The Hill Times, October 26, 2009

The Lessons of Peru

If history tells us anything, it is that we either learn from our mistakes or we are condemned to repeat them. As the Government of Canada prepares to negotiate a Free Trade Agreement with the European Economic Union, it would do well to learn from the failures of our most recent Free Trade Agreement with Peru.

Canadian trade with the Republic of Peru comprises only a tiny fraction of Canada’s international business activities. There was not much to lose in forging an agreement with the South American nation. The Government of Peru had been exceptionally eager to sign trade agreements with as many countries as possible. Clearly, Canada was perfectly positioned to be aggressive at the bargaining table.

Instead, our negotiators dropped the ball.

The Canada - Peru Free Trade Agreement that was ratified in August shows little evidence that our negotiators were able to obtain a strong and effective agreement. In fact, Canadians are left with significant competitive disadvantages with other countries, most notably the United States, which concluded a free trade agreement with Peru only months before Canada.

A few illustrative examples drawn from the agricultural provisions of the two treaties: where Peruvian tariffs on potatoes are eliminated immediately for the United States, Canadian producers of anything other than seed potatoes will have to wait ten years for the same benefits. American pork producers will see a five year phase-out process for tariffs. The same process for Canadian pork producers is set at 17 years.

Our government loudly trumpets that 95 percent of all tariffs will be eliminated; it quietly brushes aside observations that some products will wait for more than a decade for tariff elimination – much longer than the periods obtained by American negotiators.

There are many other shortcomings in the agreement, but the most egregious error may be one of omission.

American negotiators ensured that U.S agricultural exporters would benefit from any future trade agreements entered into by Peru. This means that if another country negotiates a better deal with Peru, the American agreement will change to reflect those improved terms. Canadian negotiators failed to include such a clause – instead, renegotiating will be a clumsy and lengthy process, if it is indeed even possible.

Agreements like this are forged with the understanding that disputes are inevitable, and include a clear process for their resolution. And yet, unlike the America/Peru agreement, the Canadian negotiators did not include provisions for Labour Co-operation and the Environment in the main agreement. Shunting these two important issues into weak side deals with complicated, ineffectual resolution mechanisms can have disastrous long-term consequences.

The deal that Canadian negotiators achieved was not a very good one. That said, our economy does not rise or fall based on our trade with Peru.

But nations do not negotiate in a vacuum. Just as we are aware that the United States got a deal superior to Canada’s, other countries are able to examine and learn from the agreements our negotiators struck. Having forged complex, tough, but fair trade pacts among their own members, the negotiators from the European Economic Union are savvy, skilled, and sensitive to weaknesses across the table. One would have to believe these negotiators are licking their chops with glee at the prospect of dealing with a Canadian team that was so roundly outplayed by the Republic of Peru.

The Canadian Government needs to bolster its negotiating team, bringing in the very best from the public and private sector. Rather than defensively deny that mistakes were made in negotiating with Peru, it needs to instead learn from those blunders to avoid repeating them.

This may be one of those times in our history when swallowing a spoonful of pride can save our country from choking on a deal with the European Union, one that could cost us dearly for generations to come.

Charlottetown Senator Percy Downe is a member of the Senate Committee on Foreign Affairs and International Trade and was Chief of Staff (2001-2003) to former Prime Minister Jean Chrétien.