How the EU threw away its trade powers
European leaders gathering in Brussels on Thursday and Friday did not expect to spend their summit performing life-saving surgery on the European Commission.
And yet that’s exactly what they’ll be doing after two small regional parliaments representing people from the economically depressed Belgian region of Wallonia punched a large hole in the European Union’s chances of securing a landmark trade deal with Canada.
The potential collapse of the Comprehensive Economic and Trade Agreement (CETA) is the result of a potentially fatal wound the Commission inflicted on itself in July, when President Jean-Claude Juncker decided to defer to the EU’s 38 national and regional parliaments on a matter that was supposed to be one his office’s sacrosanct core competencies: international trade.
The deal’s demise would also rob the Commission of what was expected to be the one good news story it could secure in a fall full of troubles. More critically, if a region of 3.5 million people were to effectively deliver a veto on behalf 510 million EU citizens, it would raise severe doubts about the world’s biggest trade bloc’s ability to strike deals with countries such as Japan, the United States and — after Brexit — the United Kingdom.
It was a risk that Italy’s trade minister, Carlo Calenda, identified with Cassandra-like clairvoyance over the summer. Italy, he said Tuesday at an extraordinary meeting of EU trade ministers in Luxembourg, “was the only country that sent a letter to the Commission stating that we authorize [CETA] to be an EU-only competence.” As an example, he had pointed out that even the Walloon parliament could reject the deal. “Now, I don’t know if I brought bad luck or if I was prescient, but the fact is that today [we are in a situation that] is really hard to predict,” he said.
“If we can’t make it with Canada, I’m not sure we can make it with the U.K.” — European Commissioner for Trade Cecilia Malmström
Paul Magnette, the minister president of Wallonia, has emerged as the most formidable opponent of the deal, leading a tide of anti-globalization protesters who have argued that a deal with Canada would undermine health, environmental and legal standards in Europe.
Both the Walloon assembly in Namur and the parliament of the French community in Brussels last week voted against CETA. The final decision on whether to give the green light to the federal government to sign the pact lies with their minister presidents, Magnette and Rudy Demotte.
Among the objections are worries that U.S. companies could use CETA as a “Trojan horse” to sue European governments in investment disputes. Without Magnette’s assent, Belgium’s federal government will be unable to support CETA, meaning that it cannot be signed.
European Commissioner for Trade Cecilia Malmström has stressed that the Europeans will need to build consensus on CETA at this week’s European Council, or it will be impossible to finalize the accord with Ottawa at an EU-Canada summit on October 27. One EU ambassador described the situation as an “emergency.”
Marietje Schaake, a Dutch liberal Member of the European Parliament, described the fiasco as an insult to Canada, a close ally. “Our negotiating partners will not take us seriously,” she said. “This step severely undermines EU trade policy.”
Member of the European Parliament Marietje Schaake | EPA/Maciej Kulczynski
The possibility that any single European parliament would have the power to rip up EU trade policy has also sounded alarm bells in London, after Romania and Bulgaria also declined to sign unless they won visa-reciprocity from Ottawa — a concession that is likely to be granted quickly.
British politicians are coming to the sobering realization that their relations with the EU after Brexit could be dictated by East European assemblies that might balk at any deal that did not include the free movement of workers.
“If we can’t make it with Canada, I’m not sure we can make it with the U.K,” Malmström said in Luxembourg on Tuesday.
A huge mistake
The meltdown has its roots in a volte-face by Juncker, who decided in July to allow the deal with Canada to be a “mixed” agreement — requiring ratification by parliaments across the EU — rather than an “EU-only” accord that could be signed off by representatives of member countries at the Council, with ratification by the European Parliament.
At a Council on June 29, Juncker half-heartedly defended the case for treating Canada as an EU-only accord. “I want to see proof, through an unambiguous legal assessment, that this is not an EU-only agreement,” he said, but added that he was no convert to free trade and that he personally “could not care less” about the final decision.
“With the free-trade deal with Canada, the Commission wants to smash its head through the wall” — Sigmar Gabriel, Germany’s economy minister
Only days later, on July 5, the Commission backtracked, after a barrage of criticism from French, German and Austrian politicians worried about forthcoming elections. The feverish mood was amplified by the aftershocks of Britain’s vote to leave the EU, which had raised sensitivities that the Commission would be seen as dictating the terms of a trade deal to national governments.
