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Even as anticipations soar about the fate of free trade and globalization, following events like the Brexit and Trump’s election, there are still deals showing progress, such as the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada. This bilateral trade agreement was signed by the President of the European Commission Jean-Claude Juncker, President of the European Council Donald Tusk, Prime Minister of Slovakia Robert Fico, and Canadian Prime Minister Justin Trudeau on October 30, 2016 at the EU-Canada summit.

The pro-trade agreement is expected to abolish almost 99% of tariffs between the two economies. In addition, it promises to relax restrictions on flow of services and on the procurement of public contracts, and offer more favorable conditions for cross-border investments between the two economies.

The case for the trade agreement was strengthened by research conducted jointly by the European Commission and the Government of Canada on the potential effects of a closer economic partnership between the two regions. Published in October 2008, here are some findings from the study:

• Liberalization of bilateral trade between the EU and Canada would lead to annual gains of €11.6 billion in the EU and €8.2 billion in Canada within seven years of the policies’ implementation
• Within those seven years, EU’s exports to Canada should rise by +24.3% (€17 billion) and Canada’s exports to the EU by +20.6% (€8.6 billion)
• Liberalization of services trade would constitute 50% of total gains for the EU and 45.5% of Canada’s gains
• Elimination of tariffs on bilaterally traded goods would contribute 25% of the EU’s gains and 33.3% of Canada’s gains
• Gains from relaxation/removal of non-trade barriers (NTB) are estimated to be €2.9 billion for the EU and €1.7 billion for Canada
• Both nations will benefit substantially from easier access to public procurement markets and better investment protection policies

In March 2009, the Joint Report on the EU-Canada Scoping Exercise, which presented the scope/opportunities of closer bilateral ties, was released. After their launch had been announced at the EU-Canada Summit in Prague on May 6, 2009, negotiations for the agreement began in October 2009.

Following four years of negotiations between the trade departments of the two nations, European Commission President José Manuel Barroso and Canadian Prime Minister Stephen Harper concluded a political agreement on the key elements of CETA on October 18, 2013. Some of these elements include:

• Both parties will eliminate all duties on over 99% of tariff lines between them
• All industrial tariffs and almost all agricultural tariffs will be abolished
• More transparency and improved conformity measures/reduced compliance costs with regards to technical regulation will be pursued
• New avenues will be opened for services trade market
• Cross-country investments would be facilitated by lifting barriers in specific sectors/industries/companies
• A system for mutual recognition of qualifications for professions like architects, engineers and accountants has been proposed. The deal will also encourage temporary migration of workers between the two regions so that foreign operations are smoother for either party
• The agreement aims to develop Intellectual Property Rights system, particularly for Canadian pharmaceutical and some of EU’s agricultural products. This could potentially encourage more innovation/research from both and help in mutual trade of the new products
• For the first time, all sub-federal governments in Canada have committed to opening their procurement markets to the EU. This, in addition to federal contracts, should expand opportunities for EU bidders to a whole new level.

Before the implementation can start, the Parliaments and member states must give their respective approvals.

Bottom Line for Investors

Although some final steps are still pending for the CETA’s implementation, the progress so far should offer hope amid concerns about the EU’s future following the Brexit. More so, since a similar deal has borne fruit for EU’s exporters: the EU-Korea agreement, which came into effect in 2011, led to a more than +55% increase in EU exports to South Korea.  The EU could also experience a spurt in jobs if its trade agreement with Canada finally gets implemented.

Does progress on the EU-Canada trade partnership mean it’s time for investors to increase their portfolio exposure to European securities? Well, that depends on various factors, including company-specific fundamentals. At Zacks Investment Management, we can help you stay up-to-date on the latest developments on this deal and other economic issues and market trends, as well as their potential effects on your portfolio. To learn more, speak with one of our Wealth Management Advisors at your convenience by calling 1-800-245-2934. And in the meantime, get insights into various industries and equity categories with our latest Stock Market Outlook report. Download this report by clicking on the link below:

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