CIV - Canada should wrap up more free trade agreements with countries - including China - and revamp the national trade policy because Canada is disappearing from the international stage, a parliamentary committee warns.
The report, "TEN STEPS TO A BETTER TRADE POLICY", has recently been submitted to the parliament after the standing committee of international trade has discussed on the issue and witnesses have been called during an 8-month hearing.
David Emerson, minister of international trade, acknowledged the importance of China to Canada's integral trade policy. He has read the report and realized that it's recommending the federal government to start free trade talks with China.
"Ultimately, free trade is where we want to go [with China]," Emerson said.
This is the first time a federal Tory minister has made it clear that a free trade talk with China is at least on the drawing board.
The report says Canada is in urgent need of action, because "Canada is disappearing from the international stage, the very source of our high standard of living." It points out the fact that Canadians are still stuck in the old-school perception of what trade is.
Why is trade so important to Canada? The traditional answer to this question is that we lack the domestic market to be self-sufficient and maintain our current standard of living. This is the basis for our traditional focus on exports; the ability to sell into foreign markets allows us to produce more than we need at home. This added production creates jobs and wealth, and allows businesses to expand and realize efficiency gains through economies of scale.
This idea is widely understood in Canada but is, unfortunately, an outdated view of today's global business environment. The mercantilist view of the world has been discredited: exports and imports do not work at cross purposes, with the latter "taking away" jobs and wealth created by the former.
Increasingly, exports and imports - as well as foreign direct investment (FDI) - are recognized as being inextricably linked to one another in the context of Canada's long term economic prosperity. This is all the more true given the changing nature of international commerce. No longer do businesses simply manufacture and export from a single location. Increasingly, rather, they are participating in global supply chains - engaging in increasingly specialized production, where a final product may be assembled in one country using components from around the world.
Exports, imports and direct investment are interconnected in this economic paradigm called "integrative trade." The common thread running between trade and investment on the one hand, and economic prosperity on the other, is competitiveness. Indeed, the relationship between the two is self-reinforcing: trade and investment help make the Canadian economy more competitive and more productive. That, in turn, helps businesses to be successful on the world stage. International trade and investment policy must, therefore, be at the centre of any Canadian competitiveness strategy.
The report suggests 10 steps to update our trade policy.
1. Increase Federal Resources Destined for Trade by a Full 50%
It has become obvious to Committee members that one of the key deficiencies of Canadian trade policy is that the federal government is not spending enough on its trade negotiating efforts and on its trade promotion at home and abroad. We must make our commercial presence known in the world, and inject considerably more dollars, people and effort into trade. Other priority areas of government activity, such as transfers to the provinces, the Canadian military, and foreign aid have all received considerable increases in federal expenditures in recent years. So, why not foreign trade and investment, which is a major generator of the wealth that allows Canada to finance spending in those other areas?
Recommendation 1: The Government of Canada should increase its current expenditures on trade negotiation and promotion by a full 50%. This increased spending should be allocated to:
- Canadian trade negotiators;
- trade commissioners;
- new diplomatic offices in countries and regions with significant commercial potential for Canada (China, India, the Gulf States and the Association of Southeast Asian Nations, to name a few);
- international business development programs, including a revamped Program for Export Market Development (PEMD);
- aggressive marketing and promotion of Canada and Canadian products abroad; and · bilateral business associations.
Recommendation 2: The federal government should immediately undertake a review of the existing legislative restrictions that restrain Export Development Canada from having greater commercial presence in emerging markets, and remove these restrictions where feasible.
2. Increase High-Level Government-to-Government Visits
Dwain Lingenfelter, Chairman and Chief Executive Officer, Canada-Arab Business Council & Vice-President, Government Relations at Nexen Inc. pointed out that, in the Arab States, Canada has sent the message that we are not interested in building closer ties with that region.
How has this happened? Because elected Members of Parliament, Ministers, Parliamentary Committees and senior government officials seldom visit the region. The Committee was told that when Canadian legislators do not travel to countries like Yemen, it sends a message that Canada is, at best, ignoring these potential markets or, at worst, insulting them.
Other countries have recognized the importance of government-to-government contact to improving trade and investment ties. Canadian business has suffered as a result. The Committee learned that Australia is a leader in terms of building government-to-government relationships. Visits to the UAE, for example, by Australian government ministers and Parliamentary Committees were a regular occurrence. Australia's trade with the UAE has profited enormously. It is not just Australia that uses government-to-government contact as a trade and investment promotion tool.
