Oct 17, 2016 12:00AM EDT – It’s not too early to reopen Canada’s trade-policy discourse with a view to having a strategy ready for the future | published: Oct 17, 2016 5:00AM EDT

Andrei Sulzenko is executive fellow at the School of Public Policy, University of Calgary.

In the 1980s, Canada departed from its uniquely multilateral focus on trade policy and embraced bilateralism. It made sense at the time. The Uruguay Round of multilateral trade negotiations was proceeding very slowly, given its complexity and the large number of participants. Since Canada’s main objective within each multilateral round was to secure better access to the United States, we could do that more quickly and efficiently with a bilateral agreement and, as a bonus, obtain preferential access while the multilateral system caught up.

The United States had already taken up bilateralism in a big way, signing deals with many of its smaller trading partners. Indeed, Washington’s implicit strategy was to set up a hub-and-spoke system with the United States as the hub, enjoying preferential access to multiple markets at the expense of those countries’ access to each others’ markets. This was the big-country game, emulated by the European Union.

Unfortunately, for small-market countries such as Canada, bilateralism becomes less attractive over time, as they will always be spokes in an entangled world of bilateral deals, with the constant erosion of preferences. And the more such deals, each slightly different, the more difficult it is for businesses to navigate decision-making in relation to increasingly complex global value chains.

Then, our best hope was to leverage the bilateral U.S. agreement into a hemispheric trading bloc. The addition of Mexico into the North American free-trade agreement was an important defensive achievement for Canada in heading off a bilateral U.S.-Mexico arrangement that would have impaired Canadian access. However, subsequent negotiations on a Free Trade of the Americas agreement came to naught when Brazil and Argentina decided that they preferred to be big fish in the smaller Mercosur pond.

With the Doha round of multilateral negotiations also suffering from fatal sclerosis, Canada settled in to a second-best strategy of bilateralism, initially with many small trading partners, and eventually with more important ones like the EU and South Korea.

We were also latecomers to the recently concluded Trans-Pacific Partnership, an important achievement if it goes ahead because Canada would enjoy equal access to the markets of participating countries, including Japan, one of our largest trading partners. TPP is a step away from the blatant distortions of rampant bilateralism to the reduced distortions of plurilateralism.

Where we go from here depends largely on the outcome of two recent deals – the TPP and the Comprehensive Economic and Trade Agreement with the EU. Unfortunately, Canada is mostly a bystander in ratification decisions.

Should both come into force, Canada will then have good, secure access to the markets of most of our major trading partners, with the notable exception of China and possibly Britain. But if either deal founders, where does that leave us?

In those circumstances, the obvious initiatives would be bilateral agreements with Britain and Japan as priorities. Dealing bilaterally with China on “free trade” is problematic.

A more fruitful strategic approach for Canada may be to return full circle to multilateralism, but not the multilateralism as it was practised under Doha – too many parties with divergent interests on too many issues.

Indeed, it is fair to say that if the difficult trade issues of the 20th century (such as agriculture) cannot be negotiated by the whole international community, then that’s even more true for the critical trade issues of the 21st century – services, investment, intellectual property, competition, regulatory co-operation, security.

“The willing and able” should be able to devise a process for dealing multilaterally with these issues. Indeed, even though the United States has made some efforts in this regard, its leadership is arguably suspect. That would provide Canada, the historical honest broker, with an opportunity.

There are important precedents, such as the Agreement on Government Procurement in the World Trade Organization, adhered to by about half the member states, as well as the WTO’s Trade in Services Agreement initiative involving 25 members.

It would not be beyond the ken of the like-minded to develop a more bundled approach for a 21st-century agenda that goes beyond existing disciplines and/or an agenda to rationalize existing bilateral and plurilateral undertakings into a new multilateral agreement, taking the most liberal undertakings as the standard.

It may be too soon to precisely define the way forward given the uncertainties surrounding the U.S. election cycle, Brexit posturing, TPP and CETA ratification. But it’s not too early to reopen Canada’s trade-policy discourse with a view to having a strategy ready for when the air finally clears.

Report Typo/Error

Follow us on Twitter: @GlobeBusiness

Leave a Reply