Canada's long-sought free trade treaty with the European Union was looking like a distant prospect last week. It faded a little further into the distance this week with the revelation that banks in Cyprus, though they supposedly operate by European standards, are in fact money laundries for the super-rich of Russia because they shelter their clients from taxes and publicity. Canadians were left to wonder what point there was in negotiating changes in Europe's rules when Europe does not enforce its own rules.
In Ottawa last week, Prime Minister Stephen Harper and visiting French Prime Minister Jean-Marc Ayrault both placed their hands on their hearts, figuratively speaking, to sing the praises of the deep affection that unites the two countries. They promised redoubled efforts to complete the free trade treaty Canada and the European Union have been negotiating for the last four years.
At the same time, the two prime ministers reported that the main obstacles to a trade deal are the same as they were last year: Europe wants better patent protection for drugs in Canada, which would probably mean less opportunity for Canadian generic drug makers to copy competitors' drugs and so would drive up drug prices. Canada wants better market access for Canadian beef and pork but the government is unwilling to pick a fight with Canada's dairy, egg and poultry monopolies by opening the Canadian market to European competition.
Europe's appeal as a trade partner suffered a setback in February when Italian voters rejected the free-market agenda of former premier Mario Monti and split their support among a professional comedian, a socialist coalition and populist former premier Silvio Berlusconi. It remained unclear who, if anyone, will run Italy, but the Monti government's drive to balance Italy's public finances and make its industries more competitive was clearly at an end. Italy will be a drag on European prosperity for many years to come. Ireland is back in the game of economic growth. Spain and Portugal are continuing on the path of reform. Italy seems to have given up the struggle.
German Chancellor Angela Merkel, supported by her intelligence agency and by the magazine Der Spiegel, has, for a few months, been drawing attention to a problem with the banks of Cyprus, which had made large loans to the insolvent government of Greece. When the Cypriot government sought a European bailout for its banks, Germany complained they were in fact a tax haven sheltering assets of Russian industrial magnates. If German taxpayers were to put more money into those failing banks, the owners of those assets should also contribute.
This all seemed like idle theorizing at the time. Last Friday, however, the EU told Cyprus to levy a tax on bank assets to help cover the bailout, and an immediate protest was heard from Vladimir Putin. The Russian president's spokesman this week told journalists the president considered the proposed tax unfair, unprofessional and dangerous. This made it reasonably clear whose ox was being gored, and might explain why the Cyprus rejected the tax Tuesday and might default.
A trade treaty between Canada and the European Union would contain promises by each party to provide benefits to the other party. Canada can make promises which Canadian provinces may or may not keep, but at least there is a history of litigation and jurisprudence about the respective powers of Canada's federal and provincial governments in the implementation of treaties. The relative powers of the European Union and its member governments, however, are in constant flux. In the case of bank disclosures and maintenance of tax havens, Cyprus has enacted the same laws as everybody else. Those laws are not, however, enforced, and this only became apparent when the banks of Cyprus needed bailing out.
If the EU dismantles or modifies its trade barriers for Canada's benefit, what fresh barriers will individual European governments then erect in their place and what market access will Canadian exporters in fact enjoy?