We heard that many other countries that compete directly with Canadian companies use a similar approach. However, Canada does not operate in this way and as a result, our companies are automatically at a disadvantage with respect to those from countries like the U.S., the UK, China and France.
Recommendation 3: Because many countries view close government-to-government relationships as fundamental to building closer economic ties, the Government of Canada and Canadian Parliamentarians should ensure that there are frequent focused and well-planned visits to and from priority markets. The House of Commons Standing Committee on International Trade should be actively involved in these visits.
3. Wrap Up Existing FTA Negotiations
Recommendation 4: With the goal of securing agreements that are in Canada's best interests, the Government of Canada should complete free trade negotiations with the European Free Trade Association, the Central America Four, Singapore, and South Korea as quickly as practical.
4. Sign New FTAs
Glen Hodgson, Senior Vice-President and Chief Economist, Conference Board of Canada says: "We only have three very small bilateral deals, while the rest of the world is out negotiating like crazy. The Americans, the Chinese, and the Europeans are extremely active right now, trying to expand their access to other markets […] It's about time Canada really got into the game."
Bringing to fruition long overdue trade agreements is only one element of a successful trade policy. Canada is in a difficult and deteriorating position globally. All of our major competitors in international markets are furiously negotiating free trade agreements.
Each time a new agreement is signed, Canadian businesses effectively take a small step backward. Why? Because these trade agreements tilt the competitive balance in favour of our competitors. If a Canadian company faces a tariff in any given country of 10%, for example, while a competitor from the EU or the U.S. can sell into that market tariff-free, the Canadian enterprise will quickly see its business dry up. Canada will not be able to compete internationally if we do nothing to stem our eroding competitive balance.
Recommendation 5: Recognizing that Canadian businesses have been shut out of some markets because competing countries have preferential trade agreements in place and Canada does not, the Government of Canada should determine in which countries Canadian businesses are operating at a disadvantage with respect to their major competitors, and then negotiate "defensive" free trade agreements that prevent Canada from being shut out of those markets.
Recommendation 6: The Government of Canada should continue to consult with Canadian businesses, unions and civil society organizations active overseas, to determine where Canada's "proactive" trade interests lie, that is, where Canada would most benefit from improving two-way market access. The Government of Canada should then aggressively pursue trade deals with countries considering those assessments. At the same time, since the reputation of Canada as a whole is affected by the activities of Canadian companies abroad, the Government of Canada should also ensure that the businesses and unions with which it consults (i.e., those active overseas) are acting in a socially responsible manner.
Two countries stand out as being worthy of consideration as a special case. Except for witnesses representing specific regions of the world, nearly everyone who appeared before the Committee spoke of the importance of China and the need for Canada to have a China-specific strategy. India is also a crucial, high-growth economic partner for Canada.
We believe that having China and India strategies that involve close engagement with, and direct investment in, these two countries is critical to the long run survival of Canadian businesses. The significance of these markets cannot be overstated.
Put simply, if Canadians do not invest in, or import from China and India, others will, putting Canadian companies at an enormous disadvantage relative to their international competitors. Although China is sometimes blamed for the erosion of the manufacturing base in Canada, the reality is that building closer economic ties with China will gives Canadian business a better chance to compete with their international counterparts. Closer involvement with India, for its part, could open up additional market opportunities for Canada's service industries as well as accelerating Canadian investment in that country.
The Committee is pleased to note that on 12 March 2007, the federal government announced that, once ongoing negotiations on a foreign investment protection and promotion agreement between Canada and India are completed, it will pursue a free trade agreement with India. We believe that this announcement is a step in the right direction and we call on the Government of Canada to adopt a similar position with respect to China.
Recommendation 7: The federal government should develop and start to implement comprehensive strategies on Canada's commercial relations with China and India, including the conclusion of foreign investment protection and promotion agreements prior to the negotiation of a bilateral free trade agreement with each country. These strategies should also include consideration for human rights; more aggressive promotion of Canada and Canadian products; and greater involvement of the Chinese and Indian diasporas in Canada.
Recommendation 8: In future free trade negotiations, the Government of Canada should consider studying and possibly adopting the Mexican negotiating model, in which agreements are signed without necessarily resolving all sensitive issues and where Canadian interests are protected through the exclusion of certain sectors from negotiations. If Canada were to use such a negotiating model, then as the relationship grows, these concerns could be addressed in subsequent contact between the two parties. The Mexican model should not be employed in cases where Canadian businesses would be put at a disadvantage relative to their major competitors by a free trade deal.
