The Free Trade agreement in principle was recently signed between Canada and the European Union.
It was hailed as a significant step to boosting the economy of Canada while having minimal negative impact for Canadians.
So what is a Free Trade Agreement?
Essentially it eliminates tariffs or taxes on cross border imports/exports making it easier for companies to trade products and/or services with neighbouring countries.
It’s not just as simple as that though, there has to be limits or quotas set where each trading partner agrees to a set level.
Depending on what the country exports or imports the most can determine what is set in the quotas.
So for instance Canada has a lot of trees and the US needs to build a lot of houses, it would be in both of their interests to eliminate the tariffs on trees for, let’s say the first 100,000 tonnes.
Anything past the 100,000 tonnes then tariffs will be applied so companies would have to budget their exports in order to keep with-in the quota.
That’s great for Canada, they’re selling trees like they’re going out of fashion, but what’s the US getting out of the deal?
They put forward something like domestic car imports as there are no Canadian Car Manufacturers. You could call it an agreement to cut through red tape.
Does this trade agreement make sense for Canada? Well since 1989 Canada has benefited very well from the CUSFTA which later became the NAFTA when Mexico joined.
Surely setting up another trade agreement with the EU is going to be just as beneficial? After all the European Market is enormous compared to the Canadian market.
I watched a good proportion of the speech from Brussels because it affects an awful lot of people. Some of it I’ll admit I was a little lost on when it comes to details. I’m not an Economist, I’m just a regular guy who likes to stay informed.
According to the government “it’s an excellent deal”, but the government does not always have the interests of the common man in mind.
Sure, there were talks of reduced prices for Canadians at the cheese counter because the imported European cheese would be duty-free.
Sounds great for me because I’m a bit of a cheese monster and there’s nothing better than good cheese from the old country. Saying that, I’m not employed in the cheese industry so maybe my selfish wants are vastly out weighing the Canadian cheese producers needs.
After all, I’ve previously written about how supporting nearby producers can stimulate the local economy.
But this trade agreement is not about the local economy, it’s about Canada’s economy. Tax or Tariff free exports to the European Union will boost the national income as Canadian made products will be cheaper to buy in Europe.
A strong economy is good for Canadians, it should promote wealth in the forms of higher income, more employment and less reliance on welfare, better competition, less taxes and more able to look after an aging population.
I hadn’t realized that the Canadian economy in the early 1980’s was in such bad shape until I started doing a little homework for this post. I wasn’t here so I won’t remember it and I won’t try to fool you into thinking I would, so if any of you do remember that period maybe you can confirm or deny.
This is good news to generation “Y” who are currently suffering from an employment drought. Not only do we need to look after Canada’s economy now but for the future too. It needs to be sustainable though.
Export and Import benefits
Canada has a lot of good products, highly skilled people and natural resources. Being able to export larger amounts at cheaper prices increases cash flow. The increased exports are varied and cover:
- Beef, Bison and Pork products (fresh and frozen)
A large industry especially west of Ontario. Beef export quotas would go up to 65,000 tonnes inclusive of high quality beef. Pork quotas would increase from there current 6,000 tonnes to 80,000 tonnes per year.
- Metals and Minerals.
This would lead to an increase in demands for ore processing, transportation, equipment production, labour etc.
- Wood and Wood products
After the credit crunch of 2008/2009 wood exports to the US under the NAFTA or North American Free Trade Agreement have fallen significantly. Increasing exports to Europe would be beneficial to the forestry industry.
- Domestic Car maker
Car makers gain an increase in exports from 10,000 units per year to 100,000. Plus European import cars will get progressively cheaper over the next 7 years due to the phasing out of the 10% tariff. It makes that ludicrously expensive Ferrari just that little bit less ludicrous.
- Wheat and plant-based oils.
Canada is already one of the largest producer of grain in the world. Expanded export room will only increase the income potential.
There are drawbacks, there always is in a deal. Pharmaceuticals would be set to increase, but apparently not until 8 years time with talk of possible government subsidizing. Seafood exports to the EU after three years will supposedly have the minimum processing requirements removed.
That’s probably not good for places like Newfoundland but export tariffs will be removed so it’s a little of a mixed bag. The problem with all the facts and figures developed from these negotiations is, they are still yet to be confirmed. The agreement won’t take effect either until 2015 once implemented.
All 10 Canadian provinces and all 28 EU members have to agree, so we will have to wait and see what this agreement develops into.
There’s an age-old saying that’s quite true here;
You can please some of the people all of the time, you can please all the people some of the time, but you can’t please all of the people all of the time
Do you have any concerns as a Canadian with this free trade agreement?
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