By: Kaylee Mak, Research Analyst
Executive Summary
- European Commission President Ursula von der Leyen initially offered Canada the chance to become the EU’s first associate member, but the EU has since dropped the label in favour of an “ever closer association,” with the definition to be confirmed by the 2027 summit.
- Without its own AI law, Canada risks following EU standards it did not help write, as it already does on privacy. The EU’s recent AI Omnibus delays some rules but does not change that.
- Both depend on U.S. cloud, compute and chips, so closer ties are a hedge, not a replacement. Europe still brings key assets: ASML’s chipmaking machines, the JUPITER supercomputer and a planned network of AI Gigafactories.
- Canadian AI SMEs could gain from European compute, direct Horizon Europe funding and, through an agreement under the EU AI Act, the ability to certify AI products at home for the EU market. EU procurement remains limited, and CETA does not yet cover AI systems.
- Ottawa should ensure AI SMEs’ access to Europe’s AI compute and to AI certification is delivered as promised at the summit, and table a modern AI and privacy law.
In her State of the Union address on September 16, 2026, European Commission President Ursula von der Leyen proposed inviting Canada to be the first associate member of the EU. She framed the offer as part of an “Alliance for the Future” covering industry and defence, energy and critical minerals (including the Arctic), and technology and security (including AI, quantum and cyber). Prime Minister Mark Carney has also welcomed discussion of the associate membership proposal. Yet, six weeks later, the EU dropped the “associate member” label from its draft summit statement after opposition from Germany, Greece, Italy and France. The draft now commits both sides to an “ever closer association” instead. Carney has said the name matters less than whether the relationship benefits Canada. At the Montreal summit on October 29–30, the two parties agreed in a joint statement to define “an ever-closer association of Canada to the EU, short of full membership itself” by the 2027 summit.
With the “associate membership” label dropped, a closer association still raises a key question. What would it mean for Canada’s sovereignty over the building blocks of AI: compute, data, talent and infrastructure? For Canada’s AI small and medium-sized enterprises (SMEs), the answer will decide whether Canada helps write the rules or simply follows them.
Canada’s AI Law: A Gap Waiting to Be Filled
Unlike the EU, Canada has no standalone AI law. It relies on the 2023 Voluntary Code of Conduct and on existing privacy and sector rules. In 2022, Ottawa tabled the Artificial Intelligence and Data Act (AIDA), which set safety and fairness requirements for high-impact AI systems and was designed to be interoperable with international frameworks such as the EU AI Act. AIDA died on the Order Paper when Parliament was prorogued in January 2025. Since then, Canada has shifted toward data sovereignty, focusing on where data is stored and who controls it rather than EU-style checks on how AI systems work before they reach the market. Its June 2026 “AI for All” strategy prioritizes business adoption and public investment in sovereign compute over new legislation.
If Canada enters an association agreement with the EU, EU rules could become the default standard for Canadian AI firms. The real challenge is to avoid becoming a rule-taker, as Canada already is on privacy regulations. Article 45 of the General Data Protection Regulation (GDPR) controls how personal data leaves the EU. It allows data to flow freely only to countries whose data protection regimes the European Commission deems “adequate.” Canada’s current adequacy status rests on the Personal Information Protection and Electronic Documents Act (PIPEDA), which follows an organization-to-organization model built on accountability and consent. Under this model, Canada does not approve which countries can receive personal data. Instead, a company that sends data to another organization, at home or abroad, remains responsible for protecting it, usually through contracts. To keep that status, Canada must stay aligned with a standard it does not set.
AI is heading down a similar path. Since July 27, 2026, the EU’s AI Omnibus (a package of simplification measures) has amended the AI Act’s rules for high-risk systems in areas such as biometrics, critical infrastructure, education and employment. It delays obligations for stand-alone high-risk systems until December 2, 2027, and gives SMEs and small mid-caps simpler documentation, lighter quality management and reduced penalties. This relief eases the short-term burden for SMEs, but it does not change the reality that they must still meet the AI Act’s core requirements once the rules take effect. Canadian firms competing on the EU market must meet these new rules whether or not Canada has a say in them.
Shared Dependence on American Compute
Canada hosts about 337 operational data centres, of which only about 30 are hyperscale facilities run by firms such as Oracle, Amazon Web Services (AWS), Microsoft Azure, and Google Cloud. The latter three U.S. companies alone hold 85 per cent of Canada’s public cloud market. All three are subject to the U.S. Clarifying Lawful Overseas Use of Data Act of 2018 (CLOUD Act), which, as one policy paper argues, obliges U.S. providers to hand over customer data regardless of where the data centre is located.
The EU faces a parallel problem with a shortage of chips. It produces fewer than 10 per cent of the world’s chips and relies heavily on the United States and Taiwan for advanced chips and GPUs. Neither dependence will change quickly. Therefore, a closer EU-Canada partnership is best understood as a hedge against American control over compute, contracts and the rules of AI, until both partners build sovereign capacity of their own.
