Canada’s one-off trade deals aren’t enough
The Windsor Star, Canada
Canada’s one-off trade deals aren’t enough
By Alexander Muggah
Friday, September 11, 2009
The five free-trade agreements Canada signed during the last two years (Colombia, Jordan, European Free Trade Association, Peru and Panama) are commendable, but symptomatic of a trade agenda that lacks focus and direction. Canada’s trade agenda seems driven by political considerations, rather than upgrading national competitiveness.
These recent agreements cover a fraction of Canada’s foreign trade and investment. Canada exports more to the United States in three hours than to Panama in a whole year.
Negotiating politically motivated FTAs consumes limited resources ; time and energy better allocated to more substantive market access efforts.
Canada needs a strategy which outlines its vision and commitment to substantially expanding free trade. It should focus on liberalizing trade at the multilateral, bilateral and national levels.
First, Canada must continue its efforts at the World Trade Organization (WTO), which remains the most effective means of reducing global trade barriers. Negotiating with 152 countries in a forum dominated by the U.S. and the European Union takes time ; but time well spent. However, Canada needs to reflect on its quixotic adherence to supply management for dairy and poultry, which hurts our credibility and hamstrings our negotiators.
Second, Canada needs to continue to aggressively pursue bilateral agreements with our major trading partners, including the EU, South Korea and Japan.
Negotiations with Korea are well advanced, but their conclusion needs further political will from both sides. Talks with the EU are expected to begin in the fall, and need to be as ambitious as possible. Japan will require further encouragement to engage in the near term.
Canada has already concluded an FTA with our most challenging trading partner : the United States. With 67 per cent of our total trade in goods and services covered under NAFTA, Canada should not be intimidated by negotiating with our larger trade partners.
Where politics is determining Canada’s efforts, it should offer a standardized FTA template : Agree to our language, and we’ll sign on the dotted line. Indeed, this should be a standing offer available to every non-OECD country.
The template would include Canada’s offensive interests (i.e., investment, services, government procurement, etc.) and as an incentive, immediately eliminate all Canadian tariffs.
Since tariff elimination is a sensitive issue for developing countries, the template would offer three tranches for tariff reduction on their part ; say 50 per cent by dollar value within three years, 75 per cent in five years and 100 per cent in 10 years. Allowing countries to self-assess domestic sensitivities, and choose which tariffs go in each tranche, would make these agreements attractive.
For Canada, lowering tariffs now or in 10 years matters little given how low they are already ; even less if politics is our principal motivator. Fluctuating exchange rates often do more to distort trade than tariffs.
Allowing developing countries to liberalize at their own rate would encourage more of them to negotiate FTAs with Canada. Pre-packaged agreements have the added bonus of reducing federal resources used during negotiations.
The final pillar in Canada’s trade strategy requires breaking down internal barriers to trade. These barriers make it harder, in some cases, to trade between provinces than with foreign countries. Last year, former minister for international trade Jim Peterson reminded us that "internal barriers to trade in Canada were (worth) about $6 billion of GDP."
Provincial leaders understand the importance of free trade. In addition to the 1995 Agreement on Internal Trade (AIT), several provinces have signed bilateral agreements or started negotiations to remove barriers that restrict the internal movement of goods, services, investment and people.
In 2006, Alberta and British Colombia signed the Trade, Investment and Labour Mobility Agreement (TILMA). In March 2008, Ontario and Quebec launched negotiations toward a similar agreement. Provincial and federal leaders need to strengthen and support these efforts.
Canadian prosperity is tied to its healthy trading relationships. Gone are the days when national election campaigns saw pitched battles over the merits of free trade. Few would advocate returning to a world without NAFTA or the WTO.
Canadians understand the benefits of free trade and have long ago put aside their fears. A Canadian Press Harris-Decima survey, conducted in April, found 70 per cent of Canadians want more free trade agreements and 75 per cent think a deal with the EU is a good idea.
Indisputably, trade creates winners and losers. However, the benefits of opening new markets and cheaper imports far outweigh the negative impacts on a few uncompetitive firms. Yet, a critical component of any trade strategy must be targeted transitional assistance programs, such as retraining, to help those displaced by new competition.
Canada needs a comprehensive trade strategy, or otherwise risks being left behind in an increasingly globalized world.
Alexander Muggah is a research associate at the Harvard Business School Institute for Strategy and Competitiveness. He was a member of the Canada-Korea FTA negotiating team with the Canadian Department of Foreign Affairs.
