Harper Piecing Together Canada Trade Markets Beyond U.S.

Canadian Prime Minister Stephen Harper has stressed the need to diversify his country’s exports away from the U.S. since taking power in 2006. One deal at a time, he’s piecing together access to markets for Canadian exports equal to more than half the world economy.

Harper flew to South Korea this week to announce the completion of a trade pact with the Asian country, the world’s 15th-largest economy. Six months ago, he was in Brussels to mark an agreement with the European Union. Harper has also started talks with Japan and India, and brought Canada into the Trans-Pacific Partnership group of 12 countries seeking a regional trade pact.

The push by Harper has come amid opposition from companies such as the Canadian unit of Ford Motor Co. (F), which opposes the Korea agreement. Canada’s reliance on the U.S., which buys three-quarters of its exports, took a toll in the last recession, and weak shipments abroad since then are holding back economic growth.

“Growth in global trade over the past generation has been largely responsible for wealth creation around the world,” Harper said at a press conference in Seoul yesterday. “For those who continue to argue against trade deals and for trade barriers, I say simply that Canada has always been a trading nation, and that one in five Canadian jobs is tied to trade.”

More Ambitious

Since taking power, Harper has concluded talks with 38 countries representing economic output of about $20 trillion, or about 28 percent of the global economy, according to IMF data. Negotiations are also under way with Japan and India. Including existing trade-deal partners such as the U.S. and Mexico and excluding the TPP discussions, Canada is seeking to have agreements with economies that produced about about $46 trillion in output last year. The size of the world economy is about C$73.5 trillion.

Harper, 54, has demonstrated a more ambitious trade agenda than President Barack Obama, said John Manley, president of the Canadian Council of Chief Executives. While the U.S. enacted a trade deal with South Korea in 2012, Canada beat its biggest trading partner by reaching an agreement in principle with the European Union and starting talks with India.

“They’re willing to expend political capital on defending free and open trade,” Manley said in a March 7 telephone interview. “That’s not something we’ve seen from the U.S. administration since Bill Clinton.”

‘Deliberate Plan’

“Our Government has been committed, from day one, to the most ambitious program of trade negotiations in Canada’s history,” Harper said yesterday. “It’s a deliberate plan to increase long-term prosperity for Canada.”

Helping Harper is a broad political consensus in favor of open trade. The opposition Liberal Party, which began talks with Korea in 2005 when they were the government, is “broadly supportive” of the agreement according to a statement from Chrystia Freeland, who speaks on trade issues.

The main opposition New Democratic Party said while it supports more trade with South Korea, the government has been opaque about the details of the agreement.

“Growing trade and signing good trade agreements with strategic partners is important,” Don Davies, the NDP lawmaker responsible for trade, said in a telephone interview from Vancouver. “But it’s impossible to determine whether this is a good deal or not until we actually see the text.”

The agreement announced yesterday will eventually phase out 97.8 percent of Canadian duties and 98.2 percent of South Korean tariffs, the Canadian government said in documents provided to reporters.

Boosting Output

The deal will boost Canadian exports to South Korea by one-third, adding an annual C$1.7 billion ($1.5 billion) to Canada’s economic output once the deal is fully implemented, said a Canadian official familiar with the contents of the agreement who spoke to reporters in Seoul, asking not to be named as he’s not authorized to speak publicly.

Talks between Canada and Korea reached an impasse in 2008, in part over concerns about the impact on the Canadian auto industry. Under the agreement, Canada will phase out over three years its 6.1 percent tariff on imports of vehicles produced by automakers such as Hyundai Motor Co. (005380) and Kia Motors Corp. (000270)

After yesterday’s announcement, Ford’s Canadian unit issued a press release criticizing the pact, claiming that non-tariff barriers continue to hamper trade with the Asian country.

Automaker Access

South Korea “will remain one of the most closed automotive markets in the world under the deal negotiated by the Canadian government,” Dianne Craig, president of the automaker’s Canadian unit, said in the statement. “No Canadian manufacturer can compete with a market controlled by non-tariff barriers and currency manipulation.”

The government of Ontario “remains very concerned regarding the potential for serious negative impacts this agreement could have on” the province’s auto sector, Economic Development Minister Eric Hoskins said in a statement.

Asked about Ford’s opposition to the deal, Harper said the automaker already had access to the South Korean market through the U.S. pact.

“What we’re doing here is allowing other Canadian companies and other Canadian sectors to have the same access that Ford already has,” he told reporters in Seoul. “So it is I don’t think realistic for a company to think it will have one set of rules for it and another set of rules for the entire Canadian economy.”

Export Share

Harper has been seeking to stop a decline in the share of exports in Canada’s economy since a peak in 2000, as the country has grappled with lagging productivity, a Canadian dollar that appreciated from a record low in 2002 to a record high in 2008 and growing competition from countries such as China. In the past 15 years, Canada’s share of world exports has fallen to about 2.5 percent from about 4.5 percent, Bank of Canada Senior Deputy Governor Tiff Macklem said in an October speech, the second-largest decline among Group of 20 countries.

“If you look at the numbers, which the Conservatives don’t like to talk about, his trade policy has been a failure,” the NDP’s Davies said. Canada’s trade balance has been in deficit for all but two months since the start of 2012 as exports haven’t recovered from the global recession while imports are near a record.

Trade has been high on Harper’s agenda since the 2006 election campaign that brought his Conservative Party to power, as a means to fuel growth and help promote a consumer-friendly narrative for his government.

Harper History

Within six months of taking power, Harper resolved a two-decade old trade dispute with the U.S. over softwood lumber, rejected calls from a Canadian court to impose tariffs on Chinese goods, and sought to brand Canada as a stable source of oil to developed countries.

By 2009, he started trade talks with the EU and completed pacts with Colombia and the European Free Trade Association countries. More recently, the government has turned its focus to Japan and India. During the global recession, even as other countries raised tariffs or other trade barriers, Harper unilaterally lowered duties on manufactured goods.

“What I really think we’ve done here is we’ve assured for Canada that we are now pretty certainly going to be a central player in the global trading system and in a world where global value chains are more important in terms of the production of economic activity,” Harper said in a Bloomberg interview Oct. 18 in Brussels, after announcing the EU pact.

Bargaining Power

Harper told the British Columbia Chamber of Commerce today his government plans to leverage the EU pact by sending trade missions to the region, starting with one he’ll lead in a few weeks. Canada’s growing list of completed deals raises the country’s bargaining power in future negotiations, Harper said.

“The more agreements we have, the less we desperately need the next one and therefore the more flexibility we have at the bargaining table,” said Harper, singling out the Trans-Pacific Partnership negotiations, which he said are being driven by the U.S.

“I’m not quite sure how that is going to work in terms of getting to a comprehensive deal,” he said. “Us having a range of other oars in the water including our own negotiations with Japan is greatly helpful in that context.”

To contact the reporters on this story: Andrew Mayeda in Seoul at amayeda@bloomberg.net; Theophilos Argitis in Ottawa at targitis@bloomberg.net

To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier, Mark Rohner

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