These are tumultuous times. This past week we heard the American President describe his conversation with the South Korean leader when he referred to the North Korean leader as “rocket man” on a suicide mission”. There were new sanctions put on North Korea this past week and the President complemented China on pulling back their banks from North Korea. This is a bit of a rogue issue on the world stage. The American president has even mused publicly that the United States shouldn’t trade with anybody who trades with North Korea. With Chinese soybean demand being extremely important to US domestic soybean prices, that would make me a little nervous.
President Trump has his own style and I will leave it at that. We all know that he pulled out the Americans from the TPP and has called NAFTA a disaster. Of course, that is being renegotiated as well. So as I said earlier, these times are tumultuous, uneven and a little bit dangerous. It makes the CETA agreement between the European Union and Canada seem so quaint.
For those of you who are more interested in our friends to South, keep in mind that CETA refers to the Comprehensive Economic and Trade Agreement between Canada and European Union. You might remember last year the trouble Canada had getting that agreement passed in the European Parliament. A region in Belgium was bucking the agreement and the trade minister at the time, Chrystia Freeland walked out of negotiations. Needless to say, the European Parliament finally passed CETA and today (Thursday) it came into effect.
With the CETA agreement coming into effect today it means that 98% of Canadian goods will be able to go into the European Union tariff free, while before only 25% could do that. Quoting from a CBC article which names Todd Evans, a principal of Export Development Canada Economics, the agreement gives Canadian companies access to a $20 trillion market. The agreement also gives access to services, which Canadian companies sold an additional 18 billion last year. Canadian companies will also be able to bid on European Union government contracts. Overall, the agreement is supposed to increase bilateral trade by about 20%.
Of course you might remember that not everybody is happy. There is give-and-take on both sides and when it comes to European cheese getting increased access to Canadian markets, many in our dairy sector were not pleased. The Stephen Harper government at the time was going to compensate the dairy industry in the billions of dollars. This was a combined compensation for CETA and TPP allowing access to our supply managed markets. However, this all disappeared under the Liberals who from almost day one have been offering the dairy industry $350 million dollars of compensation. With TPP off the table thanks to President Trump, much of that Canadian compensation was forgotten.
The access to Canadian markets had to do with cheese. For instance, under the CETA agreement, Europe was able to double the amount of high-value cheese that they had been sending to Canada. In effect, this resulted in an erosion of about 4% of the Canadian cheese market or about 2% of Canada’s total dairy production. There were protests leading up to this in Québec. However, it has seen the light of day and for some there will be quite the adjustment. We should also be seeing more European cheese tangibly visible on her grocery shelves.
Of course, it is hard for me to really like these trade agreements. I’ve always described them as a race to cheap. In other words, it usually means that there might be access for big companies in each other’s market but for agricultural commodities it simply means prices gets beaten down by the lowest common denominator. That is all the competition on the export market. For the agricultural producer producing cheese in rural Québec, how do you think they feel? Simply put, there are winners and losers and generally the losers are the little people on the bottom producing commodities. Most of the time, they don’t even know what hit them.
Of course, is a bit more complicated than that, because there are positives as well. Consumers often do better under freer trade arrangements because prices tend to get cheaper. Of course that hurts the people producing things and that’s exactly why President Donald Trump doesn’t like free trade agreements. He also knows it’s a race to cheap and that results in many people in his political base losing their jobs. His America first mantra is testament to the fact that any trade agreement with the world’s richest economy must have a huge benefit to Americans first.
So as we look ahead, let’s at least chalk up one successful trade agreement between Canada and the European Union. Another one on the way may be the new NAFTA agreement currently being renegotiated. However, as I told you before don’t be surprised if Canada walks away from a bad agreement. President Trump hasn’t been shy about saying he would. The race to cheap for our agricultural commodities doesn’t need more friends. Freer trade is what it is. There are winners and losers and in between.