For several years, Canada has been increasingly pursuing treaties to open new markets for Canadian businesses and investors. Equally as important as the rapid growth of new Canadian economic treaties is the story their characteristics and counterparties tells-that the Canadian economic centre of gravity is shifting.
On October 18, 2013, Canada and the European Union concluded negotiations on a Comprehensive Economic and TradeAgreement (CETA), expected to be among the most expansive free trade agreements (FTAs) in history. Earlier this year, the Canada-Panama FTA came into force. Meanwhile, negotiations regarding the 12-country Trans-Pacific Partnership (TPP) have been progressing steadily, alongside trade and investment talks with a host of other countries, including Japan and India. And on November 5, 2013, Canada signed an FTA with Honduras.
Canada has also been working at a steady pace to reduce barriers to investment in key destinations for Canadian foreign direct investment. In the past two years alone, Canada has concluded negotiations or signed agreements regarding 12 new foreign investment promotion and protection agreements (FIPAs) and brought four new FIPAs into force. The most notable is the Canada-China FIPA, which features robust investor protections and dispute resolution provisions and which could have a material impact on investment flows between the two countries once implemented.
This sustained push to open new markets-particularly the CETA, the TPP and the Canada-China FIPA-evidences Canada's widening trade and investment focus. Historically anchored to the U.S., Canadian trade and investment activity is diversifying beyond the continental market to new, high-growth markets. This expanding web of relationships is evident not only in diplomatic efforts, but also in trade and investment flows. While the value of Canada’s bilateral trade with the U.S. has not materially expanded in the past decade, Canadian trade with the rest of the world has risen by over 80 per cent. Given the proximity and shared history of the two countries, the U.S. will remain Canada's largest trading partner for the foreseeable future, with C$1.8-billion in goods and services crossing the border each day. But a profound shift is underway, and this diversifying trend is expected to continue in the coming years.
TWO | MERGER OF CIDA AND DFAIT
Pursuant to the March 2013 federal budget, the Canadian International Development Agency (CIDA) and the Department of Foreign Affairs and International Trade (DFAIT) merged to form the Department of Foreign Affairs, Trade and Development (DFATD). This merger is emblematic of the Canadian government's increasingly interwoven approach to foreign policy,international trade, investment and foreign aid initiatives.
Together with the federal government's release of its Global Markets Action Plan (GMAP) in November 2013, the creation of the DFATD indicates a shift toward "economic diplomacy," both driven by and driving Canadian business interests abroad. The GMAP specifies 20 emerging markets with the highest potential for Canadian investors, another 24 emerging markets thought to have specific opportunities for Canadian businesses, and 36 established markets where Canada can continue to develop existing trade partnerships. Canada's apparent efforts to solidify economic treaties and build relationships with priority strategic and economic states may facilitate business in priority markets by reducing transactional risks. However, by picking winners, the Canadian government may consolidate its resources in target markets, thereby stripping diplomatic support from already-difficult-to-navigate jurisdictions to the detriment of Canadian businesses with local operations. The Canadian government will continue to expand its efforts to link aid, foreign investment and commercial interests in the coming years.
THREE | PURSUING TRADE REMEDIES
Trade remedy actions in Canada increased in 2013. The Canada Border Services Agency (CBSA) commenced five new anti-dumping and anti-subsidy investigations into steel plate, copper tube, silicon metal, unitized wall modules and galvanized steel wire. China continues to be the focus of the CBSA’s investigations, being implicated in four of the five new investigations. The CBSA also concluded seven expiry reviews in 2013, involving hot-rolled steel plate, seamless casing, carbon steel welded pipe, thermoelectric coolers and warmers, hollow structural sections, and aluminum extrusions. China was the target country in five of those reviews. The CBSA commenced an additional seven reinvestigations of existing findings, five of which involved China.
Canadian manufacturers have been more aggressive in filing anti-dumping and anti-subsidy complaints with the CBSA, and we expect this high pace of activity to continue through 2014.
FOUR | CUSTOMS DEVELOPMENTS
The 2013 federal budget included certain customs border measures that continued certain trends and that introduced new future measures to watch out for. In recent years, the federal government has been reducing or eliminating import tariffs on imports of manufacturing inputs. This year, the government turned its attention to a select group of consumer goods, such as baby clothing, hockey and exercise equipment, golf clubs, and skis and snowboards. The import tariffs on such goods, which ranged from 2.5 to 20 per cent, were eliminated by the budget. The rationale was to try and reduce the price gap that exists in the U.S. versus Canada for these goods. As the government intends to monitor whether the removal of duties had the desired effect of narrowing the apparent price gaps between the U.S. and Canada, future developments in this area are expected.
Another initiative announced in the budget was the modernization of the General Preferential Tariff (GPT) regime. The GPT was established in 1974 for the purpose of promoting economic growth and export diversification in developing countries by granting tariff rates lower than Most-Favoured-Nation (MFN) rates. The federal government conducted a comprehensive review of the GPT regime and announced significant changes such as removing benefits from 72 higher-income andtrade-competitive countries (including Brazil, China, Hong Kong, India, Israel, Mexico, Russia, South Africa, South Korea and the United Arab Emirates), renewing the regime for remaining countries for another 10-year period and reviewing the list of beneficiary countries on a biannual basis. The changes are expected to be implemented by January 1, 2015.
Thus, throughout 2014, entities carrying on business in Canada will likely be reviewing their supply chains and restructuring to deal with changes in duty costs resulting from the anticipated changes to the GPT regime.