1. CETA: A Canadian/BC Business Perspective University of Victoria CETA C onference Victoria, BC May 6, 2014 Jock Finlayson Executive Vice President and Chief Policy Officer

2. Overview European Union » 28 member states » 503 million people » world’s largest market with Cdn$17.5 trillion GDP » close to one-quarter of global economic activity EU is Canada’s 2 nd largest trading partner – 4 th largest in the case of BC Foreign direct investment is significant Other aspects of the economic relationship: tourism, S&T partnerships, education exchanges 2

3. Some Context A decade or more of stalled global trade talks (WTO) Steady increase in the number of bilateral, pluri-lateral and regional trade/investment accords Canadian goods face average tariff of 2.2% in EU (trade- weighted basis); EU goods face average 3.5% tariff here Manufacturing supply chains and the growing complexity of cross-border commercial linkages underscore how non-tariff barriers and “behind the border” policies and regulatory regimes can impact market access for traded goods Non-tariff barriers and regulatory differences also affect foreign market access for producers of “tradable services” 3

4. Population, EU-27, 1960-2012 (at January 1, million persons) Source: Eurostat. 4

5. Europe – The “Old Continent”? (Median Age, Years, 2012) Germany44.6Hungary40.1 Italy43.5France40.0 Austria42.0Czech Republic39.8 Portugal41.9UK39.7 Canada41.7 Romania38.6 EU 2841.2 Poland38.0 Netherlands41.0 US37.6 Belgium40.9Ireland34.5 Denmark40.6Turkey*29.3 Spain40.3 Source: CIA World Fact Book; Eurostat* Not a member of the EU 5

6. EU Members’ Per Capita Incomes (US dollars, PPP basis) 6

7. Strategic Considerations Canada should be able to conclude a wide-ranging economic agreement with a region comprised (mainly) of mature democracies governed by the rule of law CETA sets the stage for Canadian participation in other regional accords (TPP) and for other future bilateral agreements EU and Canada both have high environmental, labour and other regulatory standards US and the EU are pursuing a comprehensive bilateral agreement. Canada will be disadvantaged if they move forward but CETA for some reason is not finalized 7

8. Broad Pattern of Canadian Trade and Investment Linkages with EU EU share of total Canadian exports (goods + services) 10.1% EU share of total Canadian imports (goods + services) 10.6% Services exports as share of Canadian exports to EU 25.8% Commercial services as share of Canadian services exports to EU 58.0% Share of Canadian outward FDI stock in the EU 24.3% EU share of Canada’s inward FDI stock 29.3% Canadian FDI in EU as multiple of exports to EU 3.1 EU FDI in Canada as multiple of Canadian imports from EU 3.0 Source: D. Schwanen, Uneasy Birth: What Canadians Should Expect from a Canada-EU Trade Deal, C.D. Howe Institute, August 2013; RBC Economics, “The Comprehensive Economic and Trade Agreement,” October 2013. 8

9. Healthy Export Growth to the EU over Past Decade Source: Statistics Canada. 9

10. …Especially Compared to the US Source: Statistics Canada. 10

11. High and Growing EU Reliance on Energy Imports (dependence on imports as % of consumption) Source: Eurostat Statistical Yearbook. 11

12. Canadian Innovation Performance (ranking among n=148 countries, 2013) Overall ranking21 st Availability of scientists/engineers9 th Quality of research institutions16 th University-industry collaboration18 th Patent performance20 th Business sophistication25 th Capacity for innovation27 th Business R&D spending29 th Government procurement of innovative goods/services55 th Source: World Economic Forum; Conference Board of Canada. 12

13. Coalition for Action on Innovation in Canada – “To Do” List Modify tax support for private sector R&D to improve results Expand pools of risk capital for innovative SMEs Develop a leading-edge intellectual property regime Expand and strengthen business-academic linkages Speed the adoption/diffusion of innovative products, services and management knowledge Establish national goals for learning Align immigration policy to attract the best and the brightest Nurture innovation clusters in areas of existing strength www.actioninnovation.ca 13

14. BC Exports to EU Still Below Pre-recession Levels Source: BC Stats. 14

15. EU Accounts for About 5% of all BC Goods Exports Source: BC Stats. 15

16. Some Areas of Opportunity for BC Business Under the CETA Wood Products EU tariffs on BC exports average 2.2% (some peaks near 10%) $500-550 million in annual BC exports to the EU Fish/seafood EU is world’s largest fish/seafood import market BC exports average < $100 million p.a. EU tariffs (11% average, 25% peaks; 5% on salmon) Minerals/Metals BC = 45% of Canadian merchandise exports to EU in 2012, averaging $1 billion per year over 2010-12 Raw materials generally enter EU tariff-free; tariffs apply to metals and processed minerals (up to 10%) 16

17. Some Areas of Opportunity for BC Business Under the CETA (cont’d) Agrifood Exports = $35-40 million p.a. EU tariffs average almost 14% Canadian supply management regimes apparently will remain in place under CETA Advanced Manufacturing Products 99% of EU tariff lines will be duty-free once CETA is implemented Opportunities for BC manufacturers in a few niche areas Government Procurement $2.7 trillion EU market Professional, consulting, IT-related and construction services Increased competition from EU suppliers in the BC procurement market – positive for consumers and taxpayers 17

18. Some Areas of Opportunity for BC Business Under the CETA (cont’d) Commercial Services EU is the world’s largest import market ($1.4 trillion) Canada’s services exports to EU averaged $14.5 billion over 2010-12 BC’s interests include professional, environmental and technical services, IT-related, and tourism Investment BC firms have direct investments in the EU in several sectors (mining, finance, renewable energy, environmental technologies, transportation, ICT) 18

19. A Challenge: Our Cost Competitiveness Has Eroded Source: Centre for the Study of Living Standards. 19

20. Another Challenge: Few Large BC Firms Number of Businesses Per cent of Total Total small businesses385,90098.4% Self-employed without paid help* 216,80055% Businesses with less than 50 employees 169,10043% Total large businesses (50+ employees) 6,9001.6% Total all businesses392,800100% * Incorporated self-employed are not included in this figure in order to avoid double-counting, since they are already included in the count of businesses with fewer than 50 employees. Source: BC Stats using data supplied by Statistics Canada, data for 2012. 20