The EU and Canada: Partners that Matter

Bart J. Mindszenthy, APR, FCPRS, Partner, Mindszenthy & Roberts Communications Counsel and 2nd Vice-President, The Empire Club of Canada; The Rev. Kim Beard, Christ Church, Brampton and Director. The Empire Club of Canada; John Smith, Past Chairman, EUCOCIT and Past President, British Canadian Chamber of Trade and Commerce; Hershell Ezrin, President and CEO, GPC International and Past Chairman, Canadian German Chamber of Industry and Commerce; Randall Harwood, Director, Industry Canada-International Trade Centre; Alexis Alexandris, Consul General in Toronto of Greece (the member state of the European Union which currently holds the presidency of the European Council); Blake C. Goldring, CFA, President and CEO; AGE Management Limited and Director, The Empire Club of Canada; Pamela Kanter, Manager, International Branch (for the United States and the European Union) for Ontario Exports Inc. (an agency of the Government of Ontario); Aristotle Christou, Chairman, EUCOCIT and President, Hellenic Canadian Board of Trade; Calvin Goldman, QC, Partner, Blake, Cassels & Graydon LLP and Past Director,

April 10, 2003

A joint meeting of The Empire Club of Canada and The European Chamber of Trade and Commerce

Competition Bureau of Canada; and Lars Henriksson, Vice-President, EUCOCIT, Honorary Consul of Sweden in Toronto and Chairman of the Swedish-Canadian Chamber of Commerce.

introduction by Ann Curran

From an economic perspective, does the EU matter to Canada, and vice versa?

For more than 25 years, the Canadian government and the European Commission have led efforts, at both the bilateral and multilateral levels, to expand and strengthen our trade and investment relations.

Much has been achieved, particularly through successive rounds of international trade negotiations. However, in recent years the creation of NAFTA and the consolidation and enlargement of the European Union's Single Market have led many to question the relevance of the EU-Canada trade relationship.

This perception is not justified.

Eric Hayes, the European Commission's Ambassador to Canada, will explain not only why our bilateral relationship remains very important but also how he expects it to develop in the future.

The Delegation of the European Commission in Canada, founded in 1976, is a fully fledged diplomatic mission and is responsible for the conduct of official relations between Canada and the European Commission.

It works closely with the diplomatic mission of the EU Member States, particularly the one holding the EU presidency.

As head of the delegation, Ambassador Hayes is formally accredited as the official representative of the European Commission to the Government of Canada.

The delegation has four sections: economic and commercial, political, press and information and administration.

Eric Hayes was born in England on October 31, 1948. In 1971 he graduated from Magdalen College, Oxford with a B.A. (Honours) in Philosophy, Politics and Economics.

For three years he worked for British Steel Corporation in London as an Assistant Manager in the International Affairs Department. Then in 1974 he joined the European Commission.

He held several progressive positions that culminated in 2000 as the Head of Unit for Relations with the U.S.A., Canada, NAFTA and Directorate-General for External Relations, Brussels.

In October 2002 he became the European Commission's Ambassador to Canada.

Ladies and gentlemen I give you Ambassador Hayes.

Eric Hayes

Thank you for your kind words of welcome. I am delighted and honoured to address this distinguished audience, and grateful to the Empire Club for organizing this event together with EUCOCIT which brings together the EU Member State chambers of commerce here in Toronto. It is indeed a privilege to be given this opportunity early on in my posting to Canada, and on my first official visit outside Ottawa. I would like to use it to explain why I think the EU-Canada bilateral relationship, and in particular the bilateral economic relationship, remains a uniquely important one for both sides, and why the EU and Canada are definitely "partners that matter" to each other.

For more than 25 years, the Canadian government and the European Commission have led efforts, at both the bilateral and multilateral levels, to expand and strengthen our trade and investment relations, to the mutual benefit of businessmen and consumers on both sides of the Atlantic. Much has been achieved over that period. However, in recent years the creation of NAFTA and the consolidation and enlargement of the European Union's Single Market have led some to question the relevance of the EU-Canada relationship. It will be immediately apparent from the title of my speech that I am not one of those. On the contrary, my starting point is that our economic links are extremely important, not only despite the rapid changes occurring in the world around us, but precisely because many of these very changes can themselves lead to significant and mutually beneficial improvements in our economic relations.

