The following was originally posted on iPolitics.
Prime Minister Harper’s recent visit to China has given Canada’s economic future a timely boost through some new agreements, including a long awaited arrangement on Foreign Investment Protection. All signs point in the direction of more to come, possibly including a Free Trade Agreement.
Canada must continue to forge long-term economic arrangements with China, for the reasons that the Prime Minister has outlined. But success is not assured. The Chinese are tough negotiators, and are every day more confident in their country’s economic power, and their ability to shape deals to China’s benefit.
And China is not alone. Brazil, India and others are also flexing their new economic muscles. All are playing hardball even with the largest economies and with each other. The UAE put its entire relationship with Canada on the line for the sake of a single economic goal: increased air traffic rights for its national airline.
It’s not just approach. These emerging economies view the world differently than we do.
They seem less committed to building the multilateral rules that have been developed as international standards for trade and investment since the late 1940s, and inclined to “managed trade” arrangements that accommodate special circumstances.
They believe that Western approaches to the global economy are flawed. They contend that the West’s unqualified embrace since the 1980s of deregulation, of open markets and liberalized capital flows is the cause of today’s economic troubles.
The state often plays a major role in the economy. Some have state-owned-enterprises and sovereign wealth funds which rival or dwarf private corporations elsewhere. Some use state power to influence how their national private corporations behave.
Like it or not, these new powers are playing by different “rules of the game.”
This has contributed to the lack of an agreement after 10 years of the Doha Round. Industrialized nations no longer have the power to bring negotiations to an end largely on their terms. The new kids on the block are increasingly calling the shots.
In sum, this has major implications for Canada’s external economic policy, and the way we conduct trade and economic negotiations.
First, we can no longer count on the WTO and the rules-based multilateral trading system as we have in the past. While Canada should continue to press for further advances that bind all players (and protect the less powerful, like Canada), we should not be spending scarce negotiating resources on it.
Second, we must — as is now being done — move quickly to complete some serious bilateral arrangements with the new players that matter most for our economic future. We need to focus on those few negotiations where the gains are the most tangible and long term.
That means negotiating arrangements with China, India and Brazil, finishing our negotiations with Korea, updating our relationship with Mexico, and taking a serious look at Turkey. And after that, let’s look at Vietnam, South Africa and Indonesia. Others are doing so, and we cannot be left behind.
In particular, Asia’s rise as the powerhouse of global economic growth for the foreseeable future means we must forge deals that integrate Canadian firms as much as possible into that region’s supply chains. (Whether or not that includes being part of the Trans Pacific Partnership remains to be seen).
Third, and most importantly, we must move beyond traditional trade and investment agreements. If we are to have any chance of negotiating durable deals with these strong new players, we have to bring all our advantages to the table.
We have many things that others need in terms of goods, services, technology and investment. But in a world of growing demand for resources of all kinds, Canada holds especially valuable negotiating coinage that should be leveraged in the national interest.
The result could take the form of tailor-made strategic agreements of a binding nature. Our foreign partners could get access to the Canadian products they need on a sustained basis on terms acceptable to Canadians. Canada could open major opportunities for Canadian companies in the dynamically growing emerging world that would be impossible to achieve under traditional negotiations.
Underpinned by strong dispute settlement systems and governance structures, such “comprehensive” agreements would provide durable foundations for Canada’s economic relationships with these new power players.
There are many things that Canada must do to assure its economic future in a fast-changing world.
But one thing is certain: they will have to include new approaches to economic negotiation and diplomacy if we are to compete with, and gain advantage from, the tough world of the 21st Century increasingly dominated by strong new players.
And it means playing tough, and using our leverage strategically — all of it.
The follow up to the Prime Minister’s visit to China will be a good place to start.
To read more, go to www.securingprosperity.ca