Canada and European markets: where do we stand?

Luncheon discussion organized by the Conseil des relations internationales de Montréal, on the theme: "How to strengthen our trade relations with Europe".

Stéphane Dion - Special Envoy to the European Union and Europe and Ambassador to France and Monaco

June 13, 2024 - Marriott Château Champlain, Montréal

While thanking Pierre Lemonde for inviting me to such a prestigious forum as CORIM, and President Sam Ayoub and his Chamber for their dedication to economic relations between Canada and Europe, and as a prelude to the excellent panel we'll be having with Ms. Proulx and Messrs. Decostre and Laverdure, I'd like to highlight the potential that the European market represents for us, and the growing interest of Europeans in the Canadian market. I'll also address the protectionist tendencies at work in Europe, which we need to guard against.

The Europe I'm talking about, the one that corresponds to my area of responsibility as Special Envoy, stretches from Iceland to Kazakhstan, including Central Asia. Of course, these markets, immense as they are, will never be the equivalent for our economy of our large American neighbor. But as part of our diversification strategy, Europe represents a tremendous opportunity for us.

We need Europe, the world's largest importer and exporter of goods and services, home to large, fast-growing high-tech companies producing solutions across the entire value chain. The great transformations of the digital transition, artificial intelligence and decarbonization are, to a large extent, taking place in Europe. The 27-member EU market alone, with its 450 million consumers, is Canada's second-largest export market - after the United States - representing bilateral trade of over $158 billion.

The European Union (EU) and its academic and research institutions are among our most important partners in science and technology, especially as Canada will now be an associate country in Horizon Europe, the world's largest collaborative science, research and innovation program, with a budget equivalent to $140 billion.

We need Europe not only to trade more, but also to trade better, to inject environmental and social standards into international trade that match our objectives. Indeed, the European Union is increasingly asserting itself as a global regulator. In particular, it will be a key ally in making the transition to a net-zero sustainable economy, based on high, internationally accepted standards. Canada needs this demanding regulation, because we can't open up all these plants and extract, process and market these critical minerals essential to the energy transition, while tolerating social and environmental standards as lax as those of some other countries.

We need Europe, and in return, Europe is increasingly aware that it needs us too. We like each other but we realize more and more how much we need each other.

February 24, 2022, fundamentally changed the way Europeans view trade with Canada. Putin's brutal attack on Ukraine has led European leaders to detach themselves from Russian gas and seek to make their supply chains less dependent on autocratic regimes, particularly China.

At a time when the Covid19 pandemic and the invasion of Ukraine have thrown a harsh light on the industrial, health, food and energy dependence of democratic countries on autocratic regimes, Europe is seeking to reduce its vulnerabilities. Stable, predictable and secure access to markets in countries with which it shares democratic values and environmental, social and governance standards is a clear advantage. Canada, as a partner and ally, is part of the solution, especially as Europe's relationship with other traditional allies becomes more complicated.

Indeed, American protectionism is a concern for Europe. In addition, the European Union's trade negotiations with Australia and MERCOSUR are at a standstill.

In such a difficult context, European leaders are very interested in Canada, the most European of non-European countries, a democracy, an ally, an advanced economy at the cutting edge of high technology, a trading nation with a solid financial system, which has concluded 15 trade agreements, representing over 61% of the world economy, or more than 1.5 billion potential consumers. What's more, this semi-continent is bursting at the seams with critical natural resources needed to fuel the global transition to a low-carbon, digital economy: rare earths, cobalt, lithium, nickel, graphite, copper, etc., which are essential for everything from batteries to electric cars.

It's a good thing that a democratic country like Canada offers an alternative source of supply to China, to avoid over-dependence on that regime.

Over the past two years, our government has signed a significant number of scientific and commercial cooperation agreements with several European countries and the European Union, notably in the fields of critical minerals, clean hydrogen, renewable energies and civil nuclear power. In particular, Natural Resources Canada has no fewer than 23 active bilateral agreements with European partners (Finland, France, Germany, Poland, Portugal, Sweden, Switzerland, the UK, Ukraine and the EU). European companies have made major investments in Canada in the battery and electric car sectors. Canadian companies have won major contracts in various European energy sectors.

