The final in an eight-part series of challenges facing Canada's foreign trade. This week's challenge: a free trade deal with Europe.
Overcoming foreign trade restrictions remains a challenge for Canadian business. In Europe, a free-trade deal, currently being negotiated with Canada, could open up service sectors to Canadian companies, reduce barriers to investment and provide transparent rules and processes. All are changes that could prove helpful to small and medium sized businesses, says Steve Verheul, Canada's chief negotiator for the pact.
"We would be the only developed country with this kind of access into the EU," he says.
Mr. Verheul, 50, has been Canada's chief negotiator since free-trade talks with Europe started in May, 2009. His goal, he says, is for the deal to be broader than the North American Free Trade Agreement and "deeper in ambition."
Why such a broad and deep free trade deal with Europe?
It's something we've been wanting for a long time. Someone said it goes back 30 years. We obviously rely quite heavily on the U.S. market and there's been an interest in diversifying into other markets. The European market is the largest, wealthiest single market in the world. Plus, we have a lot of cultural and historical ties with Europe. It made it a natural ally for a free-trade agreement.
Where are the negotiations at?
We've been through five rounds of negotiations; we've got two more planned for early next year. We're anticipating concluding the negotiations later in the year. We've certainly got a lot done, both on text and some of the controversial issues.
What is the scope?
It's going to cover all goods and services trade. It's going to cover investment issues, labour and environmental issues - basically, all aspects of our economic relationship. There are some 22 areas of negotiations.
What business barriers is Canada seeking to knock down?
There are certainly barriers at the border, including tariffs and customs procedures. There are barriers to trade that exist in the agricultural field. We're also looking at removing restrictions on services, restrictions on procurement by government, restrictions on investment.
What about our many small- and medium-sized businesses? What does this deal mean to them?
We're trying to pay particular attention to the small- and medium-sized enterprises. They may be used to the domestic market or the U.S. market, where they know how the game is played, but they don't have that familiarity with the European market.
We're trying to ensure that the whole process of doing business with Europe is made as simple and transparent as possible - including things like customs and trade facilitation. We'll have a chapter on those issues, which will mean requirements of the Europeans to have a contact point for companies that are interested in selling into the European market, so they can find out what barriers might exist or what the treatment is at the European borders. There will be requirements for transparency, like having to post things on websites so they're easily accessible to small businesses.
How much effort has there been on the part of small and medium businesses to enter the European market?
It's not what it could be, partly because I think there's a concern that the European market isn't one of the easier markets in the world to enter.
Overall, what will a deal do to our business relationship with Europe?
In large part it would depend on the extent to which Canadian business takes advantage of the new opportunities. We'll have a free trade agreement with the U.S. and the EU, the two largest markets in the world. We'll be well positioned to benefit from that kind of preferential access. It will be a matter of ensuring that Canadian business can see those opportunities and look beyond the U.S. market in some cases.
How much yearning or fear is there for this deal in the business community?
There is clearly a strong interest in getting more involved in the European market. I really haven't heard much in the way of fear from the business community. I think in most cases they feel they can compete effectively with imports from the EU. The EU is not generally known as a low-cost supplier. There's not really a fear of low-cost product being dumped on the Canadian market.
Europe isn't just one homogenous block. Does anyone talk about whether the upside of access to Germany is outweighed by the downside risk of competing with the Spaniards on our soil?
Not really. The EU operates as a single internal market so there's a free flow of trade between Germany and Spain or any of the other 27 members. There's already been a balancing out of pricing. There's effectively not a wide variance of price within the EU because it's one single market. So when they're exporting to Canada they don't tend to be the low-cost exporters that a developing country like India or China is.
It seems you're negotiating in a quiet way. Free trade with the U.S., NAFTA, there were huge controversies. It almost seems old hat now. What is your perception of why there is so little interest in this?
There's not a fear of being dominated to the same extent, or the fears about sovereignty, which came up during the NAFTA discussion. Europe is just not seen as that same kind of a threat, by those concerned about that.
Why is business thinking of expanding into Europe?
The domestic market has never been that large. Business has seen that there's a certain vulnerability to that heavy reliance on the U.S. market. When the U.S. economy takes a strong downturn, some businesses are looking elsewhere. If you're looking primarily to developed countries, Europe has the biggest market. There is a lot of interest. The concern we have is that it's not as widespread as we might like it to be. There's going to have to be an education effort to make sure business is aware of the opportunities.
To what extent do the financial problems that much of Europe is experiencing affect the negotiations?
We really haven't seen any effect at all. The Europeans remain committed to negotiating an agreement that says "as ambitious as possible." I think they see negotiations like this providing a potential boost to their economy. There probably is a bit of concern that they may have some political pressure not to open up markets, but I don't think that's much worse than it would have been before.
How will free trade facilitate investment?
They have some sectors where ownership is limited to 50 per cent of the company by someone outside the European Union. They have restrictions on the board of directors - a certain number may have to originate from the European Union. Those types of measures tend to inhibit investment. We're offering to liberalize some of the restrictions we have on investment. We have restrictions on the amount of foreign ownership in natural resources and utilities.
What else would we have to give up in return?
One of the bigger EU interests relates to government procurement on the Canadian side and in particular government procurement as it relates to provincial and municipal governments. We've never really negotiated those areas with a trading partner in a free-trade agreement. The EU has indicated that's probably their number one objective.
How do you go about that? You're not responsible for what the provinces and municipalities do.
We're consulting very closely with the provinces on what they might be prepared to put on the table in procurement. Unlike any previous negotiations, we are actually bringing provinces into the negotiating room on areas under their jurisdiction. So when it comes to procurement negotiations that will affect the provincial level and in turn the municipal level, provinces are inside the negotiating rooms as well as participating closely in developing a Canadian strategy for what we put on the table.
You say procurement is number one from the EU side. What is their number two objective?
They put a lot of emphasis on intellectual property. They have concerns about our copyright protection, our enforcement of intellectual property rights, concerns about protection for patents and designs.
Do they see us as being lax on our IP regime? Could you suggest some examples?
They have expressed concern from the beginning about some aspects of our intellectual property regime, particularly our copyright law which the government has tried to change a number of times; there's a bill in the House right now. Our copyright laws haven't been updated for some time. The EU is concerned primarily with rights of authors and performers, particularly in connection with new technology that allows you to reproduce performances.
This is mostly in connection with the arts? Or is it technical creation as well?
Technical creation as well. They do have some concern about patents, with respect to the pharmaceutical industry, for example.
If this deal goes through what will be the benefit, in dollars?
Before the negotiations got started we did a joint economic study with the European Union. We would see a boost of about $12-billion to our gross domestic product and bilateral trade would increase by 20 per cent to about $38-billion in two-way trade.
For insights and perspectives on addressing this challenge, read the upcoming solutions article earl y next week.