CETA agreement and Wallonia

ceta_signIn August I wrote about the CETA agreement, that is a proposal for a free trade between Canada and the EU

(http://www.valeriocirella.com/2016/08/21/ceta-agreement-eu-canada/).

Few days ago I was surprised reading, on an important international financial newspaper, that the Treaty could not be signed by EU due to uncertainties of the “small” regional Parliament of Wallonia (the French-speaking Belgian region with 4 million inhabitants) which stops the ratification of the Belgian Parliament (I remember that to be valid the agreement must be ratified by the all EU states).

As this agreement will impact on the lives of European and Canadian citizens (costs and origin of goods and future scenarios) I wanted to do a little analysis.

To protect the strategic agricultural sector, Wallonia wants simply be reassured about two main points:

  1. Quality of Canadian goods must be in line with those in Europe, to avoid being penalized by unfair competition.
  2. Creating an impartial and transparent courts and that the agreement does not represent a loophole for American multinationals, based in Canada, that can use the agreement to sue European governments.

I must also remember that no European country has submitted this agreement to a popular referendum (at least so far). Minimising the issue, or point the finger at a small region, it does not seem correct in my view. We should thank this region instead, because it has generated a popular debate, discussed his points with a big country like Canada, which has recognized the demands.

In fact, diplomatic actions, clarifications between Belgium and Canada and tweaks to the Treaty made possible the ratification by the Belgium Parliament. On October 30, 2016 the agreement CETA was signed between Canada and the EU.

Maybe mine is just a feeling but I believe that this agreement lays the basis for an extension in many years from now, which will include the free movement of people, labour and … the creation of one currency.

CETA agreement EU – Canada

CETAIt’s been few weeks that the international newspapers have mentioned and discussed the agreement between Canada and the EU: “Comprehensive Economic and Trade Agreement” (CETA). Let’s see the details in this article.

CETA is important because it could be also the predecessor of a more important and complex agreement (in terms of value and regulation), which is under study and negotiation between the US and EU, the Transatlantic Trade and Investment Partnership (TTIP).

CETA was concluded in August 2014 and in July 2016, the European Commission has formally proposed the signing and conclusion of the agreement to the European Council. The process requires that after the approval of the European Council, this will come into force temporarily. To get the final approval, and be valid permanently, the proposal must have the consent of the European Parliament and ratified by all EU member states.

Specifically, let’s see the content of this agreement (source: European Commission http://ec.europa.eu/trade/policy/in-focus/ceta/index_en.htm):

  1. Sustain the economic growth and, therefore, employment. It is believed this possible because four years after the agreement with the Republic of Korea, European exports to South Korea grew by 55% for goods and 40% for services. It is estimated that every billion euro of exports creates 14,000 jobs and increases the salary of that specific sector of export.
  2. There will be no duties on exports and this means a saving of € 600 million a year for EU companies. The products that will benefit the most will be those agricultural and industrial.
  3. Participation in public tenders at all levels for European companies. To date, this market is 30 billion euro. This opportunity is only given to European companies, in fact there are no other international companies that can join.
  4. It will create a forum for cooperation and regulatory control between the two parties. The objective is to suggest regulatory measures to improve cooperation. Most important, specific goods such as: electrical equipment, toys, industrial machines and measurement equipment must comply with both parties’ regulations. This means that a European body will test the goods mentioned above to assess the conformity of the supplied market. Special attention is given to the food market and the environment. The Canadian products may be imported and sold in Europe only if they comply with European rules, so they can not contain growth hormones or GMOs. The high quality standard European products, however, will find more opportunities and be more competitive in Canada, which is a country with high wages and which seeking the European quality.
  5. Protection and preservation of European innovations, artistic and traditional products. Canada will align copyright protection to the world organization rules of intellectual property.
  6. Canada reduces or cancels barriers also for European services, in particular financial services, telecommunications, energy and maritime transport.
  7. The agreement promotes and protects investments. Investors of the two blocks will be protected and will have the same legal and economic treatment and shall enjoy the same rights in whatever country they are. Therefore, this agreement is to eliminate any origin discrimination.

CETA supports democracy, public health, safety and the environment. CETA will not affect in any way the right of countries to govern themselves for the public interest.

After NAFTA, for Canada this agreement is the most important they will have. They became favorable to this agreement with Europe, following a careful assessment of the benefits that may result. The deal is done to create economic growth and protection of public interests, environmental and public health.

Private interests in public areas are excluded. For example, if a country wants keep the monopoly of water supply, oil, telecommunications etc, it is free to do so.

