What would being an ‘associate member’ of the EU mean for the Canadian economy and businesses?

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Photo by Christophe Licoppe/EUROPEAN UNION/AFP via Getty ImagesOn Sept. 16 European Union president Ursula von der Leyen made a surprise invitation to Canada to become the European Union’s first “associate member.” However, this designation doesn’t exist yet and it’s not clear what privileges it would give Canada. While Prime Minister Mark Carney looks to strengthen other alliances as relations with the United States fray, Canadians may be wondering what this potential new relationship means for the country. The Financial Post spoke to international business professors and experts to determine what this new partnership could mean for Canada’s economy, how it fits with our existing trade agreement with the EU and what Canadian businesses can expect moving forward.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountWhat would it mean to be an “associate member” of the EU?SUBSCRIBER EXCLUSIVE: FP West: Energy Insider brings you behind the oilpatch’s closed doors with exclusive insights from insiders every Wednesday morning.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. 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Please try againBecause Canada is not geographically in Europe and is not looking to become a full member of the EU, “I think what (associate membership) represents is an intent to deepen economic and other forms of co-operation between the EU and Canada,” said Michael McAdoo, a partner and director in the global trade and investment practice at Boston Consulting Group Inc.During a news conference in Strasbourg, France, on Thursday Carney proposed an alliance with deeper co-operation in key economic sectors, in education and youth programs through the EU’s Erasmus+ program and in research and innovation funding through the EU’s Horizon program.Julian Karaguesian, an economic lecturer at McGill University, said he does not expect the partnership to allow for the free movement of people or a unified financial system, as full EU member status would, though it may potentially include “a deeper, broader free-trade agreement.”It could look like what was on the table for Ukraine. Earlier this year, German Chancellor Friedrich Merz floated the idea of Ukraine being granted the status of temporary associate member in the EU, which would have allowed the country to participate at EU summits and meetings, but with no voting rights (which Ukraine rejected).“So far, we have an invitation, without an agreed set of rights for Canadian businesses,” said Andreas Schotter, a professor of international business at Western University’s Ivey Business School, in an email. “It is too early to assume this means unrestricted market access or the right to work in Europe.”Carney said the final structure of this alliance will be put up for debate and a final vote in Canadian Parliament.How could CETA fit into this enhanced partnership?The enhanced partnership would not need to address traditional aspects of a trade relationship, as Canada and the EU have an existing deal known as the Canada-European Union Comprehensive Economic and Trade Agreement (CETA).However, CETA is not yet in full effect. While 17 EU countries have completed ratification, 10 have not. “Most of the agreement has applied provisionally since September 2017, including most tariff cuts on qualifying goods,” Schotter said, adding that investment protection and an investment court for dispute resolution still await full ratification.Under CETA, about 98 per cent of EU tariff lines are duty free for Canadian exports. It allows for free trade in many industries, but not all, Karaguesian said.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Karaguesian said if the remaining 10 countries that did not ratify CETA had concerns over Canadian products flooding their markets, they could be equally hesitant to include Canada as an associate member of the EU.A rising tide of nationalist sentiment in Europe could possibly block Canada’s acceptance into the fold, as well. Mass immigration coupled with rising crime have sparked some backlash against globalization, Karaguesian added.What do closer ties to the EU mean for the Canadian economy?An enhanced alliance with the EU could potentially provide a boost to key sectors, encourage investment and support jobs.Carney said in a statement that Canada’s “abundant energy, critical minerals, world-class capabilities in space, artificial intelligence and quantum (technology), and one of the world’s strongest banking systems,” could be leveraged alongside the EU’s market power, manufacturing and research strength.While ideas for collaboration abound, such as an announcement made Monday for collaboration between France and Canada on space systems, such projects take time and plenty of work.In the energy sector, for instance, Canada currently lacks enough midstream infrastructure, such as pipelines and refining, on the Atlantic Coast to send energy to Europe, which requires the resource due to sanctions on Russia, though the potential is there, Karaguesian said. Atlantic Canada possesses deep water, ports and geographical advantages, including proximity to the U.K. and the rest of Europe.However, “If we wanted to double or triple trade flows with Europe, particularly if we’re talking about energy, this would take years,” Karaguesian said.There is also the possibility of agricultural exports, particularly Canadian grains, though Europe’s common agricultural policy which significantly benefits domestic farmers with subsidies presents a challenge.Shifting more in defence procurement spending to European countries may have multiple advantages.“The advantage for Canada is twofold: We reduce our reliance on the U.S. security umbrella, and, by virtue of spending on European defense systems, we get them to produce some of those things here (and create jobs) in Canada.”Natural resources, particularly critical minerals, present another opportunity. “Europe still has a lot of surplus capital, and we have a lot of investment opportunities,” Karaguesian said.However, closer ties with the EU must still co-exist with a workable trading relationship with the U.S., Schotter said. “Canada depends heavily on the U.S.”The EU is Canada’s second largest trading partner for goods and services, with a total value of approximately $178 billion in 2025, though this remains far behind the total value of Canada-U.S. trade of about the equivalent of $1.2 trillion.U.S. Sen. Susan Collins of Maine recently said in an interview that she believes Canada deepening its ties with Europe could make it harder for Ottawa and Washington to reach a deal to end the trade war.While deeper ties with the EU could curb some of Canada’s reliance on the U.S., Walid Hejazi, an associate professor of international business at University of Toronto’s Rotman School of Management said Canada would need to cut the costs of doing business in Europe in order to make the transition easier for its exporters.What does this mean for Canadian businesses?A closer relationship with the EU would entail Canada providing more access in its market to EU companies, creating more competitive pressures, said McAdoo.“Every time you open yourself up to greater competition, your local firms face competition, and that works both ways,” he said, adding that he sees this as an opportunity for Canadian companies to become more competitive globally.Using the Airbus A220 plane as an example, he said, “The A220 combines Canadian aircraft design and production with Airbus’s worldwide sales network,” Schotter said. In May, AirAsia ordered 150 A220s, all to be assembled in Mirabel, Que. “That is a European partnership bringing work to Canada through an Asian customer.”Airbus launched a technology hub in Mirabel in May, as well, he added. “I would pay attention to whether these partnerships keep engineering and research in Canada, as well as assembly.”Could this add to red tape for Canadian businesses?Canadian businesses should not assume closer ties with Europe would lead to less bureaucracy, Schotter said.Exporters to the EU need to comply with its standards, such as product labelling or safety. Legal advice and certification, as well as finding a distributor, all cost money, and while a larger, multinational firm could more easily absorb these expenses over its much larger sales and resources, a smaller Canadian manufacturer might not be able to afford pursuing a market in Europe, Schotter said.“If alignment with Europe leaves Canadian firms needing different product specifications or compliance systems for their American customers, some of the savings could disappear,” Schotter said.Under CETA, recognized testing and certification bodies can already assess certain products against other markets’ rules, Schotter said. However, it would be “critical” to make these arrangements easier to use and extend them to more products, he added.At the Canada-EU summit in October, Schotter said he would be looking for commitments on certification costs and approval times, and later, whether companies gain repeat customers and expand production in Canada.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.