Introduction
International trade strategies have changed for Canada. In fact, 2017 is proving to be the year that define the country’s international trade policy. The US wants to renegotiate NAFTA and the dwindling outcomes of the Asia-Pacific trade policy, Trans-Pacific Partnership (TPP), provide an opportunity for a review of trade policy. Additionally, the adoption of the entire Canada-European Union Comprehensive Economic and Trade Agreement (CETA), the negotiations involving softwood lumber, the post-Brexit, and engagements to establish free trade deals with China among others present major aspects of international trade policy for Canada.
The country seems to understand these emerging changes, risks, and opportunities abound. In the last decades, Canada grew through surging demands for its natural resources, leading to massive wealth and exports. Today, however, Canadian companies that once thrived because of the cross-border trade with massive supply chains functioning predictably and uninterruptedly now face the possibility of significantly increased costs, widespread disruptions, lost business opportunities, and uncertain future. Nonetheless, the country hopes for new trade deals to reach other markets and exploit available opportunities.
These changes in trade agreements are most likely to impact Canadian businesses or economy as a whole. As such, this essay focuses on Canada’s international trade policy based on the recent developments, how the country is addressing them, and their potential impacts on businesses and economy as a whole.
Discussion or Analysis of the Policy Issues
The Canada-US Trade Relationship
The North American Free Trade Agreement (NAFTA) came into effect in 1994. This trade deal provides an opportunity for the US, Canada, and Mexico to trade across their borders with lesser restrictions. Additionally, following the entry of China into the World Trade Organization in 2001, its exports reached other countries. In all these deals, the US became the most important trading partner for these countries. Before NAFTA, Canada had the 1965 Auto Pact and the Free Trade Agreement of 1988 with the United States, which were all responsible for reduced cross-border trade barriers. Consequently, these agreements led to an open North American market, and export and import businesses grew steadily, productivity increased, plants expanded, and efficiencies were noted across different industries.
The growth of Canadian economy largely depends on trade. However, the US is more concerned about the rising trade imbalance among the countries that signed NAFTA. Much about renegotiation of NAFTA is expected in this last quarter of 2017 to rebalance the trade. Businesses that are most likely to be affected are Canadian firms that deal in automobiles, dairy products, softwood lumber, government tenders and procurement markets, as well as issues related to enforcement of intellectual property rights and anti-dumping (Sosnow & Kirby, 2017).
Based on the most recent developments, the US has indicated that it might not pursue similar aggressive strategies on its relations with Canada as it has done to Mexico. The Trump administration does not see the country as an immediate threat because the situation is less severe, and it is only interested in ‘tweaking’ NAFTA requirements that apply to Canada. This approach was demonstrated in the recent months. For instance, the US accepted the Keystone XL pipeline and further exempted it from the ‘Buy America’ requirements – the previous Obama administration had not approved this deal (Dattu, Burkett, & Schappert, 2017).
Canada is concerned about the call to renegotiate NAFTA. Consequently, the Canadian government has expressed its intention to be an active member during the trade negotiations on a trilateral basis (Sosnow & Kirby, 2017). Canadian Prime Minister Justin Trudeau has noted that he will present a list of Canadian-US trade and market issues, which will include the requirements on cargo pre-clearance, the creation of government controls in labor benchmarks and dispute resolution, and a clear path for dispute resolution. The country also wishes to bring some positive experiences from the Trans-Pacific Partnership trade deal to NAFTA. However, this desire may not be attained following the withdrawal of the US from the TPP deal.
Canadian businesses and economists have voiced their fears that uncertainty in the US-Canada trade relations could present significant challenges to Canadian investments. In January 2017, for instance, it was demonstrated that the country had a trade surplus of about $807 million, much of it occurred with the United States (Dattu et al., 2017). This surplus reflected the third successive month where the country had exported more than its imports, indicating a clear case of a growing trade surplus. Canada can possibly bring trade surplus issues on NAFTA renegotiations. It, however, remains unclear when the trade talk will begin.
