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!
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