German Economy Minister Sigmar Gabriel, was the most outspoken critic of an EU-only approach. “To decide now that national parliaments don’t have a say on this trade agreement is incredibly foolish,” he said, arguing that an EU-only agreement would stab CETA’s supporters “in the back”.
“With the free-trade deal with Canada, the Commission wants to smash its head through the wall,” he said.
Ironically, Gabriel’s victory over the Commission has meant he has had to burn massive political capital in Germany, in order to marshal support for CETA in the face of some of the Continent’s strongest anti-trade headwinds. Having won the argument at home, Gabriel has made little attempt to hide frustration with the Walloons, saying it would be a “huge mistake” not to approve the deal.
The Commission has admitted that it’s not possible to squeeze the genie back in the bottle and redefine CETA as an EU-only agreement. Commission Vice President Jyrki Katainen said such a move would require experts to delve in vain into legal “rocket science.”
So now what do we do?
The disarray over CETA has gutted the Commission’s credibility as being able to steer EU trade policy. “I think we need to sit down all of us after this is done and to discuss how trade policy should be made in the future,” Malmström said.
The options are unclear. Some diplomats predict a war of attrition in which Magnette’s resistance is broken down by his Socialist allies in France and Germany. Such an approach would likely require the diplomatic embarrassment of delaying the EU-Canada summit, but Commission officials would regard it as preferable to sacrificing EU trade policy.
Magnette has in any case remained inflexible, despite complaining of intense pressure on a number of fronts. Canada’s Trade Minister Chrystia Freeland flew in to meet him on Wednesday, when he also held meetings with Malmström and Belgian Foreign Minister Didier Reynders.
Some diplomats speculate that France and the Commission could exercise some leverage over a decision by Caterpillar, a U.S.-maker of construction equipment, to shift 2,200 jobs away from a poor area of Wallonia, with some of the positions moving to France. The Commission has set up a taskforce to study the matter, and French President François Hollande has discussed the matter with Magnette.
However, Magnette’s room for compromise is narrow, as he has repeatedly defined opposition to CETA as a matter of principle, not a bargaining chip. “The democratic process must go the distance, right to the end,” he said on Tuesday night.
The Walloon regional parliament, pictured above, last week in Namur rejected CETA | Francois Lenoir/Reuters
One of the more far-fetched ideas is that the remaining 27 member countries could implement CETA without Belgium. This concept was discussed widely in 2014 in relation to sanctions against Russia, should one country have refused to join the embargo against Moscow. But trade lawyers argued it was unthinkable in the CETA case.
Folkert Graafsma, a partner at the Brussels-based law firm VVGB, said implementing the accord through 27 bilateral texts would be “next to impossible.”
“A trade deal is very complex, so I don’t see how you could chop up the trade deal into bits and pieces,” he said. “Legally it was not necessary to involve national governments, but now that they did they are facing the consequences.”
Ottawa and the EU have no appetite to reopen the finalized deal, the result of seven years of diplomacy.
“CETA may stagger over the line, but will the price be the slow death of EU trade policy?” — David Martin, a British Labour MEP
This means that the most likely method for appeasing Magnette will be additions to special declarations made by the EU and Ottawa. Such declarations have already addressed several countries’ concerns about the deal — ranging from Greece’s worries about the protected status of feta cheese to Austria’s fear about forced privatization of water companies.
Many EU diplomats think it could also be used to allay fears among the Walloons, who have hinted such a compromise could be possible provided that the declarations had the same legal status as the rest of the treaty. The Commission’s Katainen argued that a deal could ultimately be done given that only one region was “opposing the solution.”
But the declarations would at best be patches on the Commission’s stomach wound. The EU will have to find ways to prevent future deals from being picked to shreds by dozens of competing national interests.
EU leaders will also spend part of their summit discussing a similar case involving the status of the EU’s highly politicized trade deal with Ukraine, whose legal status was put in doubt when Dutch voters rejected its provisions in a referendum in April.
David Martin, a British Labour MEP, noted that using a joint declaration to overcome Wallonia’s objections would be an unsatisfactory way of resolving these difficulties.
“CETA may stagger over the line, but will the price be the slow death of EU trade policy?” he said. “This week’s hurried addition of declarations — still not public — have cluttered the deal and damaged the democratic process, with possibly devastating implications for our credibility as an international economic actor.”
He added, “Which other country is seriously looking at CETA now and thinking, ‘That looks like fun’?”
With additional reporting by Alberto Mucci and Maïa de La Baume