Canadian companies aren’t taking full advantage of existing free trade agreements with Europe, a new report from Desjardins says — even as Canada is seeking to become less trade-dependent on the U.S..
Canada’s reliance on its southern neighbour has become more precarious amid erratic U.S. trade policy and a looming review of the Canada–United States–Mexico Agreement (CUSMA). Desjardins economist Florence Jean-Jacobs, the report’s author, frames diversification as a matter of economic security.
“Considering the vulnerable position our outsized dependency on the United States has left us in, one could argue that this change should have happened much earlier,” she wrote. “There are a multitude of opportunities — but we must seize them now.”
Europe is the natural partner for this pivot, the report argues. The European Union and the United Kingdom together represent a market of 519 million people — larger than North America — with strong institutions and a solid regulatory framework. Political alignment is also deepening — Prime Minister Mark Carney chose Europe for his first official overseas trip after taking office, and increased defence spending targets from both NATO and the EU signal closer ties.
Canada has a free-trade deal with Europe, the Comprehensive Economic and Trade Agreement (CETA), but many companies simply don’t use it. In 2021, one-third of all eligible Canadian exports entered the EU without claiming preferential treatment. As the report puts it, many firms are “foregoing tariff-free access to the EU market.”
Utilization rates are especially low in machinery, electrical equipment, and auto parts — meaning exporters often forgo tariff-free access they’re entitled to.
Europe, meanwhile, has taken fuller advantage of the deal. Since CETA came into force in 2017, most EU countries, including Germany, have improved their trade balance with Canada. Canada’s overall goods deficit with the EU has widened, with only a handful of industries — such as energy products, metal ores, and some farm goods — seeing improvement. Services trade has been “slightly more nuanced,” the report says, but the goods picture shows Europe has capitalized more effectively.
“Given our proximity to the United States, the CUSMA and the ease of doing business stateside, it’s likely that companies didn’t see the appeal or necessity of exporting to Europe,” Jean-Jacobs wrote.
Despite the uneven record, Desjardins identifies several areas where Canadian expertise lines up with European demand.