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Should you bet on a Canada-EU deal?

As the window to negotiate a Canada-EU free trade agreement narrows, Danielle Goldfarb weighs possible scenarios.

By: /
22 July, 2013
By: Danielle Goldfarb
Associate Director of the Conference Board of Canada’s Global Commerce Centre

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

The most plausible scenario is that a deal will still be made, but several deadlines for completion have already been missed and an alternate scenario could come to pass. Whatever the outcome, it will likely have a domino effect on the rest of Canada’s trade agenda – and, in turn, on the living standards of current and future generations of Canadians.

Scenario #1 (70% chance): A comprehensive Canada-EU trade deal is signed.

Canada-EU negotiations are in their final stages. This week, the EU’s top diplomat in Ottawa Matthias Brinkmann said the deal was down to “fine tuning in the final stretch”. So the odds are good that the deal will be made. If it is not signed before the end of summer, it could be signed later in the year or, as Brinkmann is now signaling, in 2014.

Under this scenario, Canada would gain freer access to 28 countries with a combined economy of more than $17 trillion – larger than the U.S. market. In addition to selling goods and services in the EU market, Canadian companies could invest to serve both Europe and other markets from a European base.  Canadians would benefit from having freer access to the best European technologies, goods, services, and agricultural products. Europe would, in turn, benefit from access to the Canadian market and a platform to enter the United States.

 An agreement with the EU also signals to other potential trade partners that it is worth putting in the effort to negotiate comprehensive deals with Canada. This could lend momentum to Canada’s other trade negotiations, including bilateral talks with India and  Japan, the new 21 country international services agreement negotiations, and the 10-country Trans-Pacific Partnership talks.

Scenario #2 (30% chance): No Canada-EU deal gets signed.

Under this scenario, negotiators are not able to work out their differences on some of the toughest, most controversial issues (such as Canada’s access to the EU market for beef and access to each other’s government procurement markets – a key EU demand).

It is unlikely that a narrower deal that leaves out the most controversial issues will come to pass. The Europeans said from the outset that they wanted a comprehensive agreement, or none at all. Both parties want their special “offensive” interests addressed, and the negotiation is about trade-offs. So if there’s no big deal, there’s no deal.  

Under a no-deal scenario, the negotiations are unlikely to be officially closed. But negotiators could simply stop scheduling negotiating rounds. 

A no-deal scenario would be bad economic news for Canada, whose trade volumes flat-lined over the past decade. Canadian companies need new markets if they are to grow – and in turn bolster Canadians’ living standards.

This is a very real possibility. In addition to missed deadlines for a final agreement, there is now a much bigger prize on offer for Europe. The first round of U.S.-EU free trade talks last week threatens to put the Canada-EU project on the backburner. It is no secret that freer access to the U.S. market would offer the EU a much bigger economic boost than would access to Canada. EU trade negotiators will prioritize that deal, especially after EU-US negotiations kick into high gear in the fall.

If the U.S. gets a deal with the EU but Canada does not, our companies will be at a disadvantage in the EU market where they will face higher barriers than American businesses. And several other major economies already have or are negotiating deals with the EU. So Canada’s companies could be at a disadvantage relative to many major economies.

In addition, this could make it harder to sign other trade deals, such as those with fast-growing markets or in important new areas such as services. Why take negotiations with Canada seriously if we haven’t been able to complete a major trade deal since the Canada-U.S. deal in the 1980s?

Under a no-deal scenario, Canada may need to consider whether and how to attach itself to the EU-U.S. talks. And if a no-deal scenario is a real possibility, we should have that discussion now rather than years into the EU-U.S. negotiations. Being at the table for those talks might at least give Canadians the same access the Americans will get in the EU market.

With a small domestic market, Canada depends on global opportunities – such as those on offer in the EU – to bolster our citizens’ living standards. In short, a lot is at stake here for Canada, and the clock is ticking.

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