NAFTA talks proof of need to diversify

Experts urge Canada to open protected sectors

Turbulent NAFTA talks with the United States could prompt Canada to more urgently pursue new export markets and to boost competitiveness by opening up protected industries, say trade experts.

Canada’s newsprint industry became the latest target of tariffs this week when the U.S. Department of Commerce imposed preliminary anti-dumping duties averaging 22.16 per cent on producers that ship south of the border. The new levies were in addition to preliminary countervailing duties of an average 6.53 per cent - raising the total tariff to 28.69 per cent.

The blow to newsprint producers came on the heels of similar levies on solar panels and the looming threat of tariffs of 25 per cent on steel and 10 per cent on aluminum. The United States has temporarily exempted Canada and Mexico from the steel tariffs pending the outcome of the NAFTA talks.

“I would say there is a trade war coming if it isn’t already in play,” said Walid Hejazi, professor of international competitiveness at the University of Toronto. “The question is how do we respond? We have to secure our ties to the U.S. of course, but it is now incumbent on the Canadian government and businesses to make moves to diversify our trade.”

More than 75 per cent of all Canadian exports go to the United States. And the top 20 Canadian export products — from crude petroleum oils and motor vehicles to electrical energy and parts for turbo jets — count the U.S. as their top market.

Though Canada has secured the Comprehensive Economic and Trade Agreement (CETA) with Europe and signed a revamped Trans Pacific Partnership after the U.S. backed out of the deal, businesses remain dependent on the market south of the border, Hejazi said.

“The big challenge is complacency,” he said, adding that of all G7 countries, Canada has the least penetration in BRIC markets. “All the opportunities in Asia and Europe aren’t being taken up. We have to maintain our ties with the U.S. of course but we also need companies willing to take the risk and go in to non-traditional markets.”

One way for Canada to boost innovation in its dairy sector would be to dismantle the long-standing supply management system that has stifled growth and innovation in the industry, said Eugene Beaulieu, director of the international economics program at the University of Calgary.

U.S. President Donald Trump’s protectionist trade rhetoric has specifically targeted the supply management system in Canadian dairy, which includes fixed prices, quotas and tariffs of between 200 and 300 per cent. Dropping the system would relieve Canadians of “extremely expensive” prices, prompt greater competition and innovation and give negotiators something to offer at the NAFTA bargaining table, Beaulieu writes in a new report.

“The NAFTA renegotiations are an opportunity for Canada to step up and do the right thing with respect to international trade in dairy while giving the Americans something they want in the negotiations,” Beaulieu writes in a new report co-authored by former research associate V. Bajali Venkatachalam. “At the same time, it is an opportunity to weaken supply management and move toward dismantling it altogether.”

Canadians transfer an estimated US$2.9 billion to milk producers, according to the Organization for Economic Co-operation and Development. While opening up the industry would inevitably lead to “short-term pain” for the least competitive producers, increased competition in the sector would lower prices and prompt greater innovation in the sector, Beaulieu says. Both New Zealand and Australia did away with similar supply management systems and are now leaders in the dairy industry, he says.

“This is a big demand by the U.S. and when you are negotiating you want to bring something to the table,” he said. “This is good for Canadians and in the long run, I’m convinced it’s good for the industry too.”

Others feel Canada should go beyond dairy to open up other industries such as telecoms.

“This should be an impetus to double down,” said Ian Lee, business professor at Carleton University. “We should open up our remaining six or seven Canadian industries and move on.”