Wednesday’s Financial Post has a fascinating piece on the importance and changing nature the Canada-U.S. economic relationship. With so much attention paid to diversifying Canada’s trade portfolio, its importance to emphasis the unique and lasting value a close Canada-U.S. economic partnership has for both nations.
The driving question in Canada-U.S. trade isn’t whether Canada and the United States look for new traders partners. Rather, it’s whether they harness their relationship in order to succeed in the 21st century global marketplace.
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...Yes, there were those 37 tariff reductions, but there was also the measure to ‘modernize’ Canada’s General Preferential Tariff (GPT) regime by ‘graduating’ 72 countries from the GPT; imports from these countries will now face higher tariffs. Mike Moffatt estimates those 37 tariff reductions will be accompanied by 1,290 tariff increases. By my count, there are 84 GPT countries, but I still haven’t been able to track down a list of which countries will be removed from the GPT (Update: Mike Moffatt informs me 12 of these already have separate agreements with Canada, so that brings it to 72). The budget does name some examples: Korea, China (second-most important source of imports to Canada), Korea (seventh) and Brazil (twelfth), and the GPT countries as a group account for more than 20 per cent of imports. This measure is expected to generate some $300 million in extra revenues, on top of about $5 billion in existing excise duty revenues.
So instead of a unilateral reduction in tariffs, the government is planning a unilateral increase. This is not how a pro-trade government behaves. (Imports from the countries with which the Conservatives have negotiated free trade agreements are dwarfed by those from China alone.)
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I still can’t get my head around the truly bizarre notion that low tariffs are a subsidy to other countries on the part of Canadian taxpayers, especially since raising tariffs requires Canadian taxpayers to cough up an additional $300 million a year to the government. But if we needed any more evidence that this government is not serious about free trade, here it is. Instead of viewing cheaper imports as a way of increasing consumers’ purchasing power, the Conservative government views them as a problem to be solved.
After seven years in power, the Conservative trade legacy consists of higher tariffs and more obstacles to foreign investment. The Council of Canadians must be thrilled.
In short, Canada and the United States are becoming less dependent on one another, and, in most cases, China is the X factor. The Conference Board of Canada discusses these trends, their causes and implications in its recently published report, Walking the Silk Road: Understanding Canada’s Changing Trade Patterns.
The most resilient industries in terms of Canada’s share of U.S. imports are generally service industries. A highly educated work force, similar cultures, and a shared language have helped Canadian firms maintain their competitive position in the U.S. market. In contrast, Canada has generally lost the largest market share in manufacturing industries where labour is a major share of total costs, such as furniture manufacturing, printing and textiles. Industry specific issues can be an additional factor, such as the shift in consumer demand for flooring and cabinets away from traditional hardwood products toward those made from bamboo or more exotic hardwoods.
An internal Foreign Affairs memo expressed concern that U.S. "confidence in the Canadian food safety system" could be undermined in the wake of last fall's XL Foods beef recall.
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Josée De Menezes, the department's acting director of the Sanitary and Phytosanitary Measures Division, expressed that concern on Sept. 27 in a widely distributed departmental briefing note obtained under the Access to Information Act by CBC News Network's Power & Politics.
Specifically, the note refers to a U.S. campaign to halt a meat pre-clearance pilot project that is part of the Canada-U.S. Beyond the Border initiative announced last year by Prime Minister Stephen Harper and U.S. President Barack Obama.
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Tony Corbo, a senior lobbyist for Food & Water Watch's food campaign, said the Sept. 18 letter to the U.S. agriculture secretary, which his group helped write, speaks for itself.
"I'm not trying to indict Canadian meat as being less safe than U.S. meat," Corbo told CBC News. "But the fact of the matter is we have photographs indicating there was visible fecal contamination on meat products coming into the United States that were inspected at these border inspection stations. And we don't understand why there is an attempt to de-regulate a system that is actually working."
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The Canadian Meat Council is one of several groups that have been pushing for the pilot project to cut delays at the border.
"The pilot project itself only talks about getting the re-sampling, testing or inspections, getting it away from the border," said James Laws, the council's executive director.
He said the rest of the shipments not slated for testing will be "pre-cleared" before reaching the border, allowing them get to market sooner.
A council presentation on the project argues that "redirecting Canadian meat trucks to U.S. inspection centres also wastes time and fuel" and delays drivers from getting back on the road, at a cost of "roughly $100" per hour.
Beyond its defensive interests, the TPP is a central component of Canada’s Asian and emerging markets strategy. Much of 2013 will likely be spent reconciling the trade rule-making interests and capacities of advanced industrialized economies with those of emerging economies such as Vietnam and Peru. Advanced economies like the U.S., New Zealand, Australia and Canada will bump up against each other on issues like investor-state dispute settlement and dairy market access, but there will be relatively few fireworks. In areas like intellectual property and labour mobility, the commitments that Canada is making with the EU are likely to go much deeper than anything we can expect from the TPP.
In addition to tens of thousands of form letters and emails criticizing the TPP, the government received hundreds of individual handcrafted responses that unanimously criticized the proposed agreement.
A review of more than 400 individual submissions did not identify a single instance of support for the agreement. Rather, these submissions typically expressed concern with the prospect of extending the term of copyright or adopting restrictive digital lock rules.
The documents also revealed that the Canadian business community was split on the agreement, with numerous companies and associations identifying concerns about the potential direction of the TPP.
Leading telecommunications companies, including Bell, Rogers, Shaw and Telus, cautioned against changes to Internet provider liability rules; groups representing the blind warned against new restrictions to accessing digital materials; Oxfam Canada worried about the TPP’s impact on pharmaceutical pricing; and the Canadian Library Association expressed fears about a reversal of recent changes to copyright damages rules.
