House of Commons Standing Committee on International Trade A Potential Agreement between Canada and the Pacific Alliance
Colin Robertson, Vice President and Fellow, Canadian Global Affairs Institute
January 30, 2018
I believe associate membership in the Pacific Alliance, currently consisting of Chile, Colombia, Mexico and Peru, serves Canadian interests. For Canada, the Pacific Alliance is the right platform to advance our interests in Latin America. They are business-minded and embrace the rules-based, democratic order.
Canadian investment in the Pacific Alliance is estimated at around $40 billion. The economic health of a lot of Canadian firms, especially in resources and finance, are tied up in the economic wellbeing of the Alliance.
The ‘Pacific pumas’ have more than 221 million consumers. Their combined GDP is equivalent to the world’s sixth largest economy. The four countries are responsible for approximately 33 percent of Latin America’s total gross domestic product, 50 percent of Latin American exports, and 40 percent of the total foreign direct investment capitalized in the region.
The Pacific Alliance goal is to achieve free movement of goods, services, capital, and people. They are integrating their stock markets and are even sharing embassies in certain countries.
The Pacific Alliance is a good match for Canada, especially as other key Pacific partners - Australia, New Zealand, Singapore and now South Korea - are also looking at associate membership.
Since the days of the coureurs des bois and Hudson’s Bay Company, Canada has been a trading nation. According to Global Affairs economists, our trade-to-GDP ratio is around 70 percent; one of the highest in the world. During the past quarter century we have become a nation of traders. One-in-five jobs depends on exports.
This progress and the prosperity enjoyed by Canada is thanks to trade liberalization. Participation in the Pacific Alliance should be part of a broader strategy designed to increase opportunities for our trade in goods and services and the investments of our pension funds,.
Services account for about 70 percent of the Canadian economy. We are good at trade in services, notably banking, insurance, and engineering. Think Scotiabank, one of Mexico’s biggest banks with growing interests in Chile, Colombia and Peru, or Manulife in Asia, or SNC Lavalin or Brookfield in their engineering and infrastructure projects throughout the world.
This trade explosion began with the Canada-US FTA and then the NAFTA. These deals opened access to the US and Mexican market and gave Canadians the confidence to compete internationally.
The results of the Uruguay Round and a slew of subsequent bilateral FTAs and FIPAs - Canada has more Free Trade Agreements in Latin America than in any other part of the globe - have further liberalized Canadian trade and investment. The recent negotiation of the Canada-EU agreement (CETA) and now the FTA with Pacific nations (CPTPP) will give us even more opportunities for sales and investment.
But if we already have free trade agreements with Chile, Colombia, Mexico and Peru why do we need to take the next step of associate membership in the Pacific Alliance?
First, we must take our opportunities when they come.
We must consider Pacific Alliance associate membership against a backdrop of ‘America First’ protectionism with our largest trading partner and no foreseeable conclusion to the somewhat-zombified WTO Doha Round. With the Trump administration having removed the US as the anchor of trade liberalization, middle power groupings, such as the Pacific Alliance, need to pick up the slack to sustain the rules-based order that serves our interests.
In trade, ‘first advantage’ pays off in terms of establishing a customer base ahead of the opposition.
Associate membership in the Pacific Alliance may aslo help open a door to a most important economic partner for Canada. Chile and Peru have FTAs with China; Mexico is considering an FTA with Beijing as is Colombia.
Second, the Pacific Alliance is consolidating itself as a platform for economic and commercial integration within the Americas.
For Canada, the Pacific Alliance would consolidate our position as a ‘first-mover’ within the best trade agreement in the Americas, just as we have done trans-Pacific through CPTPP and trans-Atlantic through CETA. It’s always better to be a driver setting the course in the front seat, rather than a late passenger, along for the ride at the back of the bus.
Canada would become a leader within the Pacific Alliance by virtue of being the biggest economy in what would constitute the most liberalized caucus of trade nations in the world. While it’s about trade, it is also about building deeper co-operation through regulatory integration and addressing emerging issues like the digital economy, environment, and women empowerment. Canada can benefit from linking to the best parts of the Pacific Alliance.
The ”Accumulation of Origin” is also an argument for associate membership, weaving the 4 FTAs we have individually with these countries into a “seamless” web (inputs treated the same from all four), thereby potentially improving overall competitiveness of Canadian products.
The Pacific Alliance’s innovative approach means working on one-stop-shop initiatives for foreigners looking to do business in the Alliance and implementing flexible rules-of-origin to incentivize business opportunities and regional value chains.
Third, deeper linkages with the Alliance will bolster the deeper linkages that we have developed with the region.
What better place to advance the progressive trade agenda goals in gender, labour, environment, and SMEs, than in this group of progressive democracies. We’ve already begun – last year the Canada-Chile FTA was revised to included gender rights.
Fourth, Associate Membership will give us more place and standing in the Americas.
The Pacific Alliance countries share values and an outlook on the world that is similar to Canada. The members are liberal democracies with open economies and a desire to deepen connectivity with each other and the world.
Given the periodic illiberal governance in parts of the hemisphere, the stable and open economies of the Pacific Alliance stand in stark contrast. Canada should vigorously support and reinforce this great integration project to the fullest extent possible.
Ties of history and migration have given us strong links across the Atlantic and the Pacific but our ties south of the Rio Grande, by comparison, are more recent.
The relationship with Mexico, our third largest trading partner, increasingly solidifies with significant Canadian investments in mining, banking and manufacturing in the automobile and aerospace sector. Over two million Canadians travel there each year.
But the investment and tourism flow is still mostly one-way. We need to do more to bring Mexicans and our other Latin American partners to Canada to study, to invest, to work.
The government’s consultations on membership in the Pacific Alliance needs to look at the potential challenges.
For example, the Pacific Alliance’s mobility provisions – free movement amongst the member states – may not work for Canada.
Instead, we should look to trusted traveller programs for business. Broadening to the Pacific Alliance our current guest worker program with Mexico is another option. Operating for more than 40 years, it now brings over 22,000 seasonal workers to Canada.
The provinces must be critical partners in this initiative, just as they have been in the negotiations of the CETA, CPTPP and the ongoing NAFTA negotiations.
Trade is less about tariffs at the border and more about standards and regulations in areas of provincial or shared responsibilities. A joint stock exchange is one of the goals of the Pacific Alliance and our securities markets operate under provincial jurisdiction.
Fortunately, we have developed institutions – regular meetings of ministers and officials from different levels of government – as well as the Council of the Federation to manage, advise and develop consensus.
Trade liberalization acts as a catalyst to economic restructuring of the domestic economy. Most are winners. But, inevitably, there are some losers.
Here again, the different levels of government need to work together to provide adjustment assistance – often improving skills through training, but as we saw after the Canada-US FTA in the case of our wine industry, funds for new vines to make a drinkable product rather than something used to take the paint off the car. Today, our wines claim a place on any table and our ice wines are exported globally.
Associate membership in the Pacific Alliance makes sense for Canada.
It will require some adjustment, collaboration amongst the different levels of government and then a strategic plan, and most importantly, aggressive effort by Canadians to take advantage of the opportunities.
Lessons learned with the Pacific Alliance will help us with the rest of the Americas and in our efforts to sell Canada beyond our borders.