News and Analysis • Volume 13 • Number 2 • June 2009

20 - EU Canada Seek Trade Opening Pact in Times of Crisis

Canada and the European Union launched negotiations for a free trade treaty in May. The deal would be the first between two major developed trading powers in more than a decade.

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The comprehensive agreement is to cover trade in goods and services, as well investment, government procurement, intellectual property issues, the environment, and science and technology.

Currently, trade in goods and services between the EU and Canada amounts to some -70 billion annually. According to a scoping study commissioned by the Canadian government and the European Commission, an ambitious FTA could bring real income gains worth -8.2 billion to Canada and -11.6 billion to the EU. EU exports to Canada could increase by more than 24 percent, while Canadian exports to the EU could get a 20-percent boost.

Tariffs are already low for most goods traded between the two sides, although peaks exist in areas such as processed foods, fish and seafood products in the EU, and footwear, textiles and apparel in Canada. Reducing these barriers would bring some gains, but the bulk of the benefits under the agreement would flow from liberalising investment regimes and services. Tearing down existing barriers in these areas by 2 to 10 percent could translate into GDP increases worth for more than -5 billion for the EU and roughly -3.6 billion for Canada.

In addition, the parties intend to tackle non-tariff barriers through harmonising regulations in areas ranging from copyrights to animal safety. Another aim of the pact is to increase labour mobility for skilled workers, particularly in the business sector.

If all goes according to plan, the negotiations could be wrapped up within two years.

Strategic Aims

Canada hopes that the FTA will lessen its reliance on the United States, where consumer demand has plummeted since the onset of the economic crisis last year. More than three-quarters of all Canadian exports now go to the US; only 8 percent are destined for Europe. Even so, the EU is Canada’s second largest trading partner, while Canada is the EU’s 11th most important foreign market.

A free trade agreement with NAFTA member Canada would provide the EU ‘a gateway to the North American market’, Canada’s Prime Minister Stephen Harper stressed. He also noted that for the first time in history, his country was in a position to offer “a better environment for investors at the end of the current recession than the United States.”

Frank Vargo of the US National Association of Manufacturers has expressed some foreboding about the impending deal. “The EU already has a free trade agreement with Mexico. Now they’re negotiating one with Canada and that leaves us out. This has always been our concern: other countries are going to negotiate deals that will either dilute our market access or will put us at a significant disadvantage,” Mr Vargo said.

Commitment to Open Trade

Both sides emphasised the symbolic importance of launching negotiations in the middle of an economic crisis. EU Trade Commissioner Catherine Ashton said: “At a time when concerns about protectionism dominate the trade agenda, the decision to start negotiations now sends a powerful message that open trade and investment are drivers of economic recovery.” The WTO has predicted that global trade will drop by 9 percent this year.

Some, however, have interpreted the EU-Canada talks as a tacit acknowledgement that the parties have lost confidence in the multilateral trading system’s ability to deliver and are therefore seeking out another venue for increasing trade.

A Seal in the Ointment?

The EU’s sales ban on seal products could become a hot spot in the negotiations. Canada has already announced that it will challenge the measure at the WTO unless it is changed so as to exclude Canadian products. That, however, is unlikely. The European Parliament has already approved the legislation, and member states are not expected to substantially amend it. As it stands, the law permits the sale of seal products only if they result from traditional Inuit hunts. The ban could enter into force in October 2009 (see page10).

The premier of the province of Newfoundland and Labrador, Danny Williams, has vowed not to support the free trade talks in protest over the EU embargo. The province is home to roughly 6,000 sealers, and Mr Williams insists that the ban “has no basis in science or sustainable harvesting practices.”

Such opposition could complicate the FTA negotiations as Canadian provincial officials have been invited to participate in the talks “with a view to making binding commitments” to implement the agreement, which must be approved by lawmakers at both the national and provincial or territorial levels.

Canada Delays Consideration of Colombia FTA

Meanwhile, further discussion on Canada’s implementation legislation for a free trade agreement with Colombia has been put on hold until next fall following a long debate in the House of Commons, which revealed deep misgivings about human rights violations and labour conditions in the Andean country. The agreement was signed in November 2008.

Canada also has FTAs with the US and Mexico, Peru, EFTA countries, Costa Rica, Chile and Israel. Negotiations are underway with South Korea, Jordan, Morocco and Singapore, as well as a number of countries in Central America and the Caribbean.