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PP RUEHGA RUEHHA RUEHMT RUEHQU RUEHVC
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ZNR UUUUU ZZH
P 221245Z SEP 08
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC PRIORITY 8530
INFO RUCPDOC/USDOC WASHDC
RUEHBS/USEU BRUSSELS 0639
RUEHFR/AMEMBASSY PARIS 1022
RUCNCAN/ALL CANADIAN POSTS COLLECTIVE

UNCLAS SECTION 01 OF 02 OTTAWA 001257 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR WHA/CAN, EEB/DCT 
 
COMMERCE FOR 4310/MAC/ONA 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EAGR EIND EFIN ELAB CA EU
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 
¶2007. 
 
¶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. 
 
Wilkins