Canada has to chase bilateral trade deals

Globe and Mail, Canada

Canada has to chase bilateral trade deals

9 June 2006

It has always been far too easy for Canada to rely on the United States as an export market. With its huge appetite for our resources and with our mutual network of cross-border firms, the U.S. has been a comfortable partner for this perilously cautious nation. So it is laudable that International Trade Minister David Emerson has forcefully underlined that new trading giants are emerging, and that Canada is woefully lagging in those markets. The diagnosis comes in two government documents tabled yesterday: a 67-page summary of trading trends and an aggressive 34-page plan to boost access to those developing markets through bilateral deals. The minister has even posted an on-line list of existing foreign trade barriers for Canadian companies.

It is a brusquely realistic plan for this ever-changing world. "In today’s economy, complacency is a killer," Mr. Emerson warned. "We are the most trade-dependent country among the advanced industrial nations, and a mediocre competitive performance will ultimately spell disaster."

The government’s strategy is quietly revolutionary. Although it talks about Canada’s continued reliance on the U.S. as a trading partner, and stresses Canada’s traditional support for multilateral trade pacts, it puts new emphasis on the need for bilateral deals with giants such as India and China. As Mr. Emerson grimly noted, Canada is the only major trading nation that has not negotiated a single free-trade agreement in the past five years. And the last one was with tiny Costa Rica. Meanwhile, the U.S. Congress has approved seven agreements with 12 nations since 2001. Such pacts are a global trend. By last July, the World Trade Organization had received notice of 330 regional deals.

Those deals usually extend to sectors that are not covered by the WTO’s global pact, since it is difficult for 149 nations to reach consensus in such areas. Today’s trade often expands when businesses construct global supply chains, sourcing components from different nations. Foreign direct investment in turn fosters the creation of those chains. To boost their share of China’s infrastructure spending, for example, Canadian companies should have a hefty presence on the ground there in areas such as energy and transportation. That way, components in any deal could be sourced from both nations. An investment-protection agreement with China, in turn, would encourage those investors by making it clear that China would abide by the rule of law.

Mr. Emerson’s strategy calls for a cluster of similar deals. Canada is pursuing bilateral pacts with India on research and development co-operation and on foreign-investment protection. It is in talks with South Korea to produce a free-trade deal. And it is working to deepen its recent economic framework deal with Japan. As Mr. Emerson argued, Ottawa cannot stand idly by while its businesses struggle to go it alone. The federal government must aggressively negotiate intergovernmental pacts in those complicated markets.

The minister’s push is long overdue. International business expert Wendy Dobson argued in a C. D. Howe Institute study last week that Canada should be moving quickly to hammer out a free-trade agreement with India. That way, Canadian companies could do more to tap India’s suppliers of high-tech services, weaving those products into their own supply chains. Business could boom if governments hustled.

In the end, if only because almost 40 per cent of Canada’s GDP comes from exports, this country must keep a wary eye on its present prosperity. The challenge is to reach out to those emerging economies before other nations such as the U.S. beat us to the punch.

There is much to improve. Last year, our trade surplus in goods with the United States increased to $110.6-billion; our deficit with the rest of the world widened to $43.9-billion. Mr. Emerson is right to shake the nation out of its lethargy.