Canada, EU Reach Free-Trade Deal After 4 Years of Talks

Canada and the European Union reached an “agreement in principle” on a free-trade treaty that brings near an end more than four years of negotiations.

Canadian Prime Minister Stephen Harper and European Commission President Jose Barroso announced the agreement today following a meeting in Brussels.

The pact, which would need the approval of EU national governments and the European Parliament, will eliminate about 98 percent of all Canadian and EU tariff lines on the first day of its implementation. The sticking points have included Canadian access to the EU’s beef and pork markets and European access to Canada’s dairy market as well as to Canadian public-procurement contracts at the sub-federal level.

“This agreement is vastly positive for the Canadian economy,” Harper told reporters at a press conference in Brussels today with Barroso. “Over time, it’s in everyone’s interest.”

Barroso said the deal with Canada sets the standard for negotiations with other partners, such as the U.S.

“This is also a landmark achievement for the transatlantic economy and a stepping stone to an integrated transatlantic market,” Barosso said.

Diversify Trade

A free-trade agreement has been Harper’s signature commerce initiative as he seeks to diversify Canada’s trade away from the U.S. Canada has relatively more to gain from a deal, according to a joint study released in 2008 by Canada and the Brussels-based European Commission.

An agreement would increase annual Canadian gross domestic product by 8.2 billion euros ($11.1 billion), equivalent at the time to about 0.77 percent of the country’s output, the joint study showed. The EU economy would increase its annual output by 11.6 billion euros, or 0.08 percent, according to the study.

While the EU bought 8.9 percent of Canadian exports in 2012, Canada represented 1.9 percent of total EU exports, according to Statistics Canada and Eurostat data. The U.S. received three-quarters of Canada’s exports in August.

The agreement moves beyond trade by including provisions on investment, government procurement and intellectual property, a key requirement for EU negotiators. Canada is opening up its procurement market to European companies and extending the term of patent protection available to European companies.

Provincial Compensation

While pharmaceutical prices in Canada may increase, the rise probably won’t be large, Harper said. The Canadian government will compensate the nation’s provinces for any additional cost to the health-care system, he said.

The pact includes an investment chapter that will provide investors with “greater certainty, stability, transparency and protection for their investment,” according to a Canadian government statement. Canada still has the right to review EU investments to determine whether they are of “net benefit” to the country and meet national security requirements. The size threshold that triggers a government review of foreign acquisitions will be raised to C$1.5 billion for EU companies.

The Canadian government automatically reviews foreign takeovers of businesses with assets of at least C$344 million.

Canada and the EU will phase out auto tariffs on both sides over seven years. The EU will also allow Canada to export 100,000 cars that don’t meet the 50 percent made-in-Canada rule of origin requirement.

Beef, Cheese

Negotiations had been deadlocked over agricultural-goods disputes until recently, particularly over Canadian beef and EU cheese. The EU will raise its quota for beef exports by 50,000 tons, while Canada agreed to allow 17,700 tons more of cheese imports from the EU. The Canadian government said it will consider compensation to dairy farmers if the changes have a big impact on revenue.

The EU is sidestepping stalled World Trade Organization efforts to open markets by seeking commerce deals with individual countries or groups of nations, while Canada is trying to diversify trade away from the U.S.

The EU has struck recent trade accords with South Korea, Singapore and the pairing of Colombia and Peru. The bloc also agreed in November last year to start talks with Japan and gave the green light four months ago for negotiations with the U.S. to expand the world’s biggest economic relationship.

A formal agreement needs to be completed and a legal review performed before the pact is signed, according to the Canadian government, which said in a technical briefing with reporters the agreement would probably take 18 months to 24 months to ratify.

“The political issues, the difficult points are now agreed, and now it’s just a matter of technically finishing the agreement,” Barroso said. “I don’t see any reasons to have doubts about its effective implementation.”

To contact the reporter on this story: Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net

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