“Canada will be, if we have this agreement in place, the only developed country in the world with
a free trade agreement with both the United States and the European Union — the two biggest
economies in the world”
By Donna Jacobs
nternational Trade Minister Peter Van Loan has no trouble making the switch from the negotiation nuances of a Canada-EU free trade deal to down-on-the-farm talk.
“The corn is 10 or 12 feet high — it’s unbelievable. I’ve never seen it this high,” he says of the cash crop that a neighbour farmer is growing on the 172-acre Van Loan farm. Next year’s crop will revert to soybeans at the farm in the town of Georgina, an hour’s drive north of Toronto on Lake Simcoe’s southern shore.
But don’t try to get the trade minister on a big tractor for a photo shoot. His own farm mount is a John Deere lawn tractor. He laughs: “It wouldn’t look right.”
And, anyway, as a globe-trotting trade salesman for Canada the Trading Nation, it’s hard to catch him or his four-member family — his wife Cheryl Carson, nine-year-old Caroline and 15-month-old John Aleksander Peter Van Loan — down on the farm.
The minister named his son after the Scottish-born Sir John A. (for Alexander) Macdonald but spelled it in the Estonian way in honour of his own heritage. It’s his most recent tribute to Canada’s first prime minister. In 2007, as House leader, Mr. Van Loan began each caucus meeting with a Sir John A. story.
And his Centre Block office is a virtual Sir John A. historical art gallery and library that spills into other rooms: “Come on out here (into the reception office) — “there’s more.”
But the real topic is free trade, and even though the sticky problem of protected farm products comes up — “I’m trying to resist the temptation to negotiate in public” — he still answers as many questions as he comfortably can.
Agriculture ranks as one of the most contentious areas of any free trade agreement, he says. And the disagreements include “geographical indications,” best known by France’s wish to allow the word “Champagne” solely for the vintage from its Champagne province or Italy’s wish to use “Parma Ham” solely to describe Prosciutto di Parma from its Parma region. (In Canada, Maple Leaf acquired the registered name “Parma” for its traditionally-cured ham. The issue has been before the courts and the World Trade Organization for several years.)
As for the Quebec dairy industry, he says it’s up for future discussion with the Canadian position of protecting its supply management system. And, much as the government wants to get rid of the Canada Wheat Board, he says, farmers should decide. “It shouldn’t be done through a trade agreement.”
Compared to many other negotiations ambling their way along in Asia and Latin America, the Canada-EU Comprehensive Economic and Trade Agreement is galloping.
The fifth negotiation round is scheduled for October, the sixth and seventh in January and April 2011. “Then, I’m told, it takes another year of fine tuning and legalese before you get to a final agreement,” says Mr. Van Loan. “Certainly, we’d like to compress that time frame, if possible.”
One could expect more delay, though, given that the European Commission is negotiating for 27 countries and Canada has all its provinces and territories at the tables. Sometimes, casino-like, there are 20 tables in action. The negotiations themselves, says Mr. Van Loan, are incredibly boring as they move into their more advanced technical phase.
Speed bumps and deferred disputes aside, he cuts to Canada’s chase: Canada is in hot pursuit of a first-and-only prize.
“Canada will be, if we have this agreement in place, the only developed country in the world with a free trade agreement with both the United States and the European Union — the two biggest economies in the world.”
Canada-U.S. two-way trade in goods and services was more than $700 billion — or $1.9 billion in cross-border trade every day — in 2008. In the same year, Canada-EU bilateral trade in goods and services totalled $114 billion.
The EU (GDP: $19 trillion) is Canada’s second biggest trading partner already, and the world’s largest single trading bloc. According to a Canada-EU 2008 study, the pact could boost bilateral trade by 20 percent by 2014. And it could boost Canada’s GDP of $1.3 trillion by $12 billion.
Says Mr. Van Loan: “This is a conservative number.”
“And that,” he says, “will put Canada in a competitive position unlike any other developed country in the world.”
