Beyond CETA: The Limits of Bilateralism and the Case for Canada–EU Multilateral Leadership

I will be traveling to Canada’s Pacific coast in a couple of months to attend the bi-annual conference of the Canadian EU studies association. Among other things, I will participate in a panel on EU-Canada relations. The panel revisits last year's blog series on whether Canada should join the EU—a question now less fanciful than a year ago. My answer was no, it should not, because it cannot. If Canada cannot join the EU, another question arises however: how close can Canada get to the EU, assuming it wants to strengthen ties?

This blog post explores this question. My answer is roughly this: Ties are already very close. Within the CETA framework, there will continue to be opportunities for closer bilateral collaboration. However, in the face of US imperialism and authoritarian drift, the real opportunity for Canada-EU collaboration is multilateral. Both partners can play a meaningful role in shaping tomorrow’s multilateralism in trade and beyond. The biggest mistake both partners can make, is to buy in the US narrative that multilateralism is dead. There is a world beyond the US, and Canada and the EU should cooperate to make sure that world continues to reflect their values and interests.

Bilateral ties are already strong

As it stands, Canada already has a close relationship with the EU.

CETA, the EU-Canada trade agreement, has reduced nearly all tariff rates on goods to zero. It opened up significant segments of the services market. It granted EU and Canadian companies access to each others’ procurement markets, including, on the Canadian side, at the provincial and local levels, which was unprecedented. It provides for protection of intellectual property rights—including geographical indications, which matters to the EU side.

If CETA ends up being ratified by all EU Member States – early 2026, ten Member States still have not done so – its investment protection chapter will enter into force, including its provisions establishing a permanent investment dispute tribunal.

Beyond CETA, cooperation is also close. Canada has joined Horizon Europe, allowing Canadian researchers and institutions to apply for EU research funding. Canada participates in ReArm Europe, allowing Canadian defence firms to participate in EU-funded tenders.

The list goes on.

Hitting limits

At the same time, there are limits to what the EU and Canada can do together.

Canada and the EU have not established a customs union, nor has Canada acquired full access to the EU’s single market. Canadian goods entering the EU market must go through customs before being released into free circulation within the EU. Services have been liberalized, but the approach remains sectoral. Canadian financial institutions do not have passporting rights that would enable them to provide services to EU customers without needing national licenses. Professional qualifications are not generally recognized, except where the EU and Canada have agreed sector-specific mutual recognition agreements – as has been done e.g. for architects.

Greater alignment with the EU’s single market would entail certain costs for Canada.

If Canada were to join the EU customs union, like Turkey did, it would no longer be able to set its own trade policies. Being part of a customs union means adopting a common external tariff and giving up independent control over trade agreements.

Becoming a rule-taker

Near comprehensive access to the single market as e.g. European Economic Area (EEA) countries Norway and Iceland enjoy, requires these countries to mirror large parts of the EU acquis, which is the body of laws governing the EU single market. This would turn Canada into a rule-taker, thereby reducing the sovereignty Canada is actively seeking in the face of American aggression.

To be fair, Canada may be comfortable mirroring many EU rules. It currently already does so, e.g. for product standards in certain sectors. And where Canadian standards are lower than those applicable in the EU, Canadian firms often voluntarily abide by the higher EU standard, as per Anu Bradford’s ‘Brussels effect’.

Yet, as it stands, Canada has the freedom to choose its own standards—which is something EEA countries have lost. For this reason, EEA membership may not be attractive to Canada.

Moreover, in a scenario in which the US continues to lowers its own standards – be they environmental standards, product safety standards, labour protection standards, etc. – an obligation to mirror EU standards would undermine the competitiveness of Canadian firms against their US competitors. (Whether this continues to matter will, in part, depend on whether CUSMA, which grants Canadian goods near tariff free access to the US market, will survive the upcoming renegotiation.)

The Swiss option

Perhaps Canada could draw inspiration from Switzerland.

Switzerland is closely integrated with the EU’s single market. Most notably, Swiss nationals enjoy free movement rights within the EU. Many sectors of the economy also have preferential access to the EU single market. Yet Switzerland is not part of the EU customs union.

