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Stakes Higher Than Assumed in Canada–EU Trade Negotiation

Danielle Goldfarb, Associate Director, International Trade and Investment Centre
October 12, 2010

The stakes are higher than commonly assumed in Canada’s trade negotiations with the European Union (EU), the Conference Board argues in a groundbreaking report. Canada's "Missing" Trade With the European Union assesses a fuller range of Canada–EU trade than do conventional analyses.

Canadian and EU negotiators have made rapid progress toward a trade and investment agreement in just a year and a half. However, conventional trade analysis paints a narrow picture of our trade relationship, and a defensive stance dominates public discussion about the deal. The entire agreement could fall apart if this narrow approach prevails, costing us better access to a broad range of long-term economic opportunities.

Conventional trade analysis paints a narrow picture of our trade relationship, and a defensive stance dominates public discussion about the deal.

The report argues that Canada can frame its position more constructively in light of global business realities. This country has much to gain from two-way investment, two-way services trade, two-way digital trade, two-way value chain activity, and other partnerships with the EU over the long term.

Widening the Concept of “Trade”

Research in Motion (RIM)—maker of the BlackBerry, one of Canada’s few global brands—illustrates the reality of highly integrated global trade. The components of the BlackBerry come from suppliers all over the world. RIM initially manufactures its models in Canada, then outsources the manufacturing to lower-cost countries such as Hungary once it is satisfied with the model. Moreover, the BlackBerry’s value goes beyond its components and manufacturing—the data and voice services that customers buy in the EU and worldwide represent a substantial proportion of RIM’s revenues. This broader range of activities that enables RIM to compete globally is excluded from typical trade analyses and measures.

The Conference Board's analysis goes beyond the traditional trade analyses, which focus primarily on exports of goods. The “integrative trade” concept includes services trade, global and regional value chains (including imported parts), investment and sales by foreign affiliates, digital or virtual trade, and links between goods and services. These forms of trade are undercounted in traditional measures.

When traded services, imported parts, and sales by Canadian affiliates in the EU are included, Canada sells at least $150-billion worth of goods and services to the EU every year—more than four times the $35 billion in reported goods exports alone. EU sales of goods and services to Canada were even more substantial—$440 billion in 2008, compared with $70 billion in conventionally measured imports.

Taking an Integrative Trade Approach

In fact, the primary mode of Canada–EU trade is not cross-border exports, but sales by foreign affiliates. And, contrary to assumptions, Canada–EU services trade is central and substantial, not marginal.

The study finds that companies in the EU and Canada make important contributions to each other’s supply chains, maintaining competitiveness by exchanging raw materials, parts, and services. And, in contrast to Canada–U.S. supply chains, there is greater growth potential in the Canada–EU supply chain relationship.

Contrary to assumptions, Canada–EU services trade is central and substantial, not marginal.

Ottawa and the provinces—which, for the first time, are at the negotiating table—must therefore give Canada’s negotiators a broad mandate that goes beyond obtaining greater access for Canadian products in the EU. This includes removing barriers to two-way Canada–EU services trade (such as facilitating temporary work visas or recognizing professional credentials), increasing access to two-way investment, and removing barriers to the movement of inputs that help Canada and the EU improve their supply chain competitiveness.

This report shows that Canada–EU trade and trade negotiations are about much more than how many products Canada can export to the EU. To capitalize on these wide-ranging opportunities—and the associated boost to Canadian living standards—over the long term, Ottawa needs to go big in this deal.

Danielle Goldfarb
Danielle Goldfarb
Associate Director
International Trade and Investment Centre
Canada's "Missing" Trade With the European Union

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