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Takuya Sato

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The Canada-EU Comprehensive Economic and Trade Agreement (CETA) and Its Lessons for the TPP

Takuya Sato
Professor, Faculty of Economics, Chuo University
Areas of Specialization: Marxist Economics, Monopoly Capitalism Theory, Service Economy Theory

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In October 2013, a basic agreement was announced on the Comprehensive Economic and Trade Agreement, or CETA, between Canada and the EU. It is an very wide-ranging agreement including not only the deregulation of trade but also investment, intellectual property rights, and so on, much like the Trans-Pacific Partnership, or TPP, on which Japan is currently negotiating. From the perspective of Canada’s international strategy, the CETA is an attempt to reduce overreliance on the US, should be concluded ahead of any US-EU economic agreement, and will provide balance to the TPP on the opposite side of the continent[1]. I was living in Ontario at the time as an overseas researcher, but I did not get the impression that the agreement was concluded after its news being taken up daily by television and newspapers as the TPP had been in Japan. The stance of the ruling Conservative Party of Canada, who have been promoting the CETA, as well as the opposition New Democratic Party and Liberal Party has been to try and decide whether it will be beneficial to Canadian exports and employment[2]. Nonetheless, many problems have been pointed out. Here I would like to set out those problems and identify the lessons for Japan as it participates in TPP negotiations.

(1) Publicity about the economic effects, and its credibility

The government and other supporters of the CETA loudly stated that it would be an agreement with the largest single market in the world, the EU’s population being 500 million, and would increase Canadian GDP by 12 billion dollars and generate 80,000 jobs. These figures are based on joint research conducted by the European Commission and the Canadian government[3]. A closer look, however, reveals significant doubts. First, the increased GDP effect would be 0.77% in Canada and no more than 0.08% in the EU. The second is that exports from Canada to the EU have been taken to increase to 8,583 million euros and exports from the EU to Canada to 17,068 million euros (both at 2007 rates), but for Canada the difference, 8,485 million euros, represents a net export decrease. Applying this decrease to the following equation,

Gross national product = consumption + investment + government expenditure + (export – import)

how could Canada’s GDP possibly increase? [4]

(2) Other issues pointed out apart from figures

The first problem pointed out is about agriculture, as expected. Canadian dairy products such as cheese are mostly for domestic demand, and farmers can get a fair price under a supply management system. In the EU, on the other hand, international competition is still sustained by subsidies. Liberalization of the dairy market, therefore, would be most likely to work in favor of the EU farmers who have been supported by subsidies.

Doubts have even been voiced about the predicted growth of Canadian exports of beef and pork. The CETA will not abolish the EU ban on beef produced from cows in which hormones were used (usually the case among Canadian produced cattle). Furthermore, the non-tariff quota of hormone-free beef in Europe is currently 23,200 tons but actual exports from Canada are a mere 9,000 tons. So even if the quota is raised, it will be meaningless in terms of increasing exports. What is more, the EU is the world’s largest exporter of pork[5].

Secondly, there are concerns about the control of the agricultural industry and food market by big business. In particular, there is a strong possibility that the storage and use of seeds for reproduction the following year by farmers will become even more difficult due to the strict protection of the intellectual property rights of giant corporations such as Monsanto.

Third, there are fears that drug prices will go up due to the protection of patents owned by pharmaceutical companies. In Canada, medical care costs are covered by health insurance systems in each province, but prescription medicines and some healthcare such as dental treatment are not covered. So if drug prices go up, there will be a greater burden on citizens or the public finances that support them.

Fourth, an Investor State Dispute Settlement (ISDS) mechanism will be introduced. This will enable companies to file suit against the state if they believe their interests have been negatively impacted by the systems or regulations of the state[6]. If, for example, Canada tried to take climate change countermeasures concerning shale gas mining and this was seen as damaging to corporate profits, the state would be forced to compensate for that lost profit or abandon the system. Germany is being sued by a Swedish energy company for turning away from nuclear power in the wake of the Fukushima nuclear catastrophe[7]. This should be a lesson for Japan, the central player in the Fukushima nuclear accident and would-be signatory to the TPP including the ISDS.

(3) What is free trade?

Such problems do, however, clearly illustrate the benefits to companies and investors. And this is just the reason for promoting this agreement not only in the EU but also in Canada, in spite of the official estimates of a fall in net exports for Canada cited above.

