In contrast to the heated debates and wide media publicity surrounding the Canada/United States Free Trade Agreement and the North American Free Trade Agreement (NAFTA), the prospect of a free trade agreement between Canada and the European Union (EU) has received virtually no attention. Considering the depth of economic relations between Canada and EU, this is somewhat puzzling. The EU is Canada’s second most important goods trading partner. It is also Canada’s second most important investment partner. Going the other way, Canada is the EU’s fourth most important investment partner.

Negotiations on the Canada/EU FTA began in earnest in May 2009, and are expected to conclude within two years. A joint report released in March 2009 prepared by the EU and Canada identified a very broad range of areas for negotiation, including trade in goods, services, investment, government procurement and labour mobility. Indeed, a draft text of the agreement has already been exchanged.

To date, however, very few individual Canadian businesses have provided their specific input into the process. This has led to some difficulty on the Canadian side, in articulating exactly what Canada’s trade interests are in certain areas which have received scant input, such as services, investment and procurement. Although the deadline for responding to the questionnaire posted on the Foreign Affairs and International Trade website has long past, Canadian officials are anxious to receive input from Canadian business. Businesses should consider both their defensive trade strategies in adjusting to increased EU competition, as well as offensive trade strategies designed to penetrate EU markets. The questionnaire identified a number of areas that may be of particular concern to Canadian businesses, including:

  • technical barriers to trade when exporting or conducting business in the EU (e.g., standards, regulations, inspection, testing and certification procedures, and various health, safety, environmental or consumer protection measures)
  • non-tariff barriers (e.g., administrative and customs delays and procedures, documentation issues, taxation issues, intellectual property, etc.)
  • barriers in providing services to EU customers
  • issues in obtaining entry visas and/or work permits for employees

Canadian businesses should prepare for meaningful trade liberalization. For example, the parties may agree to eliminate immediately the vast majority of customs duties on trade in goods. Although tariffs on goods traded between the EU and Canada are low on average, a number of sectors still enjoy significant tariff protection including agriculture and food, textiles, clothing and automotive products. These sectors are potentially the most likely to be affected by tariff elimination or reduction (but may also benefit from continued tariff protection due to sensitive industry constituencies). Canada’s large government procurement opportunities at the provincial and municipal level may be opened up to European suppliers. More information may be found in the joint costs and benefits study prepared by the EU and Canada in October 2008.

The long term implications of a Canada/EU FTA could be quite broad. A Canada/EU FTA may lead to free trade negotiations between United States and the EU, and potentially amendments to the NAFTA.