Trump at Charlevoix

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From Vanity Fair

Trump can expect a warm welcome at this weekend’s G7 summit

Just kidding! Everyone there hates his guts more than ever thanks to last week’s decision to slap our closest allies with steel and aluminum tariffs. “What this G7 is going to show is that the United States are alone against everyone and especially alone against their allies,” French Finance Minister Bruno Le Maire told reporters on Friday. “Mr. Trump will be like the proverbial skunk at the garden party given the protectionism,” Colin Robertson, vice president of the Canadian Global Affairs Institute, told Politico. “He is the outlier anyway, but this is simply going to make those two days of discussions more tense.” Canada, which is hosting this year’s summit, called the tariffs “an affront” to Canadian soldiers who have died fighting alongside Americans, counterattacking with levies that could hit $16.6 billion on steel, aluminum, beer kegs, whisky, maple syrup, and other goods.

Canada, Mexico and NAFTA

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Should Canada ditch Mexico and go it alone with U.S. on new trade agreement?

NAFTA was designed to help Mexico, but now it’s hurting Canada, argues journalist

As NAFTA talks become ever more fractious, some commentators are asking whether it’s time to disband the three-way agreement and form bilateral pacts between the countries. (Judi Bottoni/Associated Press)

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Canada should recognize Mexico as a “toxic” trading partner, and pull out of NAFTA in favour of a bilateral trade agreement with the U.S., says Diane Francis, editor at large with the National Post.

“Canada should look after Canada,” Francis told The Current’s Anna Maria Tremonti. “We have nothing to be sorry about.”

The U.S. announced Thursday that Canada, Mexico and the E.U. would be subject to tariffs of 25 per cent on imported steel and 10 per cent on aluminum. Ottawa responded with a promise of dollar-for-dollar tariffs on a variety of goods.

Industry insiders said the U.S. tariffs are intended as leverage over NAFTA negotiations, which stalled last month. In a tweet earlier today, U.S. President Donald Trump condemned Canadian “trade barriers.”

Donald J. Trump

@realDonaldTrump

Farmers have not been doing well for 15 years. Mexico, Canada, China and others have treated them unfairly. By the time I finish trade talks, that will change. Big trade barriers against U.S. farmers, and other businesses, will finally be broken. Massive trade deficits no longer!

Francis told Tremonti that signing the trade deal with Mexico in 1994 “was a bootstrapping exercise to help the neighbour to the south get better living standards, higher wages and get their act together.”

But more than two decades later, Francis said that Mexico is worse off now than it was back then.

Those low wages are bad for Mexican workers, Francis said, but low costs also draw investors south, hurting Canada’s industrial base.

Former U.S. president Bill Clinton signs the North American Free Trade Agreement Dec. 8, 1993. (Paul J. Richards/AFP/Getty Images)

By contrast, Francis points to the strong, “harmonious” trading relationship between Canada and the U.S.

“Bilaterally, we have so few irritants between each other,” she said.

She argued that adding Mexico to the mix and trying to “cling to a trilateral agreement” isn’t in Canada’s best interest.

Mexico is a ‘hidden success story’

Turning away from Mexico would be a strategic blunder, according to Colin Robertson, a former Canadian diplomat who helped to negotiate the Canada-U.S. Free Trade Agreement in the late ’80s, and then later NAFTA.

“[It] would put us at a disadvantage with both the United States and any effort we wanted to have to expand trading ties, especially within the Americas,” he told Tremonti.

“I think there’d be a certain temptation on the part of Latinos: If we were to throw Mexico under the bus, then they would think, ‘How reliable is this further gringo to the north?'”

Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto in Mexico city on Oct. 12, 2017. Former diplomat Colin Robertson said that the countries had formed a strong alliance through NAFTA. (Alfredo Estrella/AFP/Getty Images)

Mexico has been a “hidden success story” of NAFTA, he said, with improvements in the democratic process and a growing middle class.

“When we went into the North American Free Trade Agreement it was about number 13 or 14 in the list of our trading partners,” said Robertson, who is now vice-president and fellow at the Canadian Global Affairs Institute.

“It’s now our third largest trading partner, we’ve got big investments in mining and banking and manufacturing.”

Robertson pointed to the country-of-origin labelling dispute over meat products in the late 2000s as an example of Canada and Mexico working together to win a dispute with the U.S.

“[Donald Trump’s book] The Art of the Deal is all about divide and conquer,” Robertson said, “and it would make no sense for us to separate from Mexico when together we have a much better chance of getting a good agreement.”

Prime Minister Justin Trudeau with U.S. President Donald Trump in Washington, where they discussed NAFTA on Oct. 11, 2017. (Jonathan Ernst/Reuters)

The elephant and the mouse

Seeing Mexico as an ally against the U.S. is a mistake, Francis argued, because Mexico and Canada represent only 7 per cent of the three countries’ combined GDP.

Comparing the U.S. and Canadian economies is like comparing an elephant and a mouse, she added — referencing Pierre Trudeau’s famous analogy from 1969.

“Now we’re aligned with another mouse, who’s toxic, and is actually kind of toxic to us.”

Ending the deal and pursuing separate agreements is the solution, she believes.

“I really think that we need to reorient ourselves, and get in the same space to a certain extent, as the Americans are, vis-a-vis Mexico,” she said.

Listen to the full conversation near the top of this page.


This segment was produced by The Current’s Idella Sturino and Pacinthe Mattar.

Primer to the G7

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A Primer to the G7 Summit in Charlevoix June 8-9, 2018

by Colin Robertson CGAI Fellow  June 2018

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Table of Contents


Introduction

On Friday and Saturday, June 8-9, the leaders of the major democratic nations will meet in their 44th summit to discuss global geopolitical and socioeconomic issues at Charlevoix’s magnificent Manoir Richelieu. Each leader will have their own agenda. Prime Minister Justin Trudeau’s challenge as chair is to bring his fellow leaders into as much consensus as possible given their disparate perspectives on diverse issues including gender, work, climate, energy, our oceans, protectionism, populism and extremism.

The summit, in the picturesque La Malbaie region, 150 kilometres northeast of Quebec City, takes place against an erosion of trust in our government institutions – international, national, regional and municipal, in once-mainstream political parties, in business, in the media and in our leadership generally.

There is also a growing beggar-thy-neighbourism among international trade and investment partners. For U.S. President Donald Trump, it is “America First … Buy American and Hire American”. The recent application of 25 per cent tariffs on steel and 10 per cent tariffs on aluminum from Canadian and European producers will make Mr. Trump as popular as the proverbial skunk at the garden party.

The geopolitical challenges facing the leadership of the leading liberal democracies were discussed at a May meeting in Toronto of the G7 foreign and security ministers. They include denuclearization (or not) in North Korea and Iran and containing chemical, biological and nuclear proliferation. Collective action, including spending, on security and defence against both conventional and unconventional threats, including cyber, is likely to be discussed. The U.S., once the guardian and anchor of the liberal, rules-based international system, is no longer willing to carry the system and pick up the tab.

There are continuing conflicts in Syria, Iraq, Afghanistan, Yemen, Central Africa and Mali, and the threat of what are now described as “returning foreign terrorist fighters”. Russia continues to occupy parts of Ukraine and meddle in the democratic processes of others. In the South China Sea, China’s armed forces occupy and exercise on newly created territory. The Israeli-Palestinian situation is worse. There is renewed famine in the Horn of Africa. There is organized crime trafficking in people, drugs, guns and weapons of mass destruction.

Venezuela is a failing state with over 5,000 fleeing daily to neighbouring nations. The United Nations High Commissioner for Refugees (UNHCR) estimates that nearly 20 people are forcibly displaced every minute. An unprecedented 65.6 million people around the world have been forced from their homes. Among them are nearly 22.5 million refugees, over half of whom are under the age of 18. It strains the EU, divides its member nations and is a ready tweet for Trump. Canada has developed a strategy and is putting the spotlight on the plight of Myanmar’s Rohingya.