5. Pursue FIPAs and Other Bilateral Agreements
Recommendation 9: The Government of Canada should immediately open negotiations on Foreign Investment Protection and Promotion Agreements (FIPAs) with Indonesia, Vietnam and Colombia. It should also negotiate FIPAs with other countries, after consulting with businesses to determine where investment protection and promotion agreements would be beneficial.
Recommendation 10: The Government of Canada should expand its network of air services agreements around the world, including with Singapore.
Recommendation 11: Building on the progress made during its Trade and Investment Enhancement Agreement (TIEA) negotiations with the European Union (EU), the Government of Canada should negotiate a regulatory cooperation agreement with the EU that will remove non-tariff barriers facing Canadian businesses in that market.
6. Take a Leadership Position at the WTO
Recommendation 12: Recognizing the benefit from the expanded access to global markets that a successful Doha Round could secure, the Government of Canada should take a leadership role in ensuring the completion of a broad and ambitious outcome to the current World Trade Organisation negotiations.
7. Increase North American Competitiveness for Global Success
Recommendation 13: Canada should continuously push forward the agenda of the Security and Prosperity Partnership, thereby aggressively working towards the removal of as many obstacles to a seamless movement of goods and services across North America as possible, with greater public oversight and transparency.
Recommendation 14: The federal government should undertake effective intellectual property enforcement to keep counterfeit and pirated products from entering Canada and from being transhipped through Canada to our trading partners.
8. Improve Domestic Policy to Help Canadian Companies Compete Globally
Recommendation 15: The Government of Canada should modernize and strengthen its infrastructure, tax, regulatory, human resources, innovation, and other domestic policies to ensure that Canadian companies are as well positioned as they possibly can be to compete in the global economy.
Recommendation 16: The Government of Canada should take steps to ensure that federal tax rates on Canadian businesses are competitive with those of other leading industrialized nations. The setting of these tax rates should take into account the substantial competitive advantages of the Canadian health care system and other social programs.
Recommendation 17: The federal government should take a leadership role and work in collaboration with provincial and territorial governments to establish a barrier-free internal market by the end of 2008.
Recommendation 18: Given the increasing importance of lower-cost imports in the Canadian production of goods that are subsequently exported, the Government of Canada should study the feasibility and the consequences of unilaterally eliminating its remaining industrial tariffs.
Recommendation 19: The federal government, as part of its next legislative review of Export Development Canada, should consider providing that agency with the authority to also finance imports that are critical to Canadian exports.
Recommendation 20: The Government of Canada should immediately review its trade remedy system to ensure that critically valued imports, needed as inputs by companies who subsequently export products out of the country, are not unnecessarily blocked.
9. Take Steps to Increase Foreign Direct Investment Flows and Services Trade
The report calls on Canada to adopt a three-pronged strategy to enhance services trade:
· Improve the structural and regulatory environment in Canada for services activity;
· promote exports and investment abroad of our services providers; and
· achieve greater market access through the successful completion of the General Agreement on Trade in Services (GATS) negotiations within the WTO Doha Round.
Recommendation 21: The federal government should immediately develop and implement clear and comprehensive strategies to (a) generate more foreign direct investment inflows and outflows and (b) strengthen international trade and investment in services.
10. Put In Place an Integrated Trade Policy
It became apparent to the Committee that it would be a considerable challenge to coordinate the activities of such a large number of departments and agencies in a way that Canada could develop and implement a coherent and focused international business policy.
An even greater challenge would be to ensure that these departments and agencies work together to send a unified message abroad.
This Committee has a number of questions as to how the machinery of government currently operates as it relates to the development and implementation of international business policy.
We are especially interested in knowing if the organization of trade- and investment-related activities within the federal bureaucracy can be improved. As such, in the Spring of 2007, the Committee intends to begin a study on this subject. Our objective will be to evaluate how the machinery of government functions, as it pertains to federal trade and investment policy and promotion, and whether or not it could be restructured to operate more logically, efficiently and effectively.
Recommendation 22: All of the above recommendations should be implemented taking into consideration the importance of democratic debate on issues contained in the report; the quality of life of all Canadian families and closing the prosperity gap; and the importance of working to raise social, labour and environmental standards, both in Canada and internationally with our trading partners.
Tags: canada, china, china-specific strategy, free trade agreement, india, trade, trade policy
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