A key facilitator of this acceleration in economic exchanges is the Comprehensive Economic and Trade Agreement (CETA), better known in Europe, including France, by its English acronym CETA. Since its provisional entry into force in 2017, bilateral merchandise trade between Canada and the European Union has grown by 65% - or $126 billion - in a balanced way in both directions, and in all sectors including agri-food. Bilateral trade in environmental goods rose by almost 54%. Similarly, Canada-EU trade in services rose by almost 60%, while two-way investment was up by over 40%.

CETA also promotes the circulation of ideas and brains, by facilitating the temporary entry and residence of people for professional purposes, thereby increasing direct interaction between Canadian and European professionals. Potential investors can more easily discover potential business opportunities on the ground.

As Canadian diplomats in Europe, we must encourage the negotiation of new agreements, follow up on those already signed, support our ministers during their frequent visits to Europe, solicit European investors and help our companies in their search for contracts. We have to face up to the fierce competition from other countries on the European market, both to attract European investors and to win market share in Europe. We must do everything in our power to consolidate our strengths. The Canadian government, the provincial governments, and our diplomats on the ground are dedicated to all these tasks, which are growing in importance and speeding up.

But at the same time, we have to fight on another front: the protectionist wave that threatens to roll back our trade with Europe. This protectionist mindset takes various forms, such as the increasing use of anti-dumping and anti-subsidy measures, barriers to foreign products, and even to intra-EU trade, sometimes under the guise of "strategic autonomy" and "economic security". Of course, it's mainly Chinese competition that motivates these measures, but our companies can be collateral victims. Our government, our embassy in Brussels and our embassies in European countries are mobilized to prevent this from happening.

The most emblematic example of this reinvigorated protectionism is the current challenge to ratification of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union. The French Senate has just voted against ratification. The French government, on the other hand, strongly supports CETA.

The agricultural revolt that erupted in Europe this winter, and from which the French Senate vote largely stems, takes the form of a campaign against imported products that are not subject to the same health and environmental standards imposed by the EU and European states.

These protectionist tendencies are becoming more pronounced as far-right parties gain influence in most European countries and in Brussels. Many of these parties promote a nationalist withdrawal, an identity-based impulse hostile to cosmopolitanism and the globalization symbolized by free-trade agreements. CETA is equated with other dreaded agreements, such as the one with MERCOSUR. Their nationalism leads many of these parties to lapse into euroscepticism and preach the retreat behind national borders (without going so far as to advocate an unpopular exit from the EU or the eurozone).

Our diplomatic teams are therefore hard at work promoting the benefits of CETA to parliamentarians, businesses and farming unions, showing just how win-win it is, including for European agriculture.

The protectionist wave is also partly linked to a backlash against environmental and climate policies. As these move from general principles to concrete regulations, resistance from agricultural, industrial and other lobbies is becoming increasingly organized. At a time when we are just emerging from a period of soaring prices, especially for energy, the effect on the population is being felt. Far-right parties are stirring up this reaction and taking advantage of it. Other parties are becoming more cautious, and want to give assurances that they will not allow products that do not meet European environmental standards to enter the European market.

In particular, the EU is determined to press ahead with the implementation of its border adjustment mechanism for carbon. It sees this as a matter of social justice for European companies, which must not be subjected to unfair competition from foreign companies that do not have to bear the cost of carbon pricing in their own countries.

To date, the Canadian government has successfully argued to the European Union that our rigorous carbon pricing systems should be recognized when border carbon adjustment is applied to Canadian products. The price of carbon paid under Canadian systems (federal and provincial) must be recognized, so that our exporters don't have to pay twice for their emissions.

I'll have more to say about this later today, when I give the closing address at a conference held by the Université de Sherbrooke on green taxation. For now, I'd like to stress that carbon pricing is an export tool, and that abolishing it in Canada would not only be an ecological mistake, but also contrary to the economic interests of Canadians.

In short, we must prevent the erection of new protectionist barriers against our products and, on the contrary, move towards more open European markets and science-based regulations in line with our social and environmental objectives.

To a large extent, Canada's prosperity, our trade opportunities, the success of our transition to sustainable development and a digital, low-carbon economy, not to mention the pursuit of our goals of peace, democracy and justice on every continent, will depend on our ability to consolidate alliances in Europe and build ever stronger and more effective partnerships there.

These are subjects I'd be delighted to discuss with Mrs Proulx and Messrs Decostre and Laverdure.