On the economic front, the IMF World Economic Outlook (April 2018) continues to show broad-based momentum with the long-awaited cyclical recovery in investment and manufacturing.

There is continuing strong performance in the euro area and in Japan, China, the United States and Canada, all of which grew beyond expectations last year. The G7 economies – facing aging populations, falling rates of labour force participation and low productivity growth – will likely not regain the per capita growth rates they enjoyed before the global financial crisis.

In Europe, Brexit continues to pose uncertainties. Now there is Italy and questions about its continuing membership in the Eurozone. Joblessness, especially youth unemployment, besets southern Europe. Global debt levels – both private and public – are very high, threatening repayment problems as monetary policies normalize.

Protectionism and the prospect of trade restrictions and counter-restrictions threaten to undermine confidence and derail global growth prematurely. The Trump administration’s trade policies will certainly be discussed: the tariffs just applied on steel and aluminium, the investigation into the auto industry, the tariffs on China and the ongoing NAFTA negotiations. The uncertainty is bad for growth and creates uncertainty and distrust amongst trade partners. The markets are reacting negatively and investment decisions are put on hold.

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Figure 1: Public Trust in Institutions: 2018 Edelman Trust Barometer

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Who and What is the G7?

The G7 is the forum at which the leaders of the big liberal democracies talk about what troubles them and how they can collectively fix it.  Its current membership:

  • Canada – Prime Minister Justin Trudeau
  • France – President Emmanuel Macron
  • Germany – Chancellor Angela Merkel
  • Italy – incoming Prime MinisterGiuseppe Conte
  • Japan – Prime Minister Shinzo Abe
  • United Kingdom – Prime Minister Theresa May
  • United States – President Donald Trump
  • European Union – Commission President Jean-Claude Juncker and Council President Donald Tusk

Collectively, they represent more than 60 per cent of global net wealth and 45 per cent of global GDP. The G7 provides 76 per cent of the world’s “official development assistance,” which is defined as government aid intended to improve economic and social development in poor countries. The G7 also provides 81 per cent of the global humanitarian assistance. Through their membership in NATO, the European and North American G7 members provide the backbone of collective security and humanitarian relief. Japan is not a NATO member but NATO and Japan are currently strengthening relations to address shared security challenges

As in the past, other leaders will be invited to Charlevoix, including United Nations Secretary General António Guterres, International Monetary Fund managing director Christine Lagarde, and the heads of the World Bank and the Organization for Economic Co-operation and Development. The leaders of other countries (e.g. Vietnam), including some that could be swamped by rising sea levels, are also expected to be invited.

The G7 came into being in the wake of the 1973 OPEC oil crisis and the appreciation by then-U.S. secretary of the Treasury George Shultz and former president Richard Nixon that the leading democratic powers needed a forum at which their leaders could meet in sustained but informal discussion over a couple of days. Russia was a member from 1997-2014 but Vladimir Putin was disinvited after the Russian invasion of Crimea and Ukraine.

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Figure 2: The flag of each Group of Seven (G7) country.

Former prime minister Pierre Trudeau hosted Canada’s first G7 summit in 1981 at Montebello, and since then we have hosted summits in Toronto (1988, Brian Mulroney), Halifax (1995, Jean Chrétien), Kananaskis (2002, Jean Chrétien), and Huntsville (2010, Stephen Harper).

Summitry for the G7 is not cheap, but think of it as an insurance premium for global wellbeing. The Trudeau government allocated $600 million in its 2018 spending estimates for Charlevoix. The bill for Canada’s hosting of the 2010 Huntsville summit topped $1.1 billion. Most of the money is spent on security.

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The Road to Charlevoix

The leaders’ summit is the culmination of a year-long process of meetings that for Charlevoix brought together their sherpas, foreign and security ministers, finance and development ministers, energy and environment ministers, with sessions involving the so-called G7 engagement groups: Business7, Civil7, ThinkThank7, Labour7, Science7, Women7 and Youth7.

Meeting in Toronto in April, the foreign and security ministers produced a detailed communiquéthat addressed four main themes: (1) a rules-based international order; (2) non-proliferation and disarmament; (3) transnational threats to security; and (4) conflict prevention and support for United Nations efforts and reform. They also released a declaration, Defending Democracy – Addressing Foreign Threats, with specific measures related to democratic institutions and processes, disinformation and media, fundamental freedoms and human rights. There were also specific commitments to advance international humanitarian law and their women, peace and security initiative.

Security ministers produced a communiqué addressing trafficking in persons, counterterrorism and cyber-security. There was also a declaration around managing foreign terrorist fighters and a commitments paper that discussed managing threats domestically, countering violent extremism, preventing violent extremist and terrorist use of the internet, cyber-security and the fight against cyber-crime, and trafficking in persons.

In May, G7 leaders released a statement “rejecting the electoral process” that led to the May 20 presidential election in Venezuela and declared their commitment to a “peaceful, negotiated, democratic solution to the crisis in Venezuela”.

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The Charlevoix Agenda

As G7 host throughout 2018, Prime Minister Trudeau announced in December, 2017 that the theme of advancing gender equality and women’s empowerment will be integrated throughout the presidency, and at all ministerial meetings.  According to Mr. Trudeau: “This focus on gender as an overarching theme throughout everything the G7 does is something that we want to establish, not just for this year and next year, but for many years to come.” An advisory council, including billionaire philanthropist Melinda Gates and Nobel Peace Prize winner Malala Yousafzai, is developing gender-related recommendations touching on each one of the five themes for the G7 summit:

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Figure 3: A map illustrating the rank of various countries on the World Economic Forum’s 2017 Global Gender Gap Index. Canada ranks 16th. (Source: BBC)

There has been some criticism that the focus on the oceans has replaced traditional geographic focus on Africa that G7 leaders began in 2001. African development was a central theme of the summit Chrétien hosted in Kananaskis (2002). The foreign ministers discussed Africa and it will doubtless get leaders’ attention.

But with limited time, Canada is putting a focus on oceans. Canadian waters include three oceans: the Arctic, the Atlantic and the Pacific. Our oceans cover roughly 70 per cent of the globe and are fundamental to managing our climate because they produce approximately 80 per cent of our oxygen. The oceans are also the primary source of food for over a fifth of the world’s population. The oceans discussion is expected to focus on three issues: overfishing, plastics dumped in ocean waters and coastal states facing rising sea levels.

Plastics are a solvable problem. Around eight million tonnes of plastic enter the marine environment each year, and the figure is set to rise. The Ellen MacArthur Foundation estimates that 311 million tonnes of plastic were produced in 2014, which will double within 20 years, and projects that there will be more plastic than fish in the oceans by 2050.

The EU is already moving ahead with a directive to curb the use of plastics.

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Figure 4: A graphic from the Ellen MacArthur Foundation outlining the anticipated plastic-to-fish ratio in the world’s oceans by 2050. (Source: Ellen MacArthur Foundation)

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What About Deliverables from Charlevoix?

Deliverables come in two parts. There are the useful initiatives – on gender, on oceans – that the various working groups have negotiated, some of which involved collective financial commitments, in the months leading to the summit. For example, leaders are expected to announce an initiative, with initial funding from governments and pension funds,  focusing on gender diversity in global capital markets, on strengthening expertise in sustainable infrastructure and on financial disclosures to create sustainable change.

Then there are the top-table agreements on critical issues hammered out in their face-to-face formal and informal discussions at Charlevoix. For example, the G7 Leaders collectively rejectedthe electoral process that led to the recent Venezuelan election. The extent and number of these commitments is their test at Charlevoix, especially given the divide between President Trump and the other leaders on so many issues. As host and chair, the pressure will be on Justin Trudeau to find consensus and translate that into a shared communiqué.

Initially seen as a constructive and capable internationalist, Mr. Trudeau’s reputation has taken a beating after his recent Asian trips – fumbling the conversation, especially with Abe, over what is now the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); the rebuff in Beijing from Chinese Premier Li Keqiang in what many thought would be a framework for closer economic relations with China; the India trip that has given his critics continuing material over his dress, invitee list and the suggestion that the Indian Security Service wanted to upend the visit.

