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EU economic partnership deal years away, officials predict

Embassy, Canada

EU Economic Partnership Deal Years Away, Officials Predict

By Jeff Davis

22 October 2008

QUEBEC-While negotiations for a wide-ranging economic agreement between Canada and the European Union are slated to begin early in the new year, officials and experts warn that successfully inking a deal is still years away.

Last week, Prime Minister Stephen Harper hosted French President Nicolas Sarkozy and European Commission President José Manuel Barroso in Quebec City for this year’s annual Canada-EU summit.

Unsurprisingly, the major focus was on an economic agreement that officials say is much more than a free trade deal, and, if completed, could boost Canada’s economy to the tune of $12 billion over the next seven years.

"Today we decided to take our economic co-operation to an entirely new level," Mr. Harper said at a Friday press conference following a two-hour meeting with the two European leaders.

"Canada and the European Union have just completed a comprehensive economic study and have now agreed to define together the formal mandates for negotiating an ambitious, deeper, comprehensive and truly historic economic partnership agreement.

"This will commence as early as possible in the new year," he added.

Mr. Harper said that in these times of financial instability, it is important to resist protectionism and push ahead with the opening of new markets.

"Without question these times call for closer economic co-operation among key players in the global economy. Among other things, this means rejecting the frequent tendency in difficult times to turn inward and erect barriers between our economies and our citizens.

"Indeed we must stand against protectionism and work together to eliminate barriers," he said.

Mr. Sarkozy, currently also the president of the EU’s 27-member European Council, situated the proposed Canada-EU deal within comments about the global financial crisis.

Like Mr. Harper, Mr. Sarkozy said that open markets are key to weathering the current economic turbulence

"The response to the crisis is...not protectionism," he said. "That’s a point of departure for the President Barroso and I."

Mr. Barroso said Europe is interested in an "ambitious agreement," but added that much remains to be determined, the European Commission is "open with regards to its final form."

While free trade forms the basis of the agreements, leaders say the deal will include enhanced co-operation on a broad range of other areas. Among these are energy and the environment, science and technology, labour mobility, regulations, government procurement, intellectual property rights, telecom services and electronic commerce.

For these reasons, government officials refer to the proposed deal as an "enhanced economic partnership agreement."

"There is a view that the nomenclature of ’free trade agreement’ is perhaps too traditional and would not actually capture the more contemporary elements of the economic relationship which could be part of the economic partnership agreement," said a senior Canadian trade official. "Things such as science and technology collaboration, and potentially labour mobility."

Not a New Idea

Though there has long been interest in expanded commercial relations with Europe, things have never progressed very far.

Lester B. Pearson envisioned a trade, defence and political pact with Europe. In the end, he got NATO. Jean Chrétien also proposed Canada-EU free trade deal during a 1996 speech to the French Senate, though it never went anywhere.

This most recent attempt at a trade pact started off with Quebec Premier Jean Charest, who spoke in favour of a Canada-EU free trade pact at the 2007 meetings of the World Economic Forum in Davos, Switzerland.

From there, Mr. Harper picked up the ball and brought it to last year’s Canada-EU Summit in Berlin. At that meeting, Mr. Harper and German Chancellor Angela Merkel agreed to move ahead with a joint study "to examine and assess the costs and benefits of a closer economic agreement."

The study was carried out over the past year by the independent economic consulting firm Copenhagen Economics, and audited and edited by staff at the University of Toronto’s Rotman School of Business.

Quebec Trade Minister Raymond Bachand called the last week’s meeting, and the launching of talks, a "decisive step toward the creation of a common economic space."

He predicted, however, that a functioning agreement, whatever form it takes, is still a ways away.

"In my opinion, it will begin in a few months, but it’s probably a question of one to three years, two years, something like that," he said.

Mr. Bachand added that the federal government will have to continue to work with the provinces in the coming phases for jurisdictional reasons.

"Contrary to traditional free trade agreements, or the NAFTA, where it’s totally federal jurisdictions because we’re talking about tariffs, here we’re talking about creating a common economic space with labour mobility and recognition of diplomas and competencies," he said. "This is 100 per cent provincial jurisdiction."

Services the Big Payoff

The impact study found that the value of Canada-EU bilateral trade last year amounted to $80 billion, and characterized the bilateral trading relationship as "robust and wide ranging," but also "significantly under-traded" and "capable of further improvement."

It found "the overall results indicate that liberalization of trade in goods and services will bring significant benefits to the EU and Canada."

The report went on to state that the Canadian economy would grow by about 0.77 per cent, or about $12 billion, while the European Union would see gains of about $18 billion, or 0.08 per cent, if a deal were finalized.

The report also predicts gains in the volume of bilateral trade. Total European Union exports to Canada are expected to increase by 24.3 per cent, or $27 billion, by 2014, with Canadian exports to go up by 20.6 per cent, or $13 billion.

However, the study found that for some 80 per cent of trade in goods, tariffs between the EU and Canada are already low, below three per cent.

Where the real gains will be had, the report says, is in the liberalization of trade in services. As it stands, tariffs on services are as high as 42 per cent for Canadian services entering the EU, and 52 per cent for Europeans entering the Canadian market.

Walid Hejazi, an associate professor of international business at the Rotman School of Business, helped produce the impact study for the deal.

Mr. Hejazi described the proposed deal as a "free trade agreement-plus," and said that, considering the generally low tariffs on goods, a wider variety of actions had to be taken to secure additional gains.

"There is so little left to gain by liberalizing trade in goods because, for the most part, [tariffs] are close to zero," he said. "Really where gains are in an increasingly globalized economy... is to have co-operation on intellectual property, R&D, science and technology and border facilitation.

"So really you need those pluses in order to move to the next level," he added.

Mr. Hejazi predicted the deal will be finished within three to five years.

Private Sector Pleased

Jason Langrish is executive director of the Canada Europe Roundtable for Business (CERT), a business advocacy group that supports a comprehensive bilateral trade and investment agreement.

The CERT, established 10 years ago, was founded for the express purpose of lobbying for just such an agreement as is now being discussed.

Its members include some of the largest and most powerful Canadian and European corporations, including transport giants Bombardier and Airbus, big mineral players such as Rio Tinto Alcan and Arcelor Mittal, the Forest Products Association of Canada, and industrial giants like ThyssenKrupp and Siemens.

The CERT also represents the views of major industry groups like the Canadian Chamber of Commerce, the Canadian Manufacturers and Exporters and think tanks like the C.D. Howe Institute and the Conference Board of Canada.

Mr. Langrish said business communities in Canada and Europe were pleased to see the deal move ahead last week.

"It was as good as could have been hoped for," he said. "We’re very happy."

Slightly more optimistic than others, Mr. Langrish predicted the deal would be in place and operating by as early as 2010.

Mr. Langrish also said that CERT members agree that the Canada-Eu trading relationship is "relatively under-utilized" and "under-traded."

"From a Canadian perspective, it’s a huge market of 550 million consumers and there are opportunities that exist over there," he said. "And the Europeans want access to Canadian resources and infrastructure contracts."

He added that a successful Canada-EU deal would also help Canada diversify its trade and better defend its interests against its large southern neighbour.

"If we get this deal finished, when Canadians go down to negotiate or refine NAFTA, they have other options," he said. "So they can go to the U.S. and say ’All our eggs aren’t in one basket.’

"So I think the U.S. will have to negotiate in really good faith, because right now they probably take us a bit for granted."