A Canadian election is around the corner and trade is an important issue to consider, particularly for agriculture.
Agri-food accounts for 12 per cent of all of Canada’s exports. One-half of all Canadian agricultural production is exported. One in two jobs in grains and oilseeds is export dependent and one in four jobs in food processing is export dependent.
Totally underappreciated is the fact that food processing is the largest manufacturing industry in Canada and a greater contributor to GDP than oil and gas.
Is the solution for economic prosperity in enhanced trade agreements with the U.S. and Mexico, with the EU or in Asia or in particular with China? Can Canadians live with concessions within these agreements?
When trade deals become election platforms, it is important to know a little about the contents of the proposals.
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To date there is no ratification of a new North American trade deal known as the USMCA (United States-Mexico-Canada Agreement). This agreement was to replace the current North American Free Trade Agreement. As the talks continue, each day is proving to be different.
What is on the table? This is a big agreement valued at over $700 billion in 2018. Clause No. 32 within the proposed agreement flags non-market country free trade agreements. Non-market countries include China, North Korea and Vietnam. It calls for Canada to inform the U.S. and Mexico three months prior to entering free trade talks with these countries and to disclose documents. It also gives the U.S. and Mexico the option of walking out of the master agreement in six months if they don’t like what is going on. This has an impact on other agreements already in play.
The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a free trade agreement between Canada and 10 other countries which include Vietnam and Mexico in addition to Australia, Brunei, Chile, Japan, Malaysia, New Zealand, Peru and Singapore. It focuses on tariff reduction projected annually of $428 million duty free on trade on 94 per cent of agriculture and agri-food products, and the growth of small and medium enterprises.
CPTPP has the added bonus of environmental and labour chapters, foreign direct investments and basically allows for non-tariff free trade agreements bilaterally between countries. U.S. President Donald Trump withdrew the U.S. from the CPTPP, prompting positive revisions in the areas of intellectual property and investment. The big question for Canada is: What are the implications of enhanced trade with countries such as Vietnam when they are highlighted as a non-market country under USMCA?
The U.S. is Canada’s largest trading partner but Vietnam and China are also valuable partners and a free trade agreement with China has been debated heavily. With China as Canada’s second-largest export destination, tariff reduction and regulatory alignment would seem beneficial.
Putting it in perspective, Canada is the globe’s fifth-largest exporter of agri-food products and in 2018 that amounted to $59.3 billion worth of product (of which $9.3 billion went to China).
Expanding trade is a reality when half of all food produced in the country has to be exported.
The elimination of tariffs under the Canadian European Union Comprehensive Economic and Trade Agreement (CETA) was set to ease trade pressure and to widen the net of trading partners.
CETA is provisionally in force and includes 28 EU member states. There are 14 signatures (with non-ratified support by France coming in July) so far.
The elimination of tariffs under CETA was to fully liberalize trade, but Canada’s performance with CETA has been less than projected. For example, the importation of dairy products is actually down 3.5 per cent and overall exports have fallen by 10 per cent. Although tariff elimination would liberalize trade, the regulatory alignment was not fully appreciated and there are learning curves in the supply chain. One could speculate that should Brexit come to pass this may nudge EU signatories to review regulatory requirements and focus on CETA as a priority.
Canada now sits firmly in the middle as a pawn of the U.S. with both trade and extradition issues. Is Canada being bullied in the trade agreement space, particularly by the U.S.? And if so, how does this impact the decisions of current and future governments?
Countries can default to the World Trade Organization for trade disputes, but there must be a ratified agreement in place and a complaint brought forward — which is both costly and time consuming.
In the trading space Canada is in, there are several working yet not fully ratified agreements leaving loose interpretation of what constitutes both free and bilateral trade and what constitutes harm. Concessions such as those proposed under USMCA may limit our trading mobility and cause internal economic harm, hurt relations and create singular bilateral dependencies.
These are important issues for Canadians and particularly for Canadian farmers.
It has direct impact on commodity values and for those who value add with agricultural product or co-product, those who export, those who create value chains and for our regulatory bodies.