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Figure 5: Public perception of the Prime Minister’s performance abroad has soured in recent months. (Source: Abacus Data, March 2018)

In setting out the priorities for Charlevoix, Mr. Trudeau declared that “Canada is proud to put forward a progressive agenda for the 2018 G7. The themes we have chosen for the year will help focus our discussions on finding real, concrete solutions to promote gender equality, women’s empowerment, clean energy, and economic growth that work for everyone. As G7 partners, we share a responsibility to ensure that all citizens benefit from our global economy, and that we leave a healthier, more peaceful, and more secure world for our children and grandchildren.”

Canada has new deals with the European Union and the Trans-Pacific Partnership that it now needs to consolidate into measurable results. The negotiations with the U.S. and Mexico on NAFTA are in flux. Canada depends on the global economy and it still needs to build ties in Asia and the rest of the Americas in general and with China and India in particular. Leaders will be interested in the Trudeau government’s decision to buy the Trans-Mountain pipeline and proceed with construction.

As to the other leaders:

Japanese Prime Minister Shinzo Abe, attending his seventh G7 summit, is concerned about rising China, the now-nuclear North Korea and maritime security in the Indo-Pacific, especially the vital sea lanes through the South China Sea on which Japan depends.

New Italian Prime Minister Giuseppe Conte, leads a coalition government, Italy’s 65th government in 73 years. Mr. Conte, “the synthesis of the Five Star movement”, is the sixth unelected prime minister in a row. He can be expected to press fellow leaders on the need to address the migration crisis of migrants crossing the Mediterranean from North Africa. Italy’s national statistics institute, Istat, says that there are five million foreigners legally resident in Italy. That’s 8.3 per cent of the country’s population of 60.5 million. More than 690,000 migrants, most from sub-Saharan Africa, have arrived by boat from Libya since 2013. With a GDP of $1.6 trillion and a debt-to-GDP ratio of 133 per cent, leaders want to know what is next for Italy. Its economic situation is precarious and political uncertainty undermines market confidence. But is Italy simply “too big to bail”?

French President Emmanuel Macron is at his second G7. Mr. Trudeau says President Macron has promised to pick up the baton on advancing gender issues when the French host the G7 summit in 2019. A committed Europeanist, President Macron is driving a series of domestic reforms that has created considerable backlash, especially from the trades unions.

German Chancellor Angela Merkel is the doyenne of the group (this is her 13th G7 summit). A couple of years ago, the Economist described her as the “Indispensable European” arguing that “without Ms. Merkel, it is hard to see Europe mastering its destructive forces.” This assessment still applies. She recently completed negotiations to form another grand coalition – her fourth government. She and Mr. Trudeau spoke recently about climate change, protectionism and the need to make “meaningful investments” for educating girls and aiding women in crisis settings.

US President Donald Trump is the wild card at this, his second G7 appearance. He has clashed repeatedly with his G7 colleagues and takes a different tack on most issues – defence spending, trade, climate, and immigration and refugee policy. His Middle East policies – leaving the Iran nuclear agreement and moving the U.S. embassy to Jerusalem – have put him at odds with the rest of the G7. The imposition of tariffs on steel and aluminum under specious ‘national security’ grounds and the threat to use this same approach on autos has led Canadian and European leaders to retaliate. He will be quizzed on the on-off-maybe on summit with North Korea as well as the Iran nuclear agreement that he has now abandoned to the chagrin of the Europeans, each of whom lobbied him personally to stay in the deal. Mr. Trump will also likely continue to urge his fellow leaders to “pay their fair share” on collective defence. While NATO spending has gone up and Allies, including Canada, have commitments for more spending within the G7, only the U.S. and Britain meet the NATO set norm of spending 2 per cent of GDP on defence.

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Figure 6: A graph outlining how much NATO members have allocated for defence expenditures as a share of their GDP. (Source: NATO)

British Prime Minister Teresa May is also attending her second G7 summit. She still needs to secure a favourable deal from the Europeans ahead of their impending divorce. In the wake of the Skripal affair, she will be pushing for G7 solidarity in continuing sanctions against Russia.

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Do We Really Need a G7?

Yes. The rules-based liberal international order and multilateral co-operation are under protectionist and populist pressures, both from within and without. The G7 summit is the top table where the leaders of the major liberal democracies visibly demonstrate (or not) their ability to collectively manage the geopolitical pressure points and the growing socioeconomic consequences of globalization. Winston Churchill, who popularized the word “summitry”, observed that “jaw-jaw” among leaders is better than “war-war” and with trade conflicts on the rise within the G7 partnership they need to talk. For over forty years, frank discussions and informality have characterized the G7 summits.

This is its advantage over the other top table leaders’ forum – the UN Security Council and the G20.

The Security Council’s permanent members – Russia, China, France, Britain and the United States – represent the world of 1945 and the early Cold War. As we witness over Syria, North Korea and other recent crises, getting the Security Council to act constructively is very difficult. Reforming the Security Council is an exercise in futility.

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Figure 7: A graphic outlining how individual countries break into the G7, G8, and G20. (Source: Foreign Policy in Focus/Bloomberg)

The G20, founded in 1999 with strong Canadian encouragement, includes the G7 members – Canada, the United States, Japan, France, Germany, Italy and the United Kingdom – as well as Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea, and Turkey.  With two-thirds of the world’s population, their economies account for approximately 80 per cent of world trade and global production.

Like the G20, much of the G7’s value is in its process – the meetings of sherpas and ministers throughout the year and the working groups examining issues like gender, climate, youth employment, health, food safety, development, energy, environmental protection, non-proliferation and support for the UN’s peacekeeping and peace-consolidating operations.

More people may work on the draft of the final communiqué than will read it but the process of getting there is what really matters. The ongoing meetings between the leaders’ sherpas – their personal representatives – and relevant ministers keep the dialogue going. They are supported by their discussions with business, civil society and think tanks. Canada’s sherpa, deputy minister Peter Boehm, a veteran diplomat and former Canadian ambassador to Germany, captured it best when he said: “The G7 is a collective, it’s not a global government. Yes, we’re going to have differences – we wouldn’t be having these meetings if we were all agreed on everything … The leaders are really only together for about 48 hours, so are we going to solve all the problems in the world? No. Can they have a good discussion and push things forward? Yes. Can they convince some of the more recalcitrant leaders that maybe they should be a bit more open-minded? There’s a good possibility of that too.”

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Figure 8: Graphs displaying the growth of U.S. trade as a percentage of GDP, and global protectionist measures.

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Further Reading and Listening

The Government of Canada’s G7 site contains much useful background. The best Canadian source for G7/8 documentation, with a chronology of past summits, is the University of Toronto’s G7 Information Centre managed by John Kirton. CGAI has also released a series of Global Exchange podcasts based on presentations in early May by Peter Boehm, the G7 ambassadors resident in Ottawa and a panel of Canadian experts looking at what Canada wants from Charlevoix.

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Figure 9: The 2018 G7 logo, which evokes Charlevoix’s rich natural landscape. (Source: PMO)

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G7 Trade and Trump

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Trump’s global trade war

‘Today is a bad day for world trade,’ says Cecilia Malmström, the European trade commissioner.

By

Updated 

 

The Trump administration ratcheted up the brinkmanship by announcing new duties on steel and aluminum imports from the European Union, Canada and Mexico | Chip Somodevilla/Getty Images

 

Donald Trump’s move to slap penalties on imports from U.S. allies including the EU is moving the country to the brink of a global trade war — with U.S. consumers, farmers and manufacturers caught in the middle — as the White House tries to wrest concessions from reluctant trading partners.

The Trump administration will impose new duties on steel and aluminum imports from the European Union, Canada and Mexico after failing to reach deals with them to address national security concerns related to the imports, Commerce Secretary Wilbur Ross said Thursday.

The decision has implications for farmers in key Midwestern states who will see their exports crimped, consumers who are expected to pay more, workers who may see cost-cutting in export-heavy industries and global relations with crucial trading partners as the U.S. tries to exert pressure on China.

