Canada and EFTA in talks on trade pact

Date: 28/05/1998

By Mark Turner

WHILE the EU and US have bickered and blustered over new trade rules, an even more far-reaching transatlantic pact has been quietly, and more efficiently, forming in the background.

Following a first exploratory round this week, the four-nation European Free Trade Association (EFTA) hopes to announce the formal launch of free trade talks with Canada at next week's ministerial meeting in Reykjavik.

"This is a new development in many ways. There is no transatlantic free trade agreement in existence," explained an EFTA official. "Also, EFTA usually follows behind the EU in trade agreements, like in eastern Europe and the Mediterranean. Now we are taking the lead."

EFTA comprises Switzerland Iceland, Liechtenstein and Norway, with a combined population of almost 12 million and a gross national product of more than 400 billion ecu. Together, they account for 3% of world trade. But, unlike a strict customs union, they do not have a common external tariff.

With a gross domestic product per capita of around 35,000 ecu, unemployment under 5%, gross government debt under 50% of GDP and an average budget surplus of 1%, EFTA's economies are the envy of western Europe. The reasons for this success are mixed: all the member countries are relatively small, productive, efficiently managed and have largely stayed out of major conflicts this century.

Norway and Iceland benefit from large fish stocks and maritime sectors, and Norway is also the second-largest oil exporter in the world. Switzerland and Liechtenstein have thriving financial sectors and are host to some of Europe's largest and most successful companies.

The idea of a transatlantic trade deal was first mooted by Canadian Prime Minister Jean Chrétien in October 1997.

Ottawa has made similar overtures towards the EU, but with relatively little success. By contrast, "the EFTA countries rapidly reciprocated the interest", according to the body's secretary-general Kjartan Johannsson.

Officials insist that, compared with the troubles encountered by the EU and US, free trade between EFTA and Canada should be relatively problem-free. Their economies are similar and both are interested in diversifying away from regional groupings.

Early soundings suggest the agreement, which would have to cover 90% of all imports and exports to qualify as a free trade deal under World Trade Organisation rules, would cover industrial goods and fish, but would certainly not allow mutual access to fish stocks.

Agriculture, which could cause more difficulties, would have to be dealt with on a bilateral basis between Canada and each EFTA member.

Officials say that if the deal goes ahead, it would confirm EFTA's position as the second-largest hub of free trade agreements in the world, after the EU.