Canada-EU on Threshold of Concluding Historic Agreement

By Jason Langrish, Executive Director, Canada Europe Roundtable for Business

TORONTO, ON – Angela Merkel’s visit to Canada last month provides us with an opportunity to reflect on the importance of what was a central issue discussed between the German Chancellor and Prime Minister Stephen Harper – the Canada European Union Comprehensive Economic and Trade Agreement (CETA).

Launched in 2009, the CETA is the most comprehensive trade negotiation ever undertaken by both Canada and the EU.

The CETA is a next-generation agreement that recognizes the fundamental changes that have occurred in the global economy over the past 20 years.

Industrialized economies likes Canada and Germany used to focus on the local manufacture of products to be shipped abroad. This necessitated the removal of tariffs as a condition of expanding trade.

But as economic activity has globalized, companies have structured their business lines in multiple countries, forming supply chains that move components across borders several times before a product is finalized.

The value added in today’s business world comes largely from the intellectual property embedded in these same products. The innovations that are developed in laboratories, research institutes and universities and then commercialized are the principal driver of increases in national wealth.

Contrary to popular belief, even resource industries are more dependent than ever on innovation for their prosperity. Reducing tailings ponds, developing disease-resistant crops and accessing resources in increasingly remote and harsh terrain are made possible by technical advances and the intellectual property that underpin them.

Tariffs, which have largely been eliminated at the World Trade Organization, are no longer the principal preoccupation of trade negotiators. Today, issues such as the protection of intellectual property, investment, procurement, and the movement of skilled workers have become the focus of discussions amongst advanced economies.

Prime Minister Harper and Chancellor Merkel recognize this reality and understand that businesses orient their trade and investment to countries where impediments in these areas do not exist, or have at least been minimized.

The CETA will achieve this goal and, in so doing, increase bilateral trade and investment. More importantly, it will increase the formation of value supply chains between Canada and the EU that will deliver goods and services not only in Canada and the EU, but also throughout the world.

An analysis of Apple’s iPhone illustrates this point clearly. The iPhone is conceived and designed in California by skilled workers from around the world. The constitute parts are produced in various global locations and then shipped to China where they are assembled into iPhones which are then exported to the U.S. and sold for a healthy profit.

According to an Asian Development Bank Institute the phone contributed $1.9 billion to Chinese exports to the U.S. But if China’s iPhone exports to the U.S. were measured more accurately in terms of value added – meaning the value added by China to the components – those exports would come to only $73.5m. The remainder would be accrued largely to the U.S.

The intellectual property embedded in the iPhone is the prize, not its manufacture, which is declining as a proportion of the economic activity in all industrialized economies.

A driver of intellectual property is trade in services, which account for 75 per cent of economic activity in Canada and the EU. In the CETA negotiations, the EU has agreed for the first time to negotiate a negative list, meaning all services are covered by CETA unless specifically requested otherwise.

This approach is not only comprehensive; it will also allow for inclusion of services that have not yet been invented. Looking back 20 years Facebook, Google or Skype did not exist. Any agreement that was negotiated at that time would today not cover these services. The CETA will not make this same mistake.

For years pundits said that there was no reason to pursue free trade between Canada and the EU for a simple reason – tariff lines between the two were not high. Thankfully Prime Minister Harper, Chancellor Merkel and her fellow EU heads of state rejected this antiquated way of thinking.

As a result, Canada and the EU stand on the threshold of concluding a once-in-a-generation agreement for the benefit of their respective economies. Good news indeed.

Jason Langrish is the Executive Director of the Canada Europe Roundtable for Business.

Article provided by Troy Media

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