MarketLine Analyst Insight

CETA controversy
threatens other
potential EU trade
agreements
TTIP and a post Brexit UK-EU
agreement face a serious threat if
the CETA fails
Mohammad Hamza Iqbal
Reference Code: MLAI0001-119

Publication Date: 27/10/16

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OVERVIEW
Catalyst
The Comprehensive Economic and Trade Agreement (CETA) is currently making headline news due to a number of
reasons, ranging from claims that it is an unethical agreement which will lead to damaging the environment, to
statements that it will hurt European businesses and farmers. In October the Belgian region of Wallonia refused to allow
the Belgian government to approve the CETA, resulting in the whole agreement falling into limbo.

Summary
Whilst negotiations over the Transatlantic Trade and Investment Partnership (TTIP) continue between the United States
and the EU, another international free trade agreement involving the EU namely The Comprehensive Economic and
Trade Agreement (CETA with Canada, has been moving forward at a faster speed. CETA seeks to drastically reduce the
number of trade barriers between Canada and the EU, as doing this should theoretically boost growth in the economies
of both. However activists allege that the agreement is unethical and will have no tangible effect in the growth of
European economies. Some even go so far as to allege that only large multinational corporations are set to benefit from
this agreement. In the backdrop of this controversy Belgium and more specifically Wallonia has blocked CETA, at least
for the moment, but the momentum that has emerged against this agreement in recent months will make the passage of
the TTIP and any post Brexit UK-EU trade agreement much more difficult. In the context of an already tumultuous
European Union, the controversy around the CETA is hence certainly going to have an impact on other potential trade
agreements the Union is looking to sign in the near future.

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TABLE OF CONTENTS
Overview ............................................................................................................................................................................. 2
Catalyst............................................................................................................................................................................ 2
Summary ......................................................................................................................................................................... 2
Failure to pass the CETA Agreement will place question marks on potential future EU trade agreements ........................ 6
CETA not expected to have a serious impact on growth in EU economies ..................................................................... 6
Investment Court System, reduction in workers rights, decreases CETA popularity ..................................................... 7
TTIP and other similar EU trade agreements will face a serious setback if CETA fails to pass ....................................... 8
Analysts Final Thoughts ..................................................................................................................................................... 9
Failure to agree on CETA reveals further cracks in post Brexit EU ................................................................................. 9
Appendix ........................................................................................................................................................................... 10
Ask the analyst .............................................................................................................................................................. 10
About MarketLine .......................................................................................................................................................... 10
Disclaimer ...................................................................................................................................................................... 10

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LIST OF TABLES
No table of figures entries found.

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LIST OF FIGURES
Figure 1: Negotiations on the CETA have been ongoing since 2009 .................................................................................. 7

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FAILURE TO PASS THE CETA AGREEMENT WILL

PLACE QUESTION MARKS ON POTENTIAL FUTURE
EU TRADE AGREEMENTS
The controversy around the CETA will have a serious impact on future trade deals made by the EU including the
Transatlantic Trade and Investment Partnership (TTIP) as well as any post Brexit UK-EU trade agreement. The
controversy surrounding this agreement revolves around several factors. Firstly opponents allege that the agreement is
unlikely to boost growth in EU member states in any tangible manner, whilst resulting in reduced sovereignty for member
states, increased damage to the environment, as well as posing a serious threat to certain EU sectors like agriculture.
Secondly low popularity and legal complications make such agreements increasingly difficult to pass for national
governments in their respective parliaments. Failure by a single member state to approve of such a trade agreement, as
is happening in the case of CETA with regards to Belgium, can result in the whole agreement collapsing. Thirdly whether
or not the CETA is eventually passed, the momentum that has built up against it will make the passage of agreements
like the TTIP increasingly difficult in the future.

CETA not expected to have a serious impact on growth in EU

economies
One of the major arguments being put forward by supporters of the CETA agreement is that a free trade agreement with
th

Canada, the worlds 10 largest economy, will result in boosting economic growth in EU member states. A Sustainability
Impact Assessment (SIA) done by the EU suggests that the CETA should result in increased trade between the Canada
and the EU, and this as a consequence should result in increasing employment rates and boosting growth in the wider
economy of both parties involved. However this same SIA also admits at one point that the real GDP of the EU is only
estimated to witness an increase of 0.02% to 0.03% over the long-term, as a consequence of CETA. This is hardly a
large figure and in the opinion of opponents does not justify the concessions being granted by the EU under CETA.
These concessions range from encouraging investment in environment damaging sectors to unions arguing that workers
rights as well as the European agriculture sector will suffer as a consequence of the agreement. Environmentalists argue
that production of crude oil from tar sand sources generate on average anywhere between 12 to 23% more greenhouse
gases than crude oil from conventional sources. According to the above mention SIA, 18.4% of the EUs foreign direct
investment (FDI) into Canada has focused on the oil and gas sector. As per some sources, around 40% of Canadas
current oil production is sourced from tar sands, and investment in this sector is expected to increase greatly in the
coming years. The aforementioned EU SIA for example states that Investment in the oil sands is expected to increase
dramatically over the long-term with the Canadian Energy Research Institute estimating that investments will reach $192
billion over the next 25 years. It further states that Each of the three major EU petroleum companies Shell, BP and
Total presently has some form of investment in the Canadian oil sands, either through a subsidiary or joint venture.
Environmentalists argue hence that through the CETA, the EU will be de facto encouraging petroleum production from
tar sands. This has mobilized citizens in Europe against the CETA, for whom green technology is important,
Another reason for the controversy around the CETA is the belief that the agreement will lead to a deterioration of
important sectors in the European market like the agriculture sector. Already in 2015, the EU has estimated that the Real
agricultural income per worker amongst its member states has fallen down by 4.3% as compared to 2014.The
emergence in the market of duty free Canadian agricultural products will thus only worsen the situation for European
farmers even more, especially in the case of beef and pork, of which a 140,000 tons is expected to arrive in Europe from
Canada ever year.