Based on official documents available, this agreement is signed in the best intentions to free trade and, therefore, in the interests of the companies. I remember that also the European Economic Community (EEC) was created for the same goals in 1957, and in 1993 the states decided for a stronger integration with creation of a Union of States. This integration created a new supranational administration and a single currency.

Based on the history above, probably it will not surprise if this is the beginning of a Euro – Canadian Union.

Reasons for Brexit – Facts

Brexit analysis2

On the 23rd of June, British citizens were called to vote in a referendum. They had to decide whether to stay or leave the European Union. The result was “leave EU” and as soon as it was known, critics from around the world condemned this democratic decision and there were important repercussions in the financial, economic and political sectors. The sterling suffered a record one day plunge to a 31 year low; on Friday 24th the global stock market lost $2 trillion in value. The Britain’s Chancellor of the Exchequer, George Osborne, talked about the possibility to raise taxes as consequence of the Brexit result. After this extraordinary economic and political turmoil, a question came to my mind: “Is so bad and counter-productive leaving the EU, specifically for UK?”

From there, I started to investigate and analyze the findings.

  1. UK has never joined euro currency and this means that both people and companies will not face any specific or additional shock due to the going back to the previous currency.
  2. UK still remains geographically in Europe as banal as this can be.
  3. According to the “uktradeinfo” statistics (April 2016), UK economy is based on imports (http://bit.ly/1OVoCTJ). Indeed, on year to date, UK imported £75 bn from the EU and £72 bn from the extra-EU countries; whereas the exports were £45 bn from EU and £50 bn from Extra-EU and the trade balance is very under pressure today. From these data, emerge that is more likely that EU has convenience to keep UK in the union rather than let it go.
  4. The five major British trading partners are:
  • Germany, whose British imports exceed exports of £ 2.5 bn.
    • USA, this time exports exceeded imports of £ 1 b
    • Nederland, the UK imports exceed export by £1.3 bn
    • Switzerland, the UK imports exceed by £2.8 bn
    • China, the UK imports exceed £1.7 bn

5. According to UK government official statistics (http://bit.ly/1Oe5r5e), in 2015, Britain’s net contribution to EU budget was £8.4 bn (the gross payment was £ 17.7 bn) and the nation provided the 12.5% of the total EU budget (third contributor after Germany and France). This means that UK payed £8.4 bn in excess of what is returned from the EU.

6. Stay out of the EU means to stay out also by the european regulations, it also means that the UK is free to manage the taxation for companies (in particular corporation tax). For example, UK could reduce taxes for the big corporations and attracting their business and creating more jobs.

7. The pressure on the pound, which is reducing the value compared to the main currencies, it also increases the interest in the products and services produced in UK, making them more convenient to buy. This increases the exports and rebalances the trade gap. Of course this is not good news for European neighbors who have a competitor in more for exports.

8. Immigration. In Europe we have cases of countries with open borders for Europeans although not part of the ‘European Union’, such as: Switzerland, Monaco, Norway, Iceland, Andorra, Liechtenstein etc. and, trust me, Europeans have not issues to visiting or working in those countries. The UK is one of the leading countries of the European Union, which attracts immigration and this happens for several reasons. The main ones are: the English language (for studying purpose or because the majority of immigrants already speak the language and this makes it easy to look for work); culture, living standards and the quality and quantity of jobs available. Being part of the EU also means not having full control of immigration, this means that even if the economy is not strong enough to meet the entire unemployed labor force, it can not intervene on the influx of migrant. This has several effects on the population by increasing social unrest. In fact, more unemployed means reduction of wages, lengthening of time to find work and, in case of severe unemployment, even emigration.

9. From the diplomatic point of view, we can agree that the UK is second to no one. In addition, the main partner for exports are the United States, with whom they have an established and special relationship. In addition, UK still retains an important international role. For example, the country is a permanent member in the UN Security Council; It has one of the best military defense forces of the world and an efficient counter-intelligence. British companies are strong and have operations around the world. The financial sector is one of the best in terms of services offered, management and security assets. UK has important treaties, agreements and alliances with former colonies. Furthermore, they still keep their international role. For example, they have their seat as permanent member in the United Nations Security Council; they have one of the best defence force in the world and an efficient counterintelligence. The British companies are strong and have business around the world. The financial sector is one the best in terms of services offered, asset management and security.

10. UK is a multicultural society and London is a very efficient capital.

In light of the above analysis, my initial question becomes: “What has to offer the European Union to the United Kingdom to make the country stay?”. Someone mentioned that, being part of the EU, countries benefit of commercial advantages and conclude valuable international business negotiations. This makes me smile, because I wonder how it is possible that EU knows what is best for a country more than the country itself.

