30 November 2018

Trade deal success brings global opportunities, HSBC Bank Canada chief economist says

After negotiating a new NAFTA, Canada is well-positioned to overcome some of the barriers that have held us back in the past, David Watt says

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Canada achieved a key objective by having the United States and Mexico agree to preserve dispute-resolution mechanisms in the new deal. The U.S. had been strongly opposed to keeping this in the United States-Mexico-Canada Agreement (USMCA), considering it an infringement on its sovereignty, but Canada’s persistence in insisting it stay paid off, says the chief economist of HSBC Bank Canada.

The dispute-resolution clauses are important to Canada because they deal with anti-dumping complaints and permit each government to demand the others comply with trade obligations.

The longer-term significance of achieving a new North American deal is that it brings clarity to Canada’s global trade relationships, he said, making it easier for important and emerging sectors to move forward globally.

“It brings us into alignment with the more modern trade agreements we have signed with Europe and the Pacific countries. This is particularly important in terms of trade in intellectual property and digital trade,” David Watt says.

The USMCA extends copyright protection and patent protection for pharmaceuticals known as new biologics — drugs made from natural sources. The agreement also includes new provisions to deal with the digital economy, including prohibiting duties on IP products such as music and e-books, and protections for Internet companies so they’re not liable for content their users produce.

This makes it easier for Canadians to move from being largely consumers of intellectual property toward being producers and exporters. It eases the way for digital startups and established firms to work globally “because there’s more clarity about what your rights are,” Mr. Watt says.

It’s true however that Canada didn’t get everything it wanted in the three-country trade deal, which took nearly two years to negotiate, but it can be considered a progressive way forward for the country.

Canada had hoped for language in the new agreement that would recognize Indigenous rights and improve gender balance, for example.

But even in those areas, we have some flexibility. “We have preserved the freedom to make progress,” he says.

That includes the freedom to dispute, for example, when softwood producers believe their industry is being treated unfairly.

With the USMCA expected to be signed by the three countries by 2019. “Canada is now uniquely positioned to trade within North America, with Europe and with the Pacific nations with whom we have also signed agreements,” he says.

It’s important not to sit on our laurels, though, he adds.

“We need to take advantage of our position. The work it took to achieve this agreement with just two trading partners highlights the desperate need to not only boost business investment in Canada but to boost investment in research and development,” Mr. Watt says.

According to World Bank and United Nations statistics, Canada spent 1.6 per cent of its gross domestic product on research and development in 2014 (the most recent data available), compared with 2.7 per cent in the United States and more than 3 per cent in Japan (in 2016).

With the greater certainty that the USMCA brings to intellectual property protection and copyright, “there’s greater incentive for R&D that will bring a long-term payoff for Canada,” he says.

Having trade agreements in place brings an opportunity “to overcome some of the competitive hurdles” that have kept us back in recent years, Mr. Watt suggests.

Canada already has a free-trade agreement with South Korea, for example, yet we have done little to boost trade with that country since that deal was reached in 2014. Ottawa is also looking to deepening our economic links with China possibly even looking at free trade, though this will take time, he says.

Now is the time for Canada to use its USMCA success to reach out globally, Mr. Watt adds.

“Just because we have these free-trade agreements around the world, we shouldn’t assume the world is going to come knocking.”

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