Newfoundland Holds Some Cards in CETA Dispute with the Harper Government

The federal government and the government of Newfoundland and Labrador are currently arguing about the nature of an agreement, reached in the spring of 2013, that would compensate Newfoundland for removing its minimum processing requirements (MPRs), something the federal government wanted as part of its trade negotiations with the European Union. The exchange of letters between the two governments (an exchange that is in the public record here) makes the deal clear. The fund was to used both for industry development and as compensation for “demonstrable harm” and was to be worth up to $400 million. Not, as the federal government now claims, only for demonstrable harm and not, as then-Premier Dunderdale claimed in October, 2013, worth the full $400 million.

The tenor of the contemporary discussion in Newfoundland suggests that the federal government is running roughshod over the province in this matter, reneging on its past commitments and pushing its agreement with the European Union (EU) forward without regard to what Newfoundland wants.

But the federal government does not hold all the cards here. The frantic exchange of letters in May of 2013 occurred because the EU was threatening to withdraw its offer to reduce its high tariffs on Canadian fish and seafood unless Newfoundland and Labrador removed its MPRs. Throughout the negotiations to that point, the federal government had pushed the EU to allow the MPRs to stay in place, as Newfoundland had requested.

While the federal government brings international trade agreements into force, it cannot intrude in areas of provincial jurisdiction. Only provincial legislative assemblies can change provincial laws to comply with international trade agreements. That situation is the result of a decision by the UK Privy Council in the 1937 Labour Conventions case. In that case, the Canadian Parliament had passed legislation that would have implemented an agreement that Canada had made as a member of the International Labor Organization.   The Supreme Court of Canada was evenly split on the issue of whether Parliament had the authority to impose legislation in areas (such as labour relations) that were constitutionally under the jurisdiction of the provinces and the case was therefore referred to the UK Privy Council, then the last court of appeal. The Privy Council ruled that Parliament did not have the authority to impose such regulations.

The trade agreement with the EU is now in place and can not be easily changed. The EU has promised to reduce its tariffs on fish and seafood to zero and the Canadian government essentially has promised to deliver Newfoundland in the matter of MPRs. But only the government of Newfoundland can change its laws about the MPRs. If the federal government cannot live up to its promise to get the MPRs removed, its credibility as the negotiating body in future trade agreements will be damaged. For that reason, the bargaining power of Newfoundland is now perhaps even stronger than before. In May 2013, its bargaining power was based on EU’s threat to change its offer on fish and seafood tariffs. Now, its bargaining power is predicated on the loss of credibility that the federal government will suffer in its relations with other countries should Newfoundland resist.

The real question here is why the EU was so insistent on having the MPRs removed and why Newfoundland was so insistent on keeping them. It’s hard to see what harm will come to Newfoundland from their removal, except perhaps damage to its processing industry which is located in remote outports with few other sources of employment. But MPRs will be removed only with respect to exports to the EU and those exports currently account for only about 15 per cent of Newfoundland fish and seafood exports. Exports to the United States, the largest importer, will remain subject to MPRs. And it’s hard to see why the EU cares so much about the MPRs, unless it thinks it cannot get enough unprocessed fish and seafood from other Atlantic provinces.

Note: This piece draws on a research project on which I have been collaborating with Dmitry Lysenko, a recent graduate of Carleton’s PhD Program in Public Policy. The project deals with cases of compensation offered by federal government during EU negotiations. We analyze these cases from the perspective of how trade adjustment assistance has evolved in Canada and how federal-provincial relations in the area of trade policy must operate in the contemporary environment. We hope to publish the results of the project early in 2015.

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About Saul Schwartz

Professor School of Public Policy and Administration Carleton University Ottawa, ON K1S 5B6 Canada
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