. The latter are concluded between third parties, on the one hand, and the EU and its member states, on the other, because these agreements encompass elements of both exclusively EU and member state competence.

This is a remarkable evolution because the Common Commercial Policy (CCP) has always been an exclusive EU competence, precluding member states from concluding bilateral trade agreements with third countries on their own.

One of the political reasons why the Commission prefers to conclude FTAs as EU-only agreements is to prevent one (or a few) member states from blocking a trade deal for domestic reasons unrelated to trade, or because a member state may want to use its veto as a bargaining chip in other negotiations.

Several EU international agreements have faced such a scenario in recent months. The Dutch Government cannot ratify the landmark EU-Ukraine Association Agreement because a relatively small minority of Dutch citizens voted against the agreement in a consultative referendum, mainly inspired by broader anti-EU or migration feelings.

Romania and Bulgaria are also threatening to stall CETA as long as Canada does not lift its visa requirements for their citizens. The EU can partly circumvent these complications by provisionally applying parts of the agreement that fall under the exclusive EU competences, but this is not a sustainable solution in case a member state refuses to ratify an agreement.

By employing these tactics, the member states are undermining one of the key achievements of the EU: a true common commercial policy that enables the EU to protect and promote its trade interests and pursue a strategic agenda in the globalised economy. The future does not look bright. Considering the rise of populist parties and increasing Euroscepticism in several member states it is very likely that future EU (trade) agreements will face similar hurdles in the ratification stage, often caused by domestic issues in a member state not related to trade.

Unfortunately there are no easy solutions to this problem. It could be argued that the EU should go ‘back to basics’ and be content to once again conclude the more limited FTAs that undoubtedly fall within the exclusive CCP, thereby avoiding mixity.

But such modest agreements would not tackle the crucial challenges on the current global trade agenda and they would frustrate the EU’s desire to promote its broader trade agenda, including sustainable development goals.

Another option would be to replace the QMV rule in the Council (Article 207(4) TFEU) in the area of the CCP with unanimity, thereby dampening the member states’ eagerness to insist on mixity because they would maintain their veto right in the Council.

This could mitigate the risk that a member state will hold an FTA hostage for domestic (non-trade related) reasons. Parliamentary control over the CCP in this scenario is still assured by the European Parliament’s full involvement in the CCP since the Lisbon Treaty and the national parliaments’ control over their respective governments in the Council. But this option would require a treaty change, which is not expected to appear on the table any time in the near future. But unanimity may well generate incentives to member states to break open last-minute a done deal in the Council.

In any event, a ‘common’ commercial policy that is steered from the 28 capitals is not a workable solution to tackle the global economic challenges of the 21st century.

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