Transatlantic relations: the USA and Canada

The EU, the US and Canada share the values of democracy, human rights, the rule of law, and economic and political freedom, and have overlapping foreign policy and security concerns. Close cooperation and strategic relations with the US and Canada remain a priority for the EU.

EU-US foreign policy relations

The close cooperation and strategic relations between the European Union and its Member States and the United States are built on common history and a shared set of democratic values. These are key to both partners’ security and prosperity. The EU and the US closely cooperate in a number of foreign policy areas and geographical contexts, such as counter-terrorism, security cooperation, energy cooperation, Russia, Ukraine and the Western Balkans.

With the change of administration in the US on 20 January 2021, there will be an opportunity to discuss and define a stronger transatlantic partnership. This will be essential to re-energise cooperation in multilateral forums and deal with current foreign affairs and security challenges and crises, particularly the global pandemic, economic recession, climate change, trade irritants, the rise of China, the digital transformation and growing technological competition, as well as defending democracy and human rights.

EU-US political relations within the Transatlantic Legislators’ Dialogue (TLD) process

Relations between Parliament and the US Congress date back to 1972. The relationship was upgraded and institutionalised with the establishment of the Transatlantic Legislators’ Dialogue (TLD). The TLD brings together Members of the European Parliament and members of the US House of Representatives at biannual interparliamentary meetings (IPMs) that alternate between the US and Europe. It is perceived on both sides of the Atlantic as a good forum for positive and constructive collaboration. Legislators attending these meetings exchange views on key political issues of mutual concern, such as trade and economic cooperation, security and defence or election interference. While transatlantic views converge in a number of areas, the legislators’ exchanges have also exposed divergences on key political issues. The importance of this transatlantic political dialogue should not be underestimated, particularly given the power wielded by the US Congress, for example in authorising US intervention in global crises and shaping US participation in global governance institutions. The 83rd IPM was held in Washington DC in February 2019. The Joint Statement issued after that meeting highlighted the determination of both sides to enhance cooperation in the face of common challenges. The next IPM meeting will be scheduled as soon as the global health situation allows. The Co-Chairs of the Transatlantic Legislators’ Dialogue, along with the Vice-Chairs of Parliament’s Delegation for relations with the US, the Chairs of the Foreign Affairs and International Trade Committees and the Delegation for relations with the People’s Republic of China, issued a Joint Statement in August 2020, highlighting four main objectives for transatlantic cooperation: helping to overcome the acute health crisis; exiting the economic recession quickly; showing transatlantic leadership in the international arena and collaborating on China and Russia.

EU-US economic relations

After the suspension of the negotiation of a Transatlantic Trade and Investment Partnership (TTIP), Parliament rejected a draft resolution recommending the opening of EU-US trade talks on both industrial goods and conformity assessment on 14 March 2019, while the Council adopted negotiating directives to eliminate industrial tariffs and conformity assessment on 15 April 2019. In comparison with its predecessors, the Trump administration took a fundamentally different approach to EU-US trade relations. It prioritised national interests and sought to rebalance trade deficits with other countries, putting pressure on partners by imposing high tariffs on certain products in order to protect its own industries and gain more market access in partner countries.

The US administration imposed steel and aluminium tariffs on the EU on 1 June 2018 and has threatened to impose tariffs on cars. At the same time, the US has turned away from a multilateral approach within the framework of the WTO. This has strained US trade relations with the EU and other partners. The EU has filed a complaint with the WTO against the tariffs on steel and aluminium and has imposed retaliatory tariffs on US products to rebalance overall EU-US trade. However, the 21 August 2020 agreement on tariff reduction (‘lobster deal’) between the US Trade Representative and the EU Trade Commissioner represents a step towards renewed cooperation between the two sides. Parliament endorsed the agreement on 26 November.

The Airbus/Boeing civil aircraft dispute is now in its final stretch. Both the EU and the US have been found to be at fault by the WTO Dispute Settlement Body for continuing to provide certain unlawful subsidies to their aircraft manufacturers. On 2 October 2019, the WTO gave the US permission to levy retaliatory tariffs on up to USD 7.5 billion (EUR 6.8 billion) worth of EU exports. On 13 October 2020, in the parallel Boeing case, the WTO awarded the EU the right to impose tariffs worth USD 4 (EUR 3.6) billion on US imports. On 9 November 2020, the EU imposed new tariffs on US alcoholic products, aircraft, cheeses, seafood and other goods as part of the WTO-authorised retaliation.

