Did Obama Just Derail the Canada-EU Trade Deal?

Time is running out for Canada to complete a free-trade agreement with the European Union.

In his State of the Union address, U.S. President Barack Obama said that the U.S. would start comprehensive free-trade talks with the EU.

A deal could help revive the U.S. and European economies, but U.S.-EU negotiations could also make it difficult to get the EU to wrap up the Canadian deal, which is currently in the final stages, and is already past deadline. And that could make it harder for Ottawa to complete other free-trade deals. 

Now that access to the huge U.S. economy is on offer for the EU, it will become harder for Canada to get the EU’s attention. If the U.S. gets a deal but Canada does not (or Canada gets only a narrow deal), our companies will be at a disadvantage in the EU market compared with U.S. companies. And the U.S. is not the only country negotiating with the EU – Mexico already has a deal, and Japan and India have started negotiations.

Last week, the European Union trade commissioner was in Ottawa, but no deal was announced. Presumably, negotiators are hung up on some of the toughest, most controversial issues. These could include dairy imports (see “More EU cheese please”), beef exports, pharmaceutical patents, and government procurement.

The EU is a massive market – its members have a combined economy of more than $17 trillion, which is larger than the U.S. market. And the EU is an important Canadian trade and investment partner. A recent Conference Board study, “What Might Canada’s Future Exports Look Like?” estimates that Canada’s export share to the EU is likely to grow from 4.5 per cent in 2010 to six per cent by 2025.

The relationship extends beyond goods exports. Canadian companies sell more in Europe (from their investments there) than they export directly to Europe. Services trade in both directions is large and growing quickly, as the Conference Board study, “Canada’s ‘Missing’ Trade With the European Union,” shows. The deal is intended to address not just tariff barriers, but also a wider swath of commercial barriers, such as those that affect services trade. And Canadians benefit from having access to the best European technologies, goods, services, and agricultural products.

If Canada is able to wrap up a wide-ranging deal with the EU, it will show that Canada can get comprehensive trade deals done. This could lend momentum to Canada’s other trade deals that are in the works, such as the Canada-India talks, the new 21-country international services agreement negotiations, and the Trans-Pacific Partnership. An agreement with the EU signals to potential partners that it is worth putting in the effort to negotiate with Canada.

A new Conference Board report, “Walking the Silk Road: Understanding Canada’s Changing Trade Patterns,” shows that trade with the United States is stagnant but still represents the majority of Canada’s trade. Meanwhile, as the same report shows, Canada’s trade with other countries has taken off, but Canada is underexposed to these markets, including fast-growing emerging markets. To boost – or even maintain – Canadian living standards, it will therefore be critical to open doors for Canadian businesses in the EU market, as well as in other, less traditional, markets.

Getting the details right in the Canada-EU deal, and ensuring it is in the long-term public interest, is critical. But Obama’s EU trade announcement now puts pressure on Canada to get this deal done sooner, rather than later. The clock is ticking.