BUSINESSOPINION

The Wallonian resistance

By Silvia Merler

What’s at stake: this week has been filled with news that the he small Belgian region of Wallonia intended to veto CETA (the Canada-EU trade agreement). Eventually, Wallonia conceded defeat and agreed to let the agreement go on. But meanwhile, it spurred a debate on trade agreements and their sovereignty implications, which we summarise here.

Cecilia Bellora and Jean Fouré at CEPII have a review of CETA’s content. They argue that the agreement would go quite far and touch sensitive issues, such as consumer protection. This notwithstanding, it appears that a fairer reciprocity in the concession between EU and Canada has helped find an agreement, differently from what happened in the TTIP case, where negotiations are still frozen. However, a decisive question remains open, for CETA: will its ambitious content  be considered appropriate by the representatives of European and Canadian citizens? Bellora and Fouré argues that the recent vote by the parliamentary regional chambers of Belgium, demanding that the Federal executive does not sign CETA, seems to indicate that the answer is not obvious.

Dani Rodrik writes that instead of decrying people’s stupidity and ignorance in rejecting trade deals, we should try to understand why such deals lost legitimacy in the first place. A large part of the blame should be put on mainstream elites and trade technocrats, who disregarded ordinary people’s concerns with earlier trade agreements. The elites underplayed distributional concerns and oversold aggregate gains from trade deals. They said sovereignty would not be diminished, claimed democratic principles would not be undermined and said there would be no social dumping – even though at times there clearly is.

Rodrik argues that because elites failed to be clear and honest, trade now gets blamed for all kinds of ills even when it is not deserved. If the demagogues and nativists making nonsensical claims about trade are getting a hearing, it is trade’s cheerleaders that deserve some of the blame. The opposition to trade deals is no longer solely about income losses, so the standard remedy of compensation won’t be enough — even if this was on the cards. It’s now about fairness, loss of control, and elites’ loss of credibility. It hurts the cause of trade to pretend otherwise.

ULB’s Amandine Crespy writes on LSE Europp blog that CETA has laid bare the trade-off between free trade and national sovereignty in Europe. What we are witnessing with CETA is the renationalisation of an EU policy. The re-assertion of national sovereignty over the domain of trade implies the right to a national (or regional) veto over agreements. From a democratic point of view, this might be seen as a welcome development. But adopting such a narrow and possibly outdated conception of sovereignty in the European context would lead to other democratic dilemmas. The most obvious is that the Wallonian parliament represents a mere 3.5 million people but is seemingly entitled to block a policy affecting 510 million Europeans.

Crespy argues that in Europe, we often conceive of democracy by making recourse to the idea of national sovereignty. This idea amalgamates the territory, people, nation and state in a single concept of sovereignty. Yet the attitudes of many governments show the extent to which the link between the state and popular sovereignty is not to be taken for granted. The picture is essentially one where national governments in Europe continuously invoke the notion of national sovereignty and the legitimacy conferred by it, while at the same time using the political and institutional opacity of decision-making in the EU to make decisions at a distance from their citizens. The Wallonian case sheds light on the current democratic instability affecting the EU polity, which is fed by a collective inability to reflect on the notion of sovereignty and the question of its specific place in today’s Europe.

LSE’s Bob Hancké correctly predicted that CETA would be saved, but argues that disaffection with globalisation can no longer be ignored. It is not entirely clear why a policy competence that fundamentally resides with the European Commission (and not the member states) is subject to a ratification vote at sub-national levels, but what is perhaps more surprising is the scale of the problem. The representatives of 3-4 million people can block a trade agreement for over 500 million. And, while the concerns raised by the Walloons are legitimate – such as democratic control over economic policy-making, social and environmental dumping – it is quite late in the day to raise them.

