Okay, a Canada-Europe Free Trade Agreement doesn't appear to be on the table just yet.

The most that anyone at yesterday's summit meeting between Canada and the European Union would say was that they had agreed to talks aimed at "enhancing" transatlantic trade. On the other hand, as I recall, the Canada-U.S. Free Trade Agreement began with a lot of soothing blather about "enhanced" trade, and look where that ended up.

So I will insist on treating this is as a serious possibility, if only for the purposes of this column. Indeed, the oddest part of the whole exercise was the lame explanations offered for why we should not expect anything to come of the talks. "I am aware that there are those in Canada who think that the time has come to negotiate a brand new EU-Canada free trade area," the European Trade commissioner, Pascal Lamy, told reporters. Yes, and why not? "Our difficulty with this idea in Europe is that it is by no means clear that that is really what our trade relationship needs." It's not on because it's not on. Gotcha.

More perplexing was the reaction of some well-known friends of free trade. Michael Hart, who helped negotiate the original Canada-U.S. FTA, attacked the idea as a rehash of the old Trudeauite "Third Option" -- a futile attempt to divert the natural flow of trade between Canada and the United States, rooted as it is in the hard realities of geography and economics, in order to preserve whatever "ties of sentiment and history" might still bind across the Atlantic.

Mr. Hart's objections are rooted in the economist's familiar suspicion of regional trade agreements. Though they favour free trade as a rule, economists have traditionally worried that such preferential agreements would result less in "trade creation" than in "trade diversion." That is, rather than leading to a more rational allocation of resources across and within borders, as would happen if barriers to trade were removed generally, regional trade agreements might further distort international trade patterns, by giving some countries better access than others.

Yet Mr. Hart's own experience ought to persuade him to the contrary. The Canada-U.S.

FTA did bring about a huge increase in cross-border trade, but not, economists now agree, as a result of trade diversion: The natural reasons for the two countries to trade with each other are indeed overwhelming. Which makes his concern about a Canada- Europe FTA, that it might reduce the flow of trade between Canada and the United States, hard to fathom.

The only reason a lifting of trade barriers between Canada and Europe would divert Canadian trade from the United States to Europe is if it were currently being diverted from Europe to the United States, by virtue of the preferential access the latter enjoys under the FTA (now NAFTA). There's probably very little of that going on, as Mr. Hart himself argues. But to the extent that there is, a Canada-EU FTA would be correcting an old distortion, not introducing a new one.

But there's another reason to reject the "trade diversion" complaint. The argument holds water if you look at trade agreements in isolation, as single, static events. But the lesson of the Canada-U.S. FTA is precisely the contrary. The minute Canada and the United States closed their deal, Mexico began began agitating to be admitted, for fear that Canadian firms, newly liberated from tariffs and non-tariff constraints, would steal their U.S. customers.

For similar reasons, the emerging NAFTA bloc encouraged other Latin American nations to start thinking about forming a Free Trade Area of the Americas, and gave a shot in the arm to world trade talks, ultimately resulting in the creation of the World Trade Organization. Far from balkanizing international trade, in other words, the FTA kicked off a dynamic process of competitive liberalization, a kind of free trade domino effect.

Now let's suppose Canada and Europe struck a deal. At that moment, Canada would be the only country with guaranteed access to the two largest markets in the world. Forget Third Options: We would be the crossroads of international trade and investment, a golden "hub" with two continents for "spokes." As more and more companies began to locate in Canada, pressure would grow from American business for the United States to join the agreement. And so on and so forth. In the short run, we steal a march on our competitors; in the longer run, we lead the way to a much larger trade arrangement that benefits everybody.

This is exactly why we should not tie ourselves into a customs union with the United States, as some have urged, with a common external tariff: in order to preserve the freedom to pursue our own trade agenda. Indeed, the gains from a Canada-Europe deal are potentially so large, viewed in this dynamic context, that we should be prepared to offer just about anything to get it -- especially since the only "concessions" we would be making would be tariffs and regulatory barriers we would want to be rid of in any event.

I doubt this is quite what the Prime Minister has in mind. But if he did, it would be the greatest legacy he could leave.