In the past 5 years, Canada has signed only one free-trade agreement - with Costa Rica (population 4.3 million, GDP US$20 billion). Is Canada too complacent to compete?
The Globe and Mail reports that over the same period the U.S. negotiated 10 free-trade agreements with 15 countries including Singapore, Chile, Australia and Vietnam.
The total combined population of new U.S. free-trade countries is 228 million (50 times greater than Costa Rica's population). Similarly the combined GDP of U.S. free-trade companies is some $2.2 trillion (some 500 times greater than Costa Rica's GDP).
Perhaps even more embarrassing is Canada's latest softwood "accord" with the U.S. which threatens to unravel even before George Bush's July 6 birthday bash.
While Canada's International Trade Minister David Emerson declared on the July 1 Canada holiday that the softwood deal was "now complete", there are several essential loose-ends that must be tied up before the agreement truly can be finalized.
First, Canada's timber industry must cancel dispute-related legal actions against the U.S. This is doubtful given that B.C. Lumber Trade Council, the Ontario Forest Industries Association and the Alberta Softwood Lumber Trade Council are insisting that the U.S. modify its eleventh-hour "escape clause". Currently only the U.S. can terminate the timber accord after 23 months with no further litigation for 12 months. The provincial associations want Canada to also have this right.
In addition, Canadian lumber companies must sign up for a duty refund program that would return 80 percent of penalties that Washington imposed since 2002. Cash-strapped Canadian softwood producers desperately need the $1 billion that the agreement allows the Americans to keep (from the over $5 billion in penalties collected from these same Canadian timber producers).
And The Winner Is...
The United States of America has aggressively signed on new free-trade partners while taking full advantage of existing trade relations with Canada.
For example, America's most recent agreement with Vietnam slashes tariffs on 94 percent of all manufactured goods traded between the two countries, and on 75 percent of agricultural products.
Let's look more closely at the $1 billion in export duties from Canadian lumber companies that the U.S. gets to keep under the softwood deal. Although it's hard to tell from some Canadian news reporting, the $1 billion is in U.S. dollars.
When America originally collected the US$5 billion in levies, one Canadian dollar traded for around US$0.68. This means that Canadian lumber firms paid some C$7.4 billion in softwood lumber penalties.
The Canadian dollar is now worth some US$0.88, so that US$5 billion now translates to C$5.7 billion, a difference of C$1.7 billion from when the levies were originally received.
So the U.S. has gained C$1.7 billion (US$1.5 billion) from the weaker currency exchange in addition to the US$1 billion that America gets to keep as part of the softwood settlement. This despite the fact that seven rulings from the World Trade Organization and other hearing panels have gone in favour of Canada to collect the full amount of penalties from the U.S.
To become a winner, Canada needs to sharpen its negotiating tools and play the trade game at the world-class level. It is no longer acceptable for Canada to rest on its laurels as a natural resource economy. After all, natural resources such as oil, gas and timber are cyclical with all booms ending predictably in downturns.
For example, Canada should focus on developing assured access to the European Union with its combined population of 450 million people and a combined GDP of some C$12 trillion. This represents over 30 percent of global GDP, and would strongly complement Canada's access to the U.S. market (28.6% of global GDP), the Mexican market (2.5%), as well as the Canadian domestic market (2.5%).
With assured free-trade relations with European Union countries posing healthy alternatives, Canada could easily demand more from the U.S. for its softwood lumber.
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