Brexit Talks Loom Large as EU Fumbles Trade Deal With Canada

(Bloomberg) -- The European Union’s ability to complete ambitious international agreements was called into question just months before formal Brexit talks begin after a trade deal with Canada appeared to falter at the final hurdle.

Canadian Trade Minister Chrystia Freeland ended negotiations on Friday, saying the EU “is not capable right now” of completing the Comprehensive Economic and Trade Agreement, which would be the EU’s first commercial accord with a fellow member of the Group of Seven leading industrialized countries.

“If there are all these problems to have a simple trade agreement with Canada, just imagine an agreement with the U.K.,” Maltese Prime Minister Joseph Muscat said after a meeting of EU leaders in Brussels. “If Europe cannot conclude an agreement with one of the most progressive countries in the world right now, which has offered thorough assurances on all the issues that have been raised by certain European skeptics, then honestly I don’t know with whom we could possibly conclude any agreement.”

The EU says the pact, also called CETA, which has been in the works for five years, would boost its economic output by about 12 billion euros ($13 billion) a year and expand EU-Canada trade by about a quarter. The deal’s failure would complicate separate negotiations with the U.S., Japan and other countries as a wave of populist parties around the world challenges the benefits of free trade. Indeed, the pro-Brexit camp in the U.K. may seize on the collapse of talks as evidence that the EU can’t deliver on its promises.

Walloon Objections

“Truly speaking the problem goes beyond CETA,” EU President Donald Tusk said on Thursday. “I’m afraid that it means that CETA could be our last free-trade agreement.”

The Belgian region of Wallonia, which accounts for less than 1 percent of the EU’s population, blocked progress of the deal, citing the need for more time to negotiate. The stance is tying the hands of the Belgian federal government, which is in favor of the deal, but needs the endorsement of regional authorities.

The European Commission, which negotiated the EU-Canada pact, decided in July that national and even some regional parliaments in Europe should be involved in the approval process amid warnings by some countries against bypassing their lawmakers. EU officials are trying to retain support for their free-trade agenda as they pursue parallel negotiations with the U.S. on the separate deal, known as the Transatlantic Trade and Investment Partnership.

“If Europe fails with CETA, it’s very difficult to imagine we can be successful with TTIP,” Estonian Prime Minister Taavi Roivas said.

European Commission President Jean-Claude Juncker expressed reserved optimism on Friday before the Canadians left the negotiating table, but warned against over-analyzing the situation.

“I had to fight enough to understand my own psychology so I’m not going to interfere into other people’s psychology,” Juncker said. “Wallonia expressed its point of view, the commission replied to it rapidly and with a lot of sympathy.”

--With assistance from Jonathan Stearns To contact the reporter on this story: Richard Bravo in Brussels at rbravo5@bloomberg.net. To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Ben Sills, Kevin Costelloe