Quantifying opportunities and threats: examining the Canada–EU trade negotiations

Abstract

This study examines the impacts of a Canadian–EU preferential trade agreement. A carefully designed contemporary baseline scenario and additional HS6 tariff offer data are incorporated to establish the degree of ambition of the negotiations whilst assessing the sectoral trade opportunities and threats facing both partners. Initial tariff offer real income gains are estimated at 76% of full liberalisation in both regions, rising to 91% (Canada) and 84% (EU) under the second tariff offer. Given higher levels of applied tariff protection, potentially significant impacts are measured in dairy, meat and wheat sectors. Trade diversion losses on third countries are negligible.

Keywords:

• Canada
• EU
• preferential trade agreement
• tariff offers
• computable general equilibrium

JEL Classifications:

• C68
• F11
• F15
• F17

Acknowledgements

The authors would like to thank the Department for Environment, Food and Rural Affairs (DEFRA) for providing financial and technical assistance for this research. The authors would also like to thank two anonymous reviewers for their comments on an earlier draft.

Notes

1. Owing to the short-term transitional nature of many of Canada’s agricultural policies and the medium- to long-run time horizon considered here, no attempt was made to further model Canada’s agricultural policy.

2. In EU and GC (2008), the authors extrapolate from the increase in services trade under the EU’s single market to estimate the magnitude of NTB services trade cost reductions from Canada–EU bilateral liberalisation. Thus, additional NTB services trade costs into Canada and the EU range between 24–52% and 18–42%, respectively. Consequently, partial NTB cost reductions in the order of between 2–10% (depending on the service sector) are derived, which in turn, are employed in this study. The modelling of NTB reductions is described in the technical appendix.

3. Whilst primary fishing activity is recorded in the GTAP database, there is no disaggregation of trade in fish products (which appears in the highly aggregated sector, ‘other food processing’). Consequently, it is not possible to evaluate the potential important gains to the Canadian fish sector.

4. Since bilateral services trade exhibits zero tariffs in the GTAP database, trade diversion and creation measures are not measureable (i.e. zero weights). A monetary measure of changes in PTA and non-PTA member trade in services (and merchandise) goods owing to NTB removal is covered by the NTB efficiency gains in Table 5.

5. Of the NTB efficiency gains, in Canada (the EU), 59% (57%) are attributed to services (manufacturing) trade liberalisation – a consistent result across all scenarios.