Passions have been running high this week as the EU failed to get an agreement about signing off its trade deal with Canada, what is called CETA. As it stands now, some countries remain critical of the deal, or cannot sign the deal because of internal political differences. Whatever those reasons may be, they should think twice. Other countries have been catching up with the EU in the past decades and are already today more attractive places to trade with.
Trade agreements are concluded with one simple goal: to lower the costs of trading between countries. In other words, the objective is to lower the costs of imports and exports of goods, with the view of staying competitive in the world. The most efficient way of doing this is through the multilateral system. If that doesn’t work, trade costs could be lowered between countries directly, i.e. through bilateral or regional trade agreements.
The CETA agreement is no exception. The figure below shows that trade costs between the EU and Canada have been decreasing over time starting from a common base, i.e. 100, as illustrated by the dark blue line except during the Global Financial Crisis. Note that trade costs include tariffs as well as non-tariff measure. This picture shows a rather good sign and therefore one may wonder why a trade agreement is necessary in the first place.
The answer to that is related to the orange line, which denotes the trend of trade costs between China and Canada. Trade costs between these two countries have been decreased more rapidly over time suggesting that it has become more advantageous for Canada to deal with China than with the EU.
Read more about this in ECIPE's Bulletin that just came out!