Both sides are now racing to build that capacity. Canada’s June 2026 “AI for All” strategy introduced the Sovereign Compute Infrastructure Program (SCIP), which funds companies to build large-scale physical infrastructure over seven years. That same month, the European Commission proposed the Cloud and AI Development Act (CADA) as the centrepiece of its Tech Sovereignty Package. CADA aims to triple EU data centre capacity within five to seven years and to set sovereignty assurance levels covering service control, supply chain, data and location.
The Commission is also using its purchasing power. In April 2026, it awarded contracts worth up to €180 million over six years to four European cloud providers. All four winners are European, though one bid, led by Proximus, runs on Google Cloud technology operated exclusively by EU companies. The EU has further introduced a Chips Act 2.0 to steer public procurement toward EU-made AI chips for data centres and downstream sectors. Canada and the EU are each building sovereign capability, while looking to form a partnership large enough to compete with American dominance.
Europe could bring more to this partnership than its current chip output suggests. The Dutch firm ASML is the only producer of the extreme ultraviolet lithography machines needed to make the world’s most advanced chips. Europe also hosts JUPITER, its first exascale system and the fifth-fastest supercomputer in the world. In July 2026, the EU launched a call for up to seven AI Gigafactories, expected to draw more than €20 billion in private investment. At the summit, the EU welcomed Canada’s participation in the EuroHPC Joint Undertaking, granting Canada access to AI Factories and other large-scale compute. The remaining question is whether that access will expand to Canadian AI firms.
Where Canadian AI SMEs Can Gain
The opportunities for Canadian AI SMEs fall into three areas: compute, research and procurement, and certification.
On compute, the European Commission proposed in January 2024 to extend the EuroHPC Joint Undertaking to build, train and run large-scale AI models across Europe. The resulting AI Factories initiative gives European SMEs subsidized computing power through a network of 19 AI Factories and 13 AI Factory Antennas built around AI-optimized supercomputers.
On research and procurement, Canada has been associated with Pillar II of Horizon Europe since July 3, 2024. This lets Canadian researchers join and lead research consortia on the same terms as EU researchers, meaning they can now receive EU funding directly instead of covering their own costs. Through Horizon Europe, Canada takes part in GenAI4EU, a central hub for developing generative AI applications across the Atlantic. The summit also committed both parties to increasing Canada’s participation in future EU research programmes. Business procurement is narrower for Canadian firms. Under the current CETA arrangement, Canadian firms can bid on covered EU contracts above set financial thresholds, but are shut out of ports and airports, broadcasting, postal services, shipbuilding, and national security and public order projects.
On certification, the EU and Canada do not yet recognize each other’s AI certifications. CETA’s conformity assessment protocol covers only 11 product categories, and none of them covers AI systems. In Canada, AI certification remains voluntary, but the country is already building the foundations. The Standards Council of Canada (SCC) has launched accreditation for AI management systems built on global standards, and the Canadian AI Safety Institute (CAISI), launched with $50 million over five years, focuses on safety testing of AI models. On the EU’s part, Article 39 of the EU AI Act allows conformity assessment bodies in third countries to assess AI systems for the EU market if the EU has signed an agreement with that country. At the summit, both parties committed to working towards mutual recognition of conformity assessment results for AI systems. If that commitment becomes a binding agreement, Canadian AI SMEs could have their products certified at home and sell them in the EU without a second round of testing.
The trade numbers show what is at stake for Canada. The United States took 61 per cent of Canada’s AI exports in 2023, while the EU took only 15 per cent. Canada already has a working framework with the EU on research and development. The question is whether a closer association will open EU markets to Canadian AI businesses, not just research partnerships.The new Digital Trade Agreement, concluded in substance at the summit, aims to ease cross-border data flows and open markets for cloud and AI services. Both parties aim to bring their standards closer through CETA. To expand that trade, Canada needs a standard of its own to bring to the negotiating table. Turning these commitments into binding rules will be the real challenge.
Conclusion
Canada is entering a new partnership with the EU without a clear set of rules of its own to negotiate with. Today, it acts more as a research collaborator than as a full partner, and both sides remain dependent on the United States for compute and market share. In the short run, this constraint may outweigh the benefits of cooperation. In the long run, however, the greater risk is that Canada’s AI SMEs will follow rules written in Brussels without a voice in shaping them. To avoid that outcome, Ottawa must ensure that access to Europe’s AI compute extends to Canadian firms, turn the commitment to mutually recognize AI conformity assessments into a binding agreement, and table a modern AI and privacy law to replace a privacy act written in 2000. The Montreal summit opened the door, but only a rulebook of its own will allow Canada to negotiate as a rule-maker rather than a rule-taker.
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