Canada Says European Union Trade Pact Now Looks ‘Impossible’

(Bloomberg) -- Talks to salvage a trade pact between the European Union and Canada seemed all but over, with the Canadian minister walking out while European officials say they still hope to reach a deal.

Canadian Trade Minister Chrystia Freeland fought back tears as she spoke to reporters Friday in Namur, Belgium after talks with European and Belgian officials ended. The French-speaking southern Belgian region of Wallonia is the holdout in approving the deal.

“It is evident to me, for Canada, the European Union is not capable right now to have an international agreement, even with a country that has European values like Canada,” Freeland told reporters, saying she now thinks a deal is “impossible.”

The collapse of the Comprehensive Economic and Trade Agreement, known as CETA, would be another sign of headwinds facing free trade as politicians around the world fend off a populist threat that taps into voters’ fears that such deals destroy jobs. It could also damage the EU’s credibility as a global player at a time when it’s already struggling to deal with crises across its frontiers, from Brexit to Russia and Syria. Canadian Prime Minister Justin Trudeau has said failure to ratify the pact would raise questions about the EU’s viability.

Freeland’s departure came as EU negotiators hastened across the Belgian countryside to quell domestic concerns over the pact as some EU leaders voiced skepticism about the likelihood of rescuing the agreement, which is backed by twenty-seven of the 28 EU nations. European Trade Commissioner Cecilia Malmstroem said on Twitter she was “truly sad” talks had ended and that officials “still hope to find” a solution to sign the pact.

Walloon Concerns

Paul Magnette, the Minister-President of Wallonia, said his region wasn’t yet ready to make a decision. “I only asked for a bit more time, which was completely impossible for our Canadian partners,” Magnette told reporters in Namur. “I regret that, and would like to thank them for their constructive and cordial approach. Maybe, one day that will allow us to restart the talks.”

The breakdown threatens to scuttle the bloc’s first commercial accord with a fellow member of the Group of Seven industrialized countries. European Commission representatives were still huddling with Walloon diplomats in Namur after a leaders’ summit dispersed in Brussels where they discussed the deal, which requires unanimous support.

“All of us including the commission have been working hard on the Canada agreement,” European Commission President Jean-Claude Juncker said after the meeting in the Belgian capital. “I hope that we’ll be able to see an agreed settlement in a few days with the Walloons, our friends, because I believe this CETA agreement is the best agreement we have ever been able to negotiate to date.”

Brexit Fallout

The U.K.’s plan to leave the EU has loomed over the CETA-ratification drama because trade is a core European policy and the bloc’s push over many years to use its economic weight to open markets worldwide has been a central argument for the merits of membership.

“I’m afraid we won’t be able to negotiate free-trade agreements if we don’t prove in practice that we are very serious about protecting European consumers, workers and companies,” EU President Donald Tusk said after the meeting. He added he remains concerned “for Europe’s reputation.”

The EU says CETA would boost its economic output by about 12 billion euros ($13 billion) a year and expand EU-Canada trade by about a quarter. Any collapse of CETA, which took five years to negotiate, would take the steam out of a series of separate negotiations with the U.S., Japan and other countries as a wave of populist parties around the world challenge the benefits of free trade.

The accord would end 98 percent of tariffs on goods traded from the outset and 99 percent after seven years. Each side would dismantle all industrial tariffs and more than 90 percent of agricultural duties. Markets for services and public procurement would also be opened.

EU Viability

Trudeau, who had planned to travel to Europe to sign the pact next week, argues failure to finalize CETA would raise questions about the bloc’s viability in a post-Brexit era. “It’s really important to demonstrate that the European Union is able to sign important trade deals,” he said earlier this month.

Wallonia, which accounts for less than 1 percent of the EU’s population, wants CETA reopened to add safeguards. The stance is tying the hands of the Belgian federal government, which is in favor of CETA.

Earlier this week, the Belgian bickering prevented EU trade ministers from taking the first step in the European ratification process of CETA by giving the green light to the deal. Instead, the ministers left it to EU government leaders to tackle.

Lithuanian President Dalia Grybauskaite signaled that the EU has faced a basic dilemma in trying to find the right degree of consultations on CETA with Wallonia. “Partly we are hostages of internal politics of one country,” Grybauskaite said.

‘Very Serious’

Belgian Prime Minister Charles Michel told reporters on Friday that he “wasn’t reassured” because there has been a “radicalization of the positions of the Walloon government.” Room for compromise has been offered through a declaration that the European Commission, the EU’s executive arm, has been drafting to accompany the trade deal.

Estonian Prime Minister Taavi Roivas said after the leaders’ meeting that the EU’s “credibility as a union is at stake” and signaled the collapse of CETA would bury the separate European negotiations with the U.S. on the Transatlantic Trade and Investment Partnership.

“If Europe fails with CETA, it’s very difficult to imagine we can be successful with TTIP,” Roivas said. “This is very serious.”