“Today is a bad day for world trade,” said EU Trade Commissioner Cecilia Malmström, who tried to persuade the Trump administration to permanently exempt the EU from the new tariffs and begin trade negotiations instead.

“Throughout these talks, the U.S. has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU. This is not the way we do business, and certainly not between longstanding partners, friends and allies,” she said.

European Commission President Jean-Claude Juncker said the EU now had “no choice” but to challenge the U.S. action at the WTO.

It also indicates that the U.S. administration has given up hope of finishing NAFTA negotiations with Canada and Mexico in the near future. That raises the question of whether Trump will have the patience to wait until later this year or possibly even 2019 to get a new agreement, or if he will make good on a campaign promise to pull out of the 24-year-old pact. In addition, Mexico’s presidential elections are just a month away, and a new government may feel populist pressure to avoid giving any concessions to the Trump administration.

Mexico condemned the move and provided a partial list of $3 billion worth of U.S. imports that it will hit with retaliatory duties. The items include manufactured goods like lamps as well as agricultural imports from its neighbor like pork, apples and various cheeses.

European Commission President Jean-Claude Juncker said the EU now had “no choice” but to challenge the U.S. action at the WTO and to proceed with initial plans to retaliate on $3.3 billion worth of U.S. exports including items like yachts, whiskey bourbon, lipstick and orange juice. Those duties are expected to go into effect in mid-June.

Agricultural products make up about one-third of the total EU retaliation list in terms of value, with goods like kidney beans, rice, cranberries and peanut butter facing tariffs. The list also hits about $1 billion worth of U.S. iron and steel goods.

“This action puts American workers and families at risk, whose jobs depend on fairly traded products from these important trading partners. And it hurts our efforts to create good-paying U.S. jobs by selling more ‘Made in America’ products to customers in these countries,” said House Ways and Means Chairman Kevin Brady (R-Texas).

The action also casts a pall over the coming G7 meeting in Canada, where Trump will meet with other leaders of the world’s seven leading Western economies, including Canadian Prime Minister Justin Trudeau, French President Emmanuel Macron and German Chancellor Angela Merkel.

“Mr. Trump will be like the proverbial skunk at the garden party given the protectionism,” said Colin Robertson, a former Canadian trade negotiator and vice president of the Canadian Global Affairs Institute. “He is the outlier anyway, but this is simply going to make those two days of discussions more tense.

A threat to domestic production

The latest move is another outgrowth of a Trump administration investigation released earlier this year that found that the overall volume of imports posed a threat to U.S. national security by undermining domestic production of the two metals.

The U.S. imported $29 billion worth of steel in 2017 — about half of which came from the EU, Canada and Mexico. Canada supplied more than 40 percent of the $17.8 billion worth of aluminum the U.S. bought in from foreign suppliers last year.

China is largely blamed as the primary source of global excess capacity in both the steel and aluminum sectors. But the U.S. imported just $1 billion worth of steel and $1.7 billion worth aluminum from China last year because of extensive duties that have been in place for years.

The EU, Mexico and Canada argued that they are such close allies of the U.S. they are unlikely to cut off steel and aluminum shipments in times of war. But the Trump administration rejected that reasoning.

“There is potential flexibility going forward. The fact that we took a tariff action does not mean there can not be a negotiation” — Wilbur Ross, U.S commerce secretary 

Despite the brinkmanship, Ross said the Trump administration wants to continue negotiations. He said he’s still planning to make a trip to Beijing this weekend even after the U.S. announced it would slap tariffs on $50 billion in Chinese goods, jeopardizing a fragile agreement to reduce the U.S. trade deficit with China. And Ross also said there’s still scope for negotiations with Canada, Mexico and the EU that could reduce or eliminate the tariffs.

“There is potential flexibility going forward,” Ross said. “The fact that we took a tariff action does not mean there can not be a negotiation.”

Surprise for neighbors

The decision to impose tariffs came as a shock to Canada and Mexico, as both countries thought that they would be spared from the levies because of earnest negotiations that they have had with administration officials over NAFTA. One U.S. industry official who had been in contact with negotiators from both sides said neither country had been notified by the White House as of Wednesday evening and they were learning of the possibility of tariffs from news reports.

But after nine months of NAFTA negotiations, there is no clear end to the talks and therefore Canada and Mexico were added to “the list of those that will bear tariffs,” Ross said.

Canadian Foreign Minister Chrystia Freeland had traveled to Washington on Tuesday to discuss the issue, among other matters, with U.S. Trade Representative Robert Lighthizer. But she left having made little progress in discussions and having little idea of what the Trump administration’s plans were, two sources briefed on the meeting said.

“Canada considers it frankly absurd that we would in any way be considered to be a national security threat to the United States,” Freeland told reporters Wednesday. “I would like to absolutely assure Canadian participants, those who work in steel and aluminum industries, that the government is absolutely prepared to and will defend Canadian industries and Canadian jobs.”

Other Republican members of Congress were quick to criticize the move.

“This is dumb. Europe, Canada, and Mexico are not China, and you don’t treat allies the same way you treat opponents,” Sen. Ben Sasse (R-Neb.) said in response to the action. “We’ve been down this road before — blanket protectionism is a big part of why America had a Great Depression. ‘Make America Great Again’ shouldn’t mean ‘Make America 1929 Again.’”

The Aluminum Association, which represents much of the aluminum companies in the U.S., also said that it was “disappointed” by the announcement. “Today’s action does little to address the China challenge while potentially alienating allies and disrupting supply chains that more than 97 percent of U.S. aluminum industry jobs rely upon,” said Heidi Brock, the group’s president and CEO.

But defenders of the administration’s action said it was badly needed to restore order to international steel and aluminum sectors.

“This situation needs to be dealt with. The rest of the world has enabled China to continue to produce massive amounts of steel with excess capacity into the hundreds of millions that has totally disrupted the global steel industry,” said Dan DiMicco, a former trade adviser to Trump.

DiMicco, who was a long-serving CEO of U.S. steelmaker Nucor, said China has always found ways to circumvent previous restrictions by sending products via Canada and Mexico, as well as Vietnam and South Korea, where they are slightly modified or relabeled before being sent to the U.S.

“If the whole world had dealt with this problem originally as we talked about for the better part of a decade now, we wouldn’t be where we’re at,” he said. “But we are where we’re at because nothing’s been done and it’s time to get it done.”

In that regard, the Trump administration hopes other countries will follow the lead of the EU, which has announced plans to impose safeguard restrictions on imports, so it isn’t hit with product diverted from the U.S.

“We look forward to other countries doing very similar things to shut down this very global problem,” Ross said.

Megan Cassella, Adam Behsudi and Hans von der Burchard contributed reporting.

 

NAFTA

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NAFTA Renegotiation Expected to Drag Out
Colin Robertson – Canadian Global Affairs Institute
Farmscape for May 30, 2018

With the passage of an informal deadline for completing the renegotiation of the NAFTA the Vice President of the Canadian Global Affairs Institute expects the pressure for a quick conclusion of the negotiations to ease.
With a mid May deadline for concluding the renegotiation of the North American Free Trade Agreement to avoid conflicts with Mexican presidential elections and U.S. mid term elections having passed, expectations are that a final deal will be significantly delayed.
Colin Robertson, the Vice-President and a fellow of the Canadian Global Affairs Institute, expects the profile of the negotiations to shift.

Clip-Colin Robertson-Canadian Global Affairs Institute:
My sense is that the negotiations will continue but probably more at the working level.
I think it’s less likely that the ministers will be getting together with the same regularity that they have particularly in the last six weeks because we have a number of events that will intrude.
First of all the Mexican election is now in full swing.
That election takes place on July 1.
There are some 30 thousand offices from the President, a number of Governors and their Congress, both Senate and their Legislative Assembly as well as provincial legislatures and municipal and county elections.
And we have the U.S. mid-term elections in November.
What normally happens during election campaigns is that trade negotiations either take a pause or move to a technical level where there’s not a requirement for political decisions, especially when it is possible that it seems likely that there may be a change in the configuration of the government.

