Originally published in Blakes Bulletin on International Trade, June 2007
A Goods-Based Agreement That Signals More To Come
Canada announced a free trade agreement with the European Free Trade Association (EFTA), on June 7, 2007. Negotiators have agreed to the text. It will now undergo legal review, a process that is expected to take a number of months. The text of the agreement will be made public after the Cabinet has reviewed the legal copy and has given signing approval. The text will then need to be ratified by Parliament.
Switzerland, Iceland, Liechtenstein and Norway constitute the EFTA. These four highly developed nations rank in the top 10 of GDP per capita worldwide. The EFTA is the world’s fifth largest trader in commercial services and the 10th largest in merchandise.
Intermittent negotiations for the past nine years have resulted in a Canada–EFTA free trade agreement (Agreement) that is expected to be ‘first-generational’, meaning an emphasis on goods. The Agreement will deal with a range of sectors, including agriculture, agri-food, forestry, pulp and paper, manufactured housing, aluminum, cosmetics, motor vehicles, and shipbuilding. The Agreement is not expected to include substantive provisions relating to service, investment, and intellectual property, beyond the existing obligations under the WTO. Thus, the Agreement, including dispute settlement provisions, is based on other EFTA goods-based free trade agreements and not the NAFTA model.
Canada and the EFTA member states are already key trading partners. The Agreement is expected to bring further growth and diversification in bilateral trade. The EFTA countries are Canada’s eighth largest merchandise export destination. In 2006, Canada’s bilateral merchandise trade with the EFTA grew 10 per cent to CAD 10.7 billion, or 1.7 per cent of the two-way trade with the U.S. EFTA's exports to Canada were worth CAD 7.6 billion. Canada exported CAD 3.1 billion worth of goods to EFTA countries in 2006. In 2005, two-way investment stocks were approximately CAD 22.3 billion.
It is expected that the Agreement will have a number of benefits for Canada, such as reducing tariffs on Canadian exports, removing barriers to entry into the EFTA, enhancing Canada's attractiveness as an investment location, and offering an important gateway to the European market. Specifically, all EFTA tariffs will be eliminated on Canadian industrial exports, including forest products, pulp and paper products, manufactured housing, aluminum, cosmetics and motor vehicles. Canadian agricultural products, such as frozen foods and selected beverages, durum wheat, canola oil, honey and various fruits and vegetables, will have improved access to the EFTA. As well, EFTA export subsidies on certain agriculture and agri-food products will be eliminated.
A likely 15-year phase-out of the 25 per cent shipbuilding duty, with a three-year grace period before any tariff cuts begin is meant to soften the impact on the Canadian shipbuilding industry. The Canadian concern stems from Norway’s strong maritime transport sector.
The Agreement signals that Canada is prepared to aggressively pursue trade liberalization after a six year free-trade deal signing hiatus. According to Trade Minister David Emerson, Canada is "back in the game" and is launching free-trade negotiations with Colombia, Peru and the Dominican Republic.
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