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Figure 1: Negotiations on the CETA have been ongoing since 2009

SOURCE: Deutsche Welle

MARKETLINE

Investment Court System, reduction in workers rights,

decreases CETA popularity
A third group of opponents of CETA raise their objection to the agreement on the ground that the national states will be
handing over too much power and sovereignty to private corporate entities via this agreement. The central theme around
this objection is based on a tribunal the CETA seeks to establish, known as the independent court system (ICS). This
tribunal will seek to resolve disputes between corporations and sovereign states, and matters dealing with the CETA will
fall outside the jurisdiction of the legal systems of member states. This has caused furor amongst many sections of
society especially since the selection process of tribunal members is vague and unclear. Opponents allege that the rights
of workers are at stake since by accepting the CETA, member states are seriously hampered in their efforts to regulate
workers right and ensure that they are being treated fairly. This is because any member state regulation seen as
undermining the CETA will fall under the jurisdiction of not the legal systems of the EU and its member states, but rather
will be under the writ of the ICS.
Many trade unions including the European Trade Union Confederation have expressed serious concern at the ICS under
CETA, and have claimed that they will mobilize their support base in order to oppose this and any similar future ICS in a
future trade deal like the TTIP. A similar ICS has been proposed under the TTIP and yet support for that treaty has been
falling strongly in recent years. According to a poll conducted by YouGov, 55 percent of Germans supported the TTIP two
years ago. Today that figure has fallen down to 17 percent. Similar surveys show serious concerns amongst Germans
over workers rights and environmental standards falling as a result of this treaty. Given the similarity between the TTIP
and CETA, it is safe to say a major group opposing the CETA are individuals concerned with workers rights. In fact a
major reason why the Walloon parliament refused to approve of the CETA is because they were amongst other reasons
concerned about a fall in labor rights if the agreement were to go ahead.

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Another setback the CETA has suffered in recent weeks is the placement of tough conditions by the Constitutional Court
of Germany for Germanys acceptance of the CETA. This includes the possibility of a veto by the Bundestag to any
agreement further expanding on the CETA in the future. More importantly it also gives a future Constitutional Court ruling
the power to cancel the countrys acceptance of CETA, if the court deems the agreement to be contravening the German
constitution. This increases the limbo in which CETA is currently mired.

TTIP and other similar EU trade agreements will face a serious

setback if CETA fails to pass
CETA is increasingly being seen as the template deal for future EU trade deals including not only the TTIP with the US
but also any post Brexit trade agreement with the UK. A failure by all EU member states to agree on the CETA would
however result in not only a loss of face on the international stage but also a loss in credibility. Other countries will
increasingly see the EU as an unreliable partner and look elsewhere for similar opportunities. The momentum that has
built up in recent months against CETA is unlikely to disappear any time soon. Whilst the CETA is currently in limbo due
to the Walloon parliament as well as the German constitutional court, environmental activists and major trade unions are
increasing their efforts to highlight what they perceive to be the problems with CETA. As polls show the popularity of such
trade agreements have fallen drastically in several EU member states, and all it takes is the veto of one member state in
order to discard such an agreement. The passage of the CETA is therefore instrumental if the EU wants to portray itself
as an easy and profitable partner to work with.

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ANALYSTS FINAL THOUGHTS

Failure to agree on CETA reveals further cracks in post Brexit
EU
Given that the CETA has increasingly been seen as a template for the more spoken about TTIP, the failure to pass the
CETA will be seen as a serious setback by supporters of the TTIP. Much depends now on the Walloon parliament as well
as the Constitutional Court of Germany. If these two eventually approve of CETA then the agreement well go ahead to
the relief of TTIP supporters as well as the British government which also has been hoping to enter into a trade
agreement with the EU, without accepting the demand of free movement of labor between the two. However a failure to
pass the CETA will be a major setback and will further reveal the cracks that have been developing within the EU for
some time now. At the moment all it takes is one member states disapproval for whole agreements to fail, and there
have been calls to centralize Brussels power more, so that it can engage in a more concerted manner on the
international stage. However with the EUs popularity falling in more and more member states, now would not be the right
time to centralize its power further, as this would further enrage eurosceptic forces and potentially lead to more
referendums on exits from the EU. The best the EU can hope for at the moment is that the Walloon parliament will see
the benefits of the CETA and drop its objections to the agreement.

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APPENDIX
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