Robertson says, while there is a desire to keep the momentum going, the pressure for a quick deal has been lifted and the desire within Congress to take the time needed to reach a full comprehensive agreement is growing.
For Farmscape.Ca, I’m Bruce Cochrane.

NAFTA: Canada and Mexico need to stick together

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Colin Robertson, The Globe and Mail, May 23, 2018

Another NAFTA “deadline” has passed, but the negotiations carry on. And that is what really matters. Canada and Mexico need to stick together, focus on their shared objectives and bear down for what now appears will be a more reasonable negotiating tempo.

The North American free-trade agreement negotiations seem to have gone on forever but, in fact, we have only been at it for 10 months. There have been eight rounds, a December “intercessional” and, in recent weeks, a series of sessions that saw Foreign Affairs Minister Chrystia Freeland shuttling back and forth for days in Washington.

 All this effort has resulted in considerable progress.

Negotiators have scoped out a framework that would include 30-plus chapters and half a dozen annexes. Mexican chief negotiator Kenneth Smith Ramos tweeted that nine chapters are now “closed”, although nothing is final until the whole deal is done. The negotiated chapters cover regulatory practices, administration, sanitary and phytosanitary measures, competition, small and medium-sized enterprises, anti-corruption, environment, energy, telecommunications and trade barriers. Sectoral annexes include chemicals and proprietary food formulas.

The U.S. side took as their starting point the Trans-Pacific Partnership (TPP) that, ironically, President Donald Trump withdrew the United States from after taking office. The Canadian and Mexican negotiators’ used the original NAFTA, arguing that if the U.S. wanted to achieve their TPP gains, they would have to negotiate it.

In recent weeks, negotiations have centred on auto-content rules. Supply chains have made car assembly the most traded commodity within North America. The U.S. wants 75 per cent North American content (it’s currently 62.5 per cent) with 30 to 40 per cent made with labour that is paid more than US$15 an hour. This would affect Mexican competitivenes; their auto workers’ wages average US$3-$4 an hour. Not surprisingly, they are loath to agree. They want a long phase-in period as well as concessions in other parts of the agreement,.

Some suggest that Canada should dump Mexico and then negotiate a bilateral auto agreement with the United States. This would be a strategic blunder. The 1965 auto pact was our first sectoral free-trade agreement and it guaranteed jobs and production in Canada. But it is just one piece in a much bigger and successful North American trading arrangement.

While trade with the United States under NAFTA has expanded threefold and the U.S. remains our preponderant trading partner, the hidden success story is the Canada-Mexico relationship. Mexico is now our third-largest trading partner. Canadians have made big investments in mining, banking and manufacturing in Mexico. And, after the U.S., Mexico is our favourite tourism destination.

During the long and ultimately successful negotiations to reopen the U.S. market to our beef exports – the country-of-origin labeling dispute – we worked in tandem with Mexico. Together, we utilized NAFTA and World Trade Organization dispute-settlement provisions. We formulated our retaliatory list together. We succeeded because we stuck together.

With the low-hanging fruit now harvested, the NAFTA negotiations are into the difficult issues. The auto-content rules are just the first. Mexican support will be vital to sustain dispute settlement and to preserve access for reciprocity in government procurement. We need to be united in pushing back on the sunset clause and preserving temporary entry provisions. And when the U.S. comes after us on supply marketing, patent protection and the threshold level for border duties, Mexican advice will be useful.

Mexico stood up for Canada when Justin Trudeau pirouetted in discussions with leaders in Da Nang, Vietnam, on what is now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Some were ready to toss Canada under the bus. The Mexicans persuaded them to give Canada another chance.

As part of our trade diversification strategy, Canada is reaching into the Americas. We want associate membership in the Pacific Alliance (Mexico, Chile, Peru, Colombia) and Mercosur (Argentina, Brazil, Paraguay, Uruguay). Do we think that leaving Mexico in the lurch would help us in these negotiations? The 33 nations south of the Rio Grande also represent a quarter of the votes we need in our campaign for a United Nations Security Council seat.

The Trump approach is to divide and conquer. Ending our alignment with Mexico would play right into U.S. hands. There is still much more that unites Canada and Mexico and much more to be gained by working together. Let us recall Ben Franklin’s advice to those framing the U.S. Declaration of Independence: “We must, indeed, all hang together, or most assuredly we shall all hang separately.”

Canada USA Relations

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‘It’s a very dangerous political place to be for the Conservative Party,’ Ambrose warns Tories not to attack Liberals on NAFTA

By JOLSON LIM      
NAFTA advisory council member Rona Ambrose and other panelists also paint a gloomy picture of future Canada-U.S. trade relations and of U.S. President Donald Trump’s impact on the free trade consensus.
Moderator Colin Robertson, former Quebec premier Jean Charest, former interim Conservative leader Rona Ambrose, and former Chrétien-era communications director Peter Donolo, pictured May 8 on a panel at the Canadian Global Affairs Institute conference at the Rideau Club. The Hill Times photograph by Andrew Meade

OTTAWA—Former interim Conservative leader Rona Ambrose is warning the federal Tories to watch their attacks on the Liberals over the crucial NAFTA renegotiations because it could make them look “anti-Canada” which is not a big “vote-getter.”

“It’s a very dangerous political place to be for the Conservative Party of Canada to attack the Liberal government, which is working hard to come to a deal that’s in the best interest of Canada,” she told a packed room Monday at the Canadian Global Affairs Institute conference at the Rideau Club. “That would mean almost like you’re having to look like you’re taking the other side, which is Donald Trump’s side. That is not a politically smart place to be.”

Ms. Ambrose, who is now a Liberal-government-tapped member of the NAFTA Advisory Council and is based in Washington, D.C., with the Wilson Centre, said the NAFTA issue doesn’t garner a lot of votes and it isn’t a No. 1 issue for constituents or even the No. 10 issue. Ms. Ambrose was speaking at a panel discussion called ‘Positioning Canada in the Shifting International Oder.’ The panel focused on managing Mr. Trump’s ‘America First’ approach to foreign affairs and international trade, moderated by former diplomat Colin Robertson.

Ms. Ambrose was responding to Peter Donolo, former longtime communications director to former prime minister Jean Chrétien, who told the same audience that he believed the political consensus on NAFTA will eventually disappear and that Canada-U.S. relations will become a “live issue” again.

He said U.S. President Donald Trump’s approach to politics, often based on demonstrating “his opponent’s face has been grounded into the dirt” and humiliated, will not go over well with Canadian politicians.

“The term win-win is not in Mr. Trump’s lexicon,” said Mr. Donolo, now vice-chairman of Hill and Knowlton in Toronto. “I don’t think Mr. Scheer or Mr. Singh, who have been part of this elite consensus on NAFTA negotiations, are then going to congratulate Prime Minister Trudeau and his government for a great deal on the NAFTA renegotiation when that’s not the way politics works.”

Mr. Donolo predicted the political atmosphere is going to look like how it was when the United States invaded Iraq in 2003, when political parties were split on whether to participate in the conflict.

He pointed to how Mr. Trump’s rhetoric and actions have swayed Mexican politics, where leftist leader Andrés Manuel López Obrador is now leading in polls and is running on challenging Mr. Trump.

“There will be firm sides drawn and there won’t be a national consensus issue; where it will end, I don’t know. It’s not a healthy development.”

Ms. Ambrose, Mr. Donolo, and Jean Charest, former Quebec premier and Progressive Conservative leader, all spoke in Ottawa while Foreign Affairs Minister Chrystia Freeland (University-Rosedale, Ont.) and trade officials are in Washington for another critical round of talks, the last such discussions before renegotiations are halted to accommodate for presidential elections in Mexico in July and the midterm congressional race in the U.S. in November.

The negotiations fall under a global political backdrop of right-wing, populist, and trade-skeptic movements rising in many western democracies, including the United States, the United Kingdom, and France.

But in Canada, conservative politicians haven’t swung to the hard right and remain enthusiastically supportive of free trade, despite the belief, including from Ms. Ambrose, that movements in other countries have influenced some Canadians.

