Remarks to Commonwealth Parliamentary Association

I recently appeared (July 26), with Dr. Laura Dawson, Director of the Canada Institute at the Wilson Center (and a member of the CGAI Advisory Council), before the Commonwealth Parliamentary Association’s Canadian Regional Conference in Ottawa to speak on Canada’s current trade situation. The CPA membership consists of federal, provincial and territorial legislators. Below are my consolidated remarks.

Constructive powers like Canada need to stand up in support of the rules-based, liberal international order. Our economic prosperity depends both on putting our own house in order and sustaining and reforming the global operating system.

Most of what we eat, drink, and wear – and what we travel in – is made possible by trade. To put Canada’s situation into context:

• International trade represents 60 percentof our GDP
• One in fivejobs is linked to exports. Canadian prosperity and wellbeing depends on our ability to trade and attract investment.
• While Canada represents roughly half of one percent of the world’s population, we account for 2.5 percent of global merchandise exports.
• Canada ranks12^th  in the WTO table of leading exporters, ninth as importers and 18th in exports of commercial services. Include inter-provincial commerce and 80 percent of the Canadian economy depends on trade – internal and external.
• Halfof what Canadians produce is exported. Some of it comes back as part of supply chain dynamics, especially for the North American auto trade. Most of this commerce travels back and forth by truck although rail is increasing. The majority of cross-border trade is intra-firm; the remainder is within global value chains.
• As a global breadbasket – we are the fifth largestglobal exporter – Canadian production is vital to feeding the world. Our food industry contributes over $110 billion annually to Canada’s gross domestic product (GDP); that’s more than the national GDP of 2/3 of the world’s countries. We produce about 75% of the world’s maple syrup, we are the world’s largest exporter of flaxseed, canola, pulses, oats and durum wheat and third largest exporter of pork products.

A liberal trade policy has been and remains fundamental to Canada’s prosperity. The Fathers of Confederation agreed to reduce inter-provincial trade barriers as part of creating a nation. They knew it would help promote Canadian exports and attract foreign investment necessary to build factories and finance the railways to transport our goods to market.

The world has changed, but the trade verities that applied in continue to apply in 2018.

We still sell what we harvest from our oceans, fields and forests, and what we mine onshore and offshore. Resources – what we mine from the ground and what we harvest from the land and sea – continue to anchor the Canadian economy. The monetization of these resources requires freer access to global markets.

We still need foreign investment and we still need better infrastructure – cybersecure rail, pipe, grids and ports – to get our products and services to our global customers.

Fixing the Home Front

Free trade within Canada remains the unfinished promise of Confederation.

We need continued effort, building on the Canadian Free Trade Agreement (2017), to reduce pernicious inter-provincial trade barriers that continue to defy the logic and promise of Confederation. A study (2015) by University of Calgary economists estimated that internal trade barriers add somewhere between eight to 15 per cent in costs to goods and services that cross provincial boundaries. Removing these barriers and Canada’s national productivity could grow by between three to seven per cent — adding roughly $100 billion dollars to Canada’s economy or an annual gain of $7,500 per family.

A Senate of Canada report (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.”

I encourage provincial legislators to follow-through on the Premiers’ commitment (2018) to address interprovincial barriers in agriculture, transport, business registration and to focus on their regulatory reconciliation and cooperation workplan,

Provinces need to factor in competiveness into their decision-making. Keeping ride-sharing out of British Columbia is a disincentive to investment from digital giants like Amazon. The Ontario decision to kill a German-owned wind energy project will deter EU investors.

We must stay competitive – in the wake of the Trump tax changes, we need to re-examine our corporate tax system and be sure that our proposed carbon-pricing system – a necessary step – does not disadvantage our ability to do business. We also need to move ahead with our rail, road, pipeline and electrical grid improvements. While federal money goes into many of these projects, it is provincial and municipal governments that are in most cases responsible for their permitting and construction. They would benefit from Winston Churchill’s admonition for ‘Action this Day’.

Actions designed to improve internal trade and the means for trade, will improve our international competitiveness. It is the best way to prepare for the First Ministers’ meeting that Prime Minister Justin Trudeau will host this fall to discuss diversifying international trade.

Trade Negotiations

Canadians are able trade negotiators. Once the preserve of the trade policy cognoscenti, operating behind closed doors, trade negotiations today are highly public and very political. In fora like the WTO, OECD, IMF and World Bank, Canada often plays the role of ‘helpful fixer’ and bridge to consensus. It’s the right thing to do and it also advances our own interests as a nation that draws most of its annual income from trade.

The World Trade Organization reports global trade in 2017 experienced thehighest growth rate since 2011. Developing countries now account for 43 percent of world trade underlining why Canada needs to be a first mover in securing trade agreements in the Indo-Pacific, the Americas and Africa. But President Trump’s protectionism, especially the looming trade war with China, threatens global turmoil in trade.