“This is an advantage that we have to seize,” he says. “As the United States economy is facing more challenges, the opportunity to expand more in Europe is very, very significant.”
U.S. “challenges” are showing up dramatically in Canadian trade. In 2009, Canadian export of goods to the U.S. totalled $270 billion — down 28 percent from 2008. Canadian imports of goods from the U.S. totalled $187 billion, down 18 percent.
And Europe’s slowdown is also taking a toll on Canada trade. In 2009, European merchandise exports fell dramatically: France by 17 percent, Netherlands by 25 percent, Germany by 16 percent.
Mr. Van Loan: “A lot of people talk about the growth in India and China, which is all very real and is a priority for us. When you get away from percentages and actually look at dollars, it takes a very small amount of growth of our trade with Europe to result in huge benefits in dollar terms.
“And we have tremendous people-to-people relations. I think what you’re going to see is this: We have a generational change happening in our business sector, in our law firms, in our financial sector.
“Immigrants who came from Europe were slugging it out trying to make a living. Now their children are moving into positions of business leadership. They’re going to be the ones saying, ‘I’m the guy who knows how to speak Slovakian,’ the guy who goes back to Slovakia and who succeeds there and who opens up new markets for us.
“Canada has an advantage, unlike any other country in the world: to be able to do that in almost any other country in the world, but especially in the European Union. And that generation is moving into positions of business leadership, so I’m looking forward to them helping Canadian business to succeed abroad.”
His trip to Europe in July was strategic. “Part of the purpose for selecting Estonia, Slovakia, Lithuania, Romania and Bulgaria was to draw attention to the fact that in Europe you have more than 100 million people who have been held back, economically, for half a century under Communism.
“Some critics of the Canada-EU trade agreement say ‘Ah, you shouldn’t be doing that. You should be trying to do trade agreements with China and India.
“Now China, obviously, there are real challenges to doing a trade agreement. India, we’re on our way.”
He returns to the Baltics: “The reality is that with those 100 million people, you have a population that is huge, that is significant, that has been experiencing for the past 15 years the kind of growth you see from emerging economies — between five and 10 percent.
“And we’re going to have that for the foreseeable future as they catch up to the rest of Western Europe. So there is an area of very high growth in Europe that is worth targeting and paying attention. Canada has very strong people-to-people ties in those countries.
“So I wanted to highlight that particular economic opportunity back in Canada.
“You know, it’s fun,” he says. “I have this standard speech I give everywhere. Canada has the lowest debt of any G7 country, the lowest deficit. Then I go to Estonia — where they have a deficit equal to one percent of GDP, and debt equal to 3.5 percent of GDP.”
He laughs unexpectedly, appreciatively, as only a trade minister could, and zestily delivers the punch line. “And 3.5 percent is our deficit.” And then he fields questions on Canada’s trade deals. An edited transcript follows.
Diplomat Magazine: What does Canada want from this agreement?
Peter Van Loan: Philosophically, we believe that as a country, as an economy, (Canada) is based on trade. The more free-trade arrangements we can have in place, the better off we are. Philosophically, economically, our consumers are better off, our economy is better off. We get access to more markets. We don’t necessarily look at (only) what we want to get in a marketplace but rather at the notion that freer trade is better on all fronts.
DM: You have often said that, along with goods and services, philosophy, governance, democracy and ideas go across Canada’s borders as well.
PVL: The stronger the relations on economic basis, the better. There are debates whether that’s true or not — whether countries that have free-trade agreements never go to war with each other and whether greater trade does actually result in greater behaviour. But you do notice that more engagement gives you a greater opportunity to have flows of people, of ideas and of values.
We’re not necessarily value imperialists. But I think there’s a general recognition that once people experience freedom and democracy and value human rights, they are more likely to fight to keep them.
DM: The maps on your website track your extensive travels. (In August, Chile, Argentina, Colombia and Costa Rica. In July, Russia, Estonia, Bulgaria, Romania, Slovenia and Slovakia. In May and June, Sweden, Belgium and Spain followed by China and Japan. In March, South Africa and Kenya.) How do you deal with jetlag?