Europe itself has seen many significant changes and new policy developments in recent years. The European Monetary Union entered its final stage on January 1, 2002, when euro banknotes and coins were put into circulation in the 12 participating European countries. In the meantime, enlargement negotiations with a number of Central, Eastern and Southern European countries have been completed and will result, next week, in the signature of the Accession Treaty that will formalize the entry of 10 new Member States of the EU early next year. The European Union is also engaged in a major exercise of rethinking its political institutions and decision-making mechanisms, under the auspices of the European Convention chaired by former French President Giscard d'Estaing. The EU will soon convene an intergovernmental conference--a treaty-making gathering of Member States--to finalize and adopt the necessary reforms. All these events are, in my view, highly relevant for Canada and provide important new opportunities for strengthening the trans-Atlantic relationship.

The EU and Canada have strong historical and cultural links. They share many fundamental values and a similar commitment to multilateral institutions and the international rule of law. Both the EU and Canada are modern, advanced economies characterized by a high degree of openness and a high degree of dependence on international trade. Perhaps for these very reasons, both are active supporters of the WTO and the multilateral trading system, where we work very closely together.

The EU and Canada have made great strides, through their joint commitment to successive rounds of international trade negotiations, to reduce tariff barriers to their bilateral trade. The simple average applied tariffs on non-agricultural products are now barely over 4 per cent in both the EU and Canada, a quarter of what they were just 25 years ago. Major efforts have also been made, at the same time, at the bilateral level, to address non-tariff barriers to trade and investment through a series of initiatives over the past quarter of a century.

In 1976 the EU and Canada concluded an economic co-operation agreement--the first of its kind between the EU and an industrialized partner. Since then, this has been followed up by a number of sectoral agreements in areas, such as veterinary equivalence, customs co-operation and competition.

In 1996 EU and Canadian leaders adopted a Joint Political Declaration and Action Plan. This was further complemented in 1998 by a program aimed specifically at addressing in a more systematic manner obstacles to trade and investment under the Europe-Canada Trade Initiative (ECTI).

Nevertheless, even with the positive results obtained through these considerable efforts, and despite the substantial growth in the overall value of EU-Canada trade in absolute terms, the relative share of the EU in total Canadian merchandise exports has continued to decrease during recent years (from 6.4 per cent in 1995 to 4.5 per cent in 2001). Some have argued from this that we need a Free Trade Agreement between the EU and Canada to reduce Canada's overwhelming dependence on the U.S. market, and to give EU-Canada trade and economic relations a similar boost to that given to Canada-U.S. relations by the CUSFTA and the NAFTA. Personally, I share the view that more could, and should, be done to bolster bilateral trade and investment links between the EU and Canada. But I would strongly caution against making comparisons of this sort between the EU-Canada trade relationship and that which Canada enjoys with the U.S.A. For all sorts of perfectly sound geographical and business reasons, the U.S. has always been by far the dominant trading partner for Canada, just as the EU has always been the dominant trading partner for its European neighbours. This was so even before NAFTA, even before the CUSFTA. This has been particularly marked for trade in goods, where geographical proximity, transport costs and industrial integration are important determining factors in trade flows, both here and in Europe. This tendency is, of course, even more marked in Ontario's case.

Canada as a whole is already a very outward-looking country in terms of its reliance on trade--some 43 per cent of Canada's GDP is accounted for by its exports, with another 37 per cent represented by its imports. Ontario's trade orientation is even higher, accounting for 52 per cent of total Canadian exports and 68 per cent of total imports in 2002. I think most of you here today are well aware that an overwhelming proportion, in fact 93 per cent, of Ontario's merchandise exports go to the U.S. Faced with these figures, one could be forgiven for thinking that, while Ontario is indeed outward-looking, it only looks south. This is, however, only part of the story, and there are many good reasons why the EU matters, not only to Canada but even here in Ontario.