The current effort to renew secure access to the USA, our most important market, through the on-going NAFTA negotiations and the new trans-Atlantic and trans-Pacific agreements – Comprehensive Economic Trade Agreement (CETA) and the Comprehensive and Progressive Trans Pacific Partnership (CPTPP) – are the most recent initiatives to secure preferred access to foreign markets for Canadian goods, services and investment.

I encourage you to pass the CPTPP implementing legislation. I believe the CPTPP will become the platform for Indo-Pacific trade. We should encourage China, India and the ASEAN nations to join this new high-standard trade arrangement. Perhaps someday the USA will sign on.

Canadians have earned a place in global supply chains, most notably in the manufacturing of planes, 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 and provide 43 percent of the value-added in exports.

North American Accord

We need a new North American accord that would include and set the standards in emerging areas like e-commerce and the growing digital trade. Getting a new deal is vital to Canadian prosperity: one in six jobs in Canada is related to exports and 77.8 percent of Canada’s total merchandise exports was destined to our NAFTA partners in 2016 with almost 75 percent destined to the US alone. Trade with the US accounts for an estimated 1.9 million Canadian jobs.

The NAFTA worked to the benefit of all three partners – Canada, USA and Mexico but it is time to bring the NAFTA, negotiated before the digital age and the arrival of e-commerce, into the 21^st century.

The Trans Pacific Partnership would have largely accomplished this, but President Trump withdrew from this Obama Administration initiative as he did with the Paris Climate Accord and he has frozen negotiations with the European Union over a Transatlantic Trade and Investment Partnership (TTIP), because of his belief that multilateral trade agreements disadvantage the USA.

President Trump’s mercantilist approach – Canada and Mexico are expected to “give” without “anything in return”as Commerce Secretary Wilbur Ross put it –  is wrong.  As President Trump outlined in his ‘Art of the Deal’, divide and conquer is his strategy and he would like to divide Canada and Mexico. As he has said from the outset, he doesn’t like making deals with more than one because he thinks it undermines his leverage.

We need to recognize that Mr. Trump does possess certain leverage as our relative dependence on US trade is higher. Both Canada and Mexico send approximately ¾ of their exports to the USA, while the USA ships around 15 percent of its exports to Canada and 14 percent to Mexico.

According to Trevor Tombe, an economist at the University of Calgary’s School of Public Policy (where I am also a fellow), only two American states out of 50 – Michigan and Vermont – where trade with Canada exceeds 10 per cent of their annual economic output. By comparison, Canada’s provinces are all overwhelming dependent on the US market for its contribution to their GDP: New Brunswick (50 Percent) Ontario (49 percent), Manitoba (39 percent), Saskatchewan (33 percent), Alberta (31 percent), Newfoundland (29 percent), Nova Scotia (14 percent) , Prince Edward Island (13 percent). This is why we need to diversify our trade and open new markets.

The NAFTA negotiations began a year ago (August, 2017),  although President Trump continues to threaten rescindment of the agreement. We have made progress, but tough bargaining still needs to be done on rules of origin on autos, government procurement, the ‘sunset’ clause, and dispute settlement. In the meantime, uncertainty over NAFTA hurts investment confidence.

The distractions of the approaching US midterm elections and the Mexican transition from the Enrique Pena Nieto to the Andres Manuel Lopez Obrador administration means any ratification won’t happen until next year – the US Trade Promotion Authority lays out the congressional approval process – although our negotiators can do useful work in the meantime.

Canada and Mexico need to stand together. We also need to double-down on our outreach into the pointing out to our American friends – and a majority of Americans say free trade agreements have been good for the USA – that North American trade is a proven win-win-win proposition.

Your travels as legislators over the summer to the various regional Council of State Governments conferences and regional forum – Pacific Northwest Economic Region, Council of the Great Lakes Region – and those of the premiers to the regional governors’ conferences, are important. You need to remind Americans that Canada is the first market for most states and that Canadian companies operating in the USA employ more than half a million Americans.

It was premiers who in 2010 met with their counterparts at the National Governors’ Association meeting in Washington, paving the way for the reciprocity agreement on government procurement.  This avenue may be the way to break the impasse at the current NAFTA negotiations– a governors’ and premiers’ agreement on a national (or even regional) procurement deal(s) that gives more choices and thus gets best value for taxpayers’ dollars.

As legislators, I encourage you to stay engaged with your counterparts in the USA and Mexico and to feed into the negotiators what you are hearing from your constituents, as it relates to their ability to trade. Practical examples of what aggravates trade and how we can improve the situation is vital knowledge to our negotiators.

We also need to stand together at home. The House of Commons unanimous resolution (June 11) opposing the US tariffs and supporting the retaliatory actions demonstrates the kind of united front that strengthens our negotiating hand.

