Closing the Canada-EU deal

Prime Minister Harper’s Throne Speech announced that Canada is on the verge of signing a free trade deal with the European Union – this country’s first major trade deal since the Canada-U.S. free trade agreement in the later 1980s. Harper is in Brussels today to meet with the President of the European Commission and seal the deal.

Media attention has naturally focused on contentious areas. Dairy farmers are “cheesed off” about a reported doubling of EU cheese imports into Canada’s closed dairy market, apparently in exchange for Canadian access to EU beef and pork markets. Other areas of contention include extending patent protection for pharmaceuticals, opening up government procurement, and increasing the review threshold for EU investments in Canada.

These issues matter, especially for specific sectors and regions that will need to adjust. But Canadians should take a few steps back from these headline issues to think about the broader global context. Here are three reasons we should care about this deal that don’t typically make the headlines:

1. Canada needs to find other markets than the United States. With a small domestic market, Canada depends on global opportunities to improve our living standards. Historically, we have relied on our commercial relationships with the U.S. to do so. But Canada’s trade with the U.S. has completely flat-lined over the past decade. The reasons for this are long-term and unlikely to change.

For one, as the Conference Board report Walking the Silk Road shows, Canada’s companies now face intense competition from China in the U.S. market. While the U.S. will nevertheless continue to be Canada’s most important trading partner, companies will need to find opportunities elsewhere. The EU market is larger than the U.S., and our trade and investment relationships are significant and growing, according to our forecasts. In fact, we export more products to the EU than to China, India, and Brazil combined.

2. Canadian companies won’t be at a disadvantage. With a Canada-EU deal, this country’s businesses will gain an advantage in the EU market over firms from other countries (like the US) that still face tariff and other trade barriers in the EU – or at least will not be at a disadvantage relatives to companies from countries that have signed a deal with the EU. Canada may now want to join the U.S.-EU talks to ensure that Canadian businesses do not lose advantage if a more ambitious deal is struck between the EU and U.S.  This would be similar to Canada’s decision to join U.S.-Mexico trade talks following the signing of the Canada-U.S. free trade deal, and resulted in NAFTA.

3. This helps Canada open doors to markets beyond the EU. Signing a comprehensive Canada-EU deal gives Canada’s entire free trade negotiations agenda a boost. Over the past decade, Canada has tried but failed to complete major trade deals, and signed several relatively minor trade deals. The signing of the Canada-EU deal shows the world we can actually complete a major deal.

This will lend momentum to Canada’s other major trade negotiations, including those with fast-growth markets to which Canadian businesses are underexposed. These include the Canada-India talks, Canada-Japan talks, the 23 country trade in services negotiations, and the Trans-Pacific Partnership Talks (U.S., Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Japan, and Vietnam).

Moreover, freer access to the EU market makes it easier for Canadian companies to set up offices in the EU to be able to access markets further afield such as those in Asia.

There are other reasons. The deal is likely to make it more attractive to sell Canada’s fast-growing services in the EU market and beyond. And of course Canada benefits from having access to the best of European technologies, goods, services, and agricultural products (more cheese, please).

The key point is that the world economy has changed dramatically. Canada’s traditional reliance on the U.S. economy is no longer enough. The imminent Canada-EU deal should help start opening doors to new opportunities, and encouraging Canadian companies to step through.