Thomas Watson
From the October 22, 2007 issue of Canadian Business magazine

Extra. Extra. Read all about it. Canada — once described by Robin Williams as a loft apartment over a really great party — is no longer considered an honorary member of the Third World. That, if you recall, is what The Wall Street Journal called us in 1995. Today, it is the WSJ’s home turf that has been put at risk by drunken-sailor economics, while our home and native land is in decent shape. As BMO Nesbitt Burns deputy chief economist Douglas Porter said when explaining the surging loonie: “Aside from lumber, newsprint and Céline Dion, practically everything Canada produces is now in piping hot demand.”

But Canada — where about 20% of all jobs are linked to international trade — can’t rest on its laurels. After all, despite the so-called hot demand for most things Canadian, our exports fell for the third straight month in June, when our trade surplus dropped more than expected, to $5.27 billion, from May’s $5.87 billion. And demand for resources — the source of our surplus — could tank along with the U.S. economy, where we ship about 85% of our exports.

The good news is that Ottawa has finally jumped in the spaghetti bowl of bilateral trade negotiations, where other nations have been far more active for far too long. “Canada is back in the game,” boasted Minister of International Trade David Emerson in June, after the Harper government completed Canada’s first free trade agreement in six years. Emerson said that the deal — with the European Free Trade Association (Iceland, Liechtenstein, Norway and Switzerland) — is a “major directional statement,” claiming that Canada has taken an important step toward trade intensification with the European Union.

That’s the bad news, since Emerson is wasting time. The odds of a Canadian deal with the EU are about as good as Dion improving her record sales by joining forces with 50 Cent.

German Chancellor Angela Merkel called for transatlantic free trade in January, when Germany was starting its six-month presidency of the EU. But Canadians should not read too much into European use of the word “transatlantic.” Danish Prime Minister Anders Fogh Rasmussen made that clear in a Financial Times opinion piece published in February, when he called for freer transatlantic trade between the EU and the United States, which jointly account for 58% of global gross domestic product and 37% of world trade. German journalist Gabor Steingart, a special correspondent for Der Spiegel, was kinder when calling for a NATO-like trade agreement. In his view, such a free trade zone could stem the dwindling of western market power, “perhaps with the addition of Canada.”

And the Germans don’t even speak for Peter Mandelson, who isn’t much interested in Canada or the States. “We have decided to concentrate our FTA efforts at present,” one source close to the floor so the downstairs neighbours can join our party.

EU trade commissioner says, “on countries which have both market potential and barriers to trade and investment that are high.” Neither the U.S. nor Canada makes the cut. But even if they did, “the most pressing barriers to trade we face with the U.S. and Canada are not tariffs but regulatory behind-the-border measures such as technical standards or requirements related to health.” Eliminate those and there still remain “considerable differences” on a few important issues (geographical indications, GMOs, agriculture, etc.) that should make constituencies on both sides of the Atlantic skeptical, at least in the short term.

The Harper government deserves credit for opening doors in Europe while starting talks with Colombia, Peru and the Dominican Republic. But Canada’s future is to the south, where our “special trading relationship” with the U.S. didn’t stop China from surpassing us as the No. 1 national supplier of goods to America on an annual basis in July. Our trade focus should be, as Conference Board of Canada chief economist Glen Hodgson has recently argued, on taking out internal barriers to interprovincial trade, while taking NAFTA to another level and forming a common front with the States on third-party trade liberalization. In other words, let’s renovate the loft, make it open-concept — and cut away the floor so the downstairs neighbours can join our party.