While Ms. Ambrose said she remains optimistic that a trade deal can be reached, she also painted a gloomy picture of Canada-U.S. relations, even if Mr. Trump doesn’t receive a second term in 2020.

“This romantic notion that the Americans are our best friends and biggest allies; that’s not the reality anymore,” she said.

“That’s not how they’re treating us in the trade arena. It’s how they’re treating us in other arenas. And it speaks to the fact we have to recognize their agenda, when it comes to ‘America First,’ is Canada is not just second, Canada’s maybe third, fourth, or maybe fifth down the line.”

Ms. Ambrose also said she doesn’t believe that Mr. Trump’s politics will be confined to one-term or that he’s a one-off politician the country won’t ever see again.

“I think the people who support him are alive and well and in fact growing, the type of politician that he is. We see some of these elements right in our own country. We see it in a number of western democratic countries,” she said.

But she also noted that a recent deal between the U.S. and South Korea was celebrated as a victory by both governments, possibly signalling that the Trump administration won’t take as hardline of an approach to trade deals in the future.

Ms. Ambrose said striking a deal on auto parts in the ongoing round of negotiations would mark a major breakthrough because it would give Mr. Trump a major political victory and a win for his political base, located in the country’s industrial heartland.

“If we can get something around autos, which is the absolutely sweet spot for Donald Trump…I think that is a win-win for Canada and the U.S.,” Ms. Ambrose said. “And I don’t think we’ll see him rub our faces in the dirt over that.”

Ms. Ambrose said Trump voters don’t care about wonkier issues such as the Chapter 19 dispute resolution mechanism, but striking a deal on auto parts will leave negotiations in better shape heading into election season.

“I’m a little more optimistic if those are the last things on the table,” she said. “As a politician, you’re looking at these things and going ‘Okay, we really want to get rid of Chapter 19, but what is that going to gain me in the states where I need votes.’ Not much because they don’t even understand it.”

NAFTA After Washington ministerials

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The Vice-President of the Canadian Global Affairs Institute says participants in a discussion aimed at modernising the North American Free Trade Agreement have become highly invested in successfully concluding the negotiations

Negotiations aimed at rewriting NAFTA continued last week and are expected to resume again in about a week.

Colin Robertson, the Vice President and a fellow of the Canadian Global Affairs Institute, says we’ve seen, for the first time in 25 years, a gathering together of support in the United States saying let’s keep NAFTA. Polling will tell you that most Americans favour free trade with Canada and Mexico and see it working in their interests.

Colin Robertson discusses the recent round of negotiations:

“We’ve just concluded a marathon session of ministerial meetings in Washington, and the main subject of discussion was rules of origin surrounding the most traded commodities in question.

“We’ve closed the chapters on some significant subjects such as sanitation, phyto-sanitation and environment, and we’re close to closing the chapters on content rules on barriers to trade on important commodities.

“Donald Trump ran saying that NAFTA was the worst deal ever and threatened to tear it up on day one, but now, on day 100, I think there’s an appreciation within the administration that NAFTA would serve their interests and I think the administration has invested a significant amount effort into these negotiations.

“We’ve had eight formal rounds and effectively a ninth round and I think there’s a sense on the administration’s part that, if they can get a deal, it would serve their political interests, their political constituencies, particularly farmers and auto workers so I think they would like to now have a deal but it has to be under their terms.

“From a Canadian perspective, there’s broad agreement across Canada that NAFTA has worked for Canada and that we would like to continue it.

“This is shared across party lines and all premiers have been involved in pushing their counterpart governors and members of the legislature at the state level to underline how important the agreement is to their interests.

“Farm groups have also been involved in this; business groups; labour unions have also been making the case from the Canadian side to their American counterparts.

“There’s been a similar exercise conducted by the Mexican government and that is having some effect.

“We’ve seen for the first time in 25 years a gathering of support in the US, saying let’s keep NAFTA – they do think that having a trading relationship with Canada and Mexico does make some sense.”

 

As reported by Bruce Cochrane, Farmscape.Ca

Rohinga Crisis

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Helping the Rohingya refugees is a real demonstration of the Trudeau government’s commitment that “Canada is back.” Canada alone cannot solve the Rohingya situation, but by keeping the international spotlight on their plight, as we did at the Commonwealth summit and G7 foreign ministers meeting, we significantly increase chances that they can eventually return home.

We need to maintain this focus at the Charlevoix G7 summit in Quebec. As host, Prime Minister Justin Trudeau should invite Bangladeshi Prime Minister Sheikh Hasina and Myanmar Foreign Minister Aung San Suu Kyi to explain what is going on. Nobel laureate Suu Kyi’s apparent indifference to the Rohingya is disheartening.

Bob Rae’s report, “Tell them we’re Human,“ is the right roadmap for further Canadian action. His recommendations include stepping up our aid and looking at resettlement options. Aid agencies such as Unicef Canada – more than half of the displaced are children – are already on the scene. While the Bangladesh camps have been in place for decades, the current crisis has more than quadrupled the number of refugees. Well over a million, they outnumber the local population. As Mr. Rae underlines, our support must also go to the host community.

The Rohingya exodus is another piece in a growing mass movement of people. According to the UN High Commissioner for Refugees, we are now witnessing the highest levels of displacement on record. Much of the new movement is borne out of civil war – Syria, Afghanistan, Iraq, Yemen – accentuated by flood, famine and pestilence. This is hard to repair and requires generational effort.

The Rohingya exodus recalls the ethnic cleansing that took place in the Balkans with the collapse of Yugoslavia. Yet Myanmar was on the road to success with its economy growing and nascent representative government. Instead, Myanmar’s military, the junta that grudgingly stepped aside in 2015, are still pulling the strings. Emboldened by rearmament, supplied by China and Russia, they appear ready for armed confrontation with Bangladesh.

As with any crisis there are winners and losers. The million-plus Rohingya people, camped in canvas huts spread over red dirt hills around Cox’s Bazar are the biggest losers, as is graphically portrayed in this year’s Pulitzer prize-winning photo. The 600,000 Bengalis in the district are also losers. Their local economy is shattered, straining public confidence in a Bangladesh government that faces an election in December.

Bangladesh has made remarkable progress in poverty reduction. It aspires to reach middle-income status by its 50th anniversary in 2021. The hurdles to get there include its poor infrastructure and climate change. Rising waters threaten to displace a population equivalent to that of Canada.

The “winners,” at least for now, are members of the former Myanmar junta, now operating from key cabinet positions. If they get their way, then democratic reform in Myanmar will be the next loser. Without international pushback, the fraying norms of the liberal international order take another hit. Mr. Rae recommends applying sanctions.

A solution to the Rohingya problem will require neighbouring countries, especially China, to step up and put pressure on the Myanmar military. Chinese President Xi Jinping says that China is retaking its place as a responsible great power, and he points to China’s significant contribution to peacekeeping operations. He needs to act now on the Rohingya crisis.

Islamic nations must also help their co-religionists. Their upcoming May foreign ministers’ summit in Dhaka is a moral test. More than 60 per cent of the displaced come from Muslim-majority countries, and the Gulf states in particular could do more to help.

Having taken on the cause of the displaced Rohingyas, the Trudeau government must keep shining a light on what UN High Commissioner for Human Rights Zeid Ra’ad Al Hussein calls “a textbook example of ethnic cleansing.”

In a world in disarray, Canada can be helpful fixers. It means identifying niches: Hosting the Vancouver meeting on North Korea to help contain nuclear proliferation and working with hemispheric partners on the Venezuelan crisis. It means using special envoys such as Mr. Rae. Following through is vital, as we now need to do with the Rohingya. This is how we demonstrate that “Canada is back.”

A New Trade Agenda for Canada

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JSGS Policy Brief

The Policy Brief is a digital and print publication, written by Johnson-Shoyama Graduate School (University of Saskatchewan and University of Regina) scholars and leading policy experts, to provide context and perspective on important public issues and to further discussion and debate within the public sector. It provides policy makers and those interested in policy formation with timely and expert analysis, observations and potential policy approaches to relevant issues concerning the public.