The European Commission has consistently communicated to the US that the EU is ready to cooperate on a fair and balanced solution for the aircraft industry. In the EU’s view, the mutual imposition of sanctions would only inflict damage on businesses and citizens on both sides of the Atlantic, and would harm global trade and the broader aviation industry at a sensitive time. In July 2019, the EU shared concrete proposals with the US for a new regime on aircraft subsidies and a way forward with regard to existing compliance obligations on both sides.

In spite of the rhetoric, the combined economies of the EU and the US still account for almost 50% of global gross domestic product (GDP) and one third of world trade.

The US was the EU’s primary export destination in 2019, absorbing 18% of total EU goods exports (compared with China’s 9.3%). The US ranked second among the EU’s import partners, but still supplied 12% of the EU’s imported goods.

EU-US trade in goods 2017-2019 (EUR billion)

Year EU goods imports from US EU goods exports to US EU balance (goods)
2017 203.3 324.2 + 120.9
2018 213.3 351.2 + 120.9
2019 232.0 384.4 + 152.4

Source: European Commission, DG TRADE

The US is the EU’s main partner for international trade in services. In 2016, it accounted for 26% of the EU’s total exports and 31% of the EU’s imports of services. The steady growth of the EU’s exports of services to the US was reversed in 2016 when — after five consecutive years of surplus — the trade balance with the US turned into a deficit. The EU’s services exports to the US increased between 2015 and 2017, as did its services imports from the US. However, a fall in EU services exports in 2016 led to a EUR 2.8 billion US services trade surplus with the EU, while a fall in US services exports in 2017 led to a EUR 12.5 billion EU services surplus with the US.

EU-US trade in services 2016-2018 (EUR billion)

Year EU service imports from US EU service exports to US EU balance (services)
2016 192.5 160.0 - 32.5
2017 194.7 172.8 - 21.9
2018 196.2 179.4 - 16.8

Source: European Commission, DG TRADE

The EU and the US are each other’s largest investors, but in 2016 and 2017 there were some drawbacks. In both years, US investment inflows into the EU were negative, with a corresponding fall in US inward stocks into the EU, while EU outward flows to the US increased in 2017 after a slight decrease in 2016. This resulted in the further enhancement of the EU positive stock balance, which in 2018 amounted to EUR 375.4 billion. It could be argued that bilateral direct investment — which is by nature a long-term commitment — is the driving force behind transatlantic commercial relations. This is reinforced by the fact that trade between parent companies and affiliates in the EU and the US accounts for more than one third of all transatlantic trade. Estimates indicate that EU and US companies operating on one another’s territory provide jobs for more than 14 million people.

EU-US bilateral investment stocks (EUR billion)

Year US FDI stocks in the EU EU FDI stocks in the US Balance
2018 1 806.0 2 181.4 + 375.4

Source: European Commission, DG TRADE

EU-Canada political dialogue

Canada is one of the EU’s oldest and closest partners. The collaboration between the EU and Canada, based on shared values, a long history of close cooperation, and strong people-to-people ties, has been considerably strengthened in the last few years.

Bilateral relations started in the 1950s on an economic basis and have since evolved into a close strategic partnership. The EU and Canada work closely together on global challenges such as the environment, climate change, energy security and regional stability, and are also close partners in the G7 and G20 context. Canada is a regular contributor to the EU’s Common Security and Defence Policy missions (such as those in Iraq, Mali, Ukraine and the Palestinian territories) and has participated in 20 of the EU’s election observation missionssince 2005.

The EU-Canada Strategic Partnership Agreement (SPA), which replaced the 1976 Framework Agreement, is a comprehensive political agreement aimed at strengthening bilateral cooperation in a number of foreign policy and sectoral fields, including international peace and security, counter-terrorism, crisis management, maritime security, global governance, energy, transport, research and development, health, the environment and climate change and the Arctic.

The SPA was signed by Canada and the EU on 30 October 2016 at the EU-Canada Summit and received Parliament’s backing in February 2017. Large parts of the agreement have been in force provisionally since 1 April 2017. The SPA will be fully applied after ratification in all Member States. In order to facilitate cooperation in this framework, a number of joint institutions have been set up and an intensive dialogue has been taking place at civil servant and ministerial levels. The most recent Leaders’ Meeting between the Canadian Prime Minister and the Presidents of the European Council and the European Commission took place virtually on 29 October 2020.