PVL: Not very well. (He and Monika Bujalska, his press secretary, share a laugh.)
I don’t travel well so it’s always a challenge for me. The best way is to keep going until I get too tired and fall asleep. The deadliest meeting is the 3 p.m. PowerPoint presentation in a dark room with very little oxygen. Never put that in my schedule or I’m bound to fall asleep.
That used to happen in Public Safety. (He was Minister of Public Safety from October 2008 to January 2010.) It hits you after lunch, when it’s quiet. So I try to simply keep going and to take an interest in wherever I am — the history, the architecture — and learning a little bit about wherever I am as a way of staying mentally engaged.
DM: When it comes to the Canada-EU trade agreement, what are the sticking points?
PVL: I think most people know what the sensitivities are that are going to be most troublesome. In every single free-trade agreement between any two countries anywhere on this planet, agriculture is a sticking point at some stage.
If something in the agreement affects provincial or national law, legislation might be needed, for example, some provinces have monopolies on liquor stores.
The name of products — that’s a big issue with the Americans. We’re encountering that right now in the ACTA negotiations — the copyright and trademark agreement.
There will be some questions on labour mobility, investor mobility. Other big concerns are the actual architecture — this concept of negative lists versus positive lists.
Our approach is for a negative list agreement, meaning everything is subject to free trade except for those items you put on your list to exclude from free trade. A positive list is the opposite: The only things subject to free movement or free trade are those items you put on your list.
We prefer a negative list because we think it results in a more ambitious agreement. Europeans have, in the past, used positive lists. They’re very open to considering a negative list this time, though there are some issues with the member states.
If you are concerned, for example, about the involvement of the provinces, you have to spend political capital to put something on the list. And your peers say ‘Why are you doing that?’
If you make it harder to put items on a list to be exempt from free trade, it obviously gets you a greater agreement.
DM: Specifically, Quebec and dairy — how are you dealing with that? Is that an issue or is it settled?
PVL: That’s an issue that we’ll deal with down the road. We’ve made it quite clear that our government will defend our system of supply management for supply-managed industries which are dairy, eggs, turkeys and chicken.
DM: The EU balks at importing some GMO foods due to human health concerns. Last autumn, the EU detected GMO flax in the Canadian crop (Canada is the world’s largest flax producer), halted shipments and damaged the Canadian flax market.
PVL: I’m a great believer, as is the government of Canada, that GM properly used can make a huge difference. I’ll use the example of my farm.
When I was a kid, you could hear the frogs all the time. In fact, I played with the frogs and chased them in the stream. And then, as pesticides became used much more heavily, frogs basically disappeared.
And then along came Roundup Ready soybeans. All of a sudden, you’re putting Roundup down as a herbicide, wiping everything out instantly. It disappears in the soil in a few days. And then you’re able to grow crops with very minimal applications (of farm chemicals), not using any pesticides or herbicides other than Roundup. And all of a sudden over the years, the frogs are back. At the right temperature in spring, you can’t hear yourself from the sound of them.
As a result, I’m a great believer that there are enormous benefits for the environment, overall. Frankly, we’ve been doing genetic modification since Gregor Mendel (the 19th century Austrian priest famous as the father of genetics for his work on pea plants). Mendel called it hybridization and now we’ve gotten more advanced techniques for doing the same thing.
DM: People want to know how they will benefit from a Canada-EU agreement — what new will be on store shelves? What is the benefit for us? What are we giving up?
PVL: The benefits are obviously more jobs, more growth and some lower prices for goods and products that come in with a tariff right now, ranging from European automobiles to agricultural products. They already come in. What’s going to be different is a little better pricing and a greater amount of goods flowing back and forth.
But half the benefits of this agreement come not from tariffs, but rather from the other side of the equation. So you will see a lot of movement of people, of financial services. That’s an area where Canada has been showing a lot of expertise with the strongest banking system in the world.
