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Prime Minister Stephen Harper delivers his keynote address at the 2013 Conservative Convention in Calgary, Alberta on Friday, November 01, 2013. (Chris Bolin For The Globe and Mail)
Prime Minister Stephen Harper delivers his keynote address at the 2013 Conservative Convention in Calgary, Alberta on Friday, November 01, 2013. (Chris Bolin For The Globe and Mail)

Economy Lab

Way too early to peg dollar value to Canada-EU trade pact, economists say Add to ...

Prime Minister Stephen Harper and his cabinet are fanning out across the country, touting free trade with Europe as a $12-billion-a-year job-creating engine. Economists who have looked at the sparse details of the tentative deal reached between the two sides last month are decidedly less categorical.

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Most aren’t ready to put an estimate on the deal’s potential economic impact. The consensus seems to be that there will be virtually no impact in the short term – positive or negative – and only modest benefits over the longer haul.

That’s because Europe represents a relatively small share of Canada’s current trade. Goods exports made up just 2.3 per cent of gross domestic product (GDP) in 2012, and imports 2.5 per cent. And the region is in the grips of a potentially long economic slump.

“Given the relatively small share of exports currently going to the EU, with the long implementation process, and a view of the sluggish growth in the region, there will be little noticeable economic impact for Canada over the short term,” Royal Bank of Canada economist Laura Cooper said in a report Wednesday.

“From an economic perspective, details on the terms of the agreement are too vague at this point to precisely quantify the potential impact on the Canadian economy.”

Economist David Madani of Capital Economics offered a similar assessment in a recent report, concluding that free trade would provide “only modest economic benefits” and do little to change the “sluggish outlook” for Canada’s economy over the next couple of years.

The expectation is that the agreement will take at least two years to ratify. It would then be phased in over the subsequent seven years. That means the full impact may not be felt until 2022.

But economists said some of the deal’s most promising elements aren’t about eliminating most of the roughly 9,000 European tariffs.

Ms. Cooper figures that some of the gems in the deal include better access for Canada’s growing service exports, loosened investment rules that will make it easier for European to invest in mining and oil sectors here, plus access to the $2.7-trillion European government purchasing markets.

“As it currently stands, Canada is likely to be a net beneficiary of [the procurement] segment of the agreement as its exclusions are much broader that those imposed by the EU,” she wrote.

Mr. Madani also pointed out that Canada and Europe have complementary trade patterns. We export a lot of natural resources, led by unprocessed gold and silver ore, aerospace products and various other metals and ore, much of it raw and semi-finished. Europe’s main exports to Canada are drugs, cars, refined petroleum products, and aerospace products and parts.

“The new trade deal does not pose a threat to Canada’s industrial heartland,” Mr. Madani said. “The industry overlap between Canada and the EU is also greatly exaggerated.”

He pointed out that in the auto sector, where tariffs will be eliminated, Europe exports luxury cars, such as Mercedez-Benz, to Canada. This country’s assembly plants churn out mid-market cars, including the Chevrolet Impala, Dodge Charger, Honda Civic and Toyota Corolla. The main effect, he said, would be to lower the price of some cars.

Ms. Cooper, meanwhile, suggested that some of the losers could be Canadian wineries, cheese makers and the auto industry. She added that even these industries could benefit in a “successful transition” to free trade.

But this exercise is all a bit of a best guess. Trade patterns are unpredictable, and highly dependent on currency values, economic conditions and technological change. And 2022 is a long way off.

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