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January 30, 2013

Is More Always Better?
A Look at Canada’s Free Trade Agreements

It has become accepted economic wisdom in Ottawa, spoken with great certainty by government officials, that the signing of numerous free trade deals is the best avenue to ensure we continue to enjoy prosperity in Canada. On that continuing initiative, the Senate recently passed the Canada Panama Free Trade Agreement, the latest in a series of such agreements that the Harper Government has signed with minor trading partners.

But is the accepted wisdom wrong?

No one disputes the importance of trade to Canada’s prosperity: one in five jobs and almost a third of our GDP is dependent upon exports. What is open to debate, however, is the impact of free trade agreements with minor trading partners, and a simple look at the most recent statistics is eye opening as to the whether or not these deals are having a positive impact on our economy.

Canada is currently involved in trade deal negotiations with 67 countries. Conventional wisdom suggests that these agreements would lead to increased exports. However, a careful review of the statistics available from Industry Canada for the countries with which Canada has signed trade agreements with in the past shows that is not always the case.

For example, in 1996, the year before our free trade agreement with Israel, we had a trade deficit of just under $27 million. In 2011, our trade deficit with Israel had grown to over $580 million. Our trade with Chile went from a surplus of $73 million in 1996 to a deficit of $1 Billion in 2011. It goes on: the year free trade with Costa Rica began in 2003, our trade deficit was almost $226 million. In 2011, it was over $315 million. In the two years since we entered into free trade with Peru, our trade deficit went from under $2.5 billion dollars to almost $3.9 billion.

The numbers speak for themselves, and what they say is not a ringing endorsement of this government’s globetrotting pursuit of any and all free trade agreements.

Why have Canadian businesses - Canadians in general - not benefited more from these agreements? There have been individual success stories, but the overall numbers suggest that we are missing something.

Since 2006, the Harper government has presided over a 7 ½ percent decline in the value of goods and services exported to other countries, while our trade deficit increased from $37.8 billion in 2006 to $143.8 billion in 2011. What’s more, an increasing proportion of those exports are commodities, reflecting their increased importance in the economy in general. The downside of this, as discussed in a June 2012 report by the Organization for Economic Cooperation and Development, is a decline in the manufacturing sector, which for years has provided stable employment for Canadians, free from the boom and bust cycles brought about by swings in commodity prices.

The decline in exports is a very serious problem. In November 2012, Statistics Canada announced that real GDP growth was only 0.1 percent for the third quarter of 2012, down from 0.4 percent in the second quarter. The organization attributes this to a decline in exports, which fell by 2 percent in the third quarter – the largest decline since the second quarter of 2009. More recently, a January 2013 report from Statistics Canada put Canada’s trade deficit at $2 billion for November 2012; almost four times what it was the previous month, $552 million.  

Put simply, if exports are vital to our economy, and exports are declining, then this country is facing some major problems. And, as the figures show, these problems are not necessarily solved with free trade agreements, and certainly not with countries the size of Panama, Canada’s 75th most important trading partner.

My concern is that this government is placing undue emphasis on free trade agreements with minor trading partners at a time when the attention and resources of our national government should be directed toward our priority markets. Indeed, in testimony before the Senate Standing Committee on Foreign Affairs and International Trade, a representative of the Department of Foreign Affairs and International Trade admitted that the Government did not even perform a detailed cost benefit analysis of the impact of the free trade agreement because Canada-Panama trade is so minor that it would make such an exercise pointless.

If we are going to open our borders to another country's products – and contribute to their prosperity in doing so - the least we can do is make sure that our own businesses have all the assistance and support they need from the Government of Canada to take advantage of the trade and investment opportunities the other country has offered in return. We need to be constantly examining the evidence and always be willing to look at new approaches, because whatever this government has been trying – the statistics prove – has not been working.

Trade negotiations with our major trading partners – current and future – should take priority over a worldwide quest for free trade agreements for their own sake. As former Prime Minister Brian Mulroney stated in his speech at the Free Trade @ 25 Tribute Dinner in Toronto on October 3, 2012:

“From government, we need a sharper focus on which market should command priority for trade negotiations, and why.”

Good advice.

Percy Downe is a Senator from Charlottetown and Vice-Chair of the Senate Standing Committee on Foreign Affairs and International Trade.

 
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