EU-Canada deal will restrict access to public-sector contracts, sources say

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The Canada-EU free-trade deal will include major exceptions to provisions that allow European firms to bid on provincial and municipal contracts, including Canadian-content rules for transit and an exemption for the Ontario agency responsible for major infrastructure projects, sources say.

It's an indication that the agreement-in-principle outlined Friday will include substantial caveats to water down access to government procurement – though the list of exemptions, including Europe's exceptions to the public contracts that Canadian firms will be allowed to bid on, had not been revealed.

Canada and the European Union have outlined a wide-ranging trade agreement that will knock down tariffs at borders, allow services to be sold more smoothly, affect the prices of prescriptions, cars, cheese, and wine – and widen Canadian access to the world's biggest market.

It's not a final deal yet, but the agreement-in-principle gives each side privileged access to the other's market. European firms will be able to bid on public contracts of Canadian provinces, towns and utilities. Canadian goods, such as cars, electrical equipment and some beef and pork will be sold to Europe tariff-free.

The European Union had pressed for access to Canada's so-called "sub-national" contracts, seeing a lucrative opportunity for its firms in infrastructure, transit, and utilities. Under the deal, only contracts of a certain size – more than $310,000 for provinces, $630,000 for utilities and $7.5-million for construction projects – will be open to EU bids.

But provincial and municipal sources said that there are also significant carve-outs. Ontario and Quebec, which require 25-per-cent Canadian content in municipal transit contracts, for subways and buses, will be allowed to keep those rules. And Infrastructure Ontario, the Crown corporation responsible for major infrastructure projects, from highways to hospitals to light rail, will be exempt, government sources said.

Don Downe, a board member of Federation of Canadian Municipalities and mayor of the District of Lunenburg, N.S., said the federal government has assured municipalities that the deal will also not force towns to privatize public services like water delivery so that EU firms can bid to run them. Those assurances, and others, have led the FCM to back the trade deal.

There are still some details to be negotiated, and political hurdles. Ratification by 28 European countries might take two years. Some sizable exceptions, notably for access to public-sector contracts, were not revealed. Even the principles that were agreed to weren't released, as they were in 1987, when U.S. free-trade talks ended. This time, Ottawa released a glossy brochure, stressing benefits, and provided some briefings.

In Brussels, without an actual agreement to sign, Prime Minister Stephen Harper and European Commission President José Manuel Barroso made do with putting their signatures on a "declaration of a new era of EU-Canada relations," then smiling for photographers.

"This is a big deal," Mr. Harper said. "Indeed it is the biggest deal our country has ever made."

In fact, the 1988 free-trade agreement with the U.S. governed a trading relationship that is 10 times larger than Canada's trade with Europe; the 1993 North American Free Trade Agreement added Mexico.

But the European market of 500 million people, and wide scope of the new agreement, if it is finalized, makes it the most ambitious and complicated trade arrangement Canada has undertaken.

CETA covers thousands of goods and services, removes 98 per cent of tariffs on both sides of the ocean and deals with other issues such as bids for government contracts, expanded patent protection for drugs, foreign takeovers, professional qualifications and even whether a food company can use the term "Parma ham."

For Canadian consumers it could mean cheaper products from Europe, such as cars, which now face a 6-per-cent tariff in Canada. EU officials say it will also open up new markets for European wine, provide greater access to sell cheese in Canada, irking Canadian dairy farmers, and let EU companies bid on large provincial and municipal government contracts.

Both sides will ease restrictions on companies competing for business in financial services, transportation, telecommunications and energy. And takeovers of Canadian businesses by EU companies generally will not be reviewed if the transaction is worth less than $1.5-billion, a higher threshold than for other foreign takeovers.

For Canadian businesses the agreement widens access to a massive market. Canadian auto makers will be able to ship cars that are at least 50-per-cent Canadian-made without facing the current 10-per-cent tariff, and up to 100,000 vehicles that are 20-per-cent Canadian. Canadian farmers will face no tariffs on products including durum wheat, canola and oats. Pork and beef producers will have expanded EU quotas.

But still-unpublicized details on exemptions suggest the deal may appear less ambitious when it is finalized.

The EU pressed for access for its firms to bid on large provincial and municipal contracts. But sources said those rules will also include a variety of exemptions. The list of exemptions – including Europe's – was not released.

However, federal assurances on exemptions won approval for the deal from the Federation of Canadian Municipalities. The provinces, included in talks, have signalled support – smoothed by federal assurances of potential compensation for cheese producers and higher-cost prescription drugs. "It's an opportunity for growth, for jobs for Quebec," said Quebec Finance Minister Nicolas Marceau.

It gave Mr. Harper a head start in selling the deal – and the lack of documented detail stymied some potential critics. The Liberals said they support it in principle, but will wait for the final agreement. The NDP's Paul Dewar said the party will only support a good EU trade deal: "Here's what we need to see – the text," he said.