RBC, Capital Economics reports note Canadian, European economies aren't complementary in areas
OTTAWA—The newly announced free trade deal with Europe may not live up to the hype that’s being used to sell it to Canadians, two economic analyses of the agreement suggest.
The Royal Bank, Canada’s largest financial institution, put a lid on the likely benefits of the pact, particularly in the short term.
Last week, Capital Economics judged the deal will provide only modest economic benefits to Canada.
The Canadian government has declared the pact—known as the Comprehensive Economic and Trade Agreement (CETA)—capable of growing the Canadian economy by $12-billion and creating 80,000 jobs.
The deal is expected to ease the flow of goods and services between Canada and the European Union (EU), including labour, autos, beef and wine.
But both analyses note that the two economies are not complementary in certain key sectors.
For instance, RBC notes that 45 per cent of Canadian exports to the EU last year were related to resources.
As most raw materials are already tariff free, it says the deal will make minimal difference.
In addition, the reports say there is a disconnect between the two auto sectors, with European exports into Canada mostly limited to luxury vehicles—a market largely unmet by the Canadian industry.
David Madani, of Capital Economics, says the biggest benefit may be in the area of foreign investment.
The reports don’t directly dispute the projection of job and economic growth, but RBC says it is difficult to verify the claims.
Other economists, including Jim Stanford, with Unifor, and Erin Weir, with the United Steelworkers (USW) union, have disputed the job creation claim, saying it is based on a faulty assumptions.
The RBC does say the longer-term benefits may be more significant.
The deal, if ratified, is unlikely to come into effect until at least 2015 and will take another seven years to fully phase in, although most of the tariff barriers are designed to fall upon implementation.