Quantifying Canada-European Union Merchandise Trade Between 2005 and 2020 - Has Canada Diversified its Export Trade?

Abstract

The European Union (EU) is Canada’s strategic partner, and they share a strong bilateral trade relationship. This is the result of multiple internal and external factors. Moreover, many political and economic events happened between 2005 and 2020, which influenced the development of this bilateral trade. These include the EU enlargement, the financial crisis of 2007–2008, Brexit, the negotiations, and implementations of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), as well as the global COVID-19 pandemic. This major research paper aims to document and analyze how Canada-EU merchandise trade has evolved within this broad and dynamic context, with a particular focus on the development of Canada’s export diversification in the EU from 2005 to 2020. It also offers a scenario where the United Kingdom’s (UK’s) data are removed from the EU and observes how the export diversification would change. A concentration index known as the Herfindahl Hirschman index is used as a metric of the diversification of Canadian exports. Diversification is measured by geographical distribution and by product. It concludes that while Canada-EU merchandise trade keeps expanding, Canadian exports have remained moderately concentrated. This means they are dominated by a few principal trading partners and products, although exports are more diversified by product than by geography. Furthermore, due to high trade volumes between Canada and the UK, the removal of the UK’s trade data in the scenario will decrease the overall trade volumes but increase Canada’s export diversification in the EU. The two policy solutions for improving export diversification are to enhance SMEs’ support in export markets, particularly those trading with the EU, and fine-tune Canada’s trade diversification strategy to the EU market features.