DM: Europeans will bid on government procurement jobs here and there are a whole lot more Europeans (pop. 500 million) than there are of Canadians (pop. 34 million).
PVL: I don’t think anyone is afraid that Canadians can’t compete. I know we can compete. To the extent that we’re going to have more of them bidding means we’re going to have more value for our consumers here — lower taxes, or at least more services for the same taxes.
DM: So we will be hiring people from Europe?
PVL: We don’t know the actual form labour mobility will take, but our objective is to facilitate more movement of people in both directions, particularly people who are investors, who are management trainees, who are spouses.
DM: What are the critics saying? All the consequences can’t be positive.
PVL: The critics are saying the same things they said in 1988 during the North American Free Trade Agreement — that we will lose our cultural sovereignty, that we will lose our control over our healthcare system, or our water.
They (critics) are not getting a lot of attention. History shows that if loss of sovereignty didn’t happen with the United States, the likelihood of it happening with Europe is virtually non-existent. It’s hard to take seriously the threat in 2010 that the Europeans are going to take over and submerge our culture.
DM: Poland is an example of a place where an experimental surgery is being performed for treatment for multiple sclerosis patients, to improve blood flow and oxygen to the brain. Aside from Saskatchewan’s initiative to finance clinical trials, it will not soon be available here. Many pharmaceuticals are available in Europe but are not approved here.
PVL: We don’t have an agreement yet so it’s hard to prejudge. We’ve been already moving — on Health Canada’s front — separately and independently to accelerate approvals.
The question is: At what point and for what issues do we accept the standards of Europe? The European Union makes the case, quite rightly, that they are not a developing country with a track record of putting fraudulent or counterfeit products on the table — that the EU has fairly high standards. And that’s very valid.
That’s why the kinds of negotiations we’re having over standards do take as long as they take, and why they are complex. We can have a very ambitious agreement that covers a lot of stuff because both economies are very sophisticated, well-developed economies. And neither of us is competing to get jobs based on filling their dollar stores with cheaper plastic goods.
DM: And there will be no risk that regulation will be used simply as a barrier?
PVL: One hopes there won’t be. The objective is to allow legitimate regulation in the marketplace for legitimate health or regulatory purposes.
Most of what people consider to be trade barriers in the form of regulations are actually a legitimate exercise of jurisdiction to meet their objectives. And that applies to interprovincial trade barriers in Canada. These regulations are not made specifically to keep out goods or products or services from other provinces.
To align standards or objectives — so that goods can attain fuller access in both directions — improves consumer choice, gives better value and raises the standard of living for Canadians and for Europeans.
DM: Will the U.S. use this as a blueprint for a free-trade deal with the EU?
PVL: I think the European Union is using it that way. I don’t see the same appetite on the American side. But the EU is trying to set it up so they can — whether with this administration or a subsequent one — have that option and be able to build on this agreement.
DM: If the U.S. doesn’t have an agreement — and President Obama probably won’t seek one — will some U.S. products come through Canada and be free-traded to Europe?
PVL: This is one of the issues that the Europeans are concerned about, and that’s why origin rules are being discussed. That’s a challenge for us because much of our economy is integrated. Automobiles go back and forth across the border many times in the manufacturing process, so arriving at a proper approach to this is important for Canada.
DM: And it’s one of the sticking points?
PVL: It is certainly a discussion point and a complicated point.
DM: Can you update other agreements pending or contemplated?
PVL: With Korea, we have the same issues — mainly beef and autos. With beef, they simply aren’t opening their market to our beef and are not applying the accepted scientific standards.
With autos, we have to have the same kind of treatment for our auto sector that the Americans achieve in any agreement that they may have with Korea.
We would need access to the “snap-back” provision.
If we were to see a sudden imbalance of the relationship, a snap-back provision allows for a kind of cooling down, correction period to re-impose tariffs. Americans have a snap-back provision in their negotiated agreement with Korea. We do not.
Part of the problem with Korea is many of the trade barriers are standards and safety rules that keep their market closed to autos from elsewhere. They’re non-tariff barriers.
