2008 was a banner year for Canada in terms of trade agreements and trade negotiations. At the start of the year, we had four existing free trade agreements (FTA) with: the USA and Mexico (NAFTA, implemented in 1994), Chile (implemented in 1997), Israel (implemented in 1997) and Costa Rica (implemented in 2002). Those agreements cover a time span of fourteen years from 1994 to 2008; that’s an average of one FTA every three and a half years.
By comparison, Canada almost matched that entire fourteen-year output this year by signing three new FTAs, with Colombia, Peru and the EFTA (European Free Trade Association – Iceland, Liechtenstein, Norway and Switzerland, a trading bloc of four countries that do not belong to the European Union), bringing our total to seven by year-end.
Negotiations for a FTA with Jordan were also concluded this year, and ongoing negotiations for agreements are still pending with South Korea, Panama, Dominican Republic, Singapore, CARICOM (Caribbean Community comprised of Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago), CA4 (Central America Four comprised of El Salvador, Guatemala, Honduras and Nicaragua), and the FTAA (Free Trade Area of the Americas, comprised of Antigua and Barbuda, Argentina, Bahamas, Barbados, Belize, Brazil, Canada, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Panama, Paraquay, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, United States and Uruguay).
That’s a lot of countries which means, despite the fact that not all discussions are active (FTAA discussions are currently stalled), and there is some member overlap between agreements, Canada has the potential to enact a significant number of additional agreements in the next few years. (This information and additional detail on Canada’s international trade agreements can be found on the Foreign Affairs and International Trade Canada web site.)
Canada’s free trade agreements have always been a subject of interest to me, both because of the potential impact on transportation demand patterns and the fact that changing freight patterns demonstrate the need for effective supply chain management practices.
What I found more interesting however was the underlying geography of these agreements, particularly in light of the current east-west trade flows that seem so prevalent between North America and Asia.
Canada and China for example have been discussing a Foreign Investment Promotion and Protection Agreement (FIPA) since 2004; not surprising since Foreign Affairs and International Trade Canada reports that Canadian foreign direct investment in China in 2006 exceeded CA$ 1.5 billion, and China’s foreign direct investment in Canada exceeded CA$ 1.2 billion the same year. Not huge numbers in comparison with some of China’s larger trading partners perhaps but certainly a foundation for future growth.
Although somewhat foreshadowed by the growing Canada-China relationship, Canada has been steadily pursuing trade relationships with our neighbours to the south through these new trade agreements. This makes a lot of sense when you consider the potential impact on transportation transit times enabled by the land bridge between Canada and South America.
The full impact of our potential trading relationship with Central America and South America only becomes evident however when you look at the individual agreements and their corresponding member locations on a map.
NAFTA gives Canadian traders access through the United States to Mexico, while the pending CA4 agreement extends the route south through Guatemala, El Salvador, and Nicaragua, to our existing FTA partner Costa Rica, then on to Panama (FTA status pending) and Colombia, where Canada finalized a FTA this year. From Colombia, the land bridge extends into Peru (where Canada also finalized a FTA this year) with further access to markets in Chile, where Canada has had a FTA since 1997. In other words, the vision of a North-South America trading bloc supported by free trade agreements is now within sight.
Should we be excited by this prospect? Some would say yes if our experience with NAFTA is any indication. Particularly since The Treasury Board of Canada Secretariat reports that Canada’s annual trade in merchandise and services with its NAFTA partners has nearly doubled since 1994. And once fully enacted, Canada’s existing and pending trade agreements in Central America and South America will expand the current NAFTA population market base by more than 25%, from approximately 445 million potential consumers to more than 560 million.
However, while trade agreements demonstrate a desire by member states to promote trade, oftentimes the required infrastructure and administrative support systems to support those agreements are not in place until much later. One of the most glaring examples of this problem is the inability of Mexico’s trucking industry to adequately address road safety concerns to the satisfaction of the US government, with the result that the transportation provisions of NAFTA (i.e. allowing cross-border access by Mexican and US transport companies) have yet to be fully enacted.
Despite the fact that these agreements are (almost) all in place, it will be a long road (both literally and figuratively) to any meaningful impact on trade. There will be many obstacles to overcome, both quantitatively (manufacturing, labour and freight costs) and qualitatively (quality concerns, packaging, labeling, government regulations, etc.), as we have seen in past trading relationships (both north-south and east-west). But the potential is certainly intriguing and one that bears watching in the years ahead.
Who knows, it might even be the catalyst that leads to the eventual enactment of transportation provisions under NAFTA.