I always love how people trot out the words 'competition', 'free trade' etc. Both are fine provided there is a generally equal playing field and reciprocity. At its very basic core free trade works when both (or multiple) parties benefit equally. The simplistic explanation is that one country has advantages in one area while another has advantages in another area. By allowing free trade each sacrifices one area to benefit in the other. The end result being that each countries consumer benefits through cheaper prices.
Simply yelling 'free trade' is absolutely irrelevant! Unless both countries benefit there is no point in signing an agreement.
The ME3 (and other small city states or countries) don't have much to offer in terms of equal benefits.
The Canadian issue is a perfect example. Other than cheaper fares on a single route how would 'free trade' with the UAE benefit Canada? Instead, Canada's Air Policy has always looked at each individual country/agreement. If both sides benefit and there is enough traffic between the 2 countries then an agreement can be reached. So Canada to the UK, most European countries, South America etc etc has enough natural traffic BETWEEN them to sign an agreement.
But the UAE provides almost no traffic from the UAE itself. It hubs them in and out. SO why would Canada sign an agreement?
Worse, by allowing the UAE access it would cannibalize other routes. At the moment there are several frequencies to London, Frankfurt etc. Allowing the UAE to hub pax from India to Canada would siphon pax from routes that connect via Europe. Those pax are traveling one way or another - via UAE or Europe. So by allowing the ME3 into Canada they would likely lose frequencies to many Euro destinations. Frequencies are valuable and important. Code share profits would also decline.
So why sign such a lopsided agreement?
As I said, free trade only works when it's good for both sides. The idea that it is always good is ridiculous.