Personally I like the idea of being part of a great community like the EU because this increases the personal skills and interact with people with different backgrounds (although sometimes there is a price to pay). By learning from other people’s experiences we can make the world a better place to live, but the outcome of the British referendum says that there are also problems and people are dissatisfied. Therefore, now it is the time for European institutions to reflect on this result and take action as soon as possible in order to meet the demands of European citizens.

Brexit vote and Globalization

united kingdom exit from europe relative image
Source http://masterinvestor.co.uk/category/brexit/

In 1989, the Berlin wall came down and this was also the symbol of the establishment of the new economic world order. The idea was to remove the barriers that prevent the free circulation of goods and people. The European economists believed in this idea and in the resulting benefits from this and politicians implemented this model but paying little attention to the social aspects and consequences coming from this action. The main reason for this implementation was economic, of course (e.g. a bigger qualified labor market available for industries, no barrier for goods’ circulation and better trade agreements with extra-EU countries), and the companies were the ones that most benefit from this. A dream come true: companies got all the support they needed to produce in countries with low wages and sell the goods to the richest ones, making huge profits and paying less taxes. What about people facing this huge economic and social change? Were they prepared to meet and live with the new migrants and were they prepared to compete with more job seekers and probably with better skills that they have? Both economics and politicians believed that providing this new union with one common currency would give a huge advantage for any member of the community. Unfortunately, this has been an issue because: the conversion rate of the old local currencies with the new one was not fair for some countries (i.e. impoverishing some of them and making stronger others); European countries have different economies and they need their own currency to increase exports (e.g. currency depreciation) and optimize imports; states does not mutually support each others, this means whoever needs money has to borrow from central bank.

I believe that globalization has also some advantages especially: as peace keeper (because there is more integration between states and this means more options and opportunities for negotiations), wider free travel area; possibility to increase personal earning and enhances a wider distribution of wealth. Let’s talk about this last point because is crucial in this particular time we are facing.

The idea, for the industries, to relocate productions to countries more convenient in terms of taxation and wages gave the possibility to increase their earnings and created also better jobs in other parts of the World that usually have high unemployment rate and high emigration. Globalization is a revolutionary system, which push people, of mature economies, to reinvent themselves and improving their skills and competences because facing bigger competition.

The main point is that the industrial production shift happened really quick and people had not time to prepare sufficiently for this. Moreover, moving the production means move thousands of jobs (considering also all the small companies satellite of the main ones) and this is very difficult to fix in short time. This situation triggers nationalism and populism because people are scared, are unemployed and they understand they don’t have the same level of wealth they used to have before the current economic system. This situation intensifies the anger and frustration in the society.

People have never stopped giving his point of view about this new economic idea but sometime demonstrations became battle like in 1999 during the World Trade Organization meeting in Seattle. There was a huge protest against the globalization plan with many arrests and injured.

Globalization entails also that every country is connected and related each other. The collapse of the investment bank Lehman Brothers has formally started the World economic recession in 2008 for which, in 2016, we are still struggling with economic growth and fix the problems of that recession. The Brexit has influenced heavily the World financial markets with $2 Trillions lost on 24th of June. Wars and terrorist attacks do not impact one country only but all the World is interested. The wars at EU borders have caused huge immigration towards EU with no a valid and credible answer from EU.

Brexit was also a vote against the globalization, because people voted to restore and fully control their country again. Indeed, the main arguments of the Brexit supporters were:

  1. The EU threatens British sovereignty. The euroskeptics say that EU rules override national laws on important topics such as: competition policy, agriculture, and copyright and patent
  2. Immediate cost saving. In 2015, UK payed £13 bn and they got back only £4.5 bn.
  3. Complete control of the immigration. Under EU law, Britain cannot prevent anyone coming from a member state to stay and live in UK. This is also true for all the Britons that decided to move and live in warm place or benefit for studying or working. According to the office for National Statistics, in UK there are 942.000 immigrants from East Europe and 791.000 from west Europe. From outside UK the immigrants were 2.93 m (majority from China and India). According to the statistics, a part the recent flux of immigrant, the immigration has been positive for UK.

When the EU was established and former communist countries were integrated into the global model, the new integrated Europe aimed to protect its citizens against the worst excesses of the market because it was big and powerful enough.

The recent success of populist and extremists parties is also due to the belief that this new model of Europe has failed to deliver results. Indeed, jobs, living standards and welfare were all better protected before the age of globalization.

People believe that only an elite of them takes advantage from this new system and the rest of them pays the consequences of bankers’ failings.

Therefore, all of us should reflect on Brexit and, in case we want still embrace the current economic model, the system must meet people demands.