Economic impact assessment of free trade agreements

Economic Impact Assessment (EIA) is a process that helps the Government of Canada understand how a free trade agreement (FTA) could affect the Canadian economy.

EIAs examine the impact of free trade agreements from a quantitative and qualitative point of view.

There are two instances when an economic impact assessment is conducted.

1. An initial economic impact assessment happens to help inform negotiations. Estimates from the initial economic impact assessments also feed into other assessments used by us for trade policy analysis, such as the Sustainable Trade Impact Assessment (STIA).
2. A final economic impact assessment happens after negotiations end. The goal of the final economic impact assessment is to measure the economic benefits of the final negotiation outcomes. The final assessment feeds into the final STIA.

The final economic impact assessment is also required to be tabled at Parliament with the implementing legislation for concluded FTAs.

Economic impact assessments free trade agreements can be found in the full list of assessments.

Quantitative assessment

A quantitative assessment looks at impacts that can be measured with data and numbers.

When conducting the quantitative assessment, we use an economic model called a computable general equilibrium (CGE) model.

A CGE model is a tool that uses data to simulate how an economy works when the trade agreement is introduced. It allows experts to test what could happen if certain conditions change, such as when tariffs are lowered or new trade rules are introduced.

The model we use is built by the Office of the Chief Economist at Global Affairs Canada (GAC) specifically for trade policy assessment and is based on the Global Trade Analysis Project (GTAP) developed by Purdue University.

The model simulates how different sectors of the economy interact when different trade variables change. The model:

• uses data on trade flows, tariffs and subsidies for a reference year
• is updated to reflect recent trade agreements and tariff changes
• is run twice: once without the agreement (baseline) and once with the agreement
  • The difference between the two simulations shows the potential effect of the agreement on:
    • gross domestic product (GDP)
    • exports and imports
    • other key economic indicators

Labour, gender and youth analysis

Typical economic models of global trade do not show how trade agreements affect specific groups of workers.

To address this, the Office of the Chief Economist at GAC has added Canadian labour force data from Statistics Canada to its global trade model.

This integration allows for a more detailed analysis of how trade agreements can affect:

• employment by occupation
• differences between men and women in the workforce
• impacts on youth employment

The model makes it possible to study how workers may move between industries as the economy adjusts to a trade agreement. It can also show how people who were previously unemployed may find opportunities in sectors that are expected to grow.

Qualitative assessment

The Qualitative analysis section of an EIA looks at impacts that cannot easily be measured with numbers. This includes areas where data or analytical tools are limited.

These assessments are carried out by subject matter experts at GAC, often in consultation with other government departments. They provide a professional judgment of possible economic effects that are not captured in the simulation based on their professional expertise.