Winnipeg Free Press - PRINT EDITION

Costs of free trade with EU

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The federal government still has high hopes of concluding a free trade treaty with the European Union this year, before European authorities turn their attention to free trade talks with the United States. But since Europe is still mired in recession, there is little to be gained by winning easier access to European consumers. They aren't buying much, and it may be a long time before they are back in the market.

The U.S. economy added 165,000 non-farm jobs in the month of April so that the unemployment rate fell to 7.6 per cent, the lowest since the 2008 recession. U.S. employment has been increasing slowly but steadily for the last year. Investors in U.S. companies, encouraged by the employment data and other signs of recovery, sent stock prices to new highs. The Dow Jones Industrial Average closed above 15,000 for the first time in history and other stock indexes also made new highs.

Europe's recession, in contrast, is still deepening. The unemployment rate for the euro-zone, the countries that use the European common currency, rose in March to a record 12.1 per cent with important contributions from Spain, Portugal, Italy, Greece and other countries that are still enforcing austerity upon their people on account of unsustainable government debts. Germany has been showing signs of recovery, but Europe in aggregate is still in economic decline while the U.S. is already enjoying economic expansion.

The superior performance of the U.S. is no mere coincidence. The U.S. refinanced its failing banks even before the Barack Obama administration took office and the U.S. Federal Reserve has maintained an aggressive policy of monetary expansion ever since. European heads of government haggled endlessly over who should pay what before bailing out their failing banks and the European Central Bank has maintained a policy interest rate higher than Washington's for fear of inflation. Europe is doing worse because it is not a country. It lacks institutions capable of taking firm action against recession. This is not going to change in the foreseeable future.

Canadian governments have been talking for years about diversifying this country's trade, and much has been accomplished to sell more Canadian coal, lumber and other raw resources to China and other Asian destinations. The quest for a free trade agreement with the European Union is another chapter in the effort to reduce Canada's economic reliance on the United States.

A free-trade negotiation, however, is a two-way street. Canada will have to grant certain advantages to European exporters in order to gain advantages for Canadian firms. The government has to figure out which Canadian costs to accept in order to win the right to offer Canadian goods to European consumers who suffer from 12.1 per cent unemployment and a system of government that can't deal with a recession.

Ottawa can easily grant access for European cheese. The dairy lobby will complain and the Quebec government will protest, but Canadian consumers will benefit by erosion of the dairy monopoly system. It will also cost Ottawa nothing to allow European firms equal access to public-sector procurement. Canadian provinces and municipalities should be abandoning their local preference policies anyway. But longer patent protection for pharmaceutical drug makers will be hard to explain to Canadians who are used to the lower prices for generic copies of brand-name drugs. The provincial drug plans that are huge buyers of medications will quickly feel the rising cost of drugs and will constantly blame Ottawa for driving up health-care costs.

When push comes to shove, Canada and the European Union may or may not be able to agree on a package of mutual trade concessions. It depends partly on how badly the governments want to agree. Given the weak prospects for economic growth in Europe, it would be no great loss for Canada if they could not agree and just let the matter drop.

 

Editorials are the consensus view of the Winnipeg Free Press’ editorial board, comprising Catherine Mitchell, David O’Brien, Shannon Sampert, and Paul Samyn.

Republished from the Winnipeg Free Press print edition May 10, 2013 A12

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