Thank you very much, Mr. Chair.
Good afternoon everyone.
I would like to thank the committee for giving me this opportunity to talk about the potential free trade agreement between Canada and the European Union.
I will limit my comments to four or five points. This accord is very ambitious and we cannot cover everything today.
First of all, I will make a brief comment on this penchant for bilateralism, namely, the multiplication of international trade bilateral agreements.
Secondly, I will talk about the relationship between Canada and the European Union.
Thirdly, I will talk about the potential of an agreement such as this one.
Fourthly, I will take a look at the way things may evolve once the negotiations are over, namely, the various subagreements that may be reached.
Fifthly, I will be focusing on a few other areas of interest.
As far as this penchant for bilateral negotiations is concerned, according to the World Trade Organization, more than 200 bilateral agreements are currently in effect and dozens of others are in the process of being negotiated. Over the past few years, the United States has set the tone and has been imitated, obviously, by the large trading countries, the large trading units, such as the European Union.
Canada followed suit relatively late in the game. Basically, Canada has a program for negotiating bilateral agreements which is somewhat based on the American model. We have already entered into a half-dozen of these agreements with countries such as Panama, Jordan, Colombia, Peru and Costa Rica. We of course had already entered into an agreement with Chile, in 1997. A dozen other agreements are in the process of being prepared or negotiated including, of course, the one with the European Union.
For someone like me, who started looking at these issues back in the 70s, it is somewhat regrettable that we are developing a bilateral approach when, for the past two years, multilateral trade negotiations, the Doha cycle, have been stalled. In my mind, it is clear that the growth in the number of bilateral agreements has hampered the conclusion of multilateral negotiations. Nevertheless, I believe that Canada had no other choice than to follow suit, to avoid the situation where the foreign competitors of our exporters would be given a trade advantage over them.
Let's take a look at the relationship between Canada and Europe. Canada has been seeking a preferential relationship with Europe for a long time already. Remember the third option, back in the 70s, under Mr. Sharp and Mr. Trudeau. We in fact wanted to counterbalance the growing power of the United States in our economy. We know that this attempt was not successful and, in the early 80s, we came to the realization that we would need to focus on the second option, namely an agreement with the United States, which we entered into in 1987-1988.
As far as these negotiations are concerned, we must remember that it was rather difficult for Canada to decide to request negotiations. It was then difficult to convince the Europeans themselves, who were lukewarm to the idea of such negotiations. Moreover, we can start to understand why. First of all, at issue is the relative significance of trade for the two countries or the two entities.
The European Union is our second largest partner, but it is very far behind the United States. In terms of export markets, it is six times smaller than the United States. Indeed, we are the 11th largest partner for the European Union.
It is also important to note that, further to numerous multilateral rounds of negotiations, the tariffs are very low. Canadian exporters are dealing with an average rate of 2.2% for products entering the European Union, whereas European exporters are facing a weighted average tariff of 3.5% in Canada. So this is not a very high rate. Obviously, the weighted averages conceal spikes in the tariffs which may be very considerable.
For the two entities, both for the European Union and Canada, processed foods are the sector facing the most restrictions.
The data that I'm using here comes from a joint study carried out by the European Union and Canada in 2008. According to the calculations done by the authors of this study, a free trade agreement between Canada and the European Union would represent, as far as gross domestic product is concerned, revenue gains of 0.08% for the European Union and 0.77% for Canada. So we can see immediately that these are rather slim gains. As far as trade is concerned, for instance, Canadian exports to Europe could increase by approximately 24%, whereas European Union exports to Canada could grow by about 20%. This is a factor which, I feel, somewhat explains the reluctance of the European authorities to pursue these negotiations.
Obstacles identified by Canadian exporters with respect to Europe and by European exporters with respect to Canada lead me to believe that, at the end of the day, as we say in the negotiating world, Canadian concessions may be made in three or four sectors.
The first would be agriculture. We know from the various rounds of negotiations for GATT and then the WTO that agriculture has always been the chief irritant between the two countries. The average Canadian tariff on agricultural products is 22%. But that hides some extremely high tariffs resulting from the processing of quotas under the supply management system for dairy products, poultry and eggs. We are talking about tariffs in excess of 300%. These are completely prohibitive tariffs that do not appear in the weighted average tariffs. The perfect example is cheese: the European Union accounts for two-thirds of the 20,000-tonne quota, but anything in excess of the quota faces a tariff of 245%. For the European Union, which is a big producer of very good cheese, it is obvious that greater access to the Canadian market in this sector is very clearly a priority.
Obviously, we are talking about more than dairy products. There are also other tariffs, particularly in the case of grains and processed grain products. Indeed, we can find examples of tariff spikes to the tune of 95%. Other issues, which also pertain to agriculture, and which will no doubt be the focus of the European negotiators, include sanitary and phytosanitary matters, variations in standards, the provincial marketing of wine and alcohol—which has led to disputes in the past—labelling regulations, and bilingual labels.
You can see that I am now concentrating on the demands that are going to be made primarily of Canada.
Another sector where Canada will no doubt have to make concessions is in the area of government procurement. The main reason for this is that, during the most recent multilateral negotiations, Canada did not include provincial procurement in the WTO Agreement on Government Procurement.
As you know, Canada recently entered into a government procurement agreement with the United States, primarily because of the Buy American clause. I have already had an opportunity to discuss this agreement with you. I now believe that, given the concessions that were made with the United States, it is quite clear that we will not be able to avoid making such concessions with the European Union.
Another sector where we may have to make concessions is in the service sector, particularly in the area of financial services. Obviously, I am referring to the issue of securities, where the European services have always viewed the existence of our 13 security regulators in Canada as being an obstacle to market access. The current efforts of the federal government to create a sole security regulator is obviously going to be music to the ears of the European negotiators.
Finally, there are a few other issues that may be part of the agreements, including the recognition of credentials and skilled labour mobility. This is an important topic, particularly as far as investments are concerned. Obviously, these are also matters that come under provincial jurisdiction. I should point out that there has been an innovation in these negotiations. Indeed, the provinces are now present at the negotiating table, which is a first, for issues that come under their jurisdiction or for issues where there is shared jurisdiction with the federal government.
Mr. Chair, I will stop here. I am quite prepared to answer questions.
