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ECONOMIC POLICY AND INSTITUTIONS

BRIEFING NOTE #3

Submitted by- Bhanupratap Singh Sisodiya

SECTION EC
Concordia ID – 40202831
Instructor- Anthony Nice
Admitted to John Molson School of Business
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UNCLASSIFIED
FOR DECISION
CANADIAN GLOBAL AFFAIRS
SENIOR ECONOMIST (15th April, 2023)

BRIEFING NOTE FOR THE MINISTER OF GLOBAL AFFAIRS

Canada on free trade agreements

Issue

Should Canada increase or decrease its number of free trade agreements with its allies?
How much will Canada gain or lose after enhancing its free trade agreements?

Background
Since the signing of the Canada-United States free trade agreement in 1989, Canada's number of
bilateral and regional trade agreements has increased in line with the global trend. The FTA with the
United States was replaced in 1994 by the North American Free Trade Agreement (NAFTA) between
Canada, the United States, and Mexico. Since then, ten FTAs have entered into force, and Canada's
commercial connections are now governed by 11 FTAs that provide Canada with preferential market
access to 15 nations.

However, the majority of Canada's FTAs, such as NAFTA and other bilateral agreements with Chile,
Columbia, Peru, and South Korea, are broader in scope and tend to cover other trade-related areas
more fully, such as trade in services, investment promotion and protection, and labor mobility.
Because Canada's economic development is dependent on international commerce, the federal
government utilizes FTAs to improve and diversify access to international markets for Canadian
goods and services, as well as to set stable trade standards. As a result, a number of sectors in
Canada's economy rely substantially on access to international markets to be successful and to
enhance or sustain growth. While access to the US market remained critical for Canada, owing to the
regional integration of many sectors of the North American economy, Canadian businesses would
gain from trading prospects outside of the US.
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Current Status
Canada continues to clash with its trading partners in free trade agreement (FTA) disputes. By the end
of 2022, Canada had successfully resolved the issue of calculating regional value content (RVC) under
the USMCA's automotive origin requirements.
One of the clashes occurred with Mexico when it proposed the formation of a panel in January 2022,
and Canada joined as a complaining party. The panel decided in favor of Mexico's and Canada's
interpretation of the Chapter 4 standards in December 2022.

Key Considerations
Canada must participate in bilateral and regional FTAs to ensure continuous international
competitiveness to compete on a level playing field to obtain a competitive edge over international
competitors.
The economic benefit of a comprehensive agreement would be equivalent to creating over 80,000 new
jobs or increasing the annual income of the average Canadian household by $1,000.
Given that "imports matter as much as exports to Canadian exporters participating in GVCs, Canada
must focus on removing barriers on the import side, including tariff and non-tariff barriers, to make it
easier for Canadian value-added goods and services to be integrated into globalized industrial activities.
The concept of competitive trade liberalization emphasizes the importance of expanding Canada's
trading relationships with timely negotiation and implementation of FTAs in order to ensure that
Canadian businesses can export to key international markets on par with their competitors.
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Options

1. Canada should initiate Ecuador FTA consultations

Canada has begun discussions with Ecuador about future bilateral free trade agreements. Ecuador
currently enjoys MFN preferential tariff treatment as a result of its World Trade Organization
participation. Currently, bilateral merchandise trade between Canada and Ecuador totals about $1
billion CAD.

2. Canada should continue to pursue improved market access via FTAs.

Canada should pursue improved market access through FTAs in the future. Implementing CETA
would significantly diversify Canada's market access, owing to the fact that this agreement would
liberalize trade with the 28 EU countries, whereas implementing the TPP would have liberalized
trade with the seven parties to that agreement with whom Canada does not already have an FTA. If
both agreements were to be implemented, Canada would become the only G7 nation with free trade
access to the United States, Europe, and the Asia-Pacific region, which includes three of the world's
four largest economies.

Recommendations

Option 2 is recommended and we should begin negotiations on Foreign Investment Protection and
Promotion Agreements (FIPAs) with countries like Indonesia, Vietnam, and Colombia right away.
We can negotiate FIPAs with other countries as well. We will choose our priority countries for future
negotiations based on economic and commercial factors, for example, the likelihood of obtaining a
high-standard agreement that is consistent with our goal of ensuring adequate protection for Canadian
investors and investments abroad.

The Canadian government commissions one or more independent evaluations of the success of
federal policies targeted at reducing the potentially harmful effects of free trade agreements on
Canadian workers, industries, and enterprises. We should use these assessments to improve the
effectiveness of such measures and to help shape future free trade agreement implementation
strategies.

If you require any additional information, please do not hesitate to contact me at the global affairs
office at 514-563-7523.