Canada: Canada To Deepen Trade Relations With The European Union

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on International Trade, October 2008

On Friday, October 16, 2008, recently re-elected Prime Minister Stephen Harper and French President, Nicolas Sarkozy, who currently holds the rotating presidency of the European Union (EU), met at a summit in Quebec City to discuss the possibility of a strategic partnership between Canada and the 27 member states of the EU, Canada's second most important trading partner. Following this meeting, the leaders jointly issued a statement indicating their intention to work together to define the scope of an ambitious economic agreement that, once negotiated, is intended to be more extensive than most other free trade agreements.

The leaders stated in their summit declaration that they intend to move with some haste to establish a Canada-EU economic agreement, stating that they intend to obtain mandates before the end of this year, thereby enabling the launch of negotiations "as early as possible" in 2009.

Although the details of the agreement have yet to be negotiated, the statement released by Mr. Harper and M. Sarkozy provide an indication of what can be expected.

A Closer Economic Partnership

The backbone of what will likely be formalized into an economic partnership agreement is set out in great detail in the joint study released by the governments of Canada and the European Commission earlier this week.

Canada maintains long-standing trade relationships with many of the EU's member states reflecting strong historical, political and cultural links. This trading relationship has gained momentum in the past years, amounting to roughly C$80 billion of two-way trade during 2007. Investment levels are also high and continue to rise. In 2006, two-way investment between the EU and Canada was in the range of €165 billion (C$263 billion). Nonetheless, the joint study revealed that there is much to be gained by deepening this economic relationship.

The joint study concluded that while the Canada-EU trade relationship is generally well-functioning, there are clear gains to be realized by addressing tariff barriers, liberalizing trade in services and reducing certain non-tariff barriers to goods and investments that currently exist in the form of discriminatory regulation and standards. Through the elimination of these barriers, Canada is expected to gain roughly €8.2 billion (C$13 billion) in trade over five years. Similarly, the EU is expected to gain approximately €11.6 billion (C$18.5 billion) in trade over five years.

Liberalization of Trade in Services

It is anticipated that significant gains will occur as a result of a liberalization of trade in services. Currently, the EU is Canada's second largest trading partner for trade in services. In 2007, the EU exported approximately €11.1 billion (C$17.7 billion) in commercial services to Canada, including services in transportation, travel, insurance and financial services. In the same year, Canada exported €9.3 billion (C$14.8 billion) in commercial services to the EU, including travel, business services, transportation and construction.

Negotiations are expected to address barriers to trade in services between the two parties such as barriers to commercial establishment (foreign ownership caps), restrictions on types of commercial presence and number/type of services that can be provided and discriminatory treatment favouring domestic companies through registration or nationality requirements. According to the joint study, a barrier of particular importance for European business in the financial services sector is the 13 different bodies that regulate securities in Canada. The absence of an integrated national approach or of mutual recognition agreements between the various bodies poses difficulties for EU financial service providers.

Access to Procurements

One potential stumbling block for Canada is that certain issues are under provincial jurisdiction and therefore will require provincial co-operation in order to be fully implemented. This is particularly the case with respect to the opening up of provincial procurement systems to European participants. The Canada-EU agreement will aim to give European companies equal access to Canadian federal and provincial procurement markets, including in respect of trains and subways, and therefore full access to procurement dispute resolution systems. Similarly, Canadian companies are expecting to gain access to procurement systems in the EU member states.

Potential Obstacles

In addition to the challenges of gaining provincial support, other challenges for negotiations include agricultural subsidies provided by Canada and the EU to domestic producers, the design of an effective dispute resolution system, and agreements on carbon trading, carbon output and environmental regulation.

Canada-EU Air Services Agreement

Mr. Harper and M. Sarkozy have also announced the negotiation of an air services agreement between Canada and member countries, which would pave the way for new opportunities in the airline sector. This agreement is intended to improve connections between markets of the EU and Canada and to simplify administrative requirements. Negotiations in regards to this agreement are expected to wrap up by the end of November 2008.

Concluding Observations

With the summit announcement, Canada and Europe have taken the first critical step towards strengthening their economic integration. This development has the potential to offer a wealth of opportunities: an increased ability to tap into global supply chains to maintain or enhance competitiveness, the opening up of additional markets for exports and increased sources of and opportunities for investment. Moreover, foreign parent companies with Canadian and European subsidiaries may also share in the benefits of such an agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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