Canada and the European Union: Comprehensive Trade Agreement Under Threat

Trade with the U.S. totally dominates the Canadian export and import accounts, with bilateral trade valued at $750 billion annually, eight times more than the $90 billion of trade with all the European Union members combined, including the U.K.

A comprehensive trade deal between the E.U. and Canada, which took seven years to negotiate and removes 98% of tariffs on Canadian goods, was expected to come into force in 2017.

This trade agreement would give Canadian companies access to the E.U., with its sizable population of 500 million and massive economy of $18 trillion. The accord encompasses financial services, shipping, sustainable development and access to government tenders, as well as food and industrial goods. According to a joint Canada-E.U. study, the agreement is expected to boost trade by 20%.

However, the extensively negotiated agreement still has to be ratified by the Canadian government and the E.U. Uncertainty over which body has final authority to approve the agreement has now resulted in the agreement being classified as “mixed,” which implies that the agreement will be concluded at the same time by the European Commission—which negotiates and finalizes such international agreements—and E.U. member states. National parliaments will have to give their approval, in addition to that of the European Parliament.

While there’s still hope that the agreement could come into effect in 2017, ratification is by no means a certainty.

Another Key Pipeline Bites the Dust?

Northern Gateway, one of the key pipeline projects underway to facilitate the eventual extraction of 172 billion barrels of oil from the landlocked oil production areas in Western Canada, has hit an unexpected roadblock, two years after the pipeline was finally approved by the federal government.

A federal court has overturned the approval on the basis of inadequate consultation with aboriginal groups and sent it back to the prime minister for “prompt redetermination.” The new Liberal government has previously voiced its objections to the pipeline which probably indicates that a redetermination” won’t be fast-tracked.

The Enbridge (TSX: ENB, NYSE: ENB) sponsored pipeline carries a total development price tag of C$7.9 billion and would be able to carry 525,000 barrels of oil per day in a westbound direction, terminating at Kitimat on British Columbia’s coast.

This is another setback for oil producers operating in Western Canada. However, we believe that the growing global demand for energy combined with the political stability and reliability of Canadian supplies will eventually force the product to market. Meanwhile, the scarcity value of existing pipelines owned by Enbridge and Dividend Champion TransCanada Corp. (TSX: TRP, NYSE: TRP) has increased further.