Reports question proposed benefits of CETA trade pact

Canada’s new free trade deal with Europe may not quite live up its billing as a major economic game-changer, according to two economic analyses of the agreement.

The Royal Bank, Canada’s largest financial institution, has questioned some of the benefits of the pact, particularly in the short term; and economic analysts Capital Economics has concluded that the deal will provide only modest economic benefits to Canada. “Despite an overall net positive for the Canadian economy, the impact will vary within and across industries depending on how firms adapt to the changing trade environment,” the Royal Bank report said. “The negative hit from the trade agreement will be evident in industries that benefit from protective tariff barriers – as imports will now be coming into Canada at lower prices.”

The Canadian government has declared the pact – known as the Comprehensive Economic and Trade Agreement (CETA) – capable of growing the Canadian economy by $12 billion and creating 80,000 jobs by easing the flow of goods and services between Canada and the European Union (EU), including labor, autos, beef and wine.

But the two economies are not complementary in certain key sectors, according to both analyses. For example, RBC notes that 45 per cent of Canadian exports to the EU last year were related to resources – and as most raw materials are already tariff free, the deal will therefore make minimal difference.

The two reports also determine that there is a disconnect between the two auto sectors, with European exports into Canada mostly limited to luxury vehicles – a market largely unmet by the Canadian industry.

The reports don’t directly dispute the projection of job and economic growth, but RBC says it is difficult to verify the claims.

The RBC report did determine, however, that the longer term benefits of CETA may be more significant.

The deal, if ratified, is unlikely to come into effect until at least 2015 and will take another seven years to fully phase in, although most of the tariff barriers are designed to fall upon implementation.

The Royal Bank report is available at this link.