DM: And are negotiations stalled with CARICOM (the 15 members of the Caribbean Community)?
PVL: I wouldn’t say stalled. They are moving forward at a gentle pace.
The European Union is an exception because it negotiates through a commission. But when you negotiate with countries where the organization is relatively loose, and sovereignty of each country is still very strong and the interests different, obviously it becomes more of a challenge.
DM: The Central American Four free-trade deal with El Salvador, Guatemala, Honduras and Nicaragua?
PVL: That’s even more of a challenge. We are continuing to advance with all of them. In the end, you may see bilateral agreements rather than one with the Central American Four.
DM: And the Transpacific Partnership (open to 21 member economies of the Asia Pacific Economic Cooperation)?
PVL: We’re discussing it with them to see if Canada can contribute in a positive way. I think they have some further talks coming up this fall that might provide a little more insight.
DM: What about APEC?
PVL: If you were looking for a vehicle for freer trade or to reduce trade barriers in Asia, broadly speaking, APEC is the best-placed vehicle to do that. But at this point, we don’t see any appetite among the APEC countries for that kind of role. They are assessing what the future holds. Is it just going to be a talk shop or is it going to be more ambitious in that regard?
DM: Despite its good economic performance, Canada has lagged on productivity. Is this a concern?
PVL: Productivity is a legitimate concern when you go down all those economic stats about our low debt, our low deficit, our strong economic and job growth, our sound banking system. The one area where we lag a little bit is productivity. Now we’ve been seeing movements in the right direction. We’ve been doing a lot in terms of government policies to encourage higher productivity.
The tariff-free zone (that the government established) for manufacturers was a big part of that.
(In its 2010 budget, the government announced — simultaneously, by Mr. Van Loan and Finance Minister Jim Flaherty — that it would eliminate all remaining tariffs on manufacturing inputs, both products and intellectual components such as technical plans, machinery and equipment. Essentially, the announcement created a tariff-free zone for manufacturers, saving the industry $88 million a year right away and as much as $300 million a year by 2015. This initiative makes Canada the first country in the G20 to allow manufacturers to operate without tariff.)
The accelerated capital cost allowance write-off that we’ve had for a number of years to encourage investment in equipment and machinery is also designed to make us more competitive. And, frankly, all these trade agreements are designed, as well, to improve our productivity and competitiveness. So I’m less concerned about productivity than the entrepreneurial and opportunity-oriented mindset of Canadian business.
DM: What concerns you the most about Canada’s free-trade deals?
PVL: What concerns me the most is whether Canadians, businesses, manufacturers and others, will be sufficiently externally oriented to take advantage of the opportunities that exist.
Canada’s business sector often finds that when things are good, you can do very well focussing on the U.S. It’s easy. It’s a huge marketplace. Same language. You probably know people there already.
The effort it takes to penetrate the European market requires a much greater cultural shift in your mindset. You’re dealing with many more languages, all these different countries, a whole different approach for a lesser benefit.
Many business people say “Well, we’re good enough now, why should I make that effort?”
In Europe, on the other hand, you’ve got 27 countries with some 20 languages and Europeans are accustomed to travelling and to manufacturing for their entire economy. The European Union economy is one unit, so their mindset is already there. For them, Canada is just a question of distance and they’re probably already interested in the American market, anyhow.
DM: What keeps you awake at night?
PVL: I used to get asked that all the time in Public Safety. I haven’t been asked that yet, until now, in International Trade. Probably what keeps me awake is the earlier question.
Will our business community respond? Will Canadian entrepreneurs walk through the door that we’re opening for them? Will Canada have an economy that’s in a position to grow in the long term? We can, as a government, continue to create these opportunities, change all the rules, pave the way for our businesses. We can’t make decisions to invest, to trade, to open up a new marketplace. That really comes down to the innovation, appetite for risk and external orientation of our business sector.
And this is where I count so much on that new generation coming along.
Donna Jacobs is the publisher of Diplomat.
