Written by Milos Barutciski and Jesse Goldman
The Canadian government has initiated preliminary consultations with businesses and other stakeholders with regard to areas of potential interest to be pursued in free trade negotiations with the European Union (EU). This negotiation is potentially the most significant development in Canada's international trade relations since the North American Free Trade Agreement (NAFTA) came into force in 1994. All indications thus far suggest that the proposed economic agreement would have a broader scope than either Canada's or the EU's existing free trade agreements (FTAs), including NAFTA, thus opening a broader range of business opportunities.
On December 20, 2008, the Department of Foreign Affairs and International Trade (DFAIT) issued a notice soliciting submissions from interested parties to help identify their objectives, concerns and defensive interests in connection with a proposed new economic agreement with the EU. Companies that present their concerns and priorities to DFAIT at an early stage will be better placed to advance their interests in Canada's opening position in the negotiations and in subsequent stages of the process.
This initiative follows the statement made jointly by Prime Minister Stephen Harper and French President Nicolas Sarkozy on October 17, 2008, when France held the rotating presidency of the EU, announcing that Canada and the EU intend to prepare formal mandates to launch negotiations on an ambitious economic partnership as early as possible in 2009. This announcement was closely followed by the announcement on December 9, 2008, of a multi-phased “Open Skies” agreement intended to greatly liberalize the market for air transport services and investment between Canada and the EU.
With a population of almost 500 million and a GDP greater than €12 trillion, the EU represents an extremely attractive market for Canadian businesses. A new economic agreement between Canada and the EU would off er an immense opportunity for Canadian businesses to diversify into new markets for the supply of goods and services, including sophisticated value-added products and technology.
The EU is Canada's second largest trading partner, with bilateral trade in goods and services accounting for approximately C$110 billion in 2007. Prior to the present initiative, Canada's many overtures to the EU to initiate broad-based trade negotiations have failed to elicit engagement from the EU. The fact that Canada was only the EU's eleventh largest trading partner and that the Canadian economy is relatively open meant that there was little immediate impetus for the EU to begin negotiations. The EU's position began to shift in 2007 when the EU agreed to conduct a joint study with Canada into the costs and benefits of an expanded bilateral economic and trade relationship.
The joint study, Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership, was released on October 17, 2008. The study found that the economic benefits of a comprehensive bilateral FTA would be significant for both Canada and the EU. The benefit to Canada as a result of liberalizing trade in goods and services was projected to be an estimated C$12 billion over the first seven years of liberalization, whereas the benefit to the EU was even greater at approximately C$17 billion over the same period. In addition, the recent stalling of the multilateral trade negotiations under the WTO Doha Round created a further incentive for both Canada and the EU to pursue trade liberalizing initiatives elsewhere.
What's At Stake
The proposed negotiation is expected to address a very broad agenda from the outset. Specifically, negotiation can be expected to include efforts to achieve substantial liberalization of:
- trade in goods, including elimination of customs duties and streamlining of customs procedures, reduction of non-tariff barriers in areas such as import licensing, technical and product standards, mutual recognition and conformity assessment;
- trade in services, including further market access commitments in sectors not presently covered by either Canada's or the EU's commitments under the WTO General Agreement on Trade in Services;
- investment, including addressing discriminatory provisions and other investment barriers at the provincial level for Canada and by Member States in the EU;
- government procurement markets at both the provincial and Member State levels;
- labour mobility, including facilitation of temporary entry and transfers of business personnel; and
- mutual recognition of professional and technical qualifications.
Other areas such as open skies, enhanced regulatory cooperation, competition policy, environmental protection, climate change and emissions trading, labour rights and human rights, can also be expected to be brought into the negotiations.
The Road Ahead
At present, the Canadian government and the European Commission are engaged in a scoping exercise to determine the range of potential interests that will be affected by the negotiation from both offensive and defensive perspective. The Canadian government has initiated a formal consultation with business and other stakeholders. Although the European Commission has not yet initiated a similar public consultation, EU officials have initiated the process of identifying European negotiating interests. Among other things, senior European officials responsible for conducting the negotiations are expected to travel to Canada in the coming weeks. These developments, as well as statements by the current Czech presidency of the EU of its intention to initiate negotiations in the first half of 2009, indicate that the Canada-EU trade initiative is gaining momentum.
There are, of course, important hurdles to overcome. On the Canadian side, many of the areas that have been identified as prospects for further liberalization, such as procurement, trade in services and professional and technical qualifications, are under provincial jurisdiction. As such, the federal government will need to obtain positive provincial commitments in order to advance its negotiating agenda in these areas. Similarly, many areas of interest to Canada will have to be addressed by the EU's Member States, which will have their own interests to protect, notably in controversial areas such as agriculture, geographical indications and the use of genetically modified organisms and hormones in certain agri-food products. The global economic slowdown will also have an impact on the scope and pace of the negotiations, with the prospect of increased economic activity creating incentives for bold action while threatened sectors seek defensive carve-outs, exemptions and longer phase-ins or phase-outs.
On balance, the Canada-EU trade initiative represents the most significant international trade development for Canada in 15 years. The Canadian government's consultations present an important opportunity for businesses to influence the parameters of the negotiations toward a potentially historic agreement that brings Canada and the EU closer together.
For further information about the proposed Canada-EU negotiations, their potential impact on specific sectors or businesses, or responding to the Canadian government's notice, please contact a member of our International Trade and Investment Practice.