Canada Inches Toward Historic Free-Trade Pact with Europe

Canada's government has made another important step in diversifying the country's export markets beyond the US.

Earlier this week, Canada's Department of Foreign Affairs, Trade and Development announced that officials had finally produced the complete text for a free-trade agreement (FTA). This development follows last October's historic "agreement in principle" between Canada and the EU, which have spent the past five years negotiating an FTA.

Now the complete text has been sent to each of Canada's provinces as well as all of the EU's 28 member nations for legal review. Once lawyers have finished vetting the document, the Comprehensive Economic and Trade Agreement (CETA) will then be ready for ratification.

According to an EU summary of the agreement, CETA will remove 99 percent of the tariffs between the two economies, while providing increased opportunities for services and investments.

When it comes to Canada's export activity, we spend most of our time focusing on the country's relationship with its neighbor to the south. After all, the US absorbs roughly three-quarters of Canada's exports, and a resurgent economy in the states is expected to help boost growth up north as well.

But after the US, the European Union (EU) is the second-largest destination for Canada's goods and services, accounting for USD33.2 billion, or 7.2 percent, of exports in 2013. While those numbers might seem insignificant compared to the US, they also suggest ample room for growth.

Indeed, Canada's federal government trumpeted a joint study it had previously conducted with the EU that shows CETA will produce a 20 percent gain in bilateral trade and a CAD12 billion increase in Canada's annual gross domestic product (GDP), the equivalent to creating almost 80,000 new jobs or increasing the average Canadian household's annual income by CAD1,000.

According to the Financial P! ost, the FTA is expected to be a boon for Canada's automobile industry, the country's beef, pork and seafood sectors, and its mining, forestry and telecommunications companies.

In the automotive space, tariffs will be eliminated over a period of seven years, with the potential to export up to 100,000 passenger vehicles to Europe each year, up from current average exports of 8,000 cars per year to 10,000 cars per year.

In the agriculture sector, the FP notes that Canadian farmers will enjoy annual duty-free access into the EU for up to 50,000 metric tons of beef, 80,000 metric tons of pork, and 3,000 metric tons of bison. Overall, CETA eliminates 94 percent of duties for the sector.

For mining companies, tariffs will be eliminated for metal and mineral products, including aluminum, nickel, iron, and steel among others. And tariffs on forestry products, which range from 7 percent to 10 percent, will also be removed.

Poultry and eggs were excluded from the agreement, and Canada's existing supply management system, will continue to protect the roughly 17,000 poultry and dairy farmers from competing against European imports.

But increased trade comes with increased competition, and that means other industries could face challenges from European imports, including wine and cheese.

And while the EU will be permitted to export up to 30,000 metric tons of cheese to Canada each year, the government plans to compensate Canadian cheese producers from any adverse effects from the deal.

While Canada got much of what it wanted out of the agreement, CETA is still as much as two years away from final ratification. But we take a long-term perspective toward the Canada story, and this is yet another step in the right direction.