Is Canadian Trade Policy under threat?

In today’s global economy where nations are more interconnected than ever, trade policy plays a pivotal role in fostering prosperity that benefits all members of society. However, Canada, like any other economy worldwide, faces significant challenges resulting from the recent pandemic including the reconfiguration of global supply chains, conflicts such as the wars in Ukraine and Israel-Palestine, and more. As a result, and from a trade policy perspective, Canada must strategically plan its next steps to maximize the benefits from international trade negotiations and proactively prepare for potential future disruptions. In this context, the discussion surrounding Bill C-282, an Act to amend the Department of Foreign Affairs, Trade and Development Act (supply management) currently under analysis in the Senate of Canada, warrants close examination and engagement from all stakeholders to comprehend its implications and the potential consequences it could bring for Canadians.

Bill C-282 aims to amend the Department of Foreign Affairs, Trade and Development Act to prevent the Minister of Foreign Affairs from negotiating or making commitments regarding international trade, particularly concerning increased imports affecting Canadian supply management. In essence, this bill seeks to exclude the dairy, poultry, and egg sectors from future trade negotiations with other nations. On one side, there are proponents of this bill, such as Senator Amina Gerba, who sponsored it in the Senate, arguing that Canadians need to safeguard themselves against unpredictable disruptions in global supply chains by approving this bill. However, there are others who believe that this bill could exacerbate issues in supply management for Canada. Respecting both positions, this article asserts that rejecting the proposed amendment to Bill C-282 presents a significant opportunity for Canada to reaffirm its commitment to open, free, and sustainable trade. On the other hand, if the bill is approved it could easily damage Canada’s hard-won and positive trading reputation in several ways. 

First, Canada is a trading nation that substantially relies on international trade activities to sustain its economy. This statement, far from being mere rhetoric, is underscored by concrete economic data. For instance, the most recent “State of Trade” report issued by Global Affairs Canada highlights that Canada’s trade-to-GDP ratio reached 67.4% in 2022, marking the highest level in sixteen years. The same report noted  that Canada’s international trade set new records last year, with a 21.2% increase in goods and services exports, amounting to $940.4 billion. These positive economic outcomes translate into jobs and benefits for Canadians across the country, and they would not be attainable if Canada excluded our supply management system or any other sector from future trade negotiations. Indeed, trade policy negotiations should not be restricted to a single sector but should instead reflect a national and comprehensive strategy that ultimately delivers greater benefits to the majority of the population.

Official data, for example, reveals that one in six jobs across Canada is supported by international trade. Consequently, shutting the door to negotiations in a specific sector, even one considered strategic or of national interest, is not the most conducive approach to facilitate greater participation of Canadian companies in export activities. Instead of legally barring specific industries from trade negotiations, policymakers, government officials, industry leaders, and stakeholders should acknowledge that companies and employees might face challenges due to international trade agreements. This recognition would lead to the creation of programs that help them transition and compete effectively under new circumstances. In the case of the Canadian dairy industry, the government has already allocated funds to dairy farmers, with $1.2 billion to be disbursed over six years under the Dairy Direct Payment Program  to compensate them for market losses resulting from the Canada-U.S.-Mexico Agreement (CUSMA).

Second, Canada has been recognized as a supporter and key player in advancing progress within the international trade agenda and strengthening the multilateral trading system. Canada’s 15 ratified free trade agreements with 51 countries, granting Canadian businesses preferential access to 1.5 billion consumers worldwide, is no mere coincidence. Canada’s role in leading discussions on innovative solutions to address new-generation trade and investment issues is also exemplified by its membership in three of the most renowned state-of-the-art agreements in recent years: the CPTPP, CETA and CUSMA. These three agreements have expanded the horizons for Canadian businesses, owing to the willingness of all trading partners in these negotiations to explore ways to facilitate trade and investments without restricting conversations in any sector. It is undeniable that governments sought provisions to safeguard specific industries, but none rejected discussions on any topic or silenced the possibility of trade dialogues, as this bill aims to do. The negotiations for the CPTPP, CETA and CUSMA were challenging undertakings for Canadian negotiators and their counterparts. However, in the end, all nations made compromises to advance their shared goals of economic integration and enhance opportunities for their companies to enter new markets. Although the results of the three trade agreements may not have been perfect, they constituted steps in the right direction for the benefit of all participating countries.

It is also worth noting that trade agreement negotiations have transcended the objective of simply reducing tariffs or improving market access. New-generation trade agreements now address emerging issues, such as facilitating Foreign Direct Investments, cross-border services, electronic commerce, intellectual property rights, regulatory harmonization, and other “behind-the-border” policies that have proven challenging to resolve at the World Trade Organization (WTO) level. Consequently, the ongoing discussion on trade agreements aims to discover innovative methods for forging deeper agreements that lead to increased trade by incorporating comprehensive provisions and solutions that go beyond the traditional approach of tariff reduction. Therefore, Bill C-282 appears inconsistent with Canada’s role in guiding the international trade agenda alongside like-minded economies. Indeed, approving this bill can be perceived as a protectionist measure and a shift in Canada’s trade policy values, which up until now have been characterized by principles of openness, fairness, and sustainability.