In today's global economy, trade in goods across borders has become only a very partial measure and driver of economic linkages. These days, it is international trade in services and, more important still, international investment flows that are the real driving forces of trans-Atlantic economic relations. Much of the trade in goods that crosses the Atlantic these days is driven by cross-investments made by European and Canadian firms.

Trade in services has become an increasingly important component of overall international trade flows, representing about 17 per cent of global trade in 2001, a figure roughly paralleled in the composition of Canada's own trade. The EU plays a significantly larger role here compared with that of the U.S. than it does with respect to trade in goods. Figures for the most recent year--2001--indicate that the EU is the source for, and destination of, fully 17 per cent of total Canadian trade in services, a figure that is over three times higher than the same ratio for EU-Canada trade in goods. Moreover, given this city's pre-eminent position as Canada's financial centre, I think I would be on safe ground in suggesting that a very substantial portion of this services trade probably flows through Toronto. The EU certainly matters when it comes to Canada's, and Ontario's, trade in financial, commercial, insurance, transportation, tourism and other services.

This picture becomes even more marked when we look at direct investment stocks and flows. Canada's foreign investment orientation, like its trade orientation, is significant and outstrips the G7 average. In 2000, the latest year for which I have figures, the total stock of foreign direct investment in Canada reached almost 29 per cent of GDP, while Canadian direct investment abroad represented almost a third of Canadian GDP. And here again, the EU matters. Of the $430 billion invested abroad by Canada by the end of 2002, almost $100 billion or 23 per cent of the total was invested in EU countries. Likewise, of the $349 billion of foreign direct investment in Canada by year-end 2002, $94 billion, or almost 27 per cent, originated with EU Member States. While precise figures on a provincial basis are hard to come by, it seems quite reasonable to assume that a significant proportion of that EU direct investment in Canada has occurred in Ontario, and that a large part of Canadian direct investment in the EU is sourced from this province. This shows just how important the EU is to Canada, when one looks beyond merely the figures of goods trade flows.

Two further thoughts flow from this, even if precise figures are, again, difficult to come by. First, the fact that the high level of EU direct investment in Canada is undoubtedly partly linked to Canada's membership in NAFTA, would suggest that this investment is responsible for a significant share of Canadian, and Ontario, exports to the U.S. Second, the scale of our direct investment in Canada, and in Ontario, as well as the sectors in which this investment has occurred, suggests that thousands, if not tens of thousands, of Canadian jobs are directly dependent on EU investments here.

Rather, therefore, than being mesmerized by the relative shares of the U.S. and the EU in Canada's foreign trade, what we do need to do is to ensure that those EU and Canadian firms who do wish to export to or invest on the other side of the Atlantic face the fewest possible obstacles.

Some of this will, we hope, be achieved via the WTO's Doha Development Agenda--the DDA. The EU, like Canada, has played a decisive role in launching this latest round of multilateral trade negotiations and is determined to make a success of this exercise for the interest of both developed countries and developing countries alike. The Doha round, like previous rounds of MTN, provides us with a valuable platform for exchanging concessions with Canada (on an MFN basis) in the key areas of market access for agricultural and non-agricultural products and services trade liberalization.

But the main obstacles to transatlantic trade and investment are no longer tariff or market-access related. Among those governmental measures identified as barriers to bilateral trade and investment, those of a regulatory nature represent the main source of difficulties both for goods and services. This is the clear conclusion to be drawn from the business surveys that the European Commission and the Canadian government have recently conducted on their respective sides of the Atlantic. Particular barriers identified by EU exporters include:

Canadian sanitary and technical regulations, such as differences in foodstuff standards, burdensome inspection and authorization procedures by the Canadian Food and Inspection Agency (CFIA), labelling and packaging requirements, or the lack of transparency and international harmonization of technical and safety standards;

The management of government monopolies, such as the provincial wine and liquor boards; Insufficient protection of intellectual property rights, such as geographical indications and designs and models;

• Restrictions to the provision of services related to social insurance requirements for workers or the lack of recognition of diplomas and professional qualifications;

• Restrictions to investment in the form of limits to foreign participation in certain sectors, such as cultural services, telecommunication, banking services, coastal navigation or uranium production.

