EDC

By David Plunkett and Mark Camilleri

February 20, 2025

With threats of potentially devastating tariffs from the Trump administration adding urgency to Canada’s interest in trade diversification, there is renewed enthusiasm for the Canada Europe Comprehensive Economic and Trade Agreement (CETA) as a counter to our dependence on the U.S. market.

Provisionally in force since 2017, CETA is a free trade agreement between Canada and the EU, including the G7 markets of Germany, France and Italy. The CETA gives Canadian businesses preferential access to more than 448 million consumers with a total combined annual GDP of $25 trillion.

In the immediate term, a new economic study should be launched to identify quickly where and how CETA can be updated and refreshed to address both current global challenges and the limits of the original agreement. In addition, given the challenges that the Trump administration presents to the EU, now is the time for a renewed push for the remaining member states to ratify CETA and bring it fully into effect.

Until now, the economic arguments for Canadians doing business with their U.S. neighbours were overwhelming. Today, however, this overdependence on the U.S. market has placed Canadian economic security, as well as its national security more broadly, at risk.

Both Canada and the U.S. have benefited from massive two-way trade, thanks to geographic proximity, largely shared language, norms and values, and a generally accommodating economic and political climate. For years, close bilateral trade was basically a ‘no brainer’, especially for individual companies. But the landscape is changing fundamentally and calls for increased diversification are back.

Successive Canadian governments have made serious efforts to help diversify Canada’s trade and broaden economic relationships around the world. These have included not only getting the EU to the negotiating table for CETA (and its accompanying Strategic Partnership Agreement), but also: joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), concluding free trade agreements with various Latin American countries, initiating free trade talks with India and Japan, as well as pursuing a variety of other agreements designed to facilitate two-way commerce.

Today, Canada has more comprehensive trade agreements than any other G7 country. But having a trade agreement is one thing; leveraging it is another. Utilization rates of these agreements have remained low and this must change.

Many Canadian businesses have structured themselves to meet U.S. rules and regulations to take advantage of ongoing opportunities in the rich U.S. market. To conclude deals with the EU and others, Canada’s trade negotiators had to therefore find creative ways to meet legitimate demands by potential new partners without undermining existing bilateral relations with the U.S.  This has not always been easy or even possible. The need to protect existing access to the U.S. market inevitably limited potential gains elsewhere.

Every effort will and should be made to achieve some stability to Canada’s economic relationship with the U.S., but Canada can no longer assume that access to the U.S. market will remain a given.

Existing agreements such as CETA reflect the successes Canadian negotiators were able to achieve. CETA delivers access to one of the biggest markets in the world, the EU, while preserving access to Canada’s largest market, the U.S. However, even a groundbreaking agreement like CETA can and must be improved.

While the utilization rate has crept up since 2017, it remains disappointingly lower than anticipated. The global landscape has also changed considerably since CETA was concluded. The United Kingdom’s exit from the EU, COVID, the Russian invasion of Ukraine, and the development and proliferation of advanced technologies including AI are changing our societies in ways that were not foreseen during CETA’s long negotiation.

If there is one lesson to be learned in this new environment, it is that multilateral, bilateral and regional agreements must either quickly adapt to these new global circumstances, or risk being tossed on the scrapheap of history. Countries must cooperate to find ways to address the threat posed by geopolitical disruption.

Prior to launching formal negotiations, Canada and the EU published a joint economic study. It demonstrated that there were significant benefits for both sides, including for small and medium-sized enterprises, if we could successfully conclude a comprehensive and ambitious FTA. Data since 2017 clearly justified the study’s conclusion. Between 2016 and 2023, bilateral trade increased more than 65% in goods, almost 73% in services and 2-way investment stands at C$445 billion. Yet despite the impressive economic gains since the provisional application of CETA, more is definitely possible.

Canada could be living with serious economic and political uncertainty for the foreseeable future, including the prospect having longstanding trade and investment ties with its major bilateral partner seriously ruptured. Some of the potential harm could be mitigated by Canadian business taking better advantage of the opportunities that lie elsewhere in the world. Canada remains an attractive trading partner, a potential key supplier of potash and other critical minerals, energy, and agriculture, to name a but few. The COVID pandemic demonstrated the importance of Canada having valued trading partners besides the U.S. as the EU became a key source of PPEs and vaccines.

However, the expansion of links to other markets may well require some painful choices being made given the integration of Canadian and U.S. supply chains; choices which may now be unavoidable. If President Trump seriously pursues his re-shoring economic nationalism policies to restore manufacturing to the U.S., Canadian business and governments will have no option but to address longstanding domestic barriers to trade and to turn increasingly to other markets, especially markets like Europe, where we have trade agreements such as CETA already in place. To this end, the private sector will need to be fully engaged and motivated.

Every effort will and should be made to achieve some stability to Canada’s economic relationship with the U.S., but Canada can no longer assume that access to the U.S. market will remain a given. We need to optimize our economic relationships with our reliable partners. Strengthening CETA provides an excellent starting point to enhance Canada’s relationship with Europe and a pathway to greater resilience and prosperity.

David Plunkett served as Canada’s Ambassador to the EU from 2011 to 2015 and one of Canada’s CETA negotiators. David is Chairman of the Canada EU Trade and Investment Association (CEUTIA).

Mark Camilleri is a Brussels-based Canada and EU regulatory lawyer and Special EU Advisor to the Business Council of Canada.  Mark is President and founder of the Canada EU Trade and Investment Association (CEUTIA).