We all pay for protectionism

NationalPost.com – Opinion/Editorial
Friday, Dec. 17, 2010

The federal government’s decision to block the foreign takeover of Potash Corporation is coming home to roost, and the casualty may be billions of dollars in investment and trade. No, not for BHP Billiton or the shareholders of Potash Corporation, but for all Canadians. By opting to nix BHP’s bid (and safeguard 13 Conservative seats in Saskatchewan), the government is imperiling the conclusion of the Canada-EU Comprehensive Economic and Trade Agreement (CETA).

The EU is currently Canada’s second-largest trading partner, after the United States. According to the WTO, it accounted for 9% of Canadian trade in goods ($26-billion in exports, $41-billion in imports) in 2009 and 18% of its trade in services ($11.6-billion in exports, $14.4-billion in imports) in 2008.

CETA would significantly boost these numbers, and our GDP. According to the EU CETA delegation and its senior advisor, Canadian trade expert Fred Kingston, Canadian exports to the EU would rise by over 20% by 2014. This would yield an annual increase of 0.77% in Canada’s GDP (or $12-billion), 46% of which would come from the liberalization of services, 33% from full tariff elimination and 21% from the reduction of non-tariff barriers.

This trade boost would come at a crucial time. The United States is not only suffering the worst economic downturn in memory, but our currencies have reached parity, erasing the advantage a weaker loonie once gave our exporters. Protectionist noises have been growing south of the border, while other markets are opening up. According to the WTO, the percentage of Canada’s exported goods destined for the United States has declined from 87% to 75% between 2000 and 2009.

But a new deal with Europe could now be jeopardized by the Canadian government’s quashing of two foreign takeover bids in the past three years. Understandably alarmed, the Europeans are asking that Canada give their companies “national treatment” in CETA, which means that the federal government would have to let them play by the same rules as domestic businesses. Takeovers would still be subject to rules on competition, for example, but could not be blocked on the amorphous grounds of “national interest.” Sectors of the economy which were previously off-limits to foreign investors, would also be opened up to international players.

Were Canada-EU trade talks to founder on this protectionist rock, 60 years of attempts at transcontinental reciprocity would be dashed. It was Canada that pushed for the inclusion of Article 2, calling for democratic and economic collaboration and development, in the NATO agreement in 1949. In the 1970s, prime minister Pierre Elliott Trudeau unsuccessfullysoughttonegotiate a “contractual link” with Europe, in an attempt to reduce Canada’s dependence on trade with the United States. The move toward a Canada-EU deal then accelerated dramatically in 2008, following the breakdown of the Doha round of multilateral trade negotiations. Countries focused their efforts on pursuing bilateral agreements, and in May 2009, Prime Minister Stephen Harper announced that Canada would formally pursue negotiations with the EU, within a two-year time frame.

The Europeans view CETA as a template for larger accords, particularly with the United States. Consequently, unless they get a good deal with Canada, they won’t sign one at all. We hope that at the next rounds of talks, set for Jan. 17, 2011 in Brussels, the Europeans stand firm and achieve what common sense has so far failed to do: persuade our government to drop archaic foreign investment restrictions. For should protectionism prevail, Canadian workers, investors and consumers will all be the losers.

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