Europe reaps Canada's wheat belt

A new trade agreement between the EU and Canada is expected to increase bilateral trade by USD 14 billion. Looking beyond the delights of Belgian chocolate and Canadian maple syrup, Maersk Post examines the potential for advanced economies to increase trade and boost prosperity and for Maersk Line to intensify traffic across the Atlantic. 

europe-reaps-canada
Photo: Scanpix

What is CETA?

The Comprehensive Economic and Trade Agreement (CETA) is a free trade agreement between the EU and Canada. Eliminating 98% of the tariffs between Canada and the EU, CETA came into effect on 21 September 2017.

CETA addresses more than tariffs on cars, farm products and other goods. It also creates common rules covering a broader array of trade activity, including services, government contracting, intellectual property and the resolution of disputes.

CETA is expected to increase the bilateral exports and imports between EU and Canada by at least 8% annually, amounting to approx. €12 billion (USD 14bn) per year in additional two-way trade by 2030, split more or less evenly between the two parties. Half of the increase will materialise in the first year of implementation.

(Source: The European Commission)

Barely a week old, and Canada’s free trade deal with Europe shaking up the business of shipping seafood across the Atlantic. All cargo space on airlines to Europe is filled – with lobsters in unprecedented numbers lining up for a seat.

Overnight, the 8% tariff on lobsters heading from Canada to Europe dropped to zero, when the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) came into effect on 21 September.

“On day one, the benefits were remarkable,” says François-Philippe Champagne, Canada’s Minister of International Trade. “Some EU tariffs used to be as high as 25%, making the prospect of exporting unprofitable. That is no longer the case with the tariff elimination under CETA.”

Trade is heating up

And lobsters are only the beginning. With CETA, the tariffs on 98% of all commodities have dropped to zero, affecting more than 9,000 products including agricultural, seafood and industrial products. Consequently, Canadian-EU trade is set to receive an 8% boost.

A few weeks later the effects were also felt at Ray-Mont, a company that gathers agricultural products from the heart of the North American continent at its facilities by the coasts and repacks them in shipping containers.

To us, CETA is all upside. These are still early days, and we are not putting exact numbers on the volume growth to expect from CETA. However we are ready to support increased European volumes from Canadian exporters and importers alike”

jack-mahoney

Jack Mahoney, President, Maersk Line Canada

Charles-Raymond

Charles Raymond, President and CEO at Ray-Mont:

“CETA could not have happened at a better time. Many of our customers were looking at new destinations to export their agricultural products and Europe suddenly became an excellent option. Cargo out of Montreal is already up 5-10% and we expect much more.”

“We’re already seeing an increase in volumes to Europe of 5-10% and we expect much more,” says Charles Raymond, President and CEO at Ray-Mont. “Many shippers are only now beginning to look to Europe as an export destination so things will definitely pick up in coming months and years.”

Ray-Mont sees itself as a supply chain disrupter, constantly seeking improvements for the benefit of its customers. Growing its volumes by 20% annually for 10 years, and expecting to export 100,000 containers of wheat, lentils, peas and other produce in 2017, Ray-Mont has forged a partnership with Maersk Line.

“We have a different business model; the way we work and the way we need to receive the containers,” says Charles Raymond. “Maersk Line has worked hard to understand this and come up with solutions. It took us six months to set up and now volumes are booming. They’re pivotal to our business.”

Anticipating increased trade over the Atlantic, Maersk Line opened a new service from Montreal to the Mediterranean, in addition to its existing service from Montreal to northern Europe.

“We had our first sailing to the Mediterranean on 30 September and we’re seeing a very positive development for the trade. Exports are definitely picking up, although it’s hard to say if it’s driven by CETA or favourable conditions in general,” says Jack Mahoney, President of Maersk Line Canada.

Even before CETA came into effect, Canadian trade was booming. In the second quarter of 2017, imports and exports increased by a healthy 10% compared to the same period in 2016. For Maersk Line, volume growth was even better, i.e. 18% in the same period.

wheat belt
francois-philippe-champagne

François-Philippe Champagne, Canada’s Minister of International Trade:

“CETA is a landmark agreement that has created a new, global standard for the development and realisation of a progressive trade agenda. It improves free and fair trade between the EU and Canada and includes high standards for consumers, workers and the environment.”

