By Dominique Gautier, Senior Partner and Thomas Apffel, Senior Manager at Roland Berger Canada
The Comprehensive Economic and Trade Agreement (CETA) was signed by Canada and the European Union on February 15th, 2017 and will offer both Canada and the European Union a progressive economic framework to tackle the enduring economic slowdown evidenced in both regions. The impact and effects of this deal are likely to be felt in the short term as almost 95% of its provisions will be put into effect as early as April 1st.
In addition to the reinforcement of the transatlantic commercial relationship, CETA addresses the structural challenges faced by many Canadian and European provinces, regions and metropolitan areas by offering solutions promoting the flow of talent, and by allocating capital and innovation where returns are highest.
According to a joint study commissioned by the signatory parties, CETA will add close to 30 billion dollars to their GDPs (including 12 billion in Canada) and create 80,000 new jobs in total. With its 200 billion-dollar economy and its status as the country’s second business hub, the expected economic impact on Montreal could be substantial.
Montreal’s key economic sectors are well positioned
With its signing of CETA, Canada becomes the only major country in the Americas to currently enjoy such an agreement with all 28 members of the European Union. This competitive advantage will benefit the Greater Montreal area, and especially three of its key economic sectors which are advantageously positioned:
- The pharmaceutical industry. More than 600 organizations are locally operating in the pharmaceutical and healthcare industry making Montreal Canada’s largest laboratory. Starting April 1st 2017, European investors in Canada will be guaranteed preferential access to markets in the European Union and North America. Furthermore, they will benefit from enhanced enforcement of intellectual property protection applicable to the Canadian pharmaceutical industry. Combined with the country’s extended patent exclusivity terms, Canada will become increasingly attractive for large European pharmaceutical and healthcare companies, with consequential investment activity expected to flow into Greater Montréal’s structured and efficient ecosystem.
- Montreal aerospace sector players will have a unique opportunity to strengthen their transatlantic integration. They are at the forefront of the Canadian aerospace industry, producing nearly 60% of the sector’s national revenue activity and exports. The progressive elimination of custom duties will raise Canada’s attractiveness as a development platform for European companies, providing privileged access to the North American aerospace value chain. Montreal is expected to leverage its highly-qualified workforce and favourable cost position to further develop its competitive advantage in comparison to other global aerospace ecosystems not having a similar agreement with Europe. To fully capitalize on this favourable context, Montreal’s aerospace cluster needs to reinforce its visibility among major European aerospace OEMs and strengthen its relationship with key tier-1, tier-2 and tier-3 players to further drive locally-destined investment activity.
- The opening of markets between Europe and Canada will also offer opportunities for the Montreal clean technology sector to further develop as the imposition of customs duties and tariffs on a number of Canadian & European cleantech products will be phased out across both regions. The occasion is propitious for the cleantech cluster operating in Montreal to raise awareness levels among major European players, most notably those in France and Germany, ensuring they are aware of the various tax incentives in place in Montreal. For the 500 sector players in and around Montreal, CETA could thus also stimulate scientific collaboration and afford collaboration opportunities related to ambitious greenhouse gas reduction targets set by transatlantic governing bodies.
CETA is a logical next chapter in the development of the historical trade relationship between Canada and the EU. Its effects across strategic economic sectors in Montreal, beginning with those mentioned above and extending through to ICTs, food processing, financial services is expected to be favourable.
To reap the full benefits of this agreement, businesses and governments must keenly understand the specific market drivers and key success factors that will encourage European investors to allocate capital to assets and activities in the metropolitan area. In so doing, they should remain cognizant and properly assess risks arising from increased competition within the Canadian market. Montreal must now demonstrate that it can live up to its unique reputation as being at a cultural and geographical crossroads between Europe and North America.
Roland Berger is the leading global consultancy of European origin with 2,400 partners and employees operating out of 50 offices in 36 countries.
For further information: https://www.rolandberger.com/fr/Publications/pub_unlocking_ceta_s_potential.html