Free trade: A baby step to the south

Canadian Business

Free trade: A baby step to the south

By Jane Bao

18 August 2008

When Canada concluded free trade talks with Colombia in June, the announcement came in the form of a release on a Saturday. But burying news of the deal on a weekend hasn’t stopped a storm of protest. In Ottawa, the opposition blasted the government for reaching an FTA (whose ratification will likely take months) without waiting for an assessment report from the Commons trade committee, whose members recently travelled to Colombia - a country that has been plagued by drug trafficking, paramilitary death squads and other forms of strife. South of the border, meanwhile, President George W. Bush’s proposed FTA with Colombia has run into a brick wall in Congress. Some American editorialists have criticized Congress’s stance, in opinions carrying such headlines as “Canada eats our trade lunch.” That has led Liberal and NDP critics here to suggest that Canada’s deal is meant to help Bush by exerting pressure to keep up.

All of this, however, is to overstate the importance of the Canada-Colombia agreement. It is a step in Canada’s foreign policy of re-engagement with Latin America, and Prime Minister Stephen Harper has cited “the integration of Colombia into the hemisphere” as a benefit alongside Canadian interests. But the political furor it has touched off wholly overshadows its commercial impact, which is likely to be minimal. “It’s a political gesture toward an embattled government in Colombia,” says Michael Hart, a professor at Carleton University’s Norman Paterson School of International Affairs, and a former trade official for Canada. “These are political agreements, not trade agreements. They should not be sold as agreements that are an important part of Canada’s trade strategy.”

Merchandise trade with Colombia, at $1.14 billion in 2007, accounted for less than 0.2% of Canada’s total trade; bilateral trade with all Latin American countries was less than 5% of the total last year. Though the FTA is a largely symbolic gesture, the deal will help the smattering of companies operating in Colombia - Canadian direct investments there amount to $739 million, and are mostly in mining, and oil and gas. But such figures are dwarfed by, for instance, the $576 billion in merchandise trade Canada did with the U.S. last year.

Canada signed its first FTA in six years in January, with the European Free Trade Association, a 48-year-old body comprising Iceland, Liechtenstein, Norway and Switzerland. A deal with Peru followed in May. The handful of FTAs don’t hurt, say some observers, but Canada would do better to focus attention elsewhere. “Canada should be pursuing a much more aggressive strategy with the U.S. to deal with excessive security at the border and regulatory differences,” says Hart. “We shouldn’t fool ourselves into thinking that pursuing such things as FTAs with little countries has a macro impact.”

Then again, small trade gains require relatively little effort, partly because few interests have to be considered and partly because Canada is adept at riding our southern neighbour’s coattails. Says Mark Manger, a trade expert at McGill University: “Whenever the U.S. negotiates a bilateral trade deal, Canada comes along and says, ‘Why don’t you give us the same terms?’ That makes it easier to negotiate.” In lieu of scattered bilateral free trade agreements and rebuffed attempts at establishing better ties with Europe, according to Manger, Canada should focus on East Asia and its booming population if we’re serious about securing markets elsewhere.

Talks continue with the Dominican Republic, Jordan, Singapore and South Korea, our biggest potential free trade partner. More ambitious endeavours don’t seem likely, as long as Canada keeps reaching for lower-hanging fruit.

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