FAIT Committee Report

ASSIGNING GREATER PRIORITY TO EUROPE

            When Canadians reflect on the economic relationships that Canada enjoys with various countries and regions of the world, our gaze usually drifts toward our large trade and investment links with the United States. Europe, in contrast, remains somewhat of a mystery to Canadians, even though the European Union (EU) is our second largest trade and investment partner and the world’s second largest economic power. Apart from tourist and cultural connections with the continent, few Canadians are generally aware of the EU’s increasing economic importance. Typically, what is etched in the minds of the Canadian public are the long-standing transatlantic squabbles over fish (the so-called "fish war" between Canada and Spain), agricultural subsidies, genetically modified products, textiles, wine and other commodities.

            These quantitatively minor (though individually important) disputes obscure the reality that Europe’s sizeable market and potential are worth exploring. However, this large and sophisticated market has largely been neglected by the Canadian business community, which has primarily focused on the United States. While Europe remains Canada’s primary export destination after the U.S., both the EU’s share of total Canadian exports of both goods and services and Canada’s share of EU imports (apart from intra-EU trade) have been declining. On the other hand, foreign direct investment has become the most dynamic element of the transatlantic economic relationship.

            While it would be a mistake to abandon the lucrative U.S. market for the EU, it is still worthwhile for both business and government to remember this large market "across the pond." The Sub-Committee is requesting:

Øan increase in the federal government’s trade and investment promotion
    budget in Europe.

Øgreater expenditure of resources at home to prepare small- and medium-sized
    enterprises for the demanding EU market.

ØThe establishment of a national strategy (i.e., federal government, provinces
    and territories, private sector) to promote foreign investment in Canada.

Øa Team Canada trade and investment mission to Europe.

C. Achieving Free Trade With Europe

            It is safe to say that at the official level, the transatlantic relationship between Canada and Europe is in dire need of a boost. A free trade agreement with the EU, a long-held interest of Canada, would be a tangible way of altering the psychology of Canadian businesses to get them to look across the Atlantic for business opportunities. While the EU has traditionally been skeptical of such a deal, the EU Trade Commissioner has stated the EU would consider a business case for such an agreement. Canada is presently conducting a study on the impacts of tariff elimination.

            Canada is also in the midst of negotiating a free trade agreement with the European Free Trade Association, although it has been held up over the treatment of shipbuilding. Such a deal could serve as an important entry point in the continuing quest for a free trade arrangement with the EU. The Sub-Committee is seeking:

Øa rapid development of a Canadian business case for a free trade agreement
   with the EU and the promotion in Europe of its findings.

Øthe early conclusion of a free trade deal with the European Free Trade
   Association (Switzerland, Norway, Iceland, Liechtenstein).

D. Making Progress at the WTO

            The upcoming World Trade Organization (WTO) talks in Qatar (November) will be an important opportunity for Canada to deal with a number of EU trade concerns in a multilateral context. While it is not yet clear whether there will be a new round of negotiations and there remain obstacles to overcome, it is in Canada’s interest to work toward the successful launching of a new round, as well as to make progress toward reforming the WTO and other trade-related organizations to make them more effective and efficient. The Sub-Committee is requesting:

Øan acceleration of Canadian efforts to find the necessary WTO consensus to
    launch a new round of multilateral trade liberalization.

Øthe adoption of more efficient decision-making within the WTO.

Øa major review of the relevance of the global network of trade and
    international development institutions.

Øan assessment of alternatives to the current WTO dispute-resolution mechanism
    so as to deal with non-compliance with decisions and other concerns.

E. Strengthening Official Transatlantic Links

            Over the years, a number of attempts have been made to enhance bilateral economic cooperation. The most recent variant of these efforts is the December 1998 EU-Canada Trade Initiative (ECTI), which set a limited number of objectives aimed at improving market access and transatlantic economic cooperation. While generally lauded as an improvement over past bilateral initiatives, its success in realizing substantive short-term results has been limited; as currently envisaged, it is a far cry from a comprehensive free trade agreement. Other initiatives, such as the Canada-Europe Round Table for Business (CERT) and the Crossing the Pond initiative, could potentially provide a valuable way to improve Canada-EU economic relations. The Sub-Committee is calling for:

Øa redoubling of efforts to broaden the official Canada-EU bilateral relationship.

Ømore government support for the Canada-Europe Round Table For Business,
   which could serve as an effective pressure point to advance the bilateral
   economic relationship.

F. Lowering European Trade Barriers

            While the overall relationship is good, trade relations between Canada and Europe continues to be hampered by a number of long-standing irritants and disputes, affecting Canadian agricultural exports in general, wines, softwood lumber, fish and seafood, beef produced with growth hormones, wheat, and genetically modified organisms (GMOs). Many of these issues have remained unresolved over long periods of time, despite the expenditure of substantial effort to arrive at mutually acceptable solutions.

            Needless to say, achieving progress in reducing trade barriers would be a welcome development. However, in many areas, such as those related to food safety (which includes GMOs and beef hormones), there is at present a lack of political will in the EU to address substantive trade concerns. While progress in reforming the EU’s Common Agricultural Policy (CAP), which provides large production subsidies to farmers, remains slow, pressures such as EU enlargement, internal cleavages over the cost of the CAP, and multilateral pressure will likely eventually force a restructuring of trade-distorting farm subsidies. The Sub-Committee is asking for:

Ømajor reductions in trade-distorting EU agricultural subsidies.

Øan international accord dealing with genetically modified products.

Øenhanced cooperation between the EU and Canada on regulatory policy in the areas of
    health, safety, and the environment, as well as a sharing of the Canadian regulatory
    experience with Europeans.

Øthe development of a common understanding with the EU on the meaning and
   application on the precautionary approach to regulation.

G. Dealing With EU Enlargement

            Potential EU enlargement to include Central and Eastern European countries presents both challenges and opportunities for Canada. EU enlargement could lead to a diversion of trade away from Canada as the traditional bilateral access that we have enjoyed is eliminated. Should a net diminution of access to the European market for Canadian goods and services occur as a result of eventual EU expansion, Canada may opt to seek compensation from the EU through existing WTO channels. On the other hand, an expansion in the EU’s membership could also provide business opportunities for Canadian producers of certain products. Because the bound tariff rates of the EU’s Common External Tariff are often lower than the levels at which the new entrants are bound, accession to the EU could enhance market access for Canada’s companies in certain product lines. The Sub-Committee is seeking:

Øan assessment of the potential economic effects on Canada of EU enlargement,
   and the development of a strategy to deal with this upcoming boost in EU membership.