by Christian Sivière, President - Solimpex ® (Montreal & Ottawa)
CETA, the Comprehensive Economic and Trade Agreement between Canada and the European Union has been in effect over a year and comparing the trade statistics of 2018 versus 2017 gives us a good measure of its impact. Signed in October 2016, CETA was provisionally implemented on September 21st, 2017 and the vast majority of its provisions are in effect since then, particularly the reduction of tariffs, the opening of government procurement, the mutual recognition of standards and the facilitation of the movement of professionals. Final implementation requires the ratification of the national Parliaments of of all 28 EU members, an in some cases, like in Belgium, of regional Parliaments.
At time of writing, the Parliaments of twelve EU countries have ratified CETA: Croatia, Czechia, Denmark, Estonia, Finland, Latvia, Lithuania, Malta, Portugal, Spain, Sweden and the United Kingdom (the latter on November 8th, 2018). In addition, Austria’s Parliament has also ratified it but it requires the signature of the President to be effective and this is expected to take place over the next few weeks. With most of its provisions already in place, CETA is a great tool for European and Canadian businesses to expand their international trade.
While CETA’s impact on services and investment may be difficult to measure, the statistics compiled by Statistics Canada on a monthly basis on the trade in goods between Canada and the world are a very useful tool to gauge the evolution of trade. These statistics come from the data collected by Canadian Customs authorities, the Canada Border Services Agency, extracted from export and import declarations made by exporters and importers for shipments cleared at Canadian ports and airports. We have limited the comparison to the ten largest country lanes and this shows us the evolution by country and by flow (import and export).
Overall, we can say that CETA has been very beneficial to European exporters, as the flows of goods between the ten largest EU exporters and Canada have increased by 10% between 2017 and 2018. Canadian exports to the EU’s ten largest markets have increased too but only by 5%**, so it’s fair to say that Canadian companies have been a little slower that their EU counterparts in taking advantage of the opportunities created by the Agreement. This could be explained by the fact that Canadian exporters are primarily focused on trade with their Southern neighbours, the United States and on what is happening with the renegotiated North America Free Trade Agreement. Year after year, the US market represents about three quarters of Canada’s total exports of goods. Ironically, for European businesses, although the Canadian market on its own is small, it still has great potential, in part thanks to Canada’s closeness to the huge US market.
Having looked at its overall evolution, 5% increase versus 10% increase, we need to look at the individual country differences, particularly the reduction in UK trade figures. Traditionally, the UK has always been Canada’s first export market in Europe and by far. This is due, in particular, to historical and cultural ties but also to similar business cultures, and it is very likely to continue. Over the years and as Canadian companies wanted to expand their market reach to Continental Europe, they often did it from a UK base or from a UK Distribution Centre, as the EU integration process made it easy to serve the whole of Europe from the UK.
Of course, with the UK set to leave the EU sometime this year, it has become necessary for Canadian exporters who have interests in continental European markets to re-examine their strategy and establish a base on the Continent. And looking at the country statistics, this seems to have benefited Germany, France, Belgium and particularly The Netherlands. So the apparent reduction of exports from Canada to the UK is misleading and actually does not reflect lower exports to the UK market itself. Rather, it demonstrates a shift of products destined to the Continent that used to be channeled via the UK, and these are now shipped directly from Canada to Continental Europe.
What to expect next?
As the European Court of Justice confirmed on April 30th that CETA’s investor-state dispute resolution mechanism (ISDR) is compatible with EU primary law, the ratification process in the 15 EU countries Parliaments who have not yet ratified CETA, will likely accelerate. And on the medium term, the UK being of the early ratifiers, the CETA Free Trade Agreement could serve as a model for a future agreement between Canada and the UK.
**Data Source: Statistics Canada