Moreover, unlike the EEA arrangement, Switzerland’s relationship with the EU is strictly bilateral. It is governed by a myriad of sectoral bilateral agreements between the EU and Switzerland. There is no quasi-automatic mirroring of EU legislation. As these agreements are constantly being updated and renegotiated, the relationship is less stable as compared to that between the EU and the EEA members.

It is not clear whether Canada would be willing to grant free movement rights to EU citizens. Unlike Switzerland, which is bordered by EU Member States and enjoys clear advantages from this, it is not evident what similar benefits would exist for Canada.

Why more bilateralism may not be needed

My sense is that, as far as bilateral relationships go, Canada-EU ties are already exceptionally strong. There is room for further alignment, yet the institutional infrastructure to do so has already been put in place through CETA. When it is beneficial to align or collaborate further, Canada can pursue such opportunities. The EU is likely to cooperate, as long as Canada adopts EU standards rather than expecting the EU to adopt Canadian ones, that is.

The asymmetry that inevitably exists in the relationship, combined with the fact that Canada wants to strengthen ties not only with Europe, but also with other regions of the world, may make it more attractive for Canada to retain flexibility in its relationship with the EU. After all, Canada finds itself in a different position compared to the EEA countries who, due to their geographic proximity, may be more willing to accept the loss of regulatory autonomy that comes with comprehensive access to the single market.

Room for growth: multilateral cooperation

The above does not mean the potential for stronger EU-Canada ties is exhausted. One area where there is, I think, room for both parties to do more, is at the multilateral level.

As the US has given up on the rules-based international order it itself has created, and as China continues its ambivalent stance vis-à-vis international law, it is more important than ever for Canada and the EU to team up in defence of their shared interest in rules-based free and fair trade.

More coordination between trading partners is needed to defend rules-based free and fair trade. It is easy to forget given how the US president dominates news headlines, but the US represents only 12% of global trade in goods. 86% of world trade takes place between other countries than the US. To be fair, the US takes up a central role in the world economy by virtue of the role of the US dollar, and yes, the US are champions in services trade.

Yet it remains an overstatement to suggest that access to the US market has to be preserved at all cost.

The world will keep turning when the US president shuts the US market off entirely from the world economy. This is true even for Canada. While a disintegration of the North American market would be an enormous blow to the Canadian economy, in particular for Canada’s auto sector, the example of Australia nonetheless shows that prosperity can be achieved without close integration into the US economy. The fact that Canada, as is Australia, is rich in natural resources, definitely helps in this regard.

Shaping tomorrow’s international trading system

Mindful of the reality that the US is not the indispensable nation, Canada and the EU should continue to invest in shaping tomorrow’s international trading system. That trading system is not collapsing; it is adjusting.

Pacific nations, including Canada, have concluded the CPTPP, even after the US withdrew. African states are constructing a free trade area that encompasses the smaller, regional trade blocs. The EU has now signed its free trade agreement with Mercosur, and it has begun to cooperate with the CPTPP. There are even calls for the EU to join the CPTPP, a move that would create a global free trade area amounting to around 30% of world GDP.

Canada is pursuing a similar strategy as the EU. It, too, wants to diversify its trading relationship so as to bolster both the competitiveness and the resilience of its economy. Bilateralism has been important in both their strategies, with both Canada and the EU concluding free trade agreements at a rapid pace.

Bilateralism has its limits, however. Where it tears down trade barriers with the treaty partners, these same agreements create barriers for other states. As Jagdish Bhagwati already described nearly twenty years ago, it creates a world in which the origin of goods becomes key, and where trade gets diverted so as to benefit from preferential access granted by bilateral FTAs. None of this is very efficient. Moreover, as Bhagwati also argued: time invested in bilateral deals is time not spent on multilateral solutions.

Without dismissing the importance of bilateral free trade agreements, the best guarantee for the prosperity of both the EU and Canada is a strong multilateral trading system. If this cannot be achieved within the WTO due to US obstruction and outright hostility, the world should move on and build new a new multilateral infrastructure, one that does not include the US – at least for the time being. A linking of CPTPP with the EU could become the kernel of such a new infrastructure.

The building blocks are there. Both the EU and Canada can cooperate to ensure that this infrastructure continues to reflect its values and interests.

Like what you read? Subscribe below.