Ensuring prosperity: A new Canadian trade agenda

Trade is a cornerstone of Canada’s economy and society. The very idea of Canada was formed on the need to create a union based on trade and commerce.

The Case for Trade

Trade is a cornerstone of Canada’s economy and society. The very idea of Canada was formed on the need to create a union based on trade and commerce. The fathers of Confederation agreed to reduce inter-provincial trade barriers as part of creating a nation because they knew it would help the promotion of Canadian exports and attraction of the foreign investment necessary to build factories and finance the railways to transport our goods to market. Today, virtually every aspect of our standard of living as Canadians — most of what we eat, drink, wear and our modes of transportation — is made possible by trade. International trade represents 60 per cent of our GDP, and one in five jobs is linked to exports. Quite simply, the wellbeing and quality of life of Canadians depends on our ability to trade and attract investment.1 A liberal trade policy has been and remains fundamental to Canada’s prosperity.

The world has changed, but the trade realities that applied in 1867 continue to apply in 2018. The facts of Canada’s trade-based economy are undeniable. We still sell what we harvest from our oceans, fields and forests, and what we mine onshore and offshore. We still need more foreign investment as well as better infrastructure – rail, pipe, grids and ports – that is cyber-secure to get our products and services to our global customers. We also need continued effort to reduce pernicious inter-provincial trade barriers that continue to defy the logic and promise of Confederation. The Canada West Foundation estimates that more than 100, 000 jobs in Saskatchewan depend on foreign trade.2

Natural resources continue to anchor the Canadian economy and the monetization of these resources requires access to global markets. Canada ranks 12th in the WTO table of leading exporters, ninth as importers and 16th in trade in commercial services.3 Include interprovincial commerce, and 80 percent of the Canadian economy depends on trade – internal and external.4 Half of what Canadians produce is exported.5 For Saskatchewan it‘s approximately 70 per cent.6 The United States is the top market for both Canada and Saskatchewan, followed by China.

It’s also important to recognize that trade forms the sinews of the nation. In fact, nearly 40 per cent of Canadian trade occurs within our borders.7 Economists estimate provincial protectionism costs us billions annually. The dispute between Alberta and British Columbia over the new Kinder Morgan pipeline is just the latest in a series of inter-provincial disputes. Confederation was supposed to remove inter-provincial barriers. The federal government has the constitutional “declaratory” authority (Section 92.10) to approve “works and undertakings connecting the Provinces … or extending beyond the limits of the Province.”8 Also Section 121 states: All articles of the growth, produce or manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”8

Unfortunately, the Supreme Court ruled in 1921 that “free” did not mean all products “of any of the provinces should be admitted into the other, but … they should be admitted ‘free’, that is to say without any tax or duty imposed as a condition of their admission.” The Supreme Court will soon hear a case on New Brunswick limiting the beer trade that a New Brunswick judge has ruled the restriction is unconstitutional, citing Section 121.9

If we could eliminate barriers between provinces,10 an exercise that western provinces have led on in recent years through the New West Partnership Agreement (2010) and now the Canadian Free Trade Agreement (2017),11-12 trade flows could be even higher, with commensurate benefits to consumers and gains to provincial coffers. As an aptly titled Senate study (2016) Tear Down These Walls argued “Canadians should be able to practise their profession or trade, operate a business whose goods and services can cross provincial/territorial borders, and purchase goods and services both freely and without penalty anywhere in this great country. The inability to do any of these diminishes us as a country, and makes citizens and businesses more tied to their region than to their nation.”13

Our history as a trading nation has earned Canada’s place in global supply chains, most notably in the manufacturing of passenger aircraft, trains, automobiles and energy-related products. We are also leaders in critical service industries like banking, insurance and engineering. Services are increasingly important to the Canadian economy, employing approximately three in four Canadians,14 and make up an increasing amount of our exports.15

In a world where trade linkages are an integral part of the global economy, trade has long since come out of the shadows and become part of the political dialogue. It is debate often framed by issues of sovereignty and self-determination, of economic efficiency and comparative advantage, of rich versus poor, developed versus developing nations.

Figure 1: Top Saskatchewan Trade Regions 2016.

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SOURCE: SASKATCHEWAN TRADE AND EXPORT PARTNERSHIP ANNUAL REPORT 2017

In fora, like the World Trade Organization (WTO), OECD, IMF and World Bank, Canada often plays the role of ‘helpful fixer’ and bridge to consensus. For a trade-dependent nation like Canada, it’s obviously in our self-interest and the right thing to do. Canada draws most of its annual income from trade.16 So it is good trade policy to pursue the current effort to renew secure access to the United States, our most important market, through the on-going NAFTA negotiations. The same is true of the new trans-Atlantic and trans-Pacific agreements—Canada Europe Trade Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership CPTPP—which seek to broaden and secure market access to Europe and Asia.

Trade Once Divided Canadians, Now It Unites Them

The Wilfrid Laurier Liberals fought and lost an election in 1911 on a renewed Canada-USA reciprocity agreement. While the Conservatives traditionally opposed freer trade with the U.S., Brian Mulroney changed his mind, and that of his party, and negotiated a Free Trade Agreement (FTA) with the U.S. The free trade initiative drew on the intellectual heft of the Royal Commission on the Economic Union and Development Prospects for Canada originally commissioned by his predecessor, Pierre Trudeau.17

The real success of the FTA, and later the North American Free Trade Agreement (NAFTA), was the confidence it gave Canadians to compete internationally. If most premiers opposed freer trade in 1988, today it is the premiers who are the most active advocates for freer trade. Surveys consistently demonstrate the majority of Canadians believe that trade works to their advantage and that Canada can compete both with the USA and globally.18

Freer trade also became a catalyst for domestic economic reform. The restructuring included the introduction of a national valueadded tax—the GST—and the economic growth it spurred helped federal and provincial governments to reduce and eliminate their deficits. Since the negotiation of the NAFTA, the federal Conservative and Liberal parties have mostly shared a commitment to freer trade and have pursued this objective when in government.

A Renewed NAFTA?

Figure 2: Trilateral trade between Canada, Mexico and the United States

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SOURCE: AMERICAS SOCIETY COUNCIL OF THE AMERICAS

When it comes to trade, for Canada it will always be the United States, and then the rest. We cannot change our geography, nor would we want to. That’s why securing the Canada-U.S. FTA was a pivotal point in Canadian affairs because it gave us preferred access to what is the biggest market in the world. With President Donald Trump, an avowed economic nationalist subscribing to the mercantilist notion of protectionism to achieve a trade surplus, the U.S. administration continues to ramp up barriers against foreign competition.19 In recent months, the United States has hit Canada with punitive tariffs on lumber, jets and newsprint and now threats to aluminium and steel. We can expect more of the same.20

Foreign Minister Chrystia Freeland’s “hope for the best, prepare for the worst” is a fair characterization of NAFTA’s prospects.21 Whether we can renegotiate the NAFTA will pivot on three issues:

  1. Can we preserve dispute settlement as a check against unfair protectionism?
  2. Can we find an equitable formula around trilateral content rules for cars, our most traded commodity?
  3. Will government procurement stay open to all three nations?

If we cannot resolve these issues, then we have to look to life without the North American free-trade agreement.

President Trump’s repeated threats to rescind NAFTA have galvanized hitherto-silent U.S. support into action, making this a U.S. debate that will be decided by U.S. interests. The farm community and business, two vital groups in the Trump coalition, want NAFTA improved, not rescinded. Surveys show a majority of Americans like NAFTA, which explains why senators and members of the House of Representatives, especially those in the Midwest and from Texas, are pressing the President to do no harm to NAFTA.22 

For Americans, NAFTA is a litmus test of its place in the world. For the first time, the most important global economy wants to renegotiate a trade agreement by increasing trade barriers so as to balance its trade. With preferred access to the U.S. in question, Canada must look to market diversification, which means broadening our trade horizon.

