Canada/European Trade Agreement A Threat to U.S. Businesses?

Talks between Canada and the European Union aimed at reaching a free trade agreement have reached a critical phase, with final sign-offs expected in the coming months.  And while the expected net benefit for Canada could be an economic boost of as much as $12 billion, and a 20 percent increase in trade wit the EU, questions have been raised about the impact of a Canada/EU agreement on Canada’s trade relationship with the United States.

Canada and the United States are each other’s largest trading partner, with almost $600 billion worth of goods and services crossing the border annually.  The U.S./Canada trade relationship has long benefited from favorable trade agreements, most notably USMCA, which eliminates most tariffs on domestically manufactured products.  And just last year, in February 2011, President Barack Obama and Canadian Prime Minister Stephen Harper announced an agreement to improve trade relations through enhanced border security processes.

Despite the strength of the U.S./Canada trade relationship, the fact remains that more than 90 percent of the world’s customers live outside of North America.  And, just as President Obama has called on U.S. businesses to double exports by 2015, it is not surprising that Canada is also trying to expand its export base.

According to Canadian Transportation & Logistics, Canada is currently in the ninth round of negotiations toward finalizing a trade agreement with the EU – an agreement known as the Comprehensive Economic and Trade Agreement (CETA).  If approved, the agreement would facilitate access to the 27 member states that comprise the EU and its 500 million consumers.  But would the agreement cause the U.S. to lose its ranking as Canada’s top trading partner?

Jean-Michel Laurin, vice president of global business policy at Canadian Manufacturers and Exporters, explains that although CETA will not offer the same kind of “symbiotic manufacturing and integration” with Europe that Canada has with the U.S., the benefits of a Canada-Europe free trade agreement lie in “removing barriers to trade to help companies grow their business.”

Although still in draft form, the CETA is expected to offer Canadian businesses:

• Elimination of tariffs
• Access to the world’s largest government procurement market (valued at $2.4 trillion)
• Easier entry for Canadian auto parts – that contain U.S. components
• Easier entry for Canadian beef and pork products

Not surprisingly, the possibility of a Canada/EU trade agreement has sparked a lively debate within Canada, with supporters and detractors filling the media with pros and cons.  The Canadian government has attempted to respond to some of the heated exchanges, by publishing a “Myth vs. Reality” section on its official website.

Many U.S. businesses with strong trade relationships with Canada – auto manufacturers, pharmaceutical manufacturers, software businesses and chemical manufacturers — are certainly following the CETA negotiations closely.  And while it’s often said that competition can be a good thing, you can bet that U.S. manufacturers are paying close attention to any provisions that could potentially affect Canadian sales.