Meanwhile, there are chances that the US may freeze any foreign investments between them until all the talks are concluded (Dattu et al., 2017). This claim implies a slow pace of NAFTA renegotiations, and no changes are expected immediately. Nonetheless, Canadian businesses should keenly follow any new developments concerning NAFTA. More importantly, businesses should strive to understand how possible changes would affect their businesses. As it is today, the US trade policy agenda document has clarified that the US will not adhere to any international trade rules that it considers not favoring US businesses.
It is imperative to note that the Canadian Budget 2017 did not refer to the NAFTA renegotiation. Moreover, no cash allocations were provided for any extra government resources that may be required to facilitate the negotiation (Sosnow & Kirby, 2017). The Budget however does show that the Canadian government is committed to improving its cross border trade ties, and it is willing to make fair and beneficial trade deals involving softwood lumber for all stakeholders (Sosnow & Kirby, 2017). Although no details are clear on how the country is prepared to approach the NAFTA renegotiation, critics argue that it should use this opportunity to address issues of illegal dumping and subsidies under its trade remedy rules (Moen, 2017).
The Focus on Asian Markets
The Canadian Advisory Council on Economic Growth (2017) identified China, Japan, and India as important trading partners in the Asian market. The Advisory Council noted that Canada is yet to benefit from any trade links it has with China relative to some other countries. As such, the Advisory Council recommended that the country should strive to review and change the trend by promoting bilateral trade discourses from clear mutual objectives. Further, it recommended that Canada should pursue negotiations with India and Japan under the Economic Partnership Agreement (EPA) (Advisory Council on Economic Growth, 2017).
To demonstrate its commitment to advancing trading relations with the Asian markets, the Budget 2017 clearly identified the above-mentioned Asian countries. Canada intends to be a part of the Asian Infrastructure Investment Bank (AIIB) and plans to put an initial investment of $256 million over five years to promote high quality infrastructure developments in energy and transportation among sectors (Sosnow & Kirby, 2017).
Some professionals assert that Canada should also focus on ASEAN, the group of ten Southeast Asian economies (Brown & Farmer, 2017). These countries could provide alternative and greater opportunities for other trading partnerships in the Asian region. While some the countries may appear isolated from Canadian businesses, the regional association provides a trading bloc for high return exports. Therefore, it can target Indonesia, Philippines, Vietnam, and Singapore among others. These countries now consume much of high value products across different industries.
The Canada-Europe CETA
The CETA, a trade deal between Canada and the European Union, has been widely explained in other forums. In short, it is an elaborate agreement that strives to eliminate about 99% of customs duties, open new investment opportunities, provide favorable bidding opportunities for Canadians on public contracts in the EU member countries, and to offer a structure to recognize qualifications from Canada and Europe in controlled professions.
In October 2016, Canada introduced trade legislation to implement the deal, but it had to wait the EU to adopt it in 2017. Canada clearly expressed that nearly all vital elements of the deal were to be effected in the second quarter of 2017 (Sosnow & Kirby, 2017).
For Canadian businesses, this trade agreement has opened a huge market with over 500 million consumers (Smith, 2017). The country has expressed that the deal would open an opportunity for its anglers, farmers, miners, forestry products, and owners of small businesses. Although the bilateral trade would grow by 20%, some Canadian businesses have expressed their concerns about the proposed changes in tax.
At the same time, Canadian government has explained that major sectors would benefit from the deal partly due to lower tariffs. The Canadian government also expects the oil and gas industry, information and communication services, and auto manufacturers to benefit significantly from this trade agreement. Additionally, the EU notes that it can bid on Canadian government contracts and additional benefits can be realized from the elimination of Canadian tariffs on vehicles, clothing, machinery, electrical equipment, healthcare devices, and chemicals (Smith, 2017). These bidding opportunities also extend to agriculture and food products.
Canada has important historical and trade ties with the United Kingdom. In fact, the UK is the most important trading and investment partner of the county in Europe. Nonetheless, it is imperative to recognize that the country has not provided any explanation on its preparations for the post-Brexit UK.
