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Talking Trade blog

Special edition: Plan B for Canadian trade policy

Published 01 November 2016

Canada’s trade strategy has run hit a rough patch on two fronts simultaneously. First, it watched almost helplessly as tiny Wallonia repeatedly rejected the Comprehensive Economic Trade Agreement (CETA) with the European Union (EU). Second, public discourse on trade in the United States continues to move against Canadian interests.

While Canada could not manage internal politics in the EU, it must address worsening prospects in its own backyard.

Growing calls for renegotiating or even ripping up the North American Free Trade Agreement (NAFTA) are of concern given that over 76 per cent of Canada’s exports, or 90 per cent of Alberta’s and even more than 50 per cent of B.C.’s,  go south.

But the anti-trade movement in the U.S. also threatens to kill Canada’s only other card on the table to diversify its trade—the Trans Pacific Partnership (TPP) agreement.

Canada currently has just one trade agreement in Asia, putting it in second to last among countries around the Pacific Rim.  The TPP is the only currently active trade negotiation that Canada has with Asia and that agreement could be in trouble.

Having narrowly survived the battle with CETA, Canadian leaders are understandably nervous about prospects for TPP which requires the United States and Japan to ratify the agreement.

Canada needs to think seriously about a “Plan B” and take control of its own fate.

The first step in doing so is for the country to get serious about trade. An effective, clear-eyed and focused trade strategy is no longer a luxury.

Canada currently has 11 full foreign trade agreements.  This puts Canadian firms at a competitive disadvantage in Asia.  The Americans have 14 trade agreements, including 3 in Asia.  Japan has 15; Australia has 11 that are already in force; Singapore has 14; Malaysia has 8; New Zealand has 11; and even Chile has 21 trade agreements with six covering Asia.

Canada has one in Asia.  Worse, the country has no trade negotiations currently under way.

The Trudeau government may have the beginning of a process to start something with China.  It took Australia nearly a decade to conclude a shallow agreement with the Chinese.  Good trade agreements take years, if not at least a decade, to complete.

The TPP would give Canada seven new trade relationships in Asia.  But with both US Presidential candidates and majorities of elected officials in both parties having issued statements against the deal.  The agreement may still move through Congress in the “lame duck” session at the end of this year—or it may get stuck for a long time.

So, what does Canada do now with Plan A—creating prosperity through trade and deepening access to new markets—increasingly imperiled by the current ‘rip up the NAFTA and kill the TPP’ anti-trade fervor sweeping the US?

One option is to sit back and watch our competitors continue to leave us behind in Asia. That is the default if the country that does not adopt a near-term strategy to balance its longer-term interests.

A better option is to actively consider a Plan B, which should include five components.

First, any near-term plan must start with China. Prime Minister Justin Trudeau and Chinese Premier Li Keqiang have both made recent statements about the desire to launch negotiations for an FTA.  These talks ought to begin as soon as possible, since a completed deal would, given Australia’s experience, likely be as much as a decade away.

Second, Canada should build on TPP negotiations and sign bilateral trade agreements with TPP signatories wherever possible.  Each completed agreement gives Canadian companies a foothold in Asia and an opportunity to use preferences that non-member companies will not receive.

This strategy of building up individual ASEAN agreements before proceeding to a possible ASEAN-wide trade deal is one that has been followed by others.  Getting good, strong agreements with key ASEAN economies would facilitate and improve negotiations with the entire bloc.

Australia and New Zealand are both TPP parties, but negotiating bilateral agreements with each could present some challenges.  Crafting modern, second generation agreements that focused more on investment and trade in services might open the door to greater business cooperation, joint-ventures and partnerships in Asia.

A third element of Canada’s strategy, and moving away from quick wins, would be to re-open negotiations with Japan, which were also put on hold during the TPP negotiations.  Bilateral talks with Japan were long and difficult and will probably continue to be so.  Japan may not offer Canada many of the concessions that it made in the TPP in critical areas such as agriculture and autos.

Fourth, Canada’s Plan B should avoid investing limited negotiating resources in countries where the payoff is not likely in the medium term or where the returns on investment will be too small to be worth the effort for now.

Fifth, in all of this attention to Asia, Canada should not forget about this side of the Pacific.  Most of all, Canada must not lose sight of the importance of the American market.  With a rising anti-trade and ‘rip up the NAFTA’ sentiment in the US, Canada will have to spend more time and resources on maintaining market share and fighting off trade irritants with the Americans. The resources and attention devoted to the U.S. market, at the federal and provincial level, should roughly equal what is put into opening markets in Asia.

Finally, serious resources and attention will also have to be devoted to trade education and promotion in Canada. While recent polling shows that majorities of Canadians have generally favorable views of trade and trade agreements, the surest way to loose those majorities is to follow the path of the Americans and not proactively continue to make the case for trade and allow misinformation to go unchallenged. The goal is to have a balanced discussion on the benefits and costs of trade agreements. That means acknowledging potential negative impacts and proposing realistic, believable policy responses.

Canada needs to start now on drafting a smart, sensible Plan B strategy.

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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