Third, the COVID-19 pandemic and recent disruptions have vividly illustrated the complexity and interconnectivity of global supply chains and the extensive impact disruptions can have throughout them. Learning from the impact of the pandemic means enhancing the resilience of Canadian supply chains rather than weakening them. Isolating Canadian supply chains, specifically supply management in this case, could pose serious challenges for Canadians in the event of local disruptions. What would happen if a local disruption occurred, and Canadian producers were unable to meet Canada’s demand for poultry and dairy products? Disruptions, whether natural, health-related, social, or political, can occur at any time. Therefore, Canada should take a proactive approach to strengthen its trade possibilities for obtaining essential goods and services through trade agreements in case of emergencies. Current times necessitate the improvement of supply chain resilience through collaboration with others, not the opposite. In the wake of the pandemic, countries worldwide need to continually assess and enhance the depth of regional economic integration and promote collaboration in global supply chains by harnessing technological advancements. This will lead to stable and sustainable trade relations and foster win-win economic cooperation.

Econometric analyses have also confirmed that the inclusion of deep clauses in trade agreements leads to higher levels of participation in global supply chains, indicating that trade agreements can effectively link national producers to regional and global networks. In this vein, studies have revealed a positive correlation between engagement in global value chains and the “depth” of trade agreements, measured by the number of policy areas covered by the agreements. In this regard, the integration of local dairy producers into regional and global networks or strengthening their presence in these networks should be an integral part of Canadian trade policy. Likewise, Canadian producers of dairy products, poultry, and eggs must be assured that they can continue to supply their products to Canadian consumers. However, they should also prepare to compete both locally and internationally. This is undoubtedly a challenging task, and they should not undertake it alone. Policymakers, including the Senate of Canada, should consider discussing how to support Canada’s supply management in evolving and updating its business model to address the new challenges and opportunities presented by the global economy. Canada can draw inspiration from the experience of other countries, such as New Zealand, which transformed its local dairy industry into a global powerhouse over the last few decades, supplying both local and international markets. New Zealand’s dairy industry faces intense international competition but has succeeded and played a significant role in the New Zealand economy, accounting for approximately 20% of the country’s exports and around 3% of its GDP.

Fourth, if the analyses explained above are not enough to convince people of the damage that Canada would suffer with the passage of Bill C-282, it would be wise to heed the advice of 17 distinguished Canadian leaders who have served the country in various capacities on the global stage. In a recent open letter, they expressed profound concerns about how counterproductive Bill C-282 could be for Canada’s interests. Drawing from their solid and extensive experience serving Canada abroad, they noted the very serious harm this bill could inflict on the ability of Canadian governments and trade negotiators to navigate future trade negotiations, expand into new markets, and secure valuable access for Canadian products, services, and investments. They strongly urged Senators not to approve the bill based on their practical experiences representing Canadians in foreign markets.

In the end, major shifts in the direction of Canadian trade policy, such as the approval of bills like Bill C-282, could also lead to a loss of foreign investment impacting the country as a whole.  In particular, the Senate and Canadians in general should not take for granted the benefits that international trade has bestowed upon our economy Instead of turning back the clock, the improvement of trade policies to make them more inclusive, allowing more companies and under-represented groups to engage and reap the benefits, should be a top priority. Here, it  is essential to echo the recommendations put forth by Tapp et al., in their chapter ‘A Road Map for More Inclusive Canadian Trade Policy’ a few years ago. They concluded that Canada needs to adopt a renewed approach to its global trade policies, underpinned by the goal of creating inclusive policies that enable more Canadians to partake in the benefits of globalization, including trade agreements. This approach is anchored in three key policy pillars: firstly, facilitating the optimal allocation of Canada’s resources to promote economic prosperity; secondly, enhancing international connectivity to enable Canadian firms and workers to engage more effectively with foreign partners in global value chains; and thirdly, collaborating with other countries to construct a robust multilateral foundation for the global trade and investment system.

In an environment of uncertainty, trade policy should contribute to a higher degree of predictability and help mitigate the risks arising from disruptions. This encompasses fostering collaboration in trade with other nations, both in services and products, including supply management. It is now time for chambers of commerce, business organizations, private and public sector officials, leaders, and, above all, citizens to engage in this vital discourse on Canadian trade policy, expressing their views with respect and prioritizing the collective well-being. Canadians must also take pride in their contributions to strengthening the international trading system through the negotiation of new-generation trade agreements, and this commitment should not be halted; in fact, it should be accelerated.