As a strong supporter of free trade, the European Union (EU) is a strategic partner for Canada, with the oldest formal relationship dating back to 1959. On 18 October 2013, Canada and the European Union (EU) reached an agreement in principle on a Comprehensive Economic and Trade Agreement (CETA) that proponents suggest will bring the trade and investment relationship between the two trading partners to a new level.
What is CETA?
The Comprehensive Economic and Trade Agreement (CETA) covers issues relevant to a modern trade and investment environment, from new market access opportunities to clear rules for European and Canadian traders and investors. It addresses the full range of conditions that shape international trade in goods and services in order to eliminate or reduce barriers.
Impact of CETA on Canadian Businesses:
This agreement is by far Canada’s most ambitious trade initiative. It covers most aspects of the Canada-EU bilateral economic relationship, including trade in goods and services, investment, and government procurement. It also grants the flexibility to include areas of mutual interest beyond those that have traditionally been included in Canada’s trade agreements, such as regulatory cooperation. CETA will open new markets to Canadian exporters throughout the EU. It will also make Canada a more attractive destination for investors and manufacturers.
- In an effort to deepen and broaden the Canada-EU commercial relationship, in 2008 Canada and the EU issue a joint study, Assessing the Costs and Benefits of a Closer EU-Canada Economic Partnership, which provided supporting rationale for a launch of negotiations.
- Negotiations on a Comprehensive Economic and Trade Agreement (CETA) were launched in May 2009 at the EU-Canada Summit in Prague.
- The content of the CETA and its general modalities were agreed in June 2009.
- A successful and productive first round of negotiations toward a CETA was held in Ottawa in 2009. Both sides made efforts to identify common grounds and set an ambitious negotiating timeline.
- EU Trade Commissioner Karel De Gucht and his Canadian counterpart Trade Minister Fast met in February 2013 to take stock of the remaining open points.
- After months of intense negotiations, Commission President José Manuel Barroso and Canadian Prime Minister Stephen Harper reached a political agreement on 18 October 2013.
Economic Ties Between the EU and Canada:
- In 2010 Canadian merchandise exports amounted to C$34.5 billion, while imports stood at C$47.8 billion.
- Canadian exports to the EU are diverse and include a significant share of value-added products in addition to traditional exports of resource-based products and commodities. Machinery and transport equipment, chemicals, pharmaceutical products, mineral fuels and diamonds are among our leading merchandise trade items.
- Trade in services is significant, with Canada exporting C$12.6 billion in services to the EU in 2010, while importing approximately C$14.9 billion. Examples of often traded services between Canada and the EU are transportation, travel, insurance and communication.
- The investment relationship is equally highly important. In 2011, European investors held investments worth more than €221.6 bn in Canada while Canadian direct investment stocks in the EU amounted to almost €137.6 bn. (Source: EU trade relations with Canada)
- Key growth sectors of interest to Canada include ICT, telecommunications, aerospace and defence, energy technologies, and environmental products and services.
The Agreement will provide Canada with preferential market access to the EU’s more than 500 million consumers and to its annual $17 trillion in economic activity.
A joint study conducted in 2008 examined the costs and benefits of pursuing a closer economic partnership and revealed that both the EU and Canada can expect to gain from a closer bilateral trade relationship. A future agreement would contribute to economic growth and the creation of jobs. It would have several benefits, in particular:
- The economic model of the Joint Study predicts annual real income gains of approximately €11.6 billion for the EU and €8.2 billion for Canada within seven years following the implementation of an agreement.
- Total EU exports to Canada are estimated to go up by 24.3% or €17 billion, while Canadian bilateral exports to the EU are predicted to increase by 20.6% or €8.6 billion.
- 50% of the total expected gains for the EU are related to trade in services, 25% to the removal of tariffs and the remaining 25% of the GDP gains can be reached by the dismantling of Non-tariff barriers (NTB).
- The benefits from the Agreement in the area of NTBs are estimated to result in a €2.9 billion gain for the EU and €1.7 billion for Canada.
- In the service sector new opportunities will arise both for European and Canadian companies.
- Companies on both sides will benefit from the disciplines on investment protection, which are currently being negotiated, making investment even safer!
- An agreement would bring the investment protection regimes on both sides to a comparable level.
- Both countries will gain from increased access to the respective public procurement markets. All sub-federal levels of government in Canada will be open to European companies to engage in tenders.
Status of the Agreement:
Now that an agreement in principle has been reached, both parties will seek to conclude the formal agreement and undertake a legal review of the document. Once the final agreement is signed, it will then need to be ratified by respective parliaments.
Pacific Customs Brokers is monitoring the situation and will continue to post updates to the Trade News section of our website as they become available.
For more information on this agreement and to see how this it unfolds, please visit the CETA website.