The Kiwi Cross

Thanks to a snub by New Zealand, Canada now has a fantastic opportunity to forge valuable new trade ties with Asia, further distinguish itself as a major global player and, as a bit of a bonus, leave the United States behind to play catch-up.

Canada, the United States and nearly every other western country has long been keen to negotiate trade agreements with China and the other emerging economies in Asia.  It is easy to understand why. Asia, led by China, Japan, India, South Korea, and Indonesia, is a market with about one-half the world’s population and one-third the global GDP. Also, like Canada, most of Asia has already hit the ground running in terms of economic recovery. Even the current crisis in Europe is not considered a serious threat to Asia’s growth.

With much of the West still sluggish, Asia has seized an opportunity to realign global economic power by establishing trading blocs within and throughout the region. Among the agreements gaining traction over the past few months are the Northeast Asian free trade agreement, the Association of South East Asian Nations (ASEAN) + 3 free trade agreement, and the ASEAN + 6 free trade agreement. In all, there are a whopping 54 free trade agreements in place throughout Asia. While the success of these regional trading blocs remains to be seen, and problems do abound, they are generally regarded by the West as potentially serious barriers to entry to the Asian markets. The result has been a mad scramble by western nations to somehow find a favorable way in.

One potential avenue is the Trans Pacific Partnership. The so-called TPP is a trade agreement based on what was until recently a sleepy trade pact between Chile, New Zealand, Singapore and Brunei. The TPP is structured to allow for future members and its participants are hopeful that it will eventually become the basis for a free trade agreement with China, Japan and the rest of the Asian mother lode. Canada was initially asked to join the TPP in 2006. The Harper government declined, citing demands by charter member New Zealand that Canada deregulate its supply-managed dairy industry.

In November 2009, the Obama administration breathed some life into the TPP by announcing that the U.S. was interested in joining negotiations. The Canadian government, in a knee jerk reaction uncharacteristic of 21^st Century Canada, immediately asked to be included as well. Emboldened by Obama, New Zealand curtly cut Canada out. Prime Minister John Key stated that New Zealand would never allow Canada’s participation in the TPP as long as Canada continued to subsidize its dairy industry.

It is just as well that Canada was rebuffed. Canada’s resume with respect to trade agreements establishes that it is overqualified for the TPP. Canada simply does not need it. As author Michael Hart wrote, “Canada has always been a trading nation.” The skills honed by Canada in this regard have served Canada well and Canada’s recent record at establishing trading ties is unmatched by any western country.

At the beginning of 2008, Canada had four free trade agreements in place. They included NAFTA as well as agreements with Israel, Chile and Costa Rica. By the end of 2008, there were three more: Peru, Colombia, and the European Free Trade Association (which is comprised of Iceland, Liechtenstein, Norway and Switzerland). Since then, Canada has been negotiating free trade agreements with Panama, the Dominican Republic, the Caribbean Community (comprising 18 member states), the Central American Four (El Salvador, Honduras, Guatemala, and Nicaragua), the Free Trade Area of the Americas (32 member states), Jordan, South Korea as well as the historical and comprehensive agreement with the European Union.

As for China, Canada has had a Foreign Investment Promotion and Protection Agreement in place since 2004. At that time, Chinese investment in Canada stood at a little over $1 Billion. In the first five months of this year alone, China has made two investments in Canada’s oil sands that total close to $6 Billion.  China’s demands for Canada’s other exports, including Potash, Uranium and Wheat, have seen similar increases.

The rest of Asia is following suit. Citing heavy demand for Canada’s unique energy and other resources, agreements with Singapore and India are currently in the exploratory stages. As Saskatchewan Premier Brad Wall said in Beijing this past week,  “We literally have what these [Asian] countries need and in biblically proportioned reserves.” Accordingly, while Canada may be in danger of being shut out of the TPP, it is in no danger of being shut out of trade with Asia.

The same cannot be said for the United States or other members of the TPP. By all accounts, the TPP provides no certainty of a free trade agreement with China or the other Asian giants. Thus far, Vietnam is the only Asian country that has expressed any interest in joining the TPP. Also, most commentators agree that, notwithstanding New Zealand’s current position, if ratified at all, the TPP will surely contain carve-out provisions for certain protected products.

Even the United States’ commitment to the TPP appears half-hearted and desperate. The Bush Administration first expressed interest in the TPP in 2008 but when Obama came into office, the new administration tabled it. Due to the economic downturn, the American people were in no mood for liberalized trade agreements. Accordingly, when the President finally announced U.S. interest in the TPP in November, he only spoke vaguely of “engaging” with TPP members. Only after Japan signaled a preference for the ASEAN agreement, potentially excluding U.S. involvement in an Asian free trade pact altogether, did the U.S. scramble to firm up its commitment to the TPP. Even today, Congress remains skeptical. Accordingly, the U.S. is in no position to lead here. Certainly, Canada should not be blindly following it.

In fact, Canada, with guns blazing, is acting as the clear leader with respect to trade agreements. Like China, Canada can take advantage of other nations’ economic doldrums to quickly align itself with trading partners in Asia, thereby getting the jump on fashioning favorable alliances. Canada should trust its proven ability to do just that and leave the lesser option of the TPP to those countries with lesser options.

As for Canada’s subsidized dairy industry: it remains intact. More importantly, whether such subsidies should be eliminated is an issue that can be left for Canadians to decide without undue influence from other countries, especially faraway New Zealand. But then, this is typical for a leading power.