Stephen Harper has been an energetic trade warrior of late — pitching Canada’s wares across Latin and Central America this week, before heading off to China in November.There is good reason for the frenetic activity: trade values are still below pre-recession levels and don’t look set to bounce back anytime soon. The strong Canadian dollar, lower commodity prices and the prospect of a double dip slump in our largest trading partner, the United States, suggests it will be some time before exports recover to 2008 levels.
When the recession began to bite, merchandise trade dived by 25% to $360-billion in 2009 from $483-billion the previous year. Exports edged up to nearly $400-billion in 2010 but signs for this year are not encouraging. New trade data for June, released Thursday, showed softer demand for Canadian exports from the U.S., the destination of 75% of our exports.
Mr. Harper has pinned great hopes on a free trade deal with the European Union, which is scheduled for completion next year. There is no doubt that it would be a precedent-setting deal, coming at a time when multi-lateral negotiations have ground to a halt, perhaps for a generation. It would be a dry run for a much larger deal between the EU and the U.S. and would send the message that some of the world’s largest economies are determined to resist the urge to indulge in protectionism.
Still, people familiar with the negotiations say that the characterization of the recently concluded eighth round of talks by new International Trade Minister Ed Fast was far too rosy. “The hard part remains – procurement, intellectual property rights, rules of origin. We will likely emerge with a much less ambitious agreement than was originally envisaged,” said one source.
He suggested that one potential obstacle to a deal – Canada’s supply management system for dairy and poultry products – could be side-stepped by offering EU countries tariff-free quota, while leaving the system largely intact. A similar agreement could be made to give European companies limited access to government procurement. But significant challenges remain. Right on cue, the EU highlighted one of its principal concerns Thursday, when it launched a legal challenge against Canada at the World Trade Organization to protest Ontario’s Green Energy Act, which guarantees above-market rates for solar and wind energy projects, as long as they use Canadian-made equipment or services. The EU claims these subsidies are illegal under global trade rules.
Aside from the EU, the Harper government has promised to conclude a free trade agreement with India within two years, and Canada has made it clear it would like to reach a more wide-ranging trade agreement with Brazil, its ninth largest export market, and the Mercosur customs union that also includes Argentina, Paraguay and Uruguay.
While the Prime Minister was in Brazil, he signed a number of smaller deals, including the establishment of a new Brazil-Canada CEO forum that is meant to boost trade between the two countries. Exports of Canadian merchandise to Brazil totaled $2.6-billion in 2010, up 60% from the year before.
Perhaps the most intriguing prospect for expanding Canada’s trade universe is China. Reports that Mr. Harper is travelling to Beijing in late fall has already sparked speculation over some form of trade deal.
David Emerson, Mr. Harper’s former trade and foreign minister, said he would love to see a free trade deal similar to the one China has struck with New Zealand but believes there is too much fear of China’s competitiveness in Canada. However, he said he sees the possibility of an investment protection agreement and other deals that could enhance trade. “You can’t sell stuff in Canada and be globally competitive. You have to open up markets and we don’t have any trade agreements in Asia,” he said. “We need to have a more aggressive, collaborative relationship with China.”
China is a growing market for Canadian energy exports – up 45% in 2010 – and would undoubtedly be an even bigger customer if it could secure a steady supply of Canadian oil. This explains the Conservative government’s enthusiastic support for Enbridge Inc.’s $5.5-billion Northern Gateway pipeline, which would pipe bitumen from Alberta’s oilsands to the B.C. coast for export to Asia.
Yet none of these developments is likely to significantly reduce Canada’s reliance on the U.S.; India wasn’t even in the top 10 of our export markets last year and China accounted for just 3% of the total.
A deal with the EU would be welcome but its impact on Canada’s balance of payments is unlikely to be transformative. Canada’s $100-billion trading relationship with countries of the European Union is less than one-sixth the size of that with the United States.
Diversification has long been sought and seldom achieved. In the face of a growing energy crisis in 1973, Pierre Trudeau attempted to establish the “third option” — a strategy to reduce Canada’s vulnerability to a slumping U.S. by negotiating trade agreements with the then European Community and Japan. It failed then and it’s unlikely that the actions of government alone will make it work now — just because Mr. Harper builds it, doesn’t mean business will come.
Peter Clark, president of trade consultants Grey Clark Shih, said the Conservatives have been wise to attempt to strike large trade deals, such as with the EU and India. But he said there are limits to what any government can achieve. “Our percentage share of trade with the U.S. isn’t going to change much. While the U.S. is in its current negative position, where they may go back into recession, we’ll probably sell them less. But the fact is our trade relationship hasn’t shrunk, it’s just not growing the way we’d like it to and we don’t like being exposed to them.”
It would seem that Mr. Harper will rack up plenty of air miles in the coming months, to little immediate effect. But this is, perhaps, as it should be. The word “government” derives from the Greek verb “to steer.” If the Prime Minister steers the boat in the right direction, it will be up to business to do the rowing.
Origin
Source: National Post
No comments:
Post a Comment