Canada’s Trade Remedy Rules
These trade remedy laws aim to give local firms the means to seek the imposition of duties on subsidized or dumped imports that injure their operations (Sosnow & Kirby, 2017). In the Budget 2017, like in the previous years, the Canadian government continues to state that it would amend related laws to enhance the enforcement of trade remedy rules, solve circumvention, control alleged practices of price and market distortions, and give unions the power to take part in trade remedy hearings (Sosnow & Kirby, 2017).
When the Canadian government announced these trade remedy proposals, no details were available for businesses to review and understand their impacts. Previously, the government promised to evaluate initiatives concerning the effectiveness of the trade remedy regulations. However, every financial year, these laws are contained in the Budget, but they remain vague and are short of explaining how they would be reviewed, amended, and implemented. The laws aim to establish efficiency and allow the government to run a reliable trade remedy system and to eliminate red tape. This implies that the Canadian anti-dumping agency will have to focus on investigation and enforcing of the law.
The government introduced three important areas of interest, namely calculation of normal values, enforcement, and evidentiary standards to account for various shortfalls in trade remedy regulations (Department of Finance, 2016). Canada strives to make it less tedious to for its domestic businesses to contain unfair trade remedy actions. To this end, Canadian businesses must closely monitor new developments on trade remedies, specifically businesses that may depend on anti-dumping or illegal subsidy cases to make claims against unfair trade imports.
Under NAFTA renegotiations, Canada and Mexico should perhaps introduce a proposal to address protectionism outcomes noted under certain trade remedies and specific issues that they wishes to address independently (Moen, 2017; Glossop & Dattu, 2017). One must however appreciate that the NAFTA economies are highly integrated, and their common focus on illegal dumping and subsidies could require technical approaches that also address imports from other parts of the world to protect their respective domestic markets.
Goods from Least Developed Countries
Canada recognizes the importance of promoting trade with the least developed countries. Therefore, it has proposed greater duty free access for some goods, such as apparel, from least developed nations, for example, Haiti. The country applies the rules of origin to determine specific goods that can qualify for preferential duty treatment, and this was included in the Budget 2017 (Sosnow & Kirby, 2017). Through this initiative, the Canadian government approximates that it would have to forgo some $17 million in tariff incomes. Canadian importers should watch out for new developments if regulations may be extend to apply to more countries.
Alignment of Regulations with Trade Partners
Canada wants to align its trade regulations with trade partners. To demonstrate a commitment to this initiative, the Budget 2017 recommended that the Treasury Board Secretariat should get $6 million for the next three years to pursue this agenda with the country’s trade partners. Traditionally, it has always targeted the US for alignment of trade regulations under the Canada-U.S. Regulatory Cooperation Council (RCC) established in 2011. The initiatives have focused on health and consumer products, food and agricultural produce, transport and the environment (Sosnow & Kirby, 2017). Following the adoption of CETA, Canadian businesses should now look out for any new regulatory alignment initiatives targeting Europe.
The RCC is expected to promote favorable alignment of the regulatory terms between the two countries using a wide range of strategies, including improved technical collaboration, joint work initiatives, and recognition of acceptable standards (Government of Canada, 2016). These efforts will be directed at addressing the major sources of regulatory misalignment, offering viable solutions, and averting potential future misalignment. Further, the efforts will focus on developing new strategies for regulatory alignment, and they would act as a reference tool for future endeavors to coordinate trade relations with trade partners.
Canada appreciates that regulations are necessary for both countries. Effective controls, therefore, will protect businesses through standards that focus on health, safety, and the environment. In turn, businesses will grow, invest, innovate, and reach new markets (Government of Canada, 2016).
Attracting Foreign Firms
In 2016, the Canadian government announced that it would establish an Invest in Canada Hub. The Hub was a new federal government agency created to attract foreign firms to invest in the country. It was supported by an allocation of $218 million over a five-year period to place additional trade commissioners in certain strategic markets across the globe (Hasselback, 2016). Although the Budget 2017 included this provision, it did not clarify specific markets that would get additional trade commissioners.
Canada understands that foreign firms are looking for a one-stop shop to address their concerns and learn about all opportunities for investments in the country. The country is seen as taking a stand that does not promote nativism and populism and, therefore, it is in a perfect position among the G7 to succeed on trade agreements (Hasselback, 2016; Government of Canada, 2017). Canada is referring to the US Trump administration that is focused on renegotiating or pulling the US out of some multilateral trade deals and the UK that is focused on post-Brexit after the vote.
