EU Enlargement and
the Canada EU Trade
and Investment
Relationship
Charles A. Barrett
Senior Executive Advisor
September 29, 2005, Toronto
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Canada–EU Relationship
Conference Board of Canada Research Report
The Conference Board has undertaken a research project to
investigate the Canada-EU trade and investment relationship
and to examine key challenges especially after EU enlargement.
The activities included:
• Literature review
• Interviews with Canadian and European business
• Analysis and recommendations
• Final report
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Presentation Overview
• Overview of Canada-EU trade and investment trends
• Historical development of Canada-EU economic
cooperation agreements
• Barriers to trade and investment categorized by issue
• Concluding remarks
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Overview of Canada-EU Trade
and Investment Trends
• As a result of EU enlargement, no change in the
importance of the EU’s main trading partners
• Canada continues to rank 12th in terms of EU trade
– Assuming 1.8% of EU trade with third countries
• EU ranks as Canada’s 2nd most important trading
partner after the United States
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Overview of Canada-EU Trade
and Investment Trends
• Canada is the 3rd major investor in the EU after the
United States and Japan
• The EU is one of Canada’s fastest growing
investment destinations
– Canadians sell less to Europe, but sell more in Europe
• European investors less enthusiastic about Canada
• EU is the 2nd major investor in Canada accounting
for 27% of total FDI in Canada
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Overview of Canada-EU Trade
and Investment Trends
Canada's Merchandise Trade with EU15
40,000
30,000
20,000
10,000
0
2004
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2003
Year
2002
-30,000
2001
-20,000
2000
1999
1998
1997
1996
1995
1994
-10,000
1993
Millions $CDN
50,000
Exports
Imports
Balance
Overview of Canada-EU Trade
and Investment Trends
Canada's Services Trade with EU15
10,000
Exports
Imports
Balance
5,000
0
2003
2002
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2001
Year
2000
1999
1998
1997
1996
1995
1994
-5,000
1993
Millions $CDN
15,000
Overview of Canada-EU Trade
and Investment Trends
Canadian Investment Flows with EU15
Canadian
Outward
Investment in
EU15
EU Foreign Direct
Investment in
Canada
Millions $CDN
20000
15000
10000
5000
0
1
2
2001 2002 2003
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3
Balance of
Outward less
Inward
Canada-EU Economic
Cooperation
• Canada and the EU share the common goal of
supporting multilateral trade negotiations under the
WTO
• Canada and the EU have made a number of bilateral
agreements to enhance cooperation on trade and
investment
• Most agreements provide for voluntary cooperation
on non-tariff barriers to trade issues
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Canada-EU Economic
Cooperation
• Bilateral agreements deal with “new trade policy
issues” or so-called “behind the border” issues
• Canada is only one of eight countries worldwide that
does not have a preferential trading relationship with
the EU
• At various times Canada has proposed a free trade
agreement with the EU with no results achieved
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Canada-EU Economic
Cooperation
• Bilateral agreements include:
– 1976 Framework Agreement for Commercial and
Economic Cooperation
– 1997 Agreement on Customs Cooperation and Mutual
Assistance to Customs Matters
– 1998 EU-Canada Trade Initiative
– 1998 Agreement of Mutual Recognition of Conformity
Assessments
– 1999 Competition Agreement
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Canada-EU Economic
Cooperation
• Bilateral agreements cont.:
– 1999 Veterinary Agreement
– 2003 Agreement on Trade in Wines and Spirits
– 2004 Canada-EU Trade and Investment Enhancement
Agreement (TIEA)
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Barriers to Trade and Investment
• In 2002, ECTI commissioned surveys of EU and
Canadian exporters and found that 52% of Canadian
goods exporters and 83% of Canadian services
exporters found that trade relations with the EU are
problem free
• The EU business survey also confirmed that most
industries find the Canadian market open to EU
trade and investment, with only a limited number of
barriers
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Barriers to Trade and Investment
• Non-tariff barriers–e.g. differences in regulations
and standards–are issues that should take precedence
over more traditional market access barriers
• In contrast to Canadian business responses, a survey
of EU businesses revealed limited support for a
Canada-EU FTA
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EU Enlargement
• The accession of 10 new members to the European
Union on May 1, 2004 is the fifth and largest
enlargement in the EU’s history
• The EU now has over 450 million consumers
• The Enlarged EU accounts for 19 per cent of world
trade, is the source of 46 per cent of world outward
FDI, and hosts 24 per cent of inward FDI
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EU Enlargement
• Historically, the 10 new member states have been
minor trading partners with Canada
– Although recently there has been significant gains in
trade activity, increasing by 37 per cent since 2000,
whereas Canada’s trade with the rest of the world
declined slightly
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EU Enlargement
1500
Canada's Merchandise Trade with EU10
Millions $ CAD
1000
500
0
1995
-500
1996
1997
1998
1999
Total Exports
2000
Total Imports
2002
2003
2004
