The recent signing of the free trade agreement (FTA) between Singapore and the Pacific Alliance (PA), whose members are Chile, Colombia, Mexico and Peru, at the end of January of this year should interest Canadian policymakers.
The fact that Singapore will become the first associate member of this trade accord is a great example of effectiveness and determination in trade negotiations at a time when countries around the globe should be trying to improve and diversify their market access, expand opportunities for investment and support efforts for making more flexible and resilient supply chains, which facilitate the flow of essential goods across borders and lay the foundation for economic recovery at a post-pandemic stage.
The trade impact caused by the implementation of unilateral policy measures aiming to contain the spread of the COVID-19 virus proved that FTAs must be utilized as tools of cooperation, coordination and facilitation of trade, investments and flow of essentials in moments of crisis. Trade pacts such as the Pacific Alliance offer a unique opportunity for Canada to continue building stronger trade links with dynamic and progressive economies.
The Pacific Alliance was established in April 2011 and it brings together a group of like-minded nations that share a common vision on international trade and cooperation, with the aim of becoming a platform of political, economic and commercial integration with a particular focus on the Asia-Pacific region.
Canada and Singapore, along with Australia and New Zealand, were invited to become associate members of this agreement by the PA governments at the same time, in June 2017. The concept of the associated state was created by PA members as a way to advance their funding goals and to promote a strategic integration with nations that could add economic value to the PA. So, what did Singapore do differently in order to finalize negotiations faster than the other three countries, including Canada? What is the current status of the discussions between Canada and the PA? When is Canada aiming to conclude negotiations? What are the obstacles that are delaying an agreement between Canada and the PA?
While Canada and the PA countries launched negotiations in October 2017, Canada has been involved in this trade pact long before they started formal talks to become an associated state. For instance, Canada became the first non-Latin American observer of the PA trade agreement in 2012 and after that, Canada signed a Joint Declaration on Partnership with the PA in June 2016 where they identified six areas of cooperation and defined collaboration projects.
Additionally, Canada has a long-term bilateral relationship with each of the PA countries built over several years of dialogue, diplomacy and commercial relations. Canada seemed to have an advantage over the other three countries, including Singapore, in negotiating within a reasonable time a fruitful deal, but this has not been the case. According to Global Affairs Canada, eight negotiating rounds have been already carried out between Canada and the PA with the last round held in November 2019. Why were negotiations interrupted? What produced this long impasse since the last negotiating round?
The signing of the FTA between Singapore and the PA should create a sense of urgency for Canada’s negotiators, keeping in mind that they could lose important opportunities if they continue to delay discussions. While it is true that the COVID-19 pandemic created uncertainty and trade negotiations need to be managed carefully, at this moment, governments should be seeking out new partnerships to create new opportunities for their people. Canada must seriously consider resuming negotiations with PA governments as soon as possible and define a strategic route to ideally reach an arrangement by the end of this year.
I will explain why Canada needs to act as soon as possible to conclude negotiations with the alliance.
The COVID-19 pandemic demonstrated that all economies are interconnected via global trade and that what happens in one country could produce a domino effect around the globe, creating a shortage of essentials and non-essentials and damaging the proper functioning of global value chains.
Although the benefits of trade have not been equal for all worldwide, the reality is that global trade via trade agreements, albeit imperfect, makes people’s lives better by facilitating access to goods, creating and maintaining jobs, promoting cross-border business activity and enabling supply chains to operate more efficiently. So improving and strengthening trade relationships with other countries such as those represented by the Pacific Alliance shouldn’t be taken lightly and should be considered a great addition to Canada’s global trade policy strategy.
At this point in time, Canadian policymakers and negotiators need to be aware of the relevance of moving faster and of listening to citizens’ opinions. On this latter aspect, Canadians expressed their thoughts about how Canada should engage in the world to advance prosperity during the deliberative exercise titled “Foreign Policy by Canadians” organized some months ago by the Canadian International Council (CIC), the Canadian Partnership for Women and Children’s Health (CanWaCH) and Global Canada.
In this participative exercise, Canadians clearly indicated that they have high expectations of their government with regards to its trade and economic engagement and interaction with other nations as tools to promote cooperation and create wellbeing for all. This view of a majority of Canadians aligns with the possibility of becoming an associated member of the PA.
Canadians mostly believe that Canada should strengthen their ties with traditional partners and allies, but, at the same time, they should try to build new bridges and diversify trade interests with other nations with a particular interest in Asian countries. Most likely, Canadians prefer to focus on Asia because it has been a vital growth engine not only for the region but for the entire world. Asia has created a business environment conducive to trade, investments and digital transformation. In this respect, the goals of the Pacific Alliance line up with the aspirations many Canadians have for the future and provide a unique possibility to respond to a shifting global economy by increasing and improving commercial linkages with Asia-Pacific economies that support open, free, equitable and sustainable trade and look to enhance the international trading system via FTAs.
The attractiveness and the opportunity for Canada goes beyond the size of the PA market, which has 230 million people whose purchasing power has experienced constant growth and is composed mainly of a young and qualified labor force, but also in deepening relationships with trade partners based on an ambitious and new generation agenda.
