International Affairs, Trade and Investment
Issue | An agreement with the European Union, the world’s biggest common market, would have a major impact on Canada’s agri-food sector.
Synopsis | There are tariff and non-tariff barriers in the agri-food sector, both in Canada and in the European Union. Eliminating those barriers would, in the long run, boost Canadian exports. However, a number of sensitive issues for which formal offers have not yet been exchanged are still unresolved.
Timing | There have been seven rounds of negotiations since 6 May 2009; the seventh took place in April 2011 in Ottawa. An eighth round is expected to proceed in July 2011 in Brussels. The negotiators anticipate reaching an agreement before the end of 2011.
In May 2009, Canada initiated a round of negotiations aimed at concluding a comprehensive economic and trade agreement with the European Union (EU). The agreement would give Canadian exporters access to a market of more than 500 million people, a market with a gross domestic product worth $16.7 trillion in 2010.1 The elimination of tariff and non-tariff barriers could, in the long run, boost Canadian agri-food exports from $2.7 billion to $3.2 billion.2 A number of hurdles must still be overcome before an agreement can be signed.
In recent years, the average duty Canada applied to agricultural products has been 21.9%, whereas the duty on non-agricultural commodities has been 3.5%.3 Imports of products under supply management (milk, chicken, eggs, turkeys and hatching eggs) have been subjected to high customs duties, with a 159.1% duty applied on average.
The EU, meanwhile, has imposed high duties on beef (142%), pork (between 32% and 70%), fruits and vegetables (31.8%), fish and seafood (12.5%), and wheat and oats. By comparison, average duties on commodities have been 2.2%.
On the subject of non-tariff barriers, European exporters complain about the length of Canada’s process for approving new veterinary drugs, delays in processing applications for authorization of food additives, and Canadian standards on the composition of cheeses. Canadian stakeholders, for their part, cite European regulations on beef, which include a ban on growth hormones. They also point to delays in the approval process for genetically modified organisms (GMOs), as well as GMO traceability and labelling requirements.
The negotiators agreed to address all issues during the negotiations, but there is still significant disagreement over the industries that each party would like to protect. The EU is concerned about GMOs, and about fish and seafood. Massive importation of fish and seafood products from Canada could threaten the European industry. The EU would also like to protect certain agricultural products that are subject to high duties, such as beef and pork products, grains, and processed foods. In many cases, these are export markets that Canada hopes to develop.
The EU is also pressuring Canada to recognize the Union’s geographical indications, which, according to some interested parties, such as the Canadian Association of Importers and Exporters, could pose a problem and be detrimental to the food industry because of market share loss that could result from that recognition. A “geographical indication” refers to the name of a region and is used to describe a local agricultural or food product or a manufacturing process from that region.
Canada wants to protect its supply management system for poultry, eggs and dairy products by controlling access to the market and imposing prohibitive duties when quotas are exceeded. Canada is also looking for firm commitments from the EU to lower export subsidies. These subsidies currently provide EU producers an unfair advantage over Canadian producers.
Finally, there is still no agreement on the definition of the rules of origin of agri-food products. In the case of animal products, the two parties have to agree whether the origin of a product means the place where the animal was slaughtered or where it was born. Rules of origin based on place of birth would hurt Canadian pork and beef exports, because in North America those sectors are highly integrated and Canada could be required to modify its traceability systems.4
There have been seven rounds of negotiations to date, the last one in April 2011 in Ottawa. During those negotiations, the parties put offers for commodities on the table that would see 90% of tariffs eliminated. However, the remaining 10% includes tariffs on agricultural products. There has yet to be a formal exchange of offers for the sensitive agricultural issues, but the negotiators still hope to reach an agreement before the end of 2011.
| Canada’s Agri-food Trade Balance with the European Union, 2001–2010 |
 |
| Source: Figure produced by the Library of Parliament using data from Statistics Canada. (Overall, the trade balance was positive, except in 2002, when there was a $33 million deficit.) |
© Library of Parliament 2011
