Ottawa’s Trade Deal Betrayal, or Gambit?

20 Oct

Canada’s prime minister, Stephen Harper and France’s president, Nicolas Sarkozy, are in the very early stages of bilateral trade negotiations, but all eyes are on America for a reaction.

Following a meeting in Quebec City, Canada’s prime minister, Stephen Harper, and President Nicolas Sarkozy of France, who is the president of the European Union as well, are expected to sign an agreement for preliminary negotiations meant to create a trade pact between Canada and Europe that would be even more sweeping than the North American Free Trade Agreement.

A person who is familiar with the government’s plan, but who did not want to be identified as upstaging an announcement by two heads of state, said the agreement would begin “a scoping exercise leading to the launch of talks.”

It follows the release Thursday of a 192-page study by the Canadian and European governments that concludes such a deal could increase exports from Canada to Europe by 20.6 percent by 2014.

Thomas P. d’Aquino, the chief executive and president of the Canadian Council of Chief Executives, a lobbying group, said in an interview that a deal for Canada and Europe could, in the long run, also involve the United States.

“One of the arguments I’ll be sensitive to from Americans is, ‘Now that we’re in trouble, you’re turning your back on us,'”Mr. d’Aquino said from Chicago, where he is speaking on trade issues. “But this is not about us saying that we’re tired of having our eggs in one basket. It would be an excellent step to doing something more ambitious on trans-Atlantic trade.”

Although proximity has made the United States Canada’s top trading partner, there have been many attempts to reduce the country’s economic dependence on its neighbor to the south.

That doesn’t stop The Economist from predicting American displeasure

…a Canadian-European deal might divert trade from America but would not involve increasing barriers to trade with America. Moreover, by virtue of a shared land border several thousand miles long, Canada cannot help but trade heavily with its southern partner. Indeed, this move may chiefly be about diversifying Canada’s participation in global trade, since America is very nearly a quasi-domestic market for the nation.

But one has to consider the fact that Americans have grown increasingly sceptical of trade in recent years—an attitude which occasionally erupted in political statements decrying NAFTA during the year’s presidential campaigns. If nothing else, Canada may be covering all its bases, such that a return to American protectionism, unlikely as it may be, doesn’t severely impair Canadian growth (trade with America constitutes over half of Canadian GDP).

In that sense, the move can be read as nationalistic self-interest, in the same vein as American trade-scepticism. From an economic standpoint, however, it’s hard not to wish that America would recognise the wisdom of Canada’s actions.

…and then, blaming presidential candidate Barack Obama.

It would not be fair to blame Canada’s Atlantic focus on Barack Obama’s ambiguity on trade, specifically NAFTA. Economic integration, particularly between similar economies, amounts to little more than trading political control for efficiency. It remains wise whether or not current partners are doing well, stumbling or likely to fall into the hands of protectionists.

Mr Obama should nonetheless be chastened by today’s announcement. Whatever compels Canada to look abroad, it is right to do so and the United States would be wrong not to. Today’s announcement shows it is getting easier for the world economy to work around hesitant Americans, if need be.

I guess The Economist has stopped distinguishing between managed trade and multilateral free trade. To paraphrase DIA, when you sacrifice political control for efficiency, that’s free trade. But, when states pick and choose what to trade bilaterally based on interest-group lobbying and electoral concerns, that’s just politics.

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