A cautionary note: there is a tremendous amount of noise out there about the negotiations. While the NAFTA negotiations are remarkably public – front page stuff thanks in part to President Trump’s pre-dawn tweets – there is also a lot of misinformation out there and in those tweets. Some of it is by design and some of it is just the usual kind of fervent speculation that surrounds these kinds of negotiations. So ‘Beware of Noise’.

Our trade relations with the USA go beyond NAFTA. There is a lot of good work taking place around regulatory cooperation and improvements to border management. Nor is there any shortage of good ideas on what needs to be done – our cross-border trade organizations – including NASCO, CABC, BTA, et al –  and business associations – including the Business Council of Canada, Chamber of Commerce and Canadian Manufacturers and Exporters – provide regular and practical advice on what needs to be done.

Progressive Trade to preserve Competitive Edge

We hope to make improvements and integrate standards on labour and the environment into the agreement to include labour mobility and the mutual recognition of accreditation. Then we can make maximum use of the talent pool that North American enjoys but that we need to harness, so that we remain the most competitive region in the world – the assessment of the George W. Bush Institute that tracks regional competitiveness.

This means provision for trade adjustment so that those displaced – by trade decisions or efficiency improvements in automation, robotics and artificial intelligence – are guaranteed the opportunity to improve their skills or have training in another area. The Federation of Canadian Municipalities underlined this in a resolution at their annual conference in Halifax this year.

In doing so, we have the opportunity to create, just as the NAFTA did in its time, the new model for trade agreements – a realistic but progressive trade agreement that gives a helping hand to those who are displaced or lose out.

Trade Diversification

As Canadians are highly dependent on trade. we adjust to the current circumstances by renegotiating the NAFTA while also embracing trade diversification. This was underlined in the recent cabinet shuffle with the Minister of International Trade – Jim Carr – receiving a portfolio name change to become the Minister of International Trade Diversification.

Canadian governments have negotiated free trade agreements, both bilaterally (eg Chile, Korea, Jordan) and regionally (CETA, CPTPP) that now give freer trade access to 50 countries.

Amongst the spaghetti bowl of trade diversification deals currently on the Canadian menu, associate membership in the Pacific Alliance should be an easy choice. The Alliance members – Chile, Colombia, Mexico and Peru – are business-minded and they embrace the rules-based, democratic order. With more than 221 million consumers, the combined GDP of the ‘Pacific pumas’ is equivalent to the world’s sixth largest economy. The economic health of a lot of Canadian firms, especially in resources and finance, are tied up in the economic wellbeing of the Alliance.

The Harper government developed a good global market strategy. Now we need to invest more in our Trade Commissioner Service to take advantage of the market opportunities we have negotiated. In cooperation with provincial and municipal governments this means matchmaking foreign firms with Canadian business and vice versa. Australia’s Austrade has a budget almost twice that of the Canadian Trade Commissioner Service – we need to invest more.

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.

In the short term, international students make our universities more cosmopolitan and oblige our learning institutions to raise their game. In the longer term these students are ‘friends’ of Canada who open doors for us in their own countries.

Our trade and investment marketing should also include targeting immigrants who bring new talent and ideas to a country that 151 years later is still engaged in nation-building.

Sustaining the Rules-based Global Operating System 

There is diminishing interest around the world in the traditional liberal International order with a concomitant drop in support for democratic governance. Clawing back what is being undermined everyday by authoritarian leaders around the world is the challenge for constructive powers.

What constructive powers cannot do is sit on the fence or play it safe. Canada, in league with constructive powers who value representative government, human rights, and freer trade, needs to step up and reassert our interests in sustaining and preserving the rules-based liberal international system.

This means re-investing in our shared institutions – the UN, World Bank and IMF –  and, especially in reform of the WTO, working with like-minded partners to address legitimate concerns about industrial subsidies, state-owned-enterprises and protection of intellectual property.

It also means supporting each other and sharing best practices to protect our democratic institutions – the sanctity of our election process – and the rule of law through our independent courts and legal systems

Final Observations

The Canadian brand 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 is in the top 15 of the Good Country index, defined by what each nation contributes to the common good of humanity. The OECD Better Life index accords us a similar high ranking. Always a trading nation, we are becoming a nation of traders. But we need to commit to continuous improvement through, for example, re-investment in our trade commissioner service.

Our successful integration into North American markets proves that Canadian business can successfully compete. We are meeting the Trump challenge through our outreach and marketing into the USA.  This helps us hone marketing skills that we need to apply globally.

We also need to work in tandem with our partners: hemispheric, trans-Atlantic, and trans-Pacific and through fora like the G7, G20, APEC. It means finding our niches. It means acting in concert with like-minded constructive powers to support, sustain and reform the rules-based global operating system. It requires us to strengthen our diplomatic and defence capabilities.

In conclusion, the more protectionist the Trump ‘America First’ administration becomes, the greater the requirement for Canada and like-minded nations to double-down on constructive multilateralism, collective security and freer trade.