Canada, on the contrary, seeks many trade relations, and this is demonstrated by the recent implementation of CETA. As such, Canada views itself as an open society with real economic opportunities and benefits for foreigners. This notion of a stable Canada in an increasingly volatile world forms the basis for creating the Hub and deploying more trade commissioners globally to attract foreign direct investments.
Areas of Concerns
The above discussion shows that Canada is clearly focused on its international trade policy. However, presentations made in the Budget 2017 failed to offer specifics on critical issues, perhaps because of the current business environment uncertainties globally. Nonetheless, some areas raise significant concerns on the country’s international trade policy. Canada has not provided a clear path for the Asia-Pacific strategy to deal with the declining TPP. In fact, the country is focused on altering the deal for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (Donnan & Reed, 2017).
Additionally, attempts to revive the TPP trade agreement foundered when Canada failed to attend a discussion to agree to proceed without the US (Nguyen & Tostevin, 2017). It therefore appears that Canada lacks a clear strategy for the revival of the TPP. Moreover, it has not clearly explained any agenda for NAFTA talks and the post-Brexit aftermaths. These are issues of significant challenges, which will affect Canadian businesses and other foreign investors intending to do business in the country.
Moving forward, Canada is open to international trade, and it appears to reject populism trends, which will ultimately promote its businesses and economic growth. The country’s economy can grow through new opportunities for exports. Some of the trade agreements have been implemented, and they provide enhanced free access to some of the largest global markets to Canadian firms. These deals provide opportunities to advance the future of Canada’s international trade policy.
The deals go far past removing trade tariffs to enhancing foreign investments and movement of people, recognition of professional standards, lessening consequences of non-tariff barriers, and opening up government contracts to foreign firms (Goldfarb, 2016). Canadian businesses that are more focused should seek these free trade opportunities, innovate, and conquer the global market in the future.
One must appreciate that some of the recent developments are major sources of concerns for Canadian businesses. Notably, the growing protectionist claims in some global markets show that businesses now operate in a period of increased uncertainty concerning regulations of businesses in the international trade arena. The likelihood of an actual change in the protectionist call, specifically on the results of NAFTA renegotiations, remains the major source of uncertainty for Canadian businesses and economy.
By evaluating and acknowledging the current trends in the international business practices, it should appreciate existing and emerging risks. Lane (2017) notes that much of the economic benefits Canada has recorded from trade liberalization majorly originated from export expansion, greater efficiencies in the supply chain, enhanced competition, innovation, and improved access to the best quality of imported products. Therefore, if these renegotiations and new deals emerge in a manner that weakens Canadian benefits, then much business would be lost with regard to export opportunities and reduced growth potential for Canada.
Conclusion
Major changes in Europe (the Brexit), North America (NAFTA renegotiations), and Asia (the decline of TPP) and other challenges in emerging economies all present a period of transition and instability for Canadian businesses. As such, Canada appreciates that new deals, such as CETA, are necessary to match the changing trade environment.
Canada’s Budget 2017 does not offer any clear approaches, and this simply shows that the coming years could be uncertain, providing both opportunities and challenges to Canadian businesses. For an open economy, Canada should develop international trade policy that advances growth and mitigates risks. Therefore, Canadian businesses should develop robust assessment and implementation plans to prepare for any unexpected outcomes on the international trade policy and related trade deals.
This could mean the difference between success and failure in an uncertain business environment, and businesses ought to make efforts toward understanding the dynamic nature of the global trade, especially when protectionist calls are growing.
References
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Brown, J., & Farmer, W. (2017). Canada must look beyond China toward a broader Asian trade deal. The Globe and Mail. Web.
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Smith, M.-D. (2017). What you need to know about CETA, Canada’s trade deal with Europe that takes effect today. National Post. Web.
Sosnow, C., & Kirby, P. E. (2017). Budget 2017: What’s in store for Canada’s trade policy? International Trade & Customs Law Bulletin. Web.