After four years of negotiations, the EU and Canada have agreed in principle on a Comprehensive Economic and Trade Agreement (CETA).  Agriculture was one of the issue areas that led to repeated delays in reaching a conclusion.  The U.S. agriculture industry is studying the agreement for indications of critical issues for the EU as negotiations begin on the U.S./EU Transatlantic Trade and Investment Partnership (TTIP) agreement.

CETA is considered to be a 21st century, gold-standard agreement that is expected to increase two-way bilateral trade in goods and services by 23% or about $39 billion a year.  It is the first EU trade agreement with another G8 developed country, although the EU has an agreement with South Korea and is working on one with Japan.  Increased regulatory cooperation is planned on technical regulations and the mutual recognition of industrial standards will end costly trade-limiting practices for consumers and producers on both sides.  Trade will be opened in services, particular financial services, telecommunications, e-commerce, energy and transportation.  Increased trade and investment relationships will not occur at the expense of the environment or labor rights.

The agreement contained no great surprises for U.S. agriculture, but that opinion may change when the details of the text are released.  Agriculture in the U.S. is much more diversified that in Canada and the consumer market is almost ten times larger.  EU officials have made it clear that regulatory harmonization and reducing industrial tariffs to zero are major goals in TTIP and that is clear in CETA also.  Regulatory issues of concern to U.S. agriculture like crop biotechnology, hormones in beef production, use of ractopamine in pork and pathogen reduction treatments for poultry meat were not addressed at all in CETA or are not consistent with current U.S. policies.

In 2012 Canada was the EU’s 12th most important trading partner, accounting for 1.8% of the EU’s total external trade.  The EU was Canada’s second most important trading partner, after the US, representing 10.4% of Canada’s total external trade.  Canada has 35 million people compares to 510 million for the EU 28 member states.  Industrial tariffs are fully eliminated and EU exporters are expected to save almost 500 million Euros ($700 million) in duties per year when the agreement is fully implemented.   The elimination of approximately 98 per cent of all EU tariff lines will occur on the first day the agreement is implemented and 99% of all tariff lines will have zero tariffs when fully implemented in seven years.

A smaller portion of tariffs on agricultural products will be eliminated with the agreement’s entry into force.  By the end of the transitional periods, Canada and the EU will liberalize, respectively, 92.8 percent and 93.5 percent of tariff lines in agriculture. For certain sensitive products – dairy for Canada and beef, pork and sweet corn for the EU – the two sides have agreed to new market access.  Canada will provide 1 percent more access to its dairy product markets with a tariff rate quota (TRQ) and the EU will provide 1.9 percent more market access with TRQs for beef, pork and sweet corn.

Less than full market access for agricultural products was expected.   Canada has a supply management program for milk that depends on restricting imports.  The EU is a dairy product exporter and will have more products to export after milk production quotas end on January 1, 2015.  Increased access to the Canadian dairy market was a key demand by the EU, but limited increased access was crucial for Canada.  Dairy farmers in Canada are opposing even this limited additional access.  The EU will also want increased access to the U.S. market.  Import demand is increasing in the rest of the world and this may allow the EU and the U.S. to find a middle ground.

Canada’s agricultural exports to the EU are an annual average of $2.5 billion, led by wheat, soybeans and other oilseeds, and canola oil.  Agricultural exports to the EU face high tariff rates, with average agriculture tariffs of 13.9 per cent.  Upon entry into force, wheat and oils, including canola oil, will be duty free.

The EU prepared agricultural products (PAPs) industry will gain as all Canadian tariffs are eliminated.  Wines and spirits will particularly benefit with the EU already supplying about half of Canada’s imports of wine.  Other relevant trade barriers will also be eliminated.  As with the Canadian market, all EU tariffs on processed foods and beverages from Canada will be eliminated immediately.

The agreement recognizes special status in Canada to a list of EU agricultural products from a specific geographical origin, referred to as Geographical Indications or GIs, and gives them protection.  Examples include Grana Padano, Roquefort, Elia Kalamatas Olives or Aceto balsamico di Modena.  The agreement provides for the possibility of adding other names to the list in the future.  Some prominent EU GIs such as Prosciutto di Parma and Prosciutto di San Daniele will be authorized to use their name when sold in Canada, which has not the case for more than 20 years.

The geographic indications issue was easier for Canada to resolve than for the U.S. because of the amount and variety of production in the U.S.  The prepared agricultural products issues should be resolvable as long as they do not involve GIs.

The Trade and Sustainable Development chapter will set up mechanisms for the involvement of different representatives of EU and Canadian civil society in the implementation and monitoring of the relevant provisions and include a dedicated arbitration mechanism, including government consultations and a panel of experts.  The EU will want similar provision for the TTIP because sustainability is politically popular in the EU.  U.S. producers are much more suspect about sustainability as often lacking a sound scientific basis.

The negotiations between the EU and Canada show the opportunities and challenges faced by the EU and the U.S.  Many of the changes in industrial tariffs and regulations will be quietly resolved after long negotiations, but the agricultural issues will be debated in the open.  This will take several years to complete and will require commitment of political capital on both sides to reach an agreement.

Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org). Follow us: @TruthAboutTrade on Twitter | Truth About Trade & Technology on Facebook.