Hancké points to the special place of Wallonia in the Belgian political economy: long the economic and political point of gravity of the country, it fell into decline after the Second World War due to a mixture of traditional heavy industries and a lack of political strategy toward new sectors. Until the last waves of constitutional reform, which led to the decentralised decision-making structure, Wallonia felt to many as a desert region with a very high unemployment rate, kept alive by subsidies and transfers from the wealthier north but without a convincing future. The good news about the Wallonian resistance is that it did not emanate from rabid populists but from the mainstream political parties. And, given the history of the region, which witnessed European integration and globalisation from a distance – even now, only about 15-20 per cent of Belgian exports are produced in Wallonia – a certain measure of resentment against free trade is understandable. Hancké rightly predicted that the stalemate would be resolved, but stresses that underneath it all, the popular dissatisfaction with how globalisation is playing out will strengthen. That is why the vote in Namur needs to be taken seriously.

Alan Beattie writing in the FT says that the European Commission shares blame for EU-Canada trade deadlock, as it insisted on assuming powers it did not need and had little idea how to use. One of the most controversial parts of the deal is the investor-state dispute settlement (ISDS) mechanism, which allows companies to sue host governments for treating their investments unfairly. It attracts fierce criticism from anti-corporate activists. Previously, such investment treaties were negotiated bilaterally by the member states, which had been doing so for decades without attracting much attention. During negotiations over the Lisbon constitutional treaty in 2007, the Commission got the power to write investment treaties at an EU-wide level.

Beattie argues that because investment was traditionally a national-level concern and because the Commission’s strategy on the negotiation of investment treaties was unconvincing, pressure rose for country-by-country and parliament-by-parliament ratification of CETA, and the Walloons fatefully entered the equation. The CETA debacle underlines the dangers inherent in giving legislatures, particularly subnational parliaments, the power to block EU-wide trade deals. But it also shows how the Commission has made trade policy unnecessarily difficult by grabbing a functioning tool from the hands of the member states and using it to poke itself firmly in the eye.

Aarti Shankar at Open Europe looks at what lessons are there for the UK from the EU-Canada trade deal saga. A first general point is that comprehensive, ‘big-bang’, all-or-nothing deals such as CETA can be risky. While they potentially deliver the most market access, covering not simply tariffs but also services and investment, there is a greater risk of political roadblock and ending up with nothing. This is particularly relevant as the UK seeks new relationships beyond the EU. It may be able to conclude preferential trading agreements more efficiently by confining provisions to the “low-hanging fruit” of non-sensitive sectors or the reduction of tariffs.

CETA is mooted as the natural starting point for a bilateral UK-EU deal, given that it represents the most comprehensive trade arrangement attempted to date between the EU and a third-country. But Shankar argues that there is an obvious difference between CETA and any UK-EU deal. Rather than seeking further liberalisation, a bilateral UK-EU deal would codify existing trade liberalisation and the resulting trade flows. If anything, the UK-EU deal could mean erecting some new barriers to trade, whereas CETA is about opening new routes to as-yet-unrealised trade. This does not mean that a UK-EU deal would not be without its own difficulties, but it is less clear why it would fall victim to the kind of anti-globalisation objections CETA face.

However, there is a risk that if a UK-EU deal was subject to the same process as CETA it too could get held up. So, what are the alternatives? On one hand, the UK and EU could aim for an ‘EU-only agreement’, which would avoid domestically sensitive sectors and bypass the requirement for individual Member State ratification that is necessary for mixed agreements. But this could mean a less ambitious agreement. Alternatively, the UK and the EU could aim to strategically link trade negotiations with Article 50 negotiations as a mean of fast-tracking a deal.

Silvia Merler joined Bruegel as Affiliate Fellow at Bruegel in August 2013. Her main research interests include international macro and financial economics, central banking and EU institutions and policymaking. At Bruegel she has been writing on various aspects of the sovereign-banking crisis, on monetary policy, on macroeconomic imbalances and adjustment as well as on the dynamics of capital flows in the Euro Area.

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Bruegel

Bruegel is an independent European think tank specializing in economics. Established in 2005, Bruegel is independent and non-doctrinal. Its mission is to improve the quality of economic policy with open and fact-based research, analysis and debate. Bruegel was ranked first in 2012 and second in 2013 among all international economic policy think tanks worldwide by the Think Tanks and Civil Societies Program at the University of Pennsylvania. Among all think tanks worldwide, it was ranked eighth in 2012 and sixth in 2013.

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