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Is Canada's Growing Trade with this Booming Region a Good Thing?

Posted: 10/25/2013 6:40 pm

We Canadians are not the same as we used to be. More and more, Canadian business is seeing the world as its stage. The transformation stepped up in 2003, and since then, diversification of trade to emerging markets has flourished. With the world economy on the verge of a new growth cycle, there is increased curiosity -- and not just in Canada -- about the planet's next big market.

This same curiosity has turned Canada's eyes toward the ASEAN economies. The 10-nation association has a collective GDP of $2.2 trillion -- about 20 per cent greater than Canada's -- and an impressive population base of just over 600 million. Add to that the collective growth dynamic, which in the next cycle will have very few rivals. Prospects like this are hard to ignore.

With this in mind, the Canada-ASEAN Business Council was formed last year at the 44th ASEAN Economic Ministers' meeting, producing the first annual Canada-ASEAN Business Forum meeting two weeks ago in Singapore. The gathering attracted 220 regional and Canadian business leaders, government officials and prominent local media personalities. Canada's Minister of International Trade officiated, and was joined by his contemporary Mr. Lim Hng Kiang from Singapore and Saskatchewan Premier Brad Wall. Expert speakers covered issues from trade structure to prospects for future bi-directional trade and investment, delving into various key needs in the region and industry-specific opportunities. The depth of the sessions was matched by the overall enthusiasm.

During the proceedings, the Asia Pacific Foundation of Canada presented the illuminating findings of their 2013 Survey of Canadian Businesses in ASEAN. It showed that there is a significant Canadian presence in the region that in general, has facilities spread broadly across Association members with a reasonably long history of commercial involvement. There is also a diverse industrial representation, led (but not dominated) by professional services, manufacturing and oil & gas operations.

Most of the Canadian operations are small and medium-sized enterprises, who are on balance highly satisfied, quickly profitable, upbeat about their prospects in spite of regional business risks, and proving it by diverting a good share of their regional investment to ASEAN economies.
Results like this suggest strongly that there is much greater Canadian potential in the region. In one session at the Forum, former Secretary-General of ASEAN Dr. Surin Pitsuwan challenged the audience to double Canada-ASEAN trade in the coming five years. Is it possible?

In the 2000-2008 period, Canadian exports to ASEAN grew by 9 per cent annually -- just under the average pace to emerging markets as a whole. Post-crisis, the rate of growth is exactly the same. Doubling trade in five years would require notching that pace up to 15 per cent annually. Given the potential of the region and its average import growth, not an unachievable target by any stretch of the imagination.

Really? Consider a few facts: China is running out of labour, but instead of giving in to lower growth, is investing heavily in manufacturing facilities in ASEAN. These factories will likely serve the global market, but will be focused on the needs of the swelling Chinese middle class -- currently growing by over 40 million annually. The ASEAN middle class will also benefit -- in Indonesia alone, it is growing by some 7 million annually. Stack these numbers against Canadian population, and they're stunning.

The bottom line? The ASEAN region will undoubtedly be a force to be reckoned with in the coming economic cycle. It has fast-growing customers, has a rapidly-growing domestic base, has a rich population base that could prove to be a great release valve for Canada's population-constrained future and an attitude of greater openness that suggests great promise for outward-bound Canadians.

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  • It's Not A Done Deal Yet

    The trade pact needs the consent of Canada's provinces and EU member states to become law. So far, it's looking good on the provincial front: Quebec, Manitoba, New Brunswick, Newfoundland and Saskatchewan's leaders have all praised the deal, and Ontario seems open to it assuming it can get compensation for some of its industries that will be harmed by the deal. <em>Pictured: Canadian Prime Minister Stephen Harper and European Commission President Jose Manuel Barroso shake hands following a joint media availability Friday, October 18, 2013 at the European Commission in Brussels, Belgium.</em>

  • Drug Patents

    Canada will partially extend patent protection for brand-name drugs, which would delay the introduction of cheaper generics by up to two years. Officials say it will be eight years before any impact of these changes show up as higher costs for provincial drug plans. Earlier reports have suggested the cost to the health care system of extended drug patents could run between $1 billion and $3 billion annually. Jim Keon, president of the Canadian Generic Pharmaceutical Association: The EU trade deal will "delay market entry of cost-saving generic prescription medicines in Canada in the future, increasing health-care costs for provinces, employers that sponsor drug plans for their employees and Canadians who pay for their prescription medicines out-of-pocket." The federal government has suggested it will compensate provinces for higher costs as a result of the agreement.

  • Automotive

    Domestic car producers will be able to increase sales into Europe to 100,000 units from about 10,000 today under relaxed rules. The EU will phase out its 10-per-cent tariff on imports, and Canada will phase out a 6-per-cent tariff on European car imports. That could be good news for Canadian fans of European luxury cars, as those vehicles will be cheaper. But that, in turn, could be bad news for Canadian auto manufacturers. Dennis DesRosiers of DesRosiers Auto Analysts: "I don’t think anyone can definitively know what the impact of the current EU Agreement will be on the automotive sector. ... The [Canadian] industry peaked in the year 2000 and has been struggling since and, indeed, just finished one of its worse decades in history and continues to deteriorate. Was this the long term result of FTA and NAFTA? We don’t know but it could be."

  • Agriculture

    Canadian beef farmers increase their quota by 50,000 tonnes, in addition to 15,000 tonnes for high-quality beef. Pork farmers will see their quota rise to 80,000 tonnes from the current 6,000. But producers will have to convert to hormone-free product for the European market, which experts say can add about 15 per cent to costs. Martin Unrau, president of the Canadian Cattlemen's Association: "The removal of long-standing barriers in this agreement, such as high tariffs, finally enables Canadian beef producers to benefit from the high value that the European beef market represents." Dairy Farmers of Ontario: "It will take income from Canadian dairy farmers and their communities and give it to the European industry."

  • Government Contracts

    Companies will be allowed to bid on major government procurement contracts right down to the municipal level. A joint study showed the new access will give European companies leeway to bid on federal contracts worth between $15 billion and $19 billion an year, and municipal contracts worth $112 billion a year. Critics say that, because of the common practice of "hiring Canadian" in government contracts, EU access to them could mean job losses in Canada. Trade Justice Network: "Canadian governments would lose a powerful tool for spurring job creation and economic development."

  • Foreign Investment

    Foreign takeovers of Canadian firms now require a formal federal government review if the deal is worth $1 billion or more, but this agreement will raise that to $1.5 billion.

  • Water For Profit?

    Labour and consumer groups fear CETA could lead to the privatization of Canada's water supply and infrastructure. According to early leaks from the negotiations, <a href="http://www.thestar.com/business/2012/01/25/canada_seeks_to_carve_out_agriculture_telecom_in_eu_trade_talks_documents.html" target="_blank">Canada did not try to protect water resources as part of the trade deal</a>. The Council of Canadians writes: "This deal will give French companies Suez and Veolia, the two biggest private water operations in the world, access to run our water services for profit. Under a recent edict, the Harper government has tied federal funding of municipal water infrastructure construction or upgrading to privatization of water services. Private water operators charge far higher rates than public operators and cut corners when it comes to source protection."

 
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