The Comprehensive Economic and Trade Agreement was signed by Prime Minister Justin Trudeau and EU officials in 2016.FRANCOIS LENOIR/Reuters
Canada has long relied on a stable alliance with the United States to help ensure its prosperity. In the face of unpredictability to the south, this series examines barriers within and economic opportunities beyond.
As relations between Canada and the United States sour, Canada’s ties to the European Union have taken on new importance, and there are growing calls for both sides to take full advantage of a nine-year-old trade pact.
On many levels, Canada and the EU already have deep connections that rival our links to the U.S. Canada and most EU member states belong to NATO, and Canadians and Europeans share familiar institutions such as public health care and the metric system. Last year Canada drew even closer to the bloc by joining Horizon Europe, the EU’s $140-billion program that funds scientific research.
But it’s Canada’s wide-ranging trade deal with the EU that observers say offers the best opportunity for Canadian businesses to lessen their dependence on the U.S. market – if they would only do a better job of utilizing it.
The Comprehensive Economic and Trade Agreement (CETA) was signed by Prime Minister Justin Trudeau and EU officials in 2016. It came into provisional application a year later pending full ratification, which is still not complete.
The agreement eliminated tariffs on nearly all goods moving across the Atlantic. It also covers many services and seeks to harmonize regulations through regular consultations. Canadian and European companies can also bid on contracts at all levels of government in Canada and the EU’s 27 member states, opening up a potential market worth $3.3-trillion to Canadian businesses.
Since the deal was signed, the value of goods flowing between Canada and the EU has increased 65 per cent, to $126.5-billion a year, as of 2023. Trade in services has climbed 73 per cent to nearly $65-billion over the same period.
That’s still a fraction of Canada’s annual trade with the U.S., which is more than $1-trillion. In terms of Canada’s overall trade, the EU’s share has remained steady at around 7 per cent since 2016, according to Statistics Canada. And Canada imports about twice as much from the EU as it exports to the bloc.
“I do think CETA has certainly been working, but I think more can be done to improve that,” said Mark Camilleri, an EU regulatory lawyer based in Brussels who founded the Canada EU Trade and Investment Association.
Part of the problem is that the agreement has faced opposition in parts of Europe, which has delayed ratification.
Because some sections fall under national jurisdiction, CETA must be ratified by each EU member country. So far 10 countries, including France, Italy, Ireland and Poland, have yet to sign off.
Complaints about the agreement vary in each country. Some critics argue that CETA’s dispute resolution mechanism gives too much power to corporations. Others worry about the erosion of national sovereignty, lax food safety standards and the inclusion of local agricultural products in the treaty. Apathy has also played a role – some national parliaments just haven’t viewed ratification as a priority.
Brexit has been another complicating factor. Britain was a major proponent of CETA and among the first EU countries to ratify the deal. Now that the U.K. is out of the bloc, Canada and Britain have agreed to abide by the terms of CETA on a temporary basis – until a bilateral trade deal can be struck. But those negotiations broke down last year largely over issues related to agriculture, and it’s unclear when talks will resume.
Mr. Camilleri said the failure to have CETA ratified by all EU members was a concern. “Because it’s not fully implemented, there is always a risk that it will not be fully implemented.”
Given U.S. President Donald Trump’s threats of a trade war, Mr. Camilleri said Canada and the EU should redouble their efforts to get the deal finalized and encourage more businesses to make the most of it. The agreement “has gone from a nice to have to a must have,” he said. “It’s much more strategically important.”
Jason Langrish, a former executive director of the Canada Europe Roundtable for Business, said Canada needs to go beyond CETA and become far more pro-active.
He cited Russia’s full-scale invasion of Ukraine in 2022 as an example of how Canada missed a chance to ramp up trade. “We had a massive opportunity to do more in terms of providing resources, goods and services into the EU,” he said.
Canada’s cautious approach in developing liquefied natural gas facilities “has hamstrung our industry and led us to miss out on significant export opportunities,” Mr. Langrish added. “So my point is Canada just responds to the agenda others set.”
Achim Hurrelmann, a professor of politics at Carleton University who specializes in the EU, said that while CETA has provided the infrastructure for more bilateral trade, its impact has been limited. It “hasn’t by any means changed the big picture of Canadian trade patterns and the dependencies on the United States,” he said.
Even with CETA, he said, many Canadian exporters are small or medium-sized companies that don’t have the resources to overcome the barriers of entering the European market. “There’s language barriers, there’s different regulatory standards, which are not affected by CETA. There are also differences between the various member states. So it’s way more difficult to trade with Europe than with the United States,” Dr. Hurrelmann said.
If Mr. Trump does impose stiff tariffs on Canadian imports next month as he has threatened, that could change the dynamics, Dr. Hurrelmann added. “In that case I would expect more companies to look toward Europe,” he said. “But it’s not to be expected that many can shift seamlessly from trading with the United States to trading with Europe.”