‘It’s redundant’: Economists puzzled over O’Toole’s pledged trade strategy

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Erin O’Toole’s Conservative Party has pledged to pursue a trade deal with Australia, New Zealand and the United Kingdom if it wins the Sept. 20 election — a promise that has puzzled some trade economists.

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Stephen Harper, the last Conservative prime minister, was big on doing trade deals. He completed agreements with South Korea, Colombia, and Jordan; initiated talks with the European Union; and pursued an elusive compact with India, one of Asia’s fastest-growing economies.

O’Toole, who served as a cabinet minister in Harper’s government, would be less ambitious, according to the policy manifesto he released on Aug. 16.

The only countries mentioned by name as trade deal targets are the three Commonwealth countries with which Canada shares history and a language. According to the platform, a CANZUK agreement “could include” free trade and investment between the four nations, easier movement for all citizens, enhanced security and defence partnerships and increased intelligence cooperation.

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Some economists said they found the idea odd because the gains would be small and negotiations could prove to be more troublesome than they might appear at first glance. New Zealand, for example, is a big dairy exporter and would inevitably demand greater access to Canada’s highly protected market. Same with Australia when it comes to wine. Apart from agriculture, goods already flow relatively freely between the four countries.

“It’s redundant,” said Keith Head, an economics professor who focuses on international trade at the University of British Columbia’s Sauder School of Business. “We’ve already got these agreements.”

Canada, Australia, and New Zealand are members of the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which came into effect in December 2018.

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After the U.K. exited the European Union in January 2020, Canada and the U.K. negotiated an agreement that espoused many of the same parameters the two countries traded within under the Canada-EU deal. As well, the U.K. is trying to garner support to join the CPTPP. If British Prime Minister Boris Johnson is successful, CANZUK would effectively exist under the auspices of a larger group that would provide a greater array of options than the smaller collection of similar economies could offer.

The critical question is how far are they proposing CANZUK go

Trevor Tombe

The CPTPP “is one of the most comprehensive trade agreements ever,” said Trevor Tombe, an economics professor at the University of Calgary who specializes in internal and external trade. The Trans-Pacific Partnership goes beyond tariff reductions to “harmonize” regulations, such as with intellectual property, and makes cross-border investment easier, he said. “So it’s difficult to imagine what else would go into CANZUK that would make it different,” Tombe said.

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To be sure, trade economists might be interpreting O’Toole’s trade agenda too narrowly. Adam Taylor, a trade adviser in the Harper government, said the Conservative focus on a CANZUK deal represents a shift in the party’s approach to trade.

“Increasing Canada’s free-trade network around the world to diversify markets, to pursue all free trade agreements we could sign — that was the doctrine” under Harper, said Taylor, who now heads his own trade consulting firm, Export Action Global Inc. But, “free trade can’t be the end-goal itself,” Taylor said. “It has to be strategically selective with people that we are comfortable doing deeper business with.”

The Conservative platform says as much. “We do not promote free trade for the sake of free trade but instead believe in engaging international markets to create Canadian jobs, investment, and strategic partnerships,” the platform reads.

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O’Toole was unavailable for comment and instead issued a statement in response to questions. “With the rise of China, Canada has a moral duty to stand alongside its democratic partners. Canada’s Conservatives have a strong track record on trade, and understand that free trade drives Canadian jobs, investment, and strategic partnerships with our allies.”

The platform takes a hard stance against China, pledging to disentangle the Canadian economy from the growing global power. And while there are points in the platform that pledge to engage and invest in other nations, such as ones in the Indo-Pacific or Africa, there are no other pledges to explicitly pursue further deals aside from CANZUK.

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Tombe said there could be value in a CANZUK agreement if the Conservatives negotiate for freer movement of students and workers between the nations. The platform pledges to do that, but he said the language is too vague to know what O’Toole would pursue if he becomes prime minister.

“The critical question is how far are they proposing CANZUK go,” Tombe said. “This matters since labour mobility would be where a potential CANZUK deal could add more value beyond current trade agreements.”

In 2020, 3.8 per cent of Canada’s merchandise exports went to the U.K., 0.4 per cent went to Australia and 0.1 per cent went to New Zealand.

That’s why it would make more sense economically to use scarce negotiating resources in the pursuit of bigger targets such as India, said Head, the University of British Columbia trade expert. “You can have an easy trade agreement that won’t really do much,” he said. “Or you can devote your resources to India, which is the big prize, but it’s hard.”
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