Between Actor and Presence: The European Union and the Future for the Transatlantic Relationship

Chapter 9. Transatlantic Free Trade: Myth or Reality?

9 Transatlantic Free Trade: Myth or Reality? EVAN H. POTTER Introduction Following the euphoria at the end of the Cold War, there was some puzzle as to what would replace the values-driven transatlantic agenda . By 1993, with the move to create a Single European Market (SEM) in full swing, the economic track of transatlanticism gained ascendancy and began to challenge the primacy of the security track. This effectively increased the importance and profile of the European Union (EU) in transatlantic affairs. For the most part, the challenges in transatlantic trade relations were no longer "at border" issues such as tariffs and quotas, but rather a host of "newtrade" issues—competition, technical standards, labour market, and environmental policy, as well as various regulatory regimes in investment and finance.1 The multilateral system had not yet succeeded in resolving barriers to market access in these areas. For Canada, agricultural trade with Europe wasstill a source of considerable bilateral friction, its natural resource sector (a major source of exports to the EU) continued to be vulnerable to certain tariffs, and its high-technology—so-called value-added—industries were alleging discrimination within the single market. It was not surprising, then, that following the signing of the North American Free Trade Agreement (NAFTA) Ottawa devoted more energy to reimagining the transatlantic economic relationship with the EU. This link, after all, still embodies Canada's second largest trading and investment relationship: the EU represents seven percent of the total value of Canada's world trade (although Canada is running a persistent trade deficit, with its imports from the region almost double its exports), and the $45-billion investment stock in Canada makes the EU the second-largest foreign direct investor in Canada after the US (based on 1999 figures). By this measure, the Canada-EU economic relationship is not insubstantial. That being 194 BETWEEN ACTOR AND PRESENCE said, and as this chapter will show, following the completion of the NAFTA and the EU-Canada and EU-US Transatlantic Declarations (TADs) in the early 1990s, the "reimagining" was to proceed in fits and starts throughout the decade. The idea of a Transatlantic Free Trade Agreement (TAFTA) was not raised formally by the Canadian government until late 1994, only to be rejected, and replaced over the next two years by US-EU and Canada-EU Action Plans. Thereafter, Canada continued to press for greater transatlantic trade liberalization with the EU on both a bilateral and NAFTA basis. On the whole, the EU's reactions to Canada's overtures have been lukewarm at best. Before examining the transformation of the TAFTA idea into two Action Plans and Canada's difficulty in placing a more comprehensive free trade agreement on the transatlantic agenda, it is important to first place Canada's approach to transatlanticism within the context of economic relations in the Triad—the EU, Japan, and North America. The first section of this chapter therefore outlines the evolution of the EU's global influence. The second section profiles Canada as an appendage of the US-EU-Japan trading relationship and emphasizes Canada's limited room to manoeuvre in responses to shifting balances of economic power within the Triad. The third section examines the options Canadian decision makers contemplated as they sought to reconfigure the economic framework for Canada-EU relations. The final part of the chapter describes the debate over the TAFTA, the negotiations leading up to the Action Plans, and how starting in 1998 the publishing magnate Conrad Black managed single-handedly to spur a renewed debate over a modified version of the transatlantic free trade option by calling for the UK to withdraw from the EU and join NAFTA. In sum, this chapter describes the EU, with all its competencies , as a principal "actor" in transatlantic economic relations, a condition that wasreinforced with the successful completion of the SEM and the move toward European Monetary Union (EMU). The economic clout, in turn, has created "presence," which third countries such as Canada began to appreciate throughout the 1990s as they struggled to understand and gain the attention of a supranational entity that was enlarging, expanding its reach beyond trade into domestic policy areas, and that wasattempting to be a player in articulating a common European defence identity. TRANSATLANTIC FREE TRADE: MYTH OR REALITY? 195 Changing Hegemons: The EU in a Multipolar World The EU's trade and investment relations with the outside world are...