Trade Balance
-1000
Year
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2001
EU Enlargement
• Enlargement will bring positive and negative effects
for Canada in the short and longer terms
• Negative Effects:
– Implementation of EU regulations may be a lengthy
process resulting in delays to the regular flow of trade and
investment to the new member states
– Removal of tariffs to the new member states may result in
trade diversion, as demand for goods and services within
the enlarged territory increases and prices are reduced
because of the tariff-free status
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EU Enlargement
• Negative effects cont.:
– In the longer term, increased competition may result in
imports from Canada and other non-EU countries being
displaced by suppliers within the EU
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EU Enlargement
• Positive effects:
– The potential for trade creation, since the EU is adopting
EU commercial policies including a single tariff and
international trade policy obligations
– The EU is obliged to negotiate with Canada for
compensation should accession of the new member states
result in an increase in existing tariffs.
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Business Response
• Based on interviews with 20 Canadian companies of
Canadian and European origin, businesses feel
positive about the relationship and the prospects
enlargement will bring
• However, companies consulted do not believe their
business activities in the enlarged EU will
significantly enhance their business prospects or
result in major growth in trade and investment
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Business Response
• Canadian investors are showing less interest in the
new member states and concentrating their
investments in the EU15
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Business Response
• Many companies either:
– had strategies for pursuing opportunities in the new
member states prior to enlargement
– have a presence and will expand to other new member
states
– have a presence in the EU15 and will expand to the new
member states
this will take place within the next 5 years
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Business Response
• Companies that indicated they were not going to
pursue opportunities in the new member states made
their decision based on what they perceived to be a
lack of business potential
• Opportunities exist in the larger of the new member
states, in particular Czech Republic and Poland.
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Business Response
• There was an indication of the potential for trade
diversion
• Canadian companies feel concerned that they will
not be able to compete effectively as the markets
open up to increased competition
• There was agreement that tariffs present minimal
barriers to trade, supporting earlier studies
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Business Response
• More focus could be spent on non-tariff barriers.
The most significant that impact business were:
– Mobility of personnel
– Mutual recognition of professional standards
– Government procurement
– Regulatory barriers
– standards
• These areas have been identified under the TIEA
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Business Response
• Those aware of the TIEA consider it to be a positive
step in furthering the Canada-EU trade and
investment relationship
• However, more than half of the businesses were not
well aware of the TIEA framework and its objectives
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Business Response
• Regulatory cooperation and harmonization should be
the key area of focus of the TIEA
• For the trade and investment relationship to prosper,
there needs to be a political will to pick up the pace
of the negotiations of the TIEA
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Concluding Remarks
• Overall, the Canada-EU trade and investment
relationship is seen as a positive one, with relatively
few barriers and with only a small number of
isolated disputes arising
• The scope for enhancement of Canada-EU
cooperation lies in the area of non-tariff barriers to
trade, particularly with respect to regulations and
standards, competition policy and government
procurement
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Concluding Remarks
• Increasing cooperation between Canada and the EU
includes increasing internal policy coherence and
coordination by both parties
– For Canada, it means enhancing federal and provincial
cooperation, and clarifying issues of jurisdiction that
impact on trade and investment policy issues
– For the EU, it involves increased harmonisation and
cooperation among EU members, especially with respect
to new member states
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Concluding Remarks
• The TIEA should bring the cooperation frameworks
together under one umbrella agreement providing
more formalized mechanisms for dialogue
• As the TIEA is a “gentlemen’s agreement” rather
than a formal undertaking such as the WTO, the
nature of how this mechanism could be used to
resolve differences would be quite different,
providing a forum for the clarification of
understanding and negotiation of specific issues
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Concluding Remarks
• Of concern is business’ lack of knowledge of the
TIEA
• Negotiation of the TIEA needs to take into account
the individual relationships of both parties with the
United States
• Canada-EU cooperation needs to continue to find
common goals that will be accepted for trading
partners in the multilateral arena
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