What is worse than a free trade agreement?
December 2015 was a crucial month in international trade. A new treaty was made public between the EU and Canada, in the hopes of improved economic opportunities. The treaty indoctrinates more opportunities of trade, business and employment to both the parties involved.
CETA or the Comprehensive Economic and Trade Agreement has come into light at a time when there are mounting problems in the wake of Brexit, oil problems, and a still-resolving financial crisis. And, the trade deal comes with its own problems. Call it problems of conduct, or its anti-democratic nature, CETA does not seem welcome especially in the EU. Opposition to the treaty has been intensifying, with Germany, Austria, Belgium and Netherlands facing the maximum disagreement, internally.
CETA, has brought with it points like any other free trade agreement. Antagonising the agreement had to happen, in a way. The objections to CETA have been very similar to that against TTIP: increased corporate conglomerate control, the danger of undermining public services and infact making them expensive in future, and very low trade barriers, which may deflate product quality in the long-run.
There is however, much more to consider. Ambiguity of several terms in its Investment chapter has been a significant point of confrontation. Investment arbitration comes as a technically serious initiative, which places an economy like Canada under the scope. NAFTA agreements are proof of Canada’s debt to foreign investors, currently to a staggering amount of USD 193.25 million as of 2014. As of 2016, several billions of USD are sought as damages and/or claims by foreign investors. Therefore, one more side of such trade deals is that they may grant more rights to foreign investors, and in the end, may make economies (read Canada and the EU) more susceptible to liability risk. Added to this, investor arbitration indoctrinated in CETA doesn’t seem strong enough to singly point out specific issues of concern. Infact, as it stands, it may give more opportunity to foreign-based firms in the EU, to confront on allied policies. Canadian subsidiaries of US-based multinational corporations will now qualify to hurl claims against the EU, even after limiting such negotiations and settlements under the TTIP.
The welfare effect of free trade agreements is perhaps the first one of many potential outcomes to be considered. Social welfare comes at the cost of taxation and subsidies. Social welfare policies include evidence-based policies like that of health and others like basic necessities. While free trade agreements have always had mixed outcomes with respect to high-income and middle and low-income economies, it is important to see that the effect on middle and low-income economies is what spills over faster. Considering free trade agreements like CETA as Trojan horses to increase corporate control and benefitting from investment arbitration (trade disputes) may act as a deterrent. Resource-intense settlements will force especially the lower to middle income countries to settle with lesser than desired level of public services, even when they oppose to certain proposals.