As the Government of Canada prepares to negotiate a Free Trade Agreement with the European Union, it would do well to learn from the failures of our most recent Free Trade Agreement with Peru.

Despite the clear willingness on the part of Peru to complete trade negotiations with as many countries as possible, Canadian negotiators were unable to obtain a strong and effective trade agreement for Canada. Canadians in a number of sectors have been left at a competitive disadvantage with other countries, specifically the United States.

The results of the Canada-Peru Free Trade Agreement lead to broader questions about Canada’s ability to negotiate effective agreements. Although the prosperity of Canada does not depend on the signing of a free trade agreement with Peru, if the results achieved in these trade negotiations reflect Canada’s ability to negotiate strong trade agreements, we are in serious trouble.

If this is the best deal we can negotiate with a developing country, what is the Government of Canada going to be able to achieve negotiating with more aggressive trading partners such as the European Union?

A few illustrative examples drawn from the agreement include:

The Canada-Peru Free Trade Agreement Fails On Agriculture

• The potato industry is only one of many examples of Canadian agricultural sectors that have been put at a disadvantage compared to their United States counterparts.
• Peruvian tariffs on potatoes are eliminated immediately for the United States, but Canadian potato producers, with the exception of seed potatoes, have to wait 10 years to obtain the same benefit.
• The US benefits from a shorter tariff reduction schedule for many agricultural sectors. Exporters are exempt from Peru’s price band tariff system. Canadian products will continue to be subject to the price band system which sets a minimum and maximum import tariff for goods, adjusted to international price changes.
• Canadian negotiators also failed to obtain a clause similar to that in the United States-Peru trade agreement that allows United States agricultural exporters to Peru to benefit from any future trade negotiations entered into by Peru. 
• The President of the Canadian Federation of Agriculture, Mr. Laurent Pellerin, stated before the House of Commons International Trade Committee on May 7, 2009:

“…if another country negotiates something with Peru in the future, there’s a clause in the agreement that the U.S. will obtain the same consideration, and Canada was not able to put the same clause in our agreement, so if, for example, Europe obtained something better with Peru than what the U.S. has, the U.S. will have it.  If Europe negotiates something better with Peru than Canada has, Canada will not have that.  We didn’t include that part in the deal.”

The Canada-Peru Free Trade Agreement Fails Beef and Pork Producers

• While tariffs on high-quality cuts of Canadian beef fall to zero immediately upon implementation, boneless cuts will not receive any overall tariff reduction treatment from Peru. Canadian negotiators obtained only a tariff-free rate quota allowance of 100 tonnes in year one, increasing to 122 tonnes by year five and beyond.
• Canadian beef producers continue to wait for improved access to markets around the world following boarder closures in 2003 related to cases of bovine spongiform encephalopathy (BSE), also known as mad cow disease, and the Government of Canada must ensure that producers have every opportunity to compete in South America once trade resumes.
• For pork products, there will be a gradual, but complete, phase-out of tariffs, with an interim tariff-free rate quota allowance. For the first ten years, Peruvian tariffs remain in place but the quota increases. Only in year 11 will tariffs be reduced, not falling to zero until year seventeen.
• Under Peru’s agreement with the United States, pork producers receive a five year tariff phase-out period (compared to 17 years for Canada) and lower-grade beef cuts receive a 12-year tariff phase out period. 

The Canada-Peru Free Trade Agreement Fails on Labour Cooperation and the Environment

• The Federal Government opted to negotiate weak side-deals with the Canada-Peru Agreement on Labour Cooperation and the Canada-Peru Environment Agreement, instead of integrating the related provisions into the main agreement to ensure that they are subject to the main dispute resolution process.
• Instead of providing leadership on the environment, the Canada-Peru Environment Agreement does not include a dispute resolution process of its own, nor does it permit any recourse beyond a consultation at the ministerial level. The United States negotiated with Peru to have provisions on the environment incorporated into their agreement, making it subject to the main dispute resolution mechanism.

The Canada-Peru Free Trade Agreement links Aid and Trade

• The Federal Government recently decreased the number of countries of focus at the Canadian International Development Agency (CIDA).
• While Peru has now been added, other countries with significant need for development assistance, are no longer Canadian priorities. Cambodia, Kenya and six other African countries have been dropped by CIDA.
• According to the Organisation for Economic Co-operation and Development’s 2009 Development Cooperation Report, in 2007, less than 1% of Peru’s Gross National Income (GNI) came from official development assistance. 
• It is a very different situation for some of the countries dropped by CIDA. In Rwanda and Malawi, over 20% of GNI comes from net development assistance. 

 

The deal that Canadian negotiators achieved was not a very good one.  That said, our economy does not rise or fall based on our trade with Peru.

But nations do not negotiate in a vacuum.  Just as we are aware that the United States got a deal superior to Canada’s, other countries are able to examine and learn from the agreements our negotiators struck.  Having forged complex, tough, but fair trade pacts among their own members, the negotiators from the European Union are savvy, skilled, and sensitive to weaknesses across the table. One would have to believe these negotiators are licking their chops with glee at the prospect of dealing with a Canadian team that was so roundly outplayed by the Republic of Peru.

After reviewing the Free Trade Agreement, the Senate Committee on Foreign Affairs and International Trade made a number of recommendations, including that the Canadian Government needs to bolster its negotiating team, bringing in the very best from the public and private sector.

Rather than defensively deny that mistakes were made in negotiating with Peru, it needs to instead learn from those blunders to avoid repeating them.

 

Charlottetown Senator Percy Downe is a member of the Senate Committee on Foreign Affairs and International Trade.

 

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