Can Canada be the EU's answer to 'unreliable' trade partners?

As geopolitical disputes and trade tensions escalate, the European Union is actively seeking dependable trade partners. Canada, a nation with similar economic interests and already linked to the EU through a free-trade agreement, is positioning itself as a potential candidate. Ahead of the upcoming EU-Canada summit in October, discussions are taking place to explore a deeper partnership beyond the existing Comprehensive Economic and Trade Agreement (CETA).

Canadian Prime Minister Mark Carney has suggested delving into an integrated market for financial services, along with cooperation on payments, strategic minerals, energy, AI, and defence production. Currently, no final agreements have been reached on financial passports, mutual recognition of licenses, or bank access. Fabian Zuleeg, Chief Executive and Chief Economist at the European Policy Centre, emphasizes that the summit must yield concrete outcomes, moving beyond mere rhetoric.

The European Union faces a reliance on various trading partners, including the United States for technology and security, China for critical inputs, and external suppliers for energy. This dependency has made trade access a potential tool of leverage. Canada, however, offers significant economic benefits in areas such as financial markets and technologies that are not fully covered by the CETA.

The political significance lies in the fact that the existing EU-Canada partnership under CETA, which removed 98% of tariff lines since 2017, has reached a trade volume of €130 billion in 2025, an 80% increase from €72.1 billion in 2016.

Despite the existing partnership's achievements, it has reached its limits. Erik van de Merel, Chief Economist at the European Centre for International Political Economy, argues that the focus should shift towards services, technology collaboration, and intangible activities that drive future growth. Negotiations for a Digital Trade Agreement are set to begin in March of the following year.

For the EU, Canada's appeal centers around supply security. Canada possesses deposits of over 34 critical minerals and is a leading producer of ten essential minerals for the energy transition. Reducing reliance on China for these resources is crucial, not only for price stability but also for ensuring European industry's continuity during disputes. Additionally, Canada's energy costs could potentially decrease, although this would not be immediate.

Ottawa's motivation is diversification. The United States constitutes approximately 70% of Canada's exports, while the EU represents Canada's second-largest goods trade partner in 2024, accounting for 7.9% of its global goods trade. Canada seeks enhanced access to European customers and investors for its clean-energy, mining, AI, and defence sectors, which could potentially attract Canadian pension funds to co-finance mineral-processing and infrastructure projects.

Defence is already being utilized as a test case, with Canada becoming the first non-European country to join the EU's €150 billion SAFE defence instrument.

The most significant challenge lies in regulatory alignment. Canada seeks expanded access to European banking, insurance, and professional services, including law, accountancy, and architecture. Van de Merel anticipates that the EU will likely request reciprocal measures. If Canada were to establish its own banking and professional rules without European oversight or harmonization, it would need to reconsider its approach due to the EU's core objective of deeper market integration.

This test of alignment will determine the success of the initiative, which is expected to take considerable time and effort, given that the EU's single market in services has been incomplete for decades and a newcomer would face a lengthy catch-up period.