Bridges Weekly Trade News Digest • Volume 12 • Number 35 • 23rd October 2008

Canada, EU to Negotiate Trade Pact

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Canada and the EU are expected to begin preliminary negotiations toward a comprehensive economic partnership. The transatlantic deal was announced at the annual Canada-EU Summit in Quebec City last week, where recently re-elected Canadian Prime Minister Stephen Harper, French President Nicolas Sarkozy - who currently holds the rotating Presidency of the EU - and European Commission President José Manuel Barroso met to discuss trade policy and the global financial situation.

The next step, Harper told reporters at a press conference on 17 October, would be to “define formal mandates for negotiating an ambitious, deeper and comprehensive and truly historic economic partnership agreement” - the process of which is set to commence “as early as possible in the new year.”

“In the current global economic climate, we agreed that closer economic cooperation with key partners is becoming more important than ever,” he said. “Among other things, this means rejecting the frequent tendency in difficult times to turn inward and erect barriers between our economies and our citizens.”

“Indeed, we must stand against protectionism and work to lower and eliminate barriers,” he said.

Harper said the EU and Canada, in taking their economic cooperation to “an entirely new level,” have already directed their negotiators to work towards a comprehensive air-services agreement over the next few weeks.

The announcement came after the release of an economic study by Canada and the 27-nation trading bloc on 16 October.

According to the study, reducing tariff and non-tariff trade barriers and liberalising trade services would be worth around €11.6 billion for the EU and €8.2 billion for Canada by 2014. That would represent a gain worth 0.77 percent of GDP for Canada and 0.08 percent of GDP for the EU.

The proposed pact is set to include unrestricted trade in goods, services and investment and the elimination of tariffs as well as free movement of skilled workers and an open market in government services and procurement, the Globe and Mail reported.

Ottawa has said that all 13 provincial and territorial governments had agreed to the proposed pact. Disagreement within Canada is one of the more difficult hurdles the country faces on the road to securing an agreement. Other potential difficulties include agricultural subsidies, which both parties defend, the outline of a dispute resolution system and carbon and environment policies. Agreements on carbon trading and output could prove troublesome as Canadian provinces already differ on these subjects.

For Canada, trade diversification underscores any deal with the European trade bloc. Since striking the Canada-US Trade Agreement in 1988 and the North American Free Trade Agreement in 1993, Canada has focused primarily on its southern neighbour; currently Canada sends more than 80 percent of its exports to the US. But with the US economy languishing, demand for Canadian goods is waning, and a deal with one of the largest markets in the world takes on a greater urgency for Canada.

The EU is Canada’s second-largest trading partner, after the US, while Canada is Europe’s eleventh-largest trading partner. The EU has conducted various free trade agreements with developing countries over the years, but with a stalled Doha Round of trade talks at the WTO, the European trade bloc is looking to move forward in other areas, including bilateral agreements.

If a deal is reached, Canada would be the first developed nation to have open trade relations with the EU.

ICTSD reporting; “Canada, EU seek new trade pact amid global financial crisis,” DEUTSCHE PRESSE AGENTUR, 18 October 2008; “Canada-EU trade proposal rivals scope of NAFTA,” GLOBE AND MAIL, 18 September 2008; “Ottawa, EU seek new trade pact,” GLOBE AND MAIL, 17 October 2008.