Canada should get closer to the EU. But remember our history, and mind the gap

In the early 1930s, the Canadian economy took a double-fisted beating.

First, the Great Depression delivered a worldwide slump. Global demand for Canada’s exports was low and falling, as were the prices buyers were willing to pay.

The United States compounded the disaster by embracing protectionism. It passed the Smoot-Hawley Tariff Act. No country was more targeted than Canada, because the U.S. was our biggest customer.

Ottawa responded to U.S. tariffs with countertariffs. (History repeats, and it rhymes.) But at the same time, Prime Minister R.B. Bennett sought closer economic ties with Canada’s second-largest trading partner. He proposed that Britain, and the rest of the Commonwealth and Empire, form a trade bloc, with reduced tariffs among members.

Ottawa seeks tighter ties with EU without sacrificing sovereignty

It was not an unreasonable idea: If your biggest customer is building walls against your exports, try to shift business elsewhere. If your best customer is discriminating against you, find friends willing to discriminate in each other’s favour.

Today, the global economy is not mired in a depression. Nor are Canadian exports suffering from a worldwide evaporation of demand or a related collapse in prices. The world price for oil, Canada’s biggest export, is north of US$100.

But we share a problem with the Canada of the 1930s: Our main trading partner is building barriers to our exports. Washington also talks constantly about raising new impediments.

What’s more – there was nothing like this during the depression – the current U.S. President often positions his actions as being designed to harm this country, reduce our industrial capacity and diminish our sovereignty.

With our best friend having turned heel, it only makes sense for Prime Minister Mark Carney to try to draw closer to Canada’s No. 2 partner.

The European Union is Canada’s second-largest trading relationship and second-largest source of foreign investment. Its member states are also our NATO allies.

In the words of a recent press release from Mr. Carney’s office, he wants to “strengthen Canada’s ties with European partners.” It’s not entirely clear what that means, or if there might be any negatives along with the positives.

Opinion: ‘Associate member’ of the EU? Why not, Canada?

Canada already has a free-trade agreement with the EU, the Canada-European Union Comprehensive Economic and Trade Agreement (CETA). It hasn’t been ratified by all EU members, but it is provisionally applied. With Britain, Canada has the Trade Continuity Agreement, or TCA, which extends most of the terms of CETA to that country, even after it left the EU.

Canada also has a free-trade agreement with the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway and Switzerland. These countries are outside the EU yet have a toe, or a foot, inside it.

For example, there is border-free movement of goods and people between Norway and the European Union. Norway contributes indirectly to a fund that benefits poorer EU states, a bit like Canadian equalization. Norway has also adopted many EU laws and regulations.

Would Canada want a relationship with the EU like Norway’s? I think the best answer is a strong yes to many aspects, and a hard no to others.

The fact that our trade with the U.S. is more than five times as great as our trade with the EU is largely a function of geography. It’s cheaper to ship Canadian-made car parts to Detroit than to Germany; it’s cheaper to ship oil from Alberta to the U.S. Midwest than to Poland.

However, to the extent that the U.S. border becomes thicker, imports and exports will have an incentive to flow in other directions. Removing any remaining barriers to European trade and investment, while boosting co-operation in other areas, makes infinite sense, given the erecting of barriers along the Canada-U.S. border.

Canada has also joined the EU’s Security Action for Europe (SAFE) initiative, which means that Canada is partnering with Europe to stand up a stronger defence industry. This aims to embed Canadian industry within European defence development and procurement, and vice-versa.

It’s something Canada has long done in concert with the U.S. Time to hedge our bets.

European Parliament to open office in Ottawa, further strengthening Canada-EU ties

The prospect of a closer economic relationship with the EU could also give Ottawa the leverage to knock down interprovincial trade barriers. External pressure to prod Canada into turning itself into a single market for goods, services and labour would be welcome.

What Ottawa should avoid is a surrender of sovereignty. The original Canada-U.S. Free Trade Agreement, negotiated in the late 1980s, created an economic partnership, and built on an existing security and defence partnership. But it left the two countries entirely independent politically and constitutionally. Europe, with a different history and needs, went a different route. It created a political confederation, a still deeply unsettled United States of Europe.

What Canada had with the U.S. (and may one day have again) should be the model for a stronger Canada-Europe relationship. No less, but no more.

R.B. Bennett’s scheme to pick up the slack from the loss of American trade is barely remembered today. But from 1932 to 1938, before Washington came to its senses and began to lower tariffs, Britain surpassed the U.S. as the top purchaser of Canadian goods.

It wasn’t a crazy idea then. It’s an even better idea now.