Why cool Canada has gone hot on free trade

Canada does not automatically come to mind when considering a list of free trade champions.

Visitors will know, when faced with food and wine choices, that Canada has a long way to go in making its agricultural products stack up against world competition.

Successive governments had, until recently, build up strong networks that aimed to protect Canada against globalisation.

Its international trade minister, Ed Fast, is out to change that impression and was on a short visit here this week to gain support for Canada’s bid to fast-track its admission into the Trans-Pacific Partnership.

One of the countries that needs to be persuaded is New Zealand, which has long fought a futile battle for access to the Canadian market in products such as dairy and meat.

Mr Fast says Canada wants to be considered on its own merits rather than be lumped in with a group that would include Japan.

At present, Canada is in a second grouping that seeks admission once the US and four other nations (Australia, Malaysia, Peru and Vietnam) complete their deal with founding members New Zealand, Chile, Singapore and Brunei.

Mr Fast says Canada is in a position to negotiate a quick deal based on its existing trade reputation and commitments. For example, Canada is one of only 26 World Trade Organisation members (now up to 155 with Samoa) to sign an anti-protectionism pledge.

Most ambitious trade agenda
In a brief chat, Mr Fast was understating his belief that Canada was “aggressively” following “its most ambitious trade agenda ever” and signalling an end to its reliance on its relationship with the US (which takes 74% of Canada’s exports under the ground-breaking Nafta with the US and Mexico).

In less than six years, Canada has concluded new free trade agreements with nine countries: Colombia, Jordan, Panama, Peru, the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland) and most recently with Honduras.

Mr Fast then reeled off a list of 10 other countries with which Canada had concluded or brought into force foreign investment promotion and protection agreements. The biggest of these is China, which is now Canada’s second biggest trading partner.

The other nine are Peru, Latvia, the Czech and Slovak Republics, Romania, Madagascar, Jordan, Bahrain and Kuwait. Canada is in active trade negotiations with 10 other countries, including Japan and Thailand in our part of the world.

But the biggies are India and the European Union. An EU deal would open up Canadian access to an $18 trillion economy and 500 million consumers. Estimated benefits include a 20% boost in bilateral trade and a $12-billion annual boost to Canada’s economy.

The trade negotiations with India aim to triple bilateral trade to $15 billion annually by 2015.

In Latin America, Canada is keen to add the Mecosur grouping of Argentina, Brazil, Paraguay and Uruguay to existing agreements with several other Latin American states (though Argentina is causing trade headaches with its recent rash of protectionist moves, which Canada and New Zealand, among a dozen others have complained about in the WTO).

Tears for Argentina
Mr Fast was in Argentina a few weeks ago and says he’s been told the import substitution policies are only “temporary.” Argentine itself has told the WTO complainants that its imports rose 30% in 2011, the biggest increase in the G-20.

But this statement does not reflect the situation today; in March imports fell 8% as the controls start to bite.

(As an aside, Argentina’s tightly controlled currency has started to collapse in its “blue chip swap Rate” (an unfixed business transaction market) after its decision to nationalise oil company YPF.)

In many ways, Canada is outstripping New Zealand’s stretched trade agenda and, Mr Fast assured me, has the resources to do the deals.

Before coming here, Mr Fast was in Australia, China, Japan and Indonesia. He says that trade outreach to Asia is based on two reasons:

• geographic location that puts its two west coast ports, Prince Rupert and Vancouver, two days ahead of the US in reaching Asia; and

• the heavy investment in “gateway” infrastructure, comprising road and rail links to the export ports.

In Sydney, Mr Fast told the Dow Jones news service in an interview  that Canada had to become more competitive because its strong dollar, like Australia’s, was forcing businesses to be more efficient and productive.

The Dow Jones report also noted how:

Bank of Canada governor Mark Carney has highlighted in recent days that some 85% of Canada's exports are directed toward slow-growing economies such as the US and urged exporters to build new markets in fast-growing emerging economies.

He said Canada is experiencing the weakest post-war export recovery and its export performance is the second worst among members of the G-20. The central bank doesn't expect net exports to contribute much to growth through 2014.

The Tories fire up
This zeal toward free trade has fired-up the Conservative government to unshackle its economy from years of inward focus (not to mention strong areas of protection in its agricultural “supply management” deals covering dairy, poultry and other sectors).

It is prepared to do this because it equates growth and prosperity with free trade, something its political opposition, like its equivalent here, is keen to dispel. But going by the record so far, Stephen Harper is leaving his New Zealand counterpart John Key well behind.

Canada’s recent federal budget announcement also highlighted internal moves that would improve its trade competitiveness.

“Over the past three years, the government has removed many of Canada’s self-imposed trade costs to help businesses be more competitive.

“For example, since 2009, the Government has eliminated all tariffs on imported machinery and equipment, and manufacturing inputs to make Canada a tariff-free zone for industrial manufacturers, the first in the G-20.”

The statement goes on to summarise the trade policy:

“The Global Commerce Strategy identified 13 priority markets around the world where Canadian opportunities and interests had the greatest potential for growth. This led to five years of Canadian leadership on the world stage in support of open trade, job creation, economic growth and prosperity for Canadians.”

This has even excited the chattering classes in Canada, well known for their insularity and anti-business sentiment. Two commentators in the Globe and Mail have urged support for a bold trade strategy, and have pointed out that a generation's worth of lost opportunities need to be recovered:

Agricultural exports, for example, have lost global market share in every area except for pulses. Imagine – for a country as qualified as Canada to be an agricultural powerhouse.

,,, we haven’t tapped into productivity-enhancing innovations because we throw obstacles into the path of Canadians trying to do business in their own country, fragmenting our domestic market, undermining economies of scale and limiting export opportunities.

‘[The result has been] domestic markets that are effectively closed to real competition, preventing innovations from abroad from entering our market. Telecommunications is an obvious example.”