“Canada’s economy in the third quarter succumbed to a litany of lapses,” says CIBC World Markets economist Emanuella Enenajor, citing government austerity and weakness in trade, energy shipments, housing, and business investment. CIBC projects the quarterly economic report card Friday will reveal growth slowed dramatically to an anemic annual pace of just 0.5 per cent from 1.9 per cent in the second quarter.On the other hand, America is enjoying what has typically been Canadian luck in the years following the 2008 financial crisis:
In contrast to Canada, the US economy is picking up steam, with Scotia Capital economists projecting growth third quarter growth there will be upwardly revised Thursday to a relatively robust 2.7 per cent annual pace from the initial 2.0 per cent estimate.Oh, and let's not ask about the EU:
“In terms of the global third quarter growth scorecard, it looks like the US has picked up some momentum, Canada is slowing down and the European Union is in outright recession,” says Scotia Capital economist Derek Holt.So, should Harper be breathing a deep sigh of relief that Canada's electoral system has bought him three plus years to ride out the storm? Well, maybe.
Most economists say Canada can ride out the storm. But this trade-dependent nation—far less scarred by the recession than its larger neighbor to the south—is suddenly looking vulnerable, just as a number of indicators suggest brighter days ahead for the U.S.
While the recession laid global peers low, Canada's strong bank balance sheets funded continued consumer spending during the recovery. Years of that easy credit in turn helped give rise to a housing boom that has underpinned an economy already benefiting from another surge—in commodity prices.
Today, global commodity prices are weakening, and home prices in some of Canada's hottest markets are leveling off or falling. Canadian households, meanwhile, are as leveraged as they have ever been after years of extremely low interest rates. Since September 2010, the Canadian central bank's benchmark interest rate has been at 1%.
A confidential government document obtained by CBC News warns the Harper government has been slow to open new markets in Asia, leaving Canada firmly tied to the troubled U.S. economy for a long time to come.So, good news: An American recovery could help lift Canada, both in manufacturing and likely increase in energy demand. Downside, a slopping EU isn't going to help matters on either front, and something should be done about that housing trouble--beyond the superficially appealing solution of privatizing Canada's Housing and Mortgage Corporation.
The document prepared by Foreign Affairs and dated Sept. 6 is a draft of a highly classified new "Canadian foreign policy plan" the Conservative government has been preparing for more than a year.
The draft briefing paper for the federal cabinet states: "We need to be frank with ourselves — our influence and credibility with some of these new and emerging powers is not as strong as it needs to be and could be.
"Canada's record over past decades has been to arrive late in some key emerging markets. We cannot do so in the future."
The Harper government itself took the slow road to China.
In other words, the investment treaty is really just a stepping stone to something larger — potentially dealt with in a free trade agreement — though Minister Fast said on Monday that it’s a little early to start talking about that.Unsolicited and perhaps simple insight on trade negotiations with China: with China’s market is so much bigger, and sought-over by other nations, it seems clear any trade deal—whether on investments only or on bigger trade deals—will always be slightly titled in China’s favor.
“When that happens, you’ll see that we’ll have an investment chapter in that agreement and that’ll supersede this. But still the principle here that China has opened itself up to being sued in front of an independent arbitral tribunal — I think is a big step for Canada.”
Yes, I mean, it’s pretty clear that the Harper government does not have as its priority support for the established manufacturing sector, and that its higher priority is to get investments into the resource sector to get the resources out of the ground and generate economic activity in that way. It’s not a bad short-term strategy if you want to create some growth, but as a long term strategy it’s not good because it puts too many of our eggs in one basket. And because resource prices are notoriously unreliable, and finally because if the resource extraction activities are owned by foreign companies, then over the long term they will be earning the profits from the exploitation of our resources rather than Canadian companies. (Note: Emphasis taken from the original posting.)
While it's believed around half of the TPP's 29 chapters are finished, Australian Trade Minister Craig Emerson concedes most of the low-hanging fruit has been picked.'It'll be 2013 when the big negotiations on the hard issues are conducted,' Emerson told AAP on the sidelines of the APEC Summit in Russia this month.Emerson points to market access as the toughest nut to crack.
While noting that the increased negotiation of regional trade agreements has contributed to freer trade, he drew attention to the fact that regional trade agreements have sprung up due to an impasse in global free trade talks under the auspices of the Doha Development Agenda.He reiterated that on average, each member of the WTO belongs to no fewer than 13 separate preferential trade agreements. "This means that in addition to their multilateral commitments, WTO members on average have to manage an additional 13 separate trade regimes. I do not think you will disagree with me that this cannot be the most efficient way to trade and to do business across national frontiers."
"It will be a long time before a global gas market develops. While there may be movement in that direction, challenges exist to the development of a U.S.-style, Henry Hub–type market. Gas markets in Asia and the United States function quite differently. In Asia, much of the gas supply depends on LNG, which requires huge upfront investment and therefore is predicated on long-term contracts, typically twenty years. These contracts use oil prices as a basis for determining gas value. In the United States, gas is traded independently of oil price and on a much shorter-term basis. A typical contract in the United States is measured in months, not years. Long-term contracts will remain a key component of LNG project development because of the financing required to undertake the infrastructure construction. The other important component of pricing is to remember is that there is a significant cost to liquefy and transport LNG, in most cases more than the cost of the gas. Therefore, just because there is a current significant differential between U.S. and Asia prices does not automatically mean that exporting gas to Asia will be economically attractive for the long term."
