Blog

What now for the EU and trade deals?

On 24 October, Belgian Prime Minister Charles Michel confirmed that he was unable to sign the proposed trade deal between the European Union (EU) and Canada (also referred to as the Comprehensive Economic and Trade Agreement (CETA)) because three of Belgium’s five regional parliaments rejected the deal. The EU’s 27 other [national] governments had previously signalled their agreement.

The proposed free trade deal contains certain clauses which cut across the EU rules on ‘division of competences’. These rules describe where the EU has the authority to legislate and adopt binding acts, the areas where the EU and member states can do so together, and those areas where the EU can only help member states. Leaving the technical justification to one side, it all means that CETA had to be approved by all 28 national governments and all ten regional parliaments.

The Belgian regions voted against CETA mainly because it contains an investor dispute resolution mechanism. This is a way to resolve disputes arising from CETA by reference to courts and judges which are outside the jurisdiction of national (and regional) legal frameworks. The Wallonian government has said since April that it would not agree to such a clause, and it didn’t. And so it shouldn't have come as a surprise to the European Commission or anyone else.

Pen to paper

The Belgian regions have now settled their differences and the trade deal between Canada and the EU was signed on Saturday 29 October, bringing the end to seven years of negotiations. On hearing the news, Grant Thornton Belgium partner Gunther Loits told me:

“Ouf! The Belgian community governments have reached an ‘intra-Belgian agreement’ on CETA. The text of the treaty has not changed but two additional texts finally convinced Wallonia and Brussels to approve CETA. The first one is a memorandum explaining several provisions of CETA and focusses mainly on the functioning of the International Court System. The second text clarifies the position of Wallonia when the treaty should be ratified and stipulates that Wallonia and Brussels currently have not the intention to approve the arbitration courts.

The winner of this saga is Paul Magnette, the Wallonian Prime Minister. He touched the right chord with a large part of his (potential) electorate.”

The deal is still to be ratified, but once completed will be expected to remove around 99% of tariffs – and officials have said they hope it will generate a trade increase worth €10.9bn a year. 

Where now post Brexit?

When EU Trade Commissioner Cecilia Malmstrom was prevented from signing the deal on behalf of the EU because Belgian didn’t approve, she said: “If we can’t make it with Canada, I don’t think we can make it with the UK”.

Gunther’s insight illustrates why this and future trade deals with the EU might face trouble until the very date of signing. With the 28 EU national governments and ten regional governments each effectively having a right to veto, there is ample opportunity for a trade deal to become a lever for any one of them to achieve something else unrelated.

Ms Malmstrom’s comment illustrates the longer lasting impact of the last two weeks with Wallonia in the spotlight. Canada is arguably the non-EU country that is closest to being European with its culture, language, legal structures, democratic history, and its place in the world. The Transatlantic Trade and Investment Partnership (TTIP) and the UK’s trading relationship once it has left the EU are likely be more wide ranging in scope and more controversial in aspiration than CETA.

By inclination I see the positives. But looking at future EU trade deals, the omens are not good. Businesses need to plan accordingly and engage with trade organisations to help inform government thinking and prioritisation of future negotiations that will affect them.