Global Trade: A Spaghetti Bowl

The preferred venue for trade liberalization after the Second World War was the Geneva-based General Agreement on Trade and Tariffs (GATT), which eventually became the WTO as an institutional body to manage global trade.

Negotiations among the WTO’s 164 members is slower and requires more compromises. But that shouldn’t obscure the fact that the WTO is as an important international forum for trade discussions and the court for settlement of member trade disputes. For now, serious trade negotiations are conducted either bilaterally or regionally. Like-minded nations are turning to regional agreements like the CPTPP or bilateral accords like the Canada-Korea FTA to achieve trade liberalization. Increasingly, they address ‘beyond the border’ domestic regulations, such as public policy choices on investment, dispute settlement, innovation, intellectual property and, for Asia, state capitalism. The result is a ‘spaghetti bowl’23 of different agreements, of which the recently negotiated CPTPP is a good example. Companies parse the different agreements for advantages relating to differing rules of origin or intellectual property protection.

Ultimately, in an era where goods are “made in the world” of supply chains and of trade largely intra-firm or connected to global value chains (by some estimates, 80 per cent of all trade), business will demand one set of rules and the WTO likely will reassert its primacy as the main table.24-25

But good trade policy must also be coupled with good social policy. It must recognize that opening doors to trade inevitably involves the pain of economic dislocation and job loss for uncompetitive industries. Governments have an obligation to address adjustment needs through training in new skills. It also obliges government support for industry restructuring, as Canada did with its wine industry after the Canada-U.S. FTA by planting grape varieties producing wine that was good for more than taking the paint off cars.

Figure 3: Complex trade connections

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SOURCE: ITC MKI ANALYSIS

Looking Forward: A Strategy and Implementation

The ultimate test of our trade agreements is their ability to generate economic opportunity and growth. That means Canada needs to take advantage of its positive international brand and do a better job selling our goods and services. Surveyed in 2013, of the more than 1.09 million SMEs operating in Canada, only 41,000 were exporting.1 To capture the domestic benefits of trade, we must do better. Here’s how:

1. Develop a new Canada Trade and Export Strategy26

A Trudeau government ministerial-mandate priority, such an initiative would help Canadian exporters fill their order books and secure contracts. The Harper Government’s Global Markets Action Plan,1 rolled out in November, 2013 set our priority markets and incorporates key government agencies to assist in this task, including Export Development Canada,27 Canadian Commercial Corporation and the Business Development Bank of Canada.28-29

2. The Prime Minister should hold a First Ministers’ conference around a national trade promotion strategy.

A revised strategy needs to address:

  • International investment by Canadian firms, a necessary part of competing globally, including the role of pension funds;
  • Canadian business participation in development bank projects, especially infrastructure;
  • Foreign direct investment in Canada including state-owned enterprises and public-private partnerships;
  • Internationalization of start-ups through reciprocal softlanding arrangements in incubators and accelerators in the United States and abroad;
  • Target and encourage women-owned businesses to scale up and increase exports;
  • Identifying opportunities for Canadian cyber tools, technologies and services, especially in emerging markets;
  • Utilization of the Canadian diaspora and the family ties created by immigration to advance trade and investment;
  • Integrating international education, immigration and tourism into our strategy.

The first ministers should re-validate the target countries and get on with trade promotion. Saskatchewan’s Trade and Export Partnership (STEP) is a model for collaboration between business and trade promotion that other provinces could emulate.30

3. Revitalize Canada’s Trade Commissioner Service (TCS)31

The world’s oldest national trade promotion organization (1884), trade commissioners are door-openers, matchmakers and a source of market intelligence for Canadian business. They help with the challenges of foreign languages, customs and regulatory thickets. Every dollar spent on the TCS generates $27 in increased exports.32 Those that access TCS services export 18 per cent more than comparable firms.32

Final Observations

The Canada brand in the global economy is solid. We need to exploit it. Canadian services in banking, insurance, and engineering are efficient and trusted. We are global leaders in medical and energy innovation and digital technology. Canada ranks 14th in the Good Country index, defined by what each nation contributes to the common good of humanity.33The OECD Better Life index accords us a similar high ranking.34 As a trading nation we have become a nation of traders, and we need to commit to continuous improvement.

Our successful integration into North American markets, which account for almost 80 per cent of our trade, proves that Canadian business can successfully compete. We are meeting the Trump challenge by doubling down on our outreach and marketing into the U.S. Reminding Americans that Canada is their first market for 35 states and second or third for the other 15 states will help hone marketing skills that we need to apply globally.

Given the fundamental role trade has played historically in raising and maintaining Canada’s standard of living, we need to open new markets and expand our existing base. Trade and investment promotion will always be the main drivers, but we should broaden our marketing scope to include tourism, a money generator and a precursor to attracting international students to our colleges and universities.

As important as the U.S. market remains for Canada, the world trade map is being redrawn. The emergence of China specifically, and Asia more broadly, as a primary engine of global economic growth means a trade-dependent nation like Canada must adapt and adjust. This is a pivotal moment for trade policy in Canada. As history has demonstrated, nothing less than our standard of living and quality of life depend on getting it right.

 Download the Policy Brief.

Works Cited

1http://international.gc.ca/global-markets-marches-mondiaux/plan.aspx?lang=eng#message

2http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Coutnry=CA

3www.gobal-economics.ca/northsouth.htm

4https://data.worldbank.org/indicator/tg.val.totl.gd.zs

5https://www.saskatchewan.ca/business/investment-and-economic-development/exporting-and-trade

6http://news.gc.ca/web/article-en.do?nid=877619

7http://laws-lois.justice.gc.ca/eng/const/index.html

8https://ipolitics.ca/2017/06/06/yes-the-feds-could-force-trans-mountain-on-b-c/

9http://www.theglobeandmail.com/report-on-business/economy/canada-competes/why-are-we-blocking-free-trade-between-provinces/article11541453/?page=all

10http://www.newwestpartnershiptrade.ca/the_agreement.asp

11https://www.cfta-alec.ca/

12https://sencanada.ca/content/sen/committee/421/banc/reports/2016-06-13_banc_fifthreport­_ss-2_tradebarriers(final)_e.pdf

13https://lop.parl.ca/content/lop/reserachpublications/2016-42-e.pdf

14http://www.international.gc.ca/trade-agreements-accords-commerciaux/topics-domaines/services/index.aspx?lang=eng

15http://www.international.gc.ca/economist-economiste/performance/state-point/state_2012_point/2012_7.aspx?lang=eng

16http://publications.gc.ca/site/eng/472251/publication.html

17http://www.latimes.com/world/mexico-americas/la-fg-canada-trade-20161030-story.html

18https://www.commerce.gov/news/press-releases/2108/01/us-department-commerce-issues-affirmative-final-determinations-fine

19https://www.theglobeandmail.com/report-on-business/us-newspapers-warn-of-devestating-impact-from-duties-on-canadian-newsprint/article37565314

20https://www.theglobeandmail.com/politics/freeland-on-nafta-hope-for-the-best-and-prepare/videodf63b038-9bea-43b8-b11d-ae5e541d6bca

21http://www.pewreserach.org/fact-tank/2017/11/13/americans-generally-positive-about-nafta-but-most-republications-say-it-benefits-mexico-more-than-u-s/

22http://www.rieti.go.jp/en/comlumns/a01_0193.html

23http://www.wto.org/English/news_e/sppl1267_e.htm

24http://unctad.org/en/publicationslibrary/diae2013d1_en.pdf

25http://pm.gc.ca/eng/minister-international-trade-mandate-letter

26https://www.edc.ca/en/pages/default/aspx

27http://www.ccc.ca/

28https://www.bdc.ca/en/about/who-we-are/pages/default.aspx

29https://www.sasktrade.com/

30http://tradecommissioner.gc.ca/index.aspx?lang=eng

31http://www.parl.gc.ca/content/hoc/committee/411/ciit/reports/rp5478079/ciitrp03-e.pdf

32https://goodcountry.org/index/results

33http://www.oecdbetterlifeindex.org/#/11111111111