Canada has, in effect, bilateral trade agreements with Chile, Peru and Colombia and has a solid trade partnership with Mexico through the Canada-United-States-Mexico Agreement (CUSMA), which superseded the North American Free Trade Agreement (NAFTA). The CUSMA expands and adds new provisions throughout 34 chapters (12 more than NAFTA) addressing important trade and investment issues for North American economic cooperation and integration. Canada also has strong commercial ties with Chile, Peru and Mexico through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which has created new opportunities for business and participation in regional supply chains for Canadian companies of all sizes and sectors including agriculture, forestry, industrial manufacturing, mining, sea food, environment, information technologies, aerospace and financial and professional services.
The question remains, however, as to what benefits could be obtained by signing a new trade deal with nations with whom Canada already has separate trade agreements in place?
Even though Canada has already in force commercial pacts with each and all of the Pacific Alliance members, which is one of the prerequisites to becoming an associate member, the value of signing this deal lies in the possibility of updating and expanding the scope of the existing agreements and cooperation initiatives with PA nations by including deeper and improved commitments related to issues that are particularly important for Canada.
Some of the issues that Canada might be interested in including in the agenda with PA countries are the inclusion of small businesses in the agreements, digital trade, state-owned enterprises, public procurement, environment, corporate social responsibility, gender equality and the avoidance of discrimination. Canada might also be interested in discussing specifically cooperation and investment opportunities in infrastructure, energy, food, the digital economy, transportation and logistics.
Canadian investments in Mexico, Chile, Peru and Colombia represented 77 per cent in 2020 of Canada’s total investment in Latin America (excluding the Caribbean). Working together can strengthen Canada’s resilience and presence in regional supply chains across the Asia Pacific, and establishing trade policies can guarantee a seamless flow of essential products and services from Canada to PA countries and backwards. The cooperation can also involve developing better initiatives in the education sector where Canada is a global leader as it hosts around 2 million students in post secondary every year.
Canada needs to be aware that the business landscape is constantly evolving as a consequence of the digital economy, disruptions and, overall, the emergence of new business challenges, so trade rules via trade pacts must be revised and updated in order to avoid being left behind. In this vein, the Pacific Alliance would allow Canada to modernize and deepen their commercial relationships with Chile, Colombia, Mexico, Peru and also, now, with Singapore, to benefit Canadian businesses, including women, youth and Indigenous entrepreneurs.
Finally, the Canadian government needs to remember that the Pacific Alliance is not a trade deal with limited influence in Latin America, nor a trade pact with a limited agenda. The Pacific Alliance is the opposite; it is a trade platform that is contributing to promoting economic integration between Asia and the Pacific and to strengthening the multilateral trading system at a time when protectionism, trade wars and political conflicts threaten to destabilize the global economy.
The Pacific Alliance has built solid networks, initiatives and work agendas with regional and multilateral organizations such as the Association of Southeast Asian Nations (ASEAN), the European Union (EU), the Organization for Economic Co-operation and Development (OECD), the World Bank, and the Asia-Pacific Economic Cooperation (APEC), among others. This level of connections demonstrates the PA’s capacity to engage and execute their vision.
The PA has been working under an open and progressive agenda that supports Asia Pacific integration. Without a doubt, the signing of the FTA between Singapore and the PA will take this agreement to a new stage where areas such as infrastructure, energy, food industries, shipping and port logistics, technology and digital will play an important role in the collaboration, in addition to other areas such as academic and student exchange, tourism, innovation, mining, competitiveness and business promotion.
This has led to rising interest from around the globe, with 62 observer countries from five continents including the G7 nations China and India – a large and diverse group of economies that see this agreement as a way to advance the international trade agenda.
Canada should utilize the platform that the PA offers to contribute towards higher levels of integration in the region by sharing knowledge and experience in areas such as good regulatory practices, sustainability, inclusion, capacity building, competition, ecommerce, public procurement, and state-owned companies, as well as in economic sectors like maritime services, financial services, aerospace, creative industries and infrastructure development.
In other words, Canada has a real chance to continue promoting and leading its progressive and ambitious trade agenda through its eventual membership as an associated state in the PA.
Becoming an associate member of the PA might represent not only a strategic move in trade policy for Canada, but also a unique opportunity to showcase Canadian leadership in action by supporting and working together with fast-growing economies.
It is important to consider that becoming the first developed economy to join the Pacific Alliance could give Canada a natural leadership role moving forward and some legitimate advantages over other developed nations that also want to join this trade deal. Joining the PA might allow Canada to have a real impact on the ground by promoting and setting improved trade rules that support all-size businesses throughout the supply chain, but also to be an active player in the path towards higher levels of integration in the Asia Pacific.
The good news for Canada is that the Pacific Alliance needs a partner with its profile, its influence and a seat in high-level forums, but Canada needs to step into the agreement soon. The potential FTA between Canada and the Pacific Alliance is a win-win for both sides, so there is no excuse to continue delaying discussions. Canada should resume negotiations and work together with the PA to achieve the ultimate and mutual goal of improving the wellbeing and prosperity of their people.