It looks like Canada and the European Union may be close to nailing down a wide-ranging trade deal that was seven years in the making. But it was a close call for a while, and the deal is still not completed.
The reason? Wallonia. The southern, French-speaking region of Belgium, is home to just 3.5 million inhabitants. Yet it brought the prolonged negotiations to a near breaking point.
Now, if even a pocket of Belgian resistance can come close to derailing a trade deal between the highly-compatible economies of Canada and the European Union, just imagine what’s in store for a post-Brexit United Kingdom.
EU trade commissioner Cecilia Malmström captured the sentiment well: “If we can’t make it with Canada, I don’t think we can make it with the UK.”
Why so much power in so few hands? Belgium is a federation comprised of five regional and language-based parliaments, each with a say in the country’s foreign affairs. This gives the Walloons what amounts to veto power over the federal government’s ability to sign the Canada-EU Comprehensive Economic and Trade Agreement (CETA).
To be clear, the deal has not yet been scuttled. Indeed, it seems Wallonia’s government may have used the stalling tactic to seek concessions on portions of the deal it opposes. This includes a controversial plan for an investor-state dispute settlement (ISDS) mechanism, an extraterritorial judicial system that critics say would give corporations too much influence over public policy by potentially allowing them to sue governments for regulations that hurt their investments and profits.
Recent trade agreements include provisions that safeguard a country’s “right to regulate” for legitimate policy objectives, including public health, safety, and the environment. But additional reforms, including improved transparency and an appeals mechanism, have long been advocated to prevent abuse of the ISDS system—in fact, the European Union had taken the lead on reforming the mechanism along these lines, starting with the Canada deal.
Still, the disproportionate impact of such a small region could herald the difficulties of things to come as Brexit negotiations get under way, particularly given the lack of institutional knowledge on the UK side.
The Canadian Press presents the contrast of size and impact starkly: “The 3.5-million French-speaking Walloons of Belgium are standing in the way of the seven years of negotiations that led to the wide-ranging free trade deal between the 35 million people of Canada and the 500 million living in the European Union.”
It’s little wonder Chrystia Freeland, Canada’s trade minister, was exasperated by the last-minute holdout. “Canada is disappointed. I am personally very disappointed. I have worked very very hard,” said the former journalist after the Wallonian impasse. “We have decided to go home. I am truly very, very sad.”
The ISDS arbitration mechanism has also been a sticking point for the Transatlantic Trade and Investment Partnership (TTIP) deal between the United States and the European Union.
The US Trade Representative downplays concerns about multinational corporations’ supranational powers, particularly for rich economies like the United States and Europe where legal systems are robust and trustworthy.
“Foreign investors rarely pursue arbitration against the United States and have never been successful when they have done so,” the USTR says. “We believe that providing a neutral international forum to resolve investment disputes under international law mitigates conflicts and protects our citizens.”
Still, in an atmosphere of intense distrust of political and economic institutions, such reassurances may not be enough. Wallonia may be the first of several test cases.
And when it comes to Brexit, negotiations are already, almost by definition, starting off on the wrong foot. After all, how amicable can any divorce that follows a 43-year union truly be?