Cablegate: Embassy Ottawa

DE RUEHOT #1257/01 2661245
P 221245Z SEP 08






E.O. 12958: N/A
SUBJ: Canada-EU trade proposal may rival scope of NAFTA...or not.

Sensitive but Unclassified, please protect accordingly. Not for
internet distribution

1. (SBU) Summary: Canada and the European Union will review a
joint study on the benefits of removing mutual trade barriers at the
October 17 Canada-EU Summit in Montreal. While senior Canadian
trade officials have publicly touted the benefits of a potential
Free Trade Agreement (FTA) - and press reports suggest arriving at
such a deal might be a mere formality - the EU has been more
cautious, suggesting that the hard work is yet to commence. Closer
trade ties to Europe have often been among Canadians' favorite
responses to anxiety about U.S. economic influence here, which
perhaps helps explain the lofty hopes expressed by Canadian
officials so far. End summary

2. (SBU) For several years now, Canada has expressed interest in a
wider FTA-type agreement with the European Union (EU). At the
Canada-EU Summit in June 2007, Canada and the EU agreed to undertake
a Joint Study to examine the existing barriers - especially
non-tariff barriers - to the flow of goods, services and capital
between the EU and Canada, and to estimate the potential benefits of
removing such barriers. The results of that Joint Study are
expected to be released between October 14 (voting day in the
Canadian federal election campaign) and October 17 (the scheduled
date of the 2008 Canada-EU Summit). We understand that the EU wants
to send a clear signal at the summit that it wants closer economic
ties with Canada and that the two parties should start examining in
depth the elements of - and possible obstacles to - a comprehensive
trade and investment Agreement. But the EU also acknowledges that
engagement in a new negotiation will depend on a challenge-filled
preparatory phase to address issues which have been controversial in
the past, such as the protection of geographical indications of
European products or the commitment of the Canadian Provinces to
allow Europeans access to their procurement activities.

3. (SBU) Given the proximity of the dates for Canada's federal
election and the Canada-EU Summit, we asked our interlocutors to
gauge the likelihood that the Summit could be postponed. We were
told that postponement is unlikely since Canada is hosting the
twelfth "Sommet de la Francophonie" in Quebec City from October 17 -
19, which French President Sarkozy will attend (along with the heads
of government and state from 55 francophone nations). Also, we
understand that the Czech Republic, which assumes the EU Presidency
from France in January 2009, is skeptical of the value of an
EU-Canada FTA. Therefore, if negotiations are to receive a timely
green-light, it would have to happen at this Canada-EU Summit.

4. (SBU) In comments reported on September 19in the Canadian press,
Canada's Deputy Minister of International Trade, Marie-Lucie Morin,
indicated that the potential FTA would be broad and deep and could
even lead even to a labor mobility pact and liberalization of the
bilateral investment regime. We have heard from several EU
sources, however, that the EU is somewhat more cautious given the
failed negotiations during 2005 - 2006 of the EU-Canada Trade and
Investment Enhancement Agreement. We have heard also that there are
mixed feelings among a number of EU members states, not just the
Czechs, about the value of this effort.

5. (SBU) Comment: The proposed Canada-EU FTA is a safer political
Q5. (SBU) Comment: The proposed Canada-EU FTA is a safer political
sell in Canada than most FTA proposals. Closer trade ties to Europe
have often been Canadians' favorite response to anxiety about U.S.
economic influence here, which may help explain the lofty hopes
expressed by Canadian officials so far. End comment.

The Background

6. (U) Canada is the EU's 11th most important trade partner,
accounting for 1.8 percent of total EU external trade. For Canada,
the EU is the second most important trade partner, after the United
States, with a 9.6 percent share of Canada's total external trade.
The value of EU-Canada trade in goods rose to about USD$70 billon in
2007, with high value-added products such as machinery, transport
equipment and chemicals making up around half of the EU's exports to
Canada and 32 percent of the EU's imports from Canada. An
additional 15 percent of bilateral trade consists of agricultural-
or energy-related products. Trade in services, particularly travel
and transportation, is a growing area in the trade relationship.
Investment, too, is a particularly strong feature, with the EU
ranking as the second largest investor in Canada, and Canada as the
third investor in the EU. Figures below are conversion of Euro
values to US dollar at current market rates.

Trade in goods --

OTTAWA 00001257 002 OF 002

EU exports of goods to Canada in 2007: US$37 billion
EU imports of goods from Canada in 2007: US$33 billion

(EU Canada goods trade is dominated by high-value goods such as
machinery, transport equipment and chemicals.)

Trade in services --

EU exports of services to Canada in 2007: US$14 billion
EU imports of services exports from Canada in 2007: US$11 billion

Foreign Direct Investment -

EU inward investment in Canada in 2006: US$183 billion
Canadian inward investment in the EU in 2006: US$121 billion

7. (U) In 1976, Canada and the EU signed the first-ever Framework
Agreement for Commercial and Economic Cooperation between the EU and
an industrialized country. For over 30 years this Framework
Agreement has provided the foundation and the structure for the
management and development of the EU-Canada relationship in an
increasing number of fields, including trade. The 1990 Transatlantic
Declaration built on this confirming the goal shared by Canada and
the EU of strengthening the multilateral trading system. Canada and
the EU began negotiations on a Transatlantic Aviation Agreement in

8. (U) The EU and Canada meet in annual EU-Canada summits, at which
the issues of greatest importance to the relationship, including
trade issues, are discussed. In addition, senior European
Commission and Canadian Federal Government officials, in the
presence of representatives of the Canadian provinces and of the EU
Member States, meet once a year in the Joint Cooperation Committee
(JCC) to review the full range of issues relating to EU-Canada
economic and trade relations.


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