Interparliamentary dialogue

For more than 40 years, Members of the European Parliament and their Canadian counterparts have been meeting annually in Interparliamentary Meetings (IPMs), alternating between venues in the EU and Canada, to discuss political developments in Canada and the EU and exchange views on issues of mutual concern, such as trade, climate change and migration. Parliament’s Delegation for Relations with Canada (composed of MEPs in the IPM) meets stakeholders regularly throughout the year to prepare for these interparliamentary meetings. Building on the Agreement, the 38th IPM adopted a joint statement in which both parliaments undertook to transform the IPM into an uninterrupted dialogue through regular additional meetings and agreed that it would act as a counterpart to the other bodies set up under the SPA. The 40th IPM took place in Strasbourg in March 2019.

EU-Canada economic relations

The Comprehensive Economic and Trade Agreement (CETA) is the result of the positive developments in EU-Canada trade relations that have taken place over the past decade. It has considerably improved the economic, trade and investment relationship between the EU and Canada, opening up the markets to one another’s goods, services and investments, including public procurement. CETA has also created opportunities for sustainable growth and reflected shared values through its Trade and Sustainable Development Chapter and its broad range of dialogues, including its regular civil society forum.

The text was signed at the EU-Canada Summit on 30 October 2016 and Parliament gave its consent on 15 February 2017. Provisional application of the parts falling within the EU’s competence began on 21 September 2017. CETA will be fully applied after ratification in all Member States. In June 2020, Luxembourg became the 14th Member State to ratify the agreement.

CETA is also the first of the EU’s bilateral economic agreements to incorporate a special Investment Court System (ICS) for the settlement of investment disputes between investors and states. Because of its innovative nature and the fact that public debate on it has not been concluded in many countries, the ICS will be beyond the scope of the provisional application of CETA. Moreover, CETA contains a clear statement on the right of governments to regulate for public purposes as regards public health, safety, the environment, public morals, and social and consumer protection.

During the first year of implementation, exports to Canada rose by 7% overall, with higher figures for machinery, pharmaceuticals and agricultural products.

Both Canada and the EU have been hit by the new US tariffs on steel and aluminium and share the view that the tariffs are neither justified economically nor compatible with WTO rules. As a consequence, the EU and Canada, together with other defenders of the rules-based trade order, have intensified their dialogue on trade issues.

In 2019, the EU was Canada’s third-largest trading partner after the US and China, accounting for 8.1% of Canada’s total combined exports and imports of goods. In 2019, the EU exported goods worth EUR 38.3 billion to Canada and absorbed Canadian goods valued at EUR 20.2 billion. Canada ranked 12th among the EU’s international trading partners in 2019. Machinery, mineral products, transport equipment and chemicals are among the main goods traded between the two partners.

EU-Canada trade in goods 2017-2019 (EUR billion)

Year EU goods imports from Canada EU goods exports to Canada EU balance (goods)
2017 18.2 32.2 + 14.0
2018 19.5 35.2 + 15.7
2019 20.7 38.3 +17.6

Source: European Commission, DG TRADE

Trade in services is an important part of the EU-Canada trade relationship. In 2018, the value of EU exports of services to Canada increased, to EUR 19.6billion, and the EU’s imports of services from Canada increased to EUR 13.2 billion. Transport, travel, insurance and communications are some examples of services traded frequently between the EU and Canada.

EU-Canada trade in services 2016-2018 (EUR billion)

Year EU service imports from Canada EU service exports to Canada EU balance (services)
2016 10.2 15.6 + 5.4
2017 11.3 16.9 + 5.6
2018 13.5 19.6 +5.9

Source: European Commission, DG TRADE

In terms of foreign direct investment (FDI), the EU and Canada have invested almost equal amounts in each other’s economies. In 2018, the EU’s outward FDI stocks in Canada amounted to EUR 392.2 billion. Canadian stocks in the EU were valued at EUR 397.3 billion.

EU-Canada bilateral investment stocks (EUR billion)

Year Canadian FDI stocks in the EU EU FDI stocks in Canada Balance
2018 397.3 392.2 -5.1

Source: European Commission, DG TRADE

 

Tuula Turunen / Leon Peijnenburg