14 deals and what do we get?
The majority of Canada’s free- trade deals haven’t improved exports. Here’s what will:
Canada has been well served by NAFTA. It facilitated robust, sustained economic growth and it transformed the manufacturing sector, more than just about any other. By allowing companies to rationalize production across the region, NAFTA helped create much more competitive, profitable and global industries. As the country moves to sign more free- trade agreements ( FTAs), we should step back and consider some underlying truths about our ability to capitalize on them.
Without doubt, NAFTA has been an unqualified success for all three partners, our citizens and our businesses, which makes securing a modernized, strengthened agreement critical. In fact, it should be the top priority for the federal government, given the short- and longterm economic implications.
However, if the current
NAFTA renegotiations, and the uncertainty that surrounds them, point out anything, it is that Canada does not export enough to markets outside North America and that we need a stronger, more globally competitive and active manufacturing sector.
But simply signing a new trade deal with another country will not ensure our future economic prosperity. Today, Canada has 14 robust FTAs in place, including the provisional implementation of Comprehensive and Economic Trade Agreement with the European Union and the recently signed Comprehensive and Progressive Agreement for Trans- Pacific Partnership with 10 Pacific Rim countries. However, outside of NAFTA, Canada’s exports with the majority of these markets have not expanded since their signing.
The incredible effort that goes into negotiating an FTA shouldn’t be for nought. If Canada wants to grow our economy and create new jobs to expand the middle class through expanded trade, we need a plan, not just another trade agreement. This plan should consist of five critical elements.
First, we must improve the competitiveness of our domestic business environment. When manufacturers step into the global arena, much of their success has already been determined by whether Canada’s domestic environment has been conducive to helping them succeed in new markets.
Our business- tax structure is already complicated, onerous and growing less competitive given the recent U. S. tax changes. A wide range of policy, tax and regulatory regimes are contributing to a relentless increase in the cost of doing business in Canada and making our companies’ ability to compete with the EU, never mind the economies of the TPP, unnecessarily difficult. Canada needs comprehensive tax and regulatory reform to boost investment competitiveness and drive growth.
Second, we must ensure
FTAs level the playing field for manufactured goods.
Today, managing global trade is far more than dealing with tariffs. Other barriers to trade continue to emerge, including restrictive product regulations, direct export subsidies, government- procurement exemptions and currency manipulation. All of which provide an advantage to domestic industry over importers.
While recent FTAs have improved focus on these nontariff barriers, it is critical moving forward that there are strong protections for Canadian exporters to eliminate these practices.
Third, Canada should focus FTAs on countries with natural business ties, and not because of political expedience. We need to pick our trade partners similarly to how businesses pick theirs — is there a mutually beneficial agreement that will realistically boost the economic performance of all parties?
This should start with countries with deep historical connections and similar business cultures and legal frameworks to make it easier for small and medium- sized enterprises in particular.
Related to this is the fourth element — a focus on leveraging existing integrated supply chains.
Under NAFTA, Canada’s manufacturing economy has shifted from producing goods for this market to largely producing parts, materials and ingredients that feed larger supply chains. As such, roughly 85 per cent of Canada’s value- added exports are production parts that feed into larger finished consumer and industrial products.
Governments must make decisions based on actual industrial capacity for global supplychain integration and expansion, not strive to create new export segments where there is no proven advantage.
Finally, we must support the global growth of small and medium enterprises to support their growth at home. Canada has many small businesses but not enough medium and large companies. More than 95 per cent of manufacturers have under 10 employees, and many do not have the internal expertise or financial ability to expand globally. Governments have excellent export- support programs, but they should be consolidated to ease access for small companies.
By working together, government and industry can create the conditions our exporters need to harness the natural, technology and human capital resources of our country and succeed abroad, beyond North America. We need a comprehensive plan that starts with a review and modernization of our business environment and creates better supports for Canadian companies looking to go global.
The ongoing renegotiations have shown our vulnerability. We have no time to wait for the outcomes to start making the structural changes we need to compete.
Dennis Darby is president and CEO of Canadian Manufacturers and Exporters.