I spent some days last week in Waterloo, Toronto and Ottawa to give some presentations and try to better understand Canadian trade policy. With Canadians playing a starring role in the previous week’s excitements in Vietnam the week before last on TPP-11 or the Progressive Comprehensive TransPacific Partnership (CPTPP), it seemed a good time to better understand how the Canadians are viewing the trade outlook and especially its “progressive” element. A joint trade symposium from CIGI, the University of Ottawa and the University of Calgary provided a very timely place to discuss.
Interlocking nodes of trade talks in Asia, the Americas and Europe, suggest trade and investment policy will dominate much of the diplomatic energy over the next year, suggesting that trade and investment risks will remain relevant for markets perhaps more so if asset valuations become more stretched. Ongoing trade reviews, especially NAFTA and disputes are perpetuating uncertainty for business making it harder to plan. This uncertainty, along with rather limited changes in macro policy in major global economies (across the G20), suggest a cap on global growth and global trade acceleration next year. And a downside risk from a major trade measure (more likely from Washington) remains in the frame.
What I took away from my time in Ottawa was that Canada’s “progressive” trade agenda is still being defined in terms of scope, that Canada is slowly working towards some regional Plan Bs, which also extend to the security front, where the Caribbean and Venezuela are concerned. These will likely do more to extend investment and other economic norms, but will be harder to enforce as long as U.S. policy is moving to challenge those norms.
Ultimately, global trade discussions will have some impact on assessing new markets, but broader macro policies especially fiscal and monetary policy will have a greater impact. The two U.S. policy goals of tax cuts and greater exports are difficult to achieve. The (admittedly modest) increase in imports next year, along with the stronger dollar from gradually rising yields, suggests that meeting the trade deficit goals are unlikely. This tradeoff suggests that trade and investment protectionist risks are here to stay and could be more relevant as asset valuations become more stretched. Moves to a plan B or C may ease some of the pain for individual companies or pave the groundwork for an eventual shift in U.S. policy, but won’t fit well in the current policy calculus.
More detailed takeaways include:
Progressive trade still uncertain: There seems to be a lot of question about what the new “progressive” trade agenda really looks like. The progressive agenda fits well with the domestic policy agenda and was critical to salvaging the Canada-Europe free trade agreement when it foundered on sub-national European concerns. The governance elements of the trade agenda are becoming more prominent. Still, the agenda drew some questions from both business and NGOs. NGOs seem upset that what they are asking for is not progressive enough (with questions on the gender chapters, aboriginal rights and culture). Some business representatives we spoke to worried that they were not being consulted as systematically. There is some worry about whether government is bargaining away leverage that could be used on market access issues.
NAFTA moving along but jury still out : As I write, NAFTA round 5 is still under discussion in Mexico City, with all signs pointing towards the countries sticking to their negotiating timeline through Q1 2018. This timeline is a positive sign
Of the three partners, Canadians still seem most comfortable with extended timelines, likely because there is no election looming as in Mexico and the U.S. They thus feel a bit more comfortable with the additional time required for the technocratic process than some of their peers. Academics did concede some space on supply management, political leaders may find this more difficult. It remains to be seen what all the negotiating pieces will look like. At this point some form of NAFTA deal looks to be the most likely scenario, but the three sides remain far apart on key issues, suggesting some difficult negotiations ahead, both within and between countries.
Progress on Plan B: Canadian view is that Mexicans also wanted to make some changes to TPP (rules of origin) but didn’t want to make a fuss. As was palpable at the IMF meetings the Mexicans have an interest in articulating plan B to make a stronger case in NAFTA negotiations. The economic gains from these remains uncertain.
Or C? Canada seems also to have a plan B or C with Pacific alliance (Mexico, Chile, Peru, Colombia) and is one of several countries along with Australia, Singapore who are eyeing are associate membership in this group. This group, the more trade oriented part of Latin America has long coordinated. The overlap between these countries and those in the TPP-11 seems extensive though, raising the risk that all the different talks could distract from each other.
Trade is thus a key part of Canada’s involvement in the hemisphere. Canada is preparing to launch talks with Mercosur next year. This would make them one of a long list of countries considering closer ties with Mercosur (Brazil, Argentina, Uruguay, Paraguay). After years of looking inward (due to the policies of the region hegemon’s Brazil and Argentina) the group now seems to be looking to sign a trade deal with someone, any one. The view from negotiating partners in the Americas and Europe with whom I’ve spoken is that they are committed, especially the Argentines who will host both WTO and G20 and want to have deliverables rather than deadlock. However, it remains to be seen whether there is the political willingness to open up markets further given the domestic driven nature of the economy. Brazilians seem a bit pre-occupied with local issues, including political jockeying ahead of 2018 elections.
Venezuela the bigger focus for regional security issues: Indeed Canada seems to be making more of an effort to work with the Pacific alliance on a whole number of issues, especially trade, building on ties with Mexico and the TPP-11, as well as on Venezuela’s humanitarian crisis. With a range of different views in the hemisphere and among Asian and European allies Focus in Americas on building coalition on humanitarian grounds for Venezuela.
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