Washington and Ottawa are moving in opposite directions.
While the Trump administration pursues an inward-looking “America First” agenda of economic nationalism, Canada is embracing globalization, multi-lateral frameworks and new trade deals.
Even as the U.S. pulls out of its commitments in Asia, such as the Trans-Pacific Partnership (TPP), the Canadians have pivoted towards the region with a renewed interest in forging closer economic ties and partnerships.
Formal exploratory discussions about a Canada-ASEAN free trade agreement have begun. According to a jointly issued report by the Canada-ASEAN Business Council (CABC), a new multilateral trade deal across Southeast Asia would open up a swath of business opportunities within the world’s fastest growing market place, representing about 625 million people.
These discussions come fast on the heels of Canada’s recently negotiated Comprehensive Economic Trade Agreement (CETA) with the European Union. This multilateral free trade agreement covers a broad range of trade in goods and services, and opens the door to Canadian and European based firms to a market of more than 500 million people and a GDP of almost 20 trillion dollars.
Mira Chatt, a Southeast Asia Specialist with Canada’s High Commission in Singapore said, “Canada is also promoting stronger commercial relations with priority Asian markets like China, India and Japan and actively participating in discussions with the 11 remaining original signatories of the TPP to explore whether and how to proceed…”
Re-orienting global value chains to Asia
These developments could reconfigure global value chains. A major trade deal between Canada and ASEAN would open up pathways into China, and, potentially, into Beijing’s broader One-Belt-One Road (OBOR) initiative across Asia—for Canadian infrastructure firms, for example. As Greg Ross from the CABC told me, “A Canada-ASEAN FTA could be an eventual path for Canada to join RCEP (the Regional Comprehensive Economic Partnership), an ASEAN-led FTA, for deeper Canada-Chinese trade.”
And if the current NAFTA negotiation talks between the U.S., Canada and Mexico collapse, U.S. firms could be tempted to move manufacturing operations into Canada , in order to gain preferred trade access to ASEAN and broader Asian markets—and even to the European Union via the CETA. Canada could become increasingly attractive as an export platform for American firms , especially for industrial machinery, technology, agri-food processing and other niche sectors.
Canada: standard bearer for multilateralism
With U.S. leadership out of the picture — at least for the time being — Ottawa has become a de facto standard bearer for a rules-based, multi-lateral framework around global trade. This makes Canada an essential country on the world stage.
In early June, 2017, Chrystia Freeland, Canada’s Foreign Minister, delivered a speech before the Canadian House of Commons which affirmed Ottawa’s commitment to a foreign policy that promotes a progressive trade agenda, for “… a better, safer, more prosperous, more sustainable world.”
Canada’s trade agenda — which includes benchmarks around labor practices, gender equality and environmental safeguards—isn’t easy to achieve, particularly in trade deals involving emerging markets.
But in Asia, Canada also remains a strong advocate of the so-called TPP-11—the remaining TPP member states minus the U.S.— and is supportive of using existing language of the TPP as a benchmark for the Canada-ASEAN FTA. And, says Mr. Ross, “the ASEAN-Australia-New Zealand FTA (AANZFTA) could serve as a starting template for a Canada-ASEAN deal…”
Challenges to progressive trade deals
One of the things that won’t be a problem in the ongoing Canada-ASEAN FTA discussions will be an ISDS (Investor-State-Dispute Settlement) clause which caused so much grief with the public in the TPP deal. But it will be more difficult to get countries like Myanmar and Vietnam to agree to Canada’s demanding trade rules.
The U.S., with the world’s largest economy—an economy four times larger than Canada’s– had the power to entice and cajole other TPP member states to agree to “deep” rules-based trade standards.
Can Canada achieve the same results without the Americans?
This question is important because if Ottawa can’t get the same cooperation from emerging markets in ASEAN, might its trade reps compromise progressive trade standards in order to bring new deals to fruition? Especially since, in the Trump era, there’s added incentive for Canadian leadership to breakaway from its historic dependency on the U.S. — including getting out from under Washington’s defense umbrella.
Chatt said, “Canada is absolutely willing to walk away from trade negotiations if progressive trade standards are at risk of being compromised.”
This would include the current NAFTA negotiations.
Indeed, one of the biggest challenges to moving forward with Asia-focused trade deals is that most of Canada’s resources have been pulled into the NAFTA negotiations with the U.S. Once NAFTA is sorted out—or it collapses–the Canadians will fix their gaze on new trade deals throughout Asia, further distancing themselves from Trump’s Washington.