Article on the EU-Canada trade agreement for the European Union Chamber of Commerce in Toronto

For the European Union Chamber of Commerce in Toronto, Silvana Koch-Mehrin contributed an article on the EU-Canada trade agreement:

EU-Canada trade agreement – a powerful engine for growth

As the negotiations on the EU-Canada free trade agreement (CETA) enter their final phase, they attract more and more attention by business communities across the Atlantic; and rightly so! The currently negotiated trade agreement would be – once agreed – unique in its ambition and scope, even in comparison to already existing, large-scale agreements like NAFTA for Canada or the EU Free Trade Agreement with South Korea. With regional trade plateauing in both North America and Europe and the Doha multilateral negotiations stalling, CETA would be the most important trade agreement with significant economic and political ramifications. A joint study on behalf of the European Union and Canada found that two-way liberalized trade could potentially expand by EUR 25.7 billion or by 22.9 percent.

In the past, the EU’s trade policy was geared towards developing countries and the world’s least developed countries which receive large scale duty free and quota free access to the European market. Topics discussed under CETA are more comprehensive; these include rules of origin, services, investment and labour mobility. This time, representatives of two fully developed economies sit at the table, share the same values such as an open, liberal and market economy, democracy based on rule of law, but also have long established legal and commercial customs which can make mutual agreement complicated at times. The area of Services is a good example. Along the way, EU negotiators had to change their strategy for dealing with services from the EU’s positive-list approach to the more ambitious NAFTA-type negative-list approach (where only exclusions are listed and all other areas are liberalized).

Both sides have different priorities, so making trade-offs in the end game of the negotiations are inevitable. Nonetheless, already the draft text of CETA shows that this trade agreement goes deeper and is more complete than NAFTA as more areas are fully liberalised. For example, on the first day of CETA in force, approximately 99 percent of tariff lines on goods will be liberalised compared with approximately 29 percent when NAFTA entered into force. Other benefits that the agreement is expected to deliver include predictable and reciprocal investment rules, increased transparency and guaranteed access to market. Opening new markets will help to create jobs, growth and long-term prosperity. The EU is the world’s leading host of foreign direct investment, attracting investments worth Euro 225 billion from the rest of the world in 2011. Canada is the EU’s third largest source of foreign direct investment, and the EU is Canada’s second largest investor.

Furthermore, both sides will open their respective public procurement markets to more competition. This will have beneficial effect for consumers. The chapter on public procurement sets a good example: The proposed coverage goes far beyond to what has been committed to in NAFTA. Getting easier access to European expertise and capital will lead to a greater variety of goods and services at best quality and competitive prices for consumers.

In exchange, Canada will gain better access to the 500 Million customers of the EU’s internal market. Provinces such as Nova Scotia, with its world-class fish and seafood sector will be able to sell their products in the world’s largest fish, seafood and aquaculture market, with a global import averaging 20 billion annually between 2009 and 2011. Currently the EU tariffs on Canadian fish and seafood products average 11 percent, with peaks of 25 percent. Under CETA, these high tariff barriers will be eliminated.

International trade is a powerful engine for growth. Statistics say that more than 60 percent of Canada’s annual income and the jobs of one in five Canadians are generated by trade. CETA is an important once-in-a-generation chance. In a time of global economic challenges, restrictions on national budgets and financial uncertainty, facilitating commercial exchange and strengthening the economic ties between two major trading blocks is the way to go forward to ensure a prosperous future for all.