“Canadian trade is growing, and we have been more active in promoting the positive ways we can support customers, including a punctual service to northern Europe, a favourable terminals experience and now, a service to southern Europe,” says Jack Mahoney.

Access to 1,000 stores

CETA also has exporters on the other side of the Atlantic on their toes, including Marek Marzac, founder and CEO of Ewa-Bis, a Polish exporter of fruits and vegetables:

“We export fresh apples to Canada where the retail market is dominated by a few big players. It can take some time to reach an agreement, but when they open the door, they give you instant access to 1,000 stores. This is what this agreement brings us closer to,” he says.

Ewa-Bis has 200 employees and exports its produce to 40 countries worldwide, working with Maersk Line to reach markets in the Middle East and China with Canada next on Marek Marzac’s list.

Since the beginning of 2017, when it looked likely that CETA would come into force, the Danish Agriculture & Food Council has also been preparing its members for the new opportunities:

“We expect that the elimination of tariffs will increase the export of dairy products such as fine cheeses and processed cheese for the food industry, in particular. This is where CETA has the largest opening for exports from the EU,” says Kenneth Lindhardt Madsen, Head of Trade & Market Relations, adding:

”It is difficult to say what impact the agreement will have on Danish exports, but we are seeing opportunities, which also include the export of lean Danish beef for the Canadian burger production and a lot of processed foods such as jams and baked goods.”

More trade, more jobs

Calculations made on behalf of the EU Commission indicate that every €1 billion worth of exports supports around 14,000 jobs. CETA is expected to increase cross-Atlantic trade by €12 billion:

“By removing barriers to trade, the agreement will make trade between us easier. More trade means more growth, and more growth means more jobs for Europeans,” says Mauro Petriccione, Deputy Director-General at the EU Commission, who played a key role in negotiating the agreement, adding:

“The key to the successful and balanced outcome of CETA has been the strong political engagement on both sides. Both parties wanted to negotiate an agreement that was ambitious and mutually beneficial. We also shared a strong desire to reach an agreement that was progressive – something that would set a precedent for future agreements around the world.”

Mauro Petriccione, Deputy Director-General of the EU Commission:

“Trade agreements are always a priority for the EU, and especially now when important voices across the world are doubting the benefits of free and fair trade. Agreements with Canada and others are important symbols of our continued belief in a rules-based global trading system.“

Marek Marzac, founder and CEO, Ewa-Bis:

“While we are used to exporting, this kind of agreement [CETA] is very valuable. It makes things less bureaucratic, provides easier access to the Canadian market while lowering the tariffs. We expect to work with Maersk Line to bring more fruit to Canada.”

Kenneth Lindhardt Madsen, Head of Trade & Market Relations at the Danish Agriculture & Food Council:

“In general, when looking across the individual categories within foods, we expect the elimination of tariffs to be the most significant individual contributor to enhancing the export of Danish agricultural and food products to Canada.” 

Graham Slack, Chief Economist at A.P. Moller - Maersk, also sees CETA as a potential turning point for trade agreements, as well as for the discourse around trade in recent years:

“CETA is a ‘new generation’ trade deal that goes beyond liberalising trade in goods to liberalising trade in services and investment. That such at complex trade deal has been agreed is a very positive development – it will hopefully lead to progress on other ambitious trade agreements,” Slack says.

Back in Canada, Maersk Line expects to be able to continue to grow its business at the pace set in 2017:

“We will definitely keep growing,” Jack Mahoney says. “I don’t know when it will end, but the trade-off we often feel we must make between price and volume has not been an issue in Canada and this is, of course, something we welcome – it’s what makes Maersk Line’s growth in Canada attractive.

Maersk Line carries agricultural products, forest goods, seafood, beef and pork, manufactured goods as well as car and aircraft parts from Canada to Europe. The most common commodities from Europe to Canada are pharmaceutical products, cars, machinery, petroleum products, beverages and electrical machinery.