Montreal - Canada and the European Union are committed to forging a comprehensive economic partnership, Prime Minister Stephen Harper announced Friday.

The unfolding global financial crisis makes liberalizing trade between Canada and the EU even more crucial, Harper said after a meeting with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso at the annual Canada-EU Summit in Quebec City.

"Among other things, this means rejecting the frequent tendency in difficult times to turn inward and erect barriers between our economies and our citizens," Harper said. "Indeed, we must stand against protectionism and work to lower and eliminate barriers."

The ongoing global meltdown topped the agenda of talks between Harper, Sarkozy and Barosso as they met Friday to launch a process that might eventually lead to an economic partnership between Canada and the EU, similar to the North American Free Trade Agreement (NAFTA) between Canada, the United States and Mexico.

The EU and Canada have agreed to take their relations "to an entirely new level," Harper said.

"The European Union and Canada have completed a comprehensive economic study and have agreed to define together the formal mandates for negotiating an ambitious, deeper and comprehensive and truly historic economic partnership agreement."

This will commence as early as possible in 2009, he said.

Experts said the negotiations would focus on hammering out agreements to liberalize trade in services, rather than manufactured goods and agriculture. Past negotiations between Canada and the EU have been hampered by objections from Canadian provinces and territories that jealously guard their own jurisdictions.

Canadian provinces have traditionally been reluctant to opening their public procurement systems to European firms.

Harper said the EU and Canada have already directed their negotiators to conclude a comprehensive air-services agreement over the next few weeks.

Joe Martin, professor of business history at the University of Toronto, said the push for closer economic ties with the EU comes as Canada, which sends more than 80 per cent of its exports to the United States, is desperately trying to find alternative markets to mitigate the consequences of a looming US economic slump.

"I think what Canadian businesses are learning is that there is a danger in having all our eggs in one basket, in the United States market," Martin said, "particularly, given the high degree of likelihood that you're not only going to have a Democratic president, but a Democratic Congress and a protectionist House of Representatives.

"So all Canadian business that are relying on the US market have to be looking for alternatives."

Although the EU is Canada's second largest trading partner after the United States, Canada is Europe's 11th largest trading partner.

According to the Statistical Office of European Communities (Eurostat), between 2000 and 2007, EU exports of goods to Canada grew from 21.1 billion euros to 25.9 billion euros, while EU imports from Canada rose from 19 billion euros to 23.3 billion euros.

The main EU exports to Canada were medicine, cars, crude and refined oil and aircraft engines, while the main imports were uranium, nickel, diamonds, coal and aircraft.

David Long, professor of international affairs at Carleton University in Ottawa, said the collapse of the Doha round of World Trade Organization talks is another impetus for the EU and Canada to work on a bilateral free-trade agreement.

"Part of the reason we see increased activity between Canada and the EU right now is because there are problems in the wider trade agenda at the WTO," Long said. "The Europeans would much prefer that be moving forward, but if they cant get that, then they'll move forward with Canada."

Long said a joint EU-Canada study released Thursday shows that both sides stand to gain about 20 billion euros (27 billion US dollars) a year by liberalizing bilateral trade.

According to the study, the annual real income gain by 2014 would represent 11.6 billion euros (15.7 billion dollars) for the EU, about 0.08 per cent of EU gross domestic product.

The gain for Canada would be less about 8.2 billion euros (11.1 billion dollars) but would represent a bigger share of Canadian gross domestic product at 0.8 per cent, Long said.

Harper, Sarkozy and Barroso discussed a number of international issues, including Canadian and European efforts in Afghanistan.

"And, of course, we are key partners in the broader global effort to meet the pressing challenges of global warming and energy security," Harper said. "Today we reconfirmed our shared objectives in these areas and committed to expanding cooperation on energy efficiency and clean energy technology." (dpa)