A remarkably similar picture (mutatis mutandis) emerged from the Canadian government survey. Consequently, in response to our mutual desire to further strengthen our bilateral economic relations, EU and Canadian leaders decided, at their last EU-Canada Summit in Ottawa in December, to work toward the creation of a new type of bilateral enhanced trade and investment agreement focussing on so-called "new generation issues." In combination with the results we both hope to achieve through the DDA, this new type of trade agreement should take us much further than a classical free trade agreement with its focus primarily on eliminating remaining tariffs. Since we have seen that tariffs no longer represent significant barriers to trade, our vision is that this future agreement will instead focus on trying to reduce or eliminate those obstacles to trade and investment still identified by our respective business communities as important. Of course, given that these obstacles are, by definition, the most difficult and sensitive ones that have survived years of multilateral and bilateral liberalization efforts, achieving a mutually acceptable trade and investment enhancement agreement will not be easy.

More than tariffs, internal regulations affecting trade often reflect divergent domestic policy choices or are the result of different legal traditions. On the Canadian side, several of these issues are of provincial rather than federal competence (wine monopolies, sub-federal government procurement, diplomas and professional qualifications), which is clearly a complicating factor. Unlike classical tariff negotiations--which are rather straightforward--negotiations touching upon technical barriers, standards and regulatory issues are complex and resource-intensive exercises requiring the long-term involvement of specialized staff on both sides. This consideration, I dare say, is not a minor one at a time when both the EU and Canada are deeply involved in a series of other multilateral, regional and bilateral exercises and when, for that reason, human and financial resources in the European Commission and in the DFAIT are already spread thinly. That is why we think it is very important to listen to our business communities, and negotiate away those barriers that really matter, and where real value-added can be achieved.

Let me say a word, finally, about another perceived difficulty associated with such an exercise, which is often mentioned on the Canadian side. It is the risk that introducing regulatory co-operation mechanisms or harmonising technical standards in relations between the EU and Canada would mean, for the latter, getting that much further from the U.S. and undermining a highly profitable trade relationship with its southern neighbour. I know that this is particularly important for Ontario, given the high degree of trade and investment interlinkages between this province and the U.S., especially with the northern-tier U.S. states bordering Ontario. But, I personally think that this difficulty could be overstated. First, because it seems most unlikely that Canadian negotiators would subscribe to anything that may seriously compromise Canadian trade interests in the U.S. Second, because the EU, which is itself eager to preserve and develop its positions on the U.S. market has also engaged in a process of regulatory co-operation with the U.S.A. Third, because the purpose of both the Canadian and the U.S. exercises should be to promote, as much as possible, the use of international standards as a basis for developing national regulations in all three jurisdictions and the recognition of these regulations as having essentially equivalent effects for the purpose of trade between the parties concerned--what is generally referred to as mutual recognition.

None, or few, of the subjects, which are likely to be covered by what some have provisionally labelled the CEUTIE (Canada-EU Trade and Investment Enhancement) initiative, is actually new. Most are already very familiar to all officials, scholars and business people with an interest in EU-Canada economic relations. What is new, however, is the common ambition to take a comprehensive view of all remaining obstacles to transatlantic trade and investment, to leave no stone unturned and to explore in a very systematic way all avenues for new or reinforced co-operation. And I can confirm that the European Commission in general, and Trade Commissioner Lamy in particular, remain firmly committed to making a success of this exercise in the interests of our business communities and consumers on both sides of the Atlantic.

The appreciation of the meeting was expressed by Lars Henriksson, Vice-President, EUCOCIT, Honorary Consul of Sweden in Toronto and Chairman of the Swedish-Canadian Chamber of Commerce.