Canada's auto sector to gain from European trade deal, says budget watchdog

Motor vehicles and transport, some metals and wheat will likely see economic gains from Canada's free-trade pact with Europe grow more quickly than other sectors, the federal budget watchdog says in a new report.

Canada currently exports about 14,000 vehicles to Europe. Under terms of the agreement, signed in October 2016, Canada can annually export 100,000 vehicles to the European market, tariff free.

The parliamentary budget officer released a study Tuesday that estimates the trade deal would have lifted Canada's overall economic output in 2015 by 0.4 per cent or $7.9 billion, had it been implemented at the time.

Canadian exports of goods to the EU would have increased $4 billion, services would have been up $2.2 billion and investment would have grown by $3.1 billion, the analysis found. But the report did put the overall projected improvement into perspective by noting that Canada boasts a $2-trillion economy.

'Modest' gains

"CETA will lead to some gains for Canada, but they will be modest," the report said, referring to the deal's full name: the Comprehensive Economic and Trade Agreement.

"The work outlined in this report projects a small, but positive, overall effect on Canada's economy ... Starting from relatively low levels, exports of goods will increase by 9.3 per cent and services by 14 per cent."

The PBO based its analysis on 2015 because projecting into the future would have been more difficult. It was also the most recent year for which a complete set of economic data was available.

The report focused on the parts of the agreement that it said could be studied analytically.

Slower growth elsewhere

The budget office predicted some Canadian sectors will likely see slower growth under the agreement, including some dairy and agricultural products, textiles and some machinery and manufactured goods.

The areas analyzed included tariff reductions on goods, reduction in trade barriers for services and intellectual property as it relates to royalty payments for patented drugs. The report also examined the overall impact that the deal might have on Canada's gross domestic product through investment.

"With the signing of CETA, questions arise concerning the magnitude of the benefits and impacts, as well as how they will be distributed," said the report by Jean-Denis Frechette's office.

"Liberalizing trade is intended to bring benefits through greater specialization ... but the impact on sectors could be uneven."

Parliament is expected to ratify CETA in the coming months. Once approved, about 90 per cent of the deal would come into force under provisional application.

The deal is expected to come into force amid concerns in corporate Canada over protectionist policy proposals under discussion in the United States.

Frechette's office predicted that strengthening business ties with the EU will make Canadians a little less dependent on their existing trade partners, predicting that Canada's annual exports to the U.S. could decline by 0.4 per cent or $1.4 billion, while exports to the rest of the world could fall by 0.7 per cent or about $384 million.

Last year, Canada exported about $39.8 billion worth of merchandise to the EU, making it Canada's second-largest export destination, the report said. In comparison, Canadian merchandise exports to China were about $21 billion.

"But this is still only a tenth of the exports that go to the United States," the PBO said.

"Canada's sales of oil and gas to the United States alone are worth more than all the goods and services it sells to the EU."

Tags: Trade Canada

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