Now the fundamental point arises of what the “free” in “free trade agreement” originally means. According to Milton Friedman, a champion of liberalism, “Competition has two very different meanings. In ordinary discourse, competition means personal rivalry, with one individual seeking to outdo his known competitor. In the economic world, competition means almost the opposite. There is no personal rivalry in the competitive market place. There is no personal higgling. The wheat farmer in a free market does not feel himself in personal rivalry with, or threatened by, his neighbor, who is, in fact, his competitor. The essence of a competitive market is its impersonal character. No one participant can determine the terms on which other participants shall have access to goods or jobs. All take prices as given by the market and no individual can by himself have more than a negligible influence on price though all participants together determine price by the combined effect of their separate actions.”

“Monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. In some ways, monopoly comes closer to the ordinary concept of competition since it does involve personal rivalry.”[8]

So it became clear. The CETA is no less than “the ordinary concept of competition” among a small number of businesses who have “sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it”, which in economics is called a “monopoly.”

(4) Lessons for the TPP and the opposing perspective

It is often remarked that the TPP would be a kind of detonator for the Japanese economy, and that it would even make the agricultural industry strong enough to compete on the open market. But this would simply mean family-run farms and tiny regional enterprises to engage the business of local municipalities coming face to face with giant corporations such as Cargill and Monsanto. In other words, even if a few multinational corporations benefited, there would be no guarantee of a corresponding benefit for the farmers, smaller companies, workers, and so on who make up the ordinary “99%” of people. The question, therefore, is not about international conflict between Japan and the US, or the EU and Canada. For me, it is incomprehensible why on earth people involved in mainstream economics who regularly describe the utility of perfect competition do not oppose such a monopolistic economic trade agreement.

Of course I would not deny the significance of international economic cooperation. But I question whether the world should be moving in the direction of the CETA and the TPP, or whether the people of the world should link arms and promote cooperation that focuses on the workers of each country.

  1. ^ Kurt Hübner (2011) Europe, Canada and the Comprehensive Economic and Trade Agreement, Routledge, Alexandre Gauthier and Michael Holden (2010), Canada-European Union Trade Negotiations 1. Overview of Negotiations, Library of Parliament (September 3), Jock Finlayson (2013), 5 reasons why a Canada/EU free trade agreement must be ratified, troymedia.com (April 24.)
  2. ^ CBC News. (2013), MPs panel: Canada-EU trade deal (October 18.)new window
  3. ^ The European Commission and the Government of Canada (2008), Assessing the costs and benefits of a closer EU -Canada economic partnership: A joint study by the European Commission and the Government of Canada.
  4. ^ Jim Stanford (2010), Out of Equilibrium: The Impact of EU-Canada Free Trade on the Real Economy, Canadian Center for Policy Alternatives, p.20.new window
    This joint research was based on unrealistic assumptions, and according to Stanford’s estimates, Canadian jobs will fall by about 28,000 to 150,000. (accessed on June 24, 2014.)
  5. ^ National Farmers Union (2013), CETA Factsheet: Will CETA help family farmers in Canada by opening up more European market access for beef and pork? (Updated February 26.)
  6. ^ Scott Sinclair (2013), Ten Question about CETA, Canadian Center for Policy Alternatives (October 21.)
  7. ^ Stuart Trew (2012), The CETA Deception: How the Harper government’s public relations campaign misrepresents the Canada-European Union Comprehensive Economic and Trade Agreement, The Council of Canadians, p.13.
  8. ^ Milton Friedman (1982), Capitalism and Freedom, The University of Chicago Press, pp.119-200 (Translated by Akiko Murai, Shihonshugi to Jiyu, Nikkei BP Classics, pp 227-228).
Takuya Sato
Professor, Faculty of Economics, Chuo University
Areas of Specialization: Marxist Economics, Monopoly Capitalism Theory, Service Economy Theory
Professor Sato was born in Tokyo in 1972. He obtained his undergraduate degree from the Faculty of Economics, Chuo University in 1995. He withdrew from the Doctoral program of the Graduate School of Economics, Chuo University in 2000 after finishing the required coursework, later rejoining the same program to complete his PhD in Economics in 2004.
Having been a full-time lecturer at Niigata Women’s College from 2001, he went on to serve as assistant professor and then associate professor on the Faculty of Economics, Chuo University before taking up his current position in April 2012. He also served as a visiting scholar at Brock University in Ontario, Canada from March 2012 to March 2014. His current research topic is the long-term stagnation of modern capitalism. He conducts theoretical and empirical studies on the topic linking it to profit rate trends and the transition to market-oriented service.
His major works include: Globalization and Japanese Capitalism [Gurobarizeshon to Nihon Shihonshugi] (co-written with Nobuyoshi Torii, Chuo University Press, 2012); “The evolution of service economics as part of the theory of contemporary capitalism,” International Critical Thought 2:1 (March 2012); “On Freeman’s New Approach to Calculating the Rate of Profit,” Journal of Australian Political Economy 74 (2014, forthcoming), etc.