Canada to see some ‘modest’ gains from Europe trade deal
Economic gains work out to an average annual income boost of $220 per Canadian, according to a new report.
free trade deal
Parliamentary Budget Office
OTTAWA — Canada’s free-trade pact with Europe is poised to produce “modest” economic gains that work out to an average annual income boost of $220 per Canadian, the federal budget watchdog says in a new report.
The parliamentary budget officer released a study May 2 that estimates the trade deal would have lifted Canada’s overall economic output in 2015 by 0.4% or $7.9 billion, had it been implemented at the time.
Canadian exports of goods to the EU would have increased $4 billion, services would have been up $2.2 billion and investment would have grown by $3.1 billion, the analysis found.
But the report did put the overall projected improvement into perspective by noting that Canada boasts a $2-trillion economy.
“CETA will lead to some gains for Canada, but they will be modest,” the report said, referring to the deal’s full name: the Comprehensive Economic and Trade Agreement.
“The work outlined in this report projects a small, but positive, overall effect on Canada’s economy … Starting from relatively low levels, exports of goods will increase by 9.3% and services by 14%.”
The PBO based its analysis on 2015 because projecting into the future would have been more difficult. It was also the most recent year for which a complete set of economic data was available.
Sectors including transport and motor vehicles, some metals and wheat will likely grow more quickly, the budget office predicted.
On the other hand, it also said some Canadian sectors will likely see slower growth under the agreement, including textiles, some machinery and manufactured goods as well as some dairy and agricultural products.
Canada’s international trade minister was asked May 2 whether Ottawa had done enough to compensate dairy farmers following the federal decision to open up part of the dairy sector to European producers.
The federal government has committed $350 million to help ease the negative effects of CETA on dairy farmers, but the industry association has argued it isn’t enough to offset the damage.
Francois-Philippe Champagne added that he recently met with Canadian milk and cheese producers. He said he reminded them of the new opportunities under CETA.
“We also obtained an opening in the European market, which is the biggest consumer market for food items,” said Champagne, who added he had yet to see the PBO report.
The PBO report focused on the parts of the agreement that it said could be studied analytically.
The areas analyzed included tariff reductions on goods, reduction in trade barriers for services and intellectual property as it relates to royalty payments for patented drugs. The report also examined the overall impact that the deal might have on Canada’s gross domestic product through investment.
“With the signing of CETA, questions arise concerning the magnitude of the benefits and impacts, as well as how they will be distributed,” said the report by Jean-Denis Frechette’s office.
“Liberalizing trade is intended to bring benefits through greater specialization … but the impact on sectors could be uneven.”
Parliament is expected to ratify CETA in the coming months. Once approved, about 90 per cent of the deal would come into force under provisional application.
The deal will likely arrive amid concerns in corporate Canada over protectionist policy proposals under discussion in the United States.
Frechette’s office predicted that strengthening business ties with the EU will make Canadians a little less dependent on their existing trade partners.
It predicted Canada’s annual exports to the US could decline by 0.4% or $1.4 billion, while exports to the rest of the world could fall by 0.7% or about $384 million.
Even with an increase in trade with the EU, the US will remain by far the most-important market for Canada.
Last year, Canada exported about $39.8 billion worth of merchandise to the EU, making it Canada’s second-largest export destination, the report said. In comparison, Canadian merchandise exports to China were about $21 billion.
“But this is still only a tenth of the exports that go to the United States,” the PBO said.
“Canada’s sales of oil and gas to the United States alone are worth more than all the goods and services it sells to the EU.”