Canada’s Major Trade Relationships: Turbulent But Progressing

The relationships between Canada and a number of its major international trading partners remain turbulent and uncertain. However, Ottawa did manage to make important progress on trade deals in the first quarter of 2018, joining the revised Trans-Pacific Partnership, keeping NAFTA talks alive and moving forward, and reportedly considering developing a new approach to dealing with China.

In January, Canada and ten other nations endorsed a revised version of the Trans-Pacific Partnership, or TPP. The agreement, which was altered after U.S. President Donald Trump decided to pull his country out of the pact, is expected to make it easier for Canadian businesses to reach deals in Japan, the world’s third largest economy. Canadian Prime Minister Justin Trudeau had been widely considered the main obstacle to a TPP deal after he decided not to attend a summit on the agreement in November 2017.  

Also taking a hard line on NAFTA, the premier said in early February that his government was “willing to walk away from NAFTA if the United States proposes a bad deal,” adding that “we will not be pushed around.”

The prime minister’s tough talk came after his foreign minister, Chrystia Freeland, traded barbs with Trump’s trade representative, Robert Lighthizer, during a NAFTA negotiating session at the end of January.

Lighthizer complained that U.S. companies were being shortchanged by NAFTA, said he wondered if Ottawa is “truly committed to mutually beneficial trade” and derided Canada’s proposal that would allow the United States to opt out of arbitration decisions made under the pact. For her part, Freeland used American statistics to argue that U.S. companies were getting a fair deal under NAFTA and called on Washington to avoid disrupting the successful trade relationship that the two countries had established.

Meanwhile, it’s safe to say that Ottawa did not endear itself to Washington by filing a complaint against the United States at the World Trade Organization, in an effort to combat the Trump administration’s decision to levy tariffs against Canadian softwood lumber producers. Canada’s complaint accused the United States of taking illegal punitive action against multiple nations.

But despite the clashes, there are signs suggesting that NAFTA is not dead.

Multiple sources reported that the sides had made “slow” progress at the January talks, although there are still disputes between the United States and Canada about auto production rules, dispute arbitration, and a sunset clause for the pact. In early February, Trudeau said he didn’t think Trump would cancel the treaty, and a U.S. trade official stated that America was still looking for “breakthroughs” that would enable NAFTA to be preserved, Reuters reported.

In news that bodes well for the prospects of a free trade deal between Canada and China, Ottawa is considering reworking its insistence that Canada’s trade partners agree to become more progressive in multiple areas ranging from labor issues to gender issues to environmental matters, The National Post reported in mid-January. According to the report, Canada and China agreed in December to launch talks aimed at reaching a trade deal, but were unable to announce that development in a press release because China rejected Canada’s efforts to specifically allude to labor issues in the document. Beijing has said that “non-trade issues” should not be incorporated into trade talks.

However, Canada and China have room to compromise on the progressive issues that Ottawa is looking to advance, including “labor, indigenous rights and gender,” as Yves Tiberghien told the Vancouver Observer. Tiberghien is a political science professor at the University of British Columbia and the director emeritus of the school’s Institute of Asian Research. The newspaper also quoted the professor as saying wages in China are rising 10 to 20 percent annually, and the Asian country is looking to become more progressive on gender issues.

Despite the uncertainty regarding trade deals, Canadian exports were expected to jump 8 percent in 2017, powered primarily by strong demand from the U.S., Export Development Canada reported in October. Exports by the Canadian industrial machinery and equipment sector jumped 11 percent in 2017, the organization estimated. Although Export Development Canada predicted that overall Canadian export growth would slow to 4 percent this year, that estimate could prove conservative if the country’s trade relationships continue to improve.

It should be noted that Associated Equipment Distributors advocates for freer trade, lower tariffs, and easier cross-border trade in both Canada and the United States The organization believes that excessive domestic content rules are a barrier to economic health for its members in both the United States and Canada, while tariffs and trade barriers harm its members’ customers.

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