What would a progressive trade agenda for Canada look like?
Center for Trade Policy and Law (Carleton University)
Rideau Club, Ottawa - 18 October 2016
Good Afternoon Ladies and Gentlemen.
Thanks to the Centre for Trade Policy and Law and its partners for organizing today’s event. It is good to be back in Ottawa and especially during a time when there is so much discussion around Canada’s approach to trade, investment and international development cooperation.
In the current global economic climate where anti-trade sentiment is on the rise and where many are expressing contempt for globalisation, trade-dependent nations like Canada do not have the luxury of being reactive or ‘on-the-fence’. One in five Canadian jobs is linked to exports; Canada produces more than it consumes, and 60% of its GDP is related to trade.
It is therefore opportune that we discuss what a progressive trade agenda for Canada could look like. Let me give it a try, with the caveat that I am not here to preach but rather to share what I have observed through my experience as a trade negotiator, a member of the WTO Secretariat, and now as head of a development agency supporting developing countries and their SMEs to trade.
For me a progressive trade agenda is one that is “fit for the purpose” of trading in the twenty-first century.
Like other countries, Canadians want to benefit from the shifts and trends emerging from the twenty-first century including the rise of the global South. They want to have more and better access to markets; strike more and better business deals; have more and better jobs; generate higher incomes; and enjoy an overall better standard of living.
So what is that purpose?
The first purpose is for a progressive trade agenda to continue to create economic opportunities. Creating economic opportunities has always been about levelling the playing field in order to make trade possible by reducing obstacles to trade.
Today, this is far less about tariffs on goods and more to do with non-tariff procedural and regulatory measures affecting both goods and services, including the very prominent sector of e-commerce. There is today a multiplication of public rules and requirements as well as private standards based on contemporary concerns ranging from health and safety to environmental protection and human rights. All of this point at trade in the twenty-first century being more consumer-centric and less about protecting producers; being more value based and less about vested interests. And this also tells us that standards and regulations are today a critical element, not just for levelling the playing field, but also for popular support to trade.
In this respect, the traditional negotiating method of “exchanging concessions” is probably no longer fit for purpose. The answer will have to be to manage regulatory divergence as well as to adopt domestic and international means to foster regulatory compliance, especially by SMEs. This has been the topic of our SME Competitiveness Outlook 2016.
I have just said that a progressive trade agenda must create new economic opportunities; but it is not enough to stop there. Purpose number two should be to ensure that the economic opportunities created are both inclusive and sustainable. A forward-looking trade policy cannot just be a policy about the quantity of trade – the quality of trade matters too. That silo approach may have suited yesterday’s trade agenda, but today, as we embark on the fourth industrial revolution that makes access to a wider mass of people easier than ever before; and having collectively agreed to deliver on the UN Sustainable Development Agenda and the Paris Agreement, much wider issues beckon the attention of trade policymakers.
If we accept this, then the solution must be linked to this double lens of inclusivity and sustainability and ensuring that the benefits of creating economic gains through trade are translated into social gains at all levels of society.
Inclusiveness demand that trade policy takes account of SMEs, which represent over 90% of businesses in any country, over 70% of employment, and an important contribution to GDP. This is what my experience at the helm of ITC supporting developing country SMEs to trade tells me.
Despite the formidable presence of SMEs, they face serious constraints to trade – such as insufficient visibility in international value chains; restricted access to affordable credit and financing; and costly private standards compliance and certification and more generally a big sensitivity to fixed costs – which if not systematically addressed will perpetuate the kinds of inequalities we are seeing in the access and distribution of business opportunities.
A progressive trade agenda must not only reaffirm SMEs are indeed a majority stakeholder in the economy, but also ensure trade policies reflect their specificities and needs.
Above and beyond SMEs, the UN Sustainable Development Goals challenges us all to empower marginalized groups of society. Underlying this big development challenge is an even bigger business opportunity. However, there are folks still out there that do not see how business opportunities and development challenges can be part of the same discussion. A progressive trade agenda, while opening markets and cutting costs of doing business, should also ensure that trade access and benefits reaches underutilized human capital and drivers of innovation such as women, youth and refugees. In other words, a progressive trade agenda is an inclusive trade agenda.
Deepening trade and investment linkages with China has very recently held the attention of many a trade enthusiast in Canada. However, China is not the only 1 billion mark target on the trade highway. There is also the third billion – referring to the population of future women entrepreneurs yet to enter and make their contributions to the global economy. If China cannot be ignored by virtue of its size and potential for return on investment – the same must be said of women in trade who represent an important part of the economic fabric.
If women participated in the economy on an equal footing as men, it could increase global GDP by an additional $28 trillion by 2025. But still today more than 90% of the world’s nations still maintain one or more laws discriminating against women in the economy. A mix of legal, procedural obstacles and cultural biases; of limited access to productive resources; and time constraints on female managers, confine the vast majority of women-owned SMEs to smallness and being less productive. This is why in a recent survey in which we looked at 20 developing countries we found that only one in five exporting companies are women-owned. So there is a gender dimension to SME participation in international trade.
My third and final point today is that with a progressive trade agenda, it is also not enough to stop at creating inclusive and sustainable trade opportunities – these opportunities must be translated into reality. The third purpose of a progressive trade agenda is therefore to make more and better trade happen at home and abroad.
And today, the “home” and “abroad” are very much interlinked. Trade policy, trade promotion and economic development policies are all part of a virtuous chain. Let me elaborate this.
At home, moving beyond paper to practice starts with implementing the signed agreements which are signed. I have long argued that more attention should be paid to ensure commitments agreed are translated into action. But also that there should be a more concerted effort to support domestic businesses, in particular SMEs, use these trade agreements to internationalize. This is