Part I: Broad Trends in Canadian Trade Policy
Importance of Trade Policy to Canada:
Trade policy in Canada is important because trade is important. Exports of goods and service have traditionally contributed significantly to Canadian growth, as much as 45% of Canada's GDP in 2000 (on par with Germany). Although this has declined to almost 30% over the past decade, Canadian livelihoods still depend very much on our export performance, more so than in the U.S. where trade is around 13% of America's GDP.
A New Focus is Needed in our Trade Strategy
Canada needs to update its trade and economic priorities to focus on new dynamic markets.
The numbers tell a striking story:
- Since 2001, Canada's share of global trade has declined by half from about 5% to about 2.5%
- In contrast, Australia's share of global trade doubled the same period
- The reason? Australia has been trading more with the fast growing emerging countries of Asia, while we have been focused on our traditional developed markets that have been the secret of past success
- If Canada wants to prosper from the changing global economy of the 21st Century, dominated by the emerging markets, it must do more business with these fast growing countries, especially in Asia, or be left even further behind
This is one of the hard-hitting conclusions of a report called "Winning in a Changing World: A Canadian Strategy for Emerging Markets" presented to Prime Minister Harper on June 26 this year. Gowlings was the lead sponsor of this report prepared under the auspices of Carleton University's Norman Patterson School of International Affairs, and involving Roundtables with businesses and opinion leaders in Toronto, Calgary and Montreal earlier this year. Copies are available from Gowlings offices either in print or electronically; click here to request a copy.
Fortunately, there is evidence Canadians everywhere are repositioning themselves to benefit from the new economic realities.
- Businesses are moving more assertively into the new markets, and understand in particular the importance of Asia
- Many provincial governments are aggressively courting trade and investment opportunities through trade missions, often jointly organized such as the 4 Western Premiers have done to Asia
- Most importantly, the federal government, whose leadership is critical, has been moving over the past months to concentrate on emerging markets
- It is re-allocating and adding resources to its trade promotion functions, and
- Forging a harder edged and focused trade and economic negotiating agenda, with a particular concentration on emerging markets and Asia
What is this sharper trade policy agenda?
It is currently made up of the following key components:
1. Completing the Comprehensive Economic and Trade Agreement negotiations now underway with Europe, by the end of the year. This is the government's top priority: to get that deal done.
2. Second, shifting towards the high growth Asia Pacific region for the next round of bilateral deals, including:
a. Completing, if possible, the lengthy negotiations
underway with Korea since 2005
b. Completing the negotiations underway with India over the past couple of years
c. Launching negotiations with Japan starting late November
d. Participating in a joint study on the possibility of an economic and trade deal with Thailand, probably as a first step to engaging ASEAN countries generally
e. And, in the biggest potential move of all, continuing to consider accepting China's invitation early this year to negotiate a bilateral trade and economic agreement
3. Finally, and in keeping with this shift to Asia, joining the negotiations now underway for a Trans-Pacific Partnership agreement, beginning at the next round in December in New Zealand.
This set of priorities will have several consequences for other areas of Canada's recent trade policy:
- The WTO negotiations move to the back burner in light of the stalemate now evident in Doha Round, although the government will continue to follow the activity underway in some individual areas, such as services and government procurement, to try to come to stand alone agreements outside the broader Doha packaging.
- Smaller negotiations that have begun but have not made much if any progress recently will not proceed (e.g. with Caricom and the Dominican Republic).
- Temptations will be resisted (hopefully) to launch new talks with smaller and less consequential players.
Canada's overall objectives in these negotiations must be a combination of traditional and new elements.
Indeed, Canada must update its trade policy to recognize the changing nature of international commerce, and move beyond traditional Free Trade Agreements to draw in investment, regulatory, competition and other aspects. Significantly, the terminology is changing, and the government is talking about "Comprehensive" and "Partnership" agreements.
International commerce is increasingly built around global value chains, and those in Asia, many involving major assembly steps in China, are among the most dynamic in the world.
Our businesses need to be able to access these chains both from the outside (through trade) and the inside (through local establishment and investment), and on a level playing field, so as to compete effectively in providing the services and products (or "tasks" as they are sometimes called) in their areas of strength.
These agreements should be expected to do the following:
1. Continue to seek better market access for our agricultural and fisheries sectors, to ensure we are among the key suppliers for populations that will call for increasing amounts of protein and top quality food products.
2. Eliminate tariffs on the import of Canadian-made or assembled intermediate goods for value chains, as well as machinery, aerospace, green technology and other products produced competitively in Canada.
3. Promote access for Canadian services, including banking and insurance, commercial services, construction and design, education, resource development.
- Many emerging economies have under-developed services sectors, creating both major demand but also an uncertain environment for outside service providers.
- Right of establishment is key.
4. Gain access for Canadian companies to the huge opportunities available in government procurement.
- Many Asian countries do not participate in the WTO's Government Procurement Agreement and have restrictive and rudimentary systems.
- Infrastructure demands will be enormous, particularly as a further billion Asians move into cities over the next 30 years (ADB estimate). And governments at all levels will be procuring most of this work.
5. Simplify regulations in other jurisdictions:
- From those that encumber the movement of goods and services at borders ("trade facilitation")
- To those that make it difficult for Canadian companies to do business locally or that discriminate in favour of local companies ("level playing field").
6. Include investment and related issues, through linkages with traditional Foreign Investment Protection Agreements (FIPA's), or their incorporation into these "master agreements". Impartial dispute settlement systems and rules are crucial.
7. Adopt trade policy positions that do everything possible to promote and protect Canadian innovation.
- As a advanced country we must nurture technological leadership as a comparative advantage
- We must protect the products and processes we create
- The international earnings from licensing technology can be substantial in emerging markets
- That means more attention to Intellectual Property, just as the USA, Japan and the EU are doing
- Here, trade policy is still evolving, being driven by pressures from Europe and from the USA.
8. They will also need to pay attention to the newer subjects of electronic commerce and the internet, and to the issues that restrict the flow of business professionals and skilled employees in this more mobile business environment.
Look for Part II of our Current Trends and Developments in Canadian Trade Policy update tomorrow featuring an in depth discussion on the current negotiations and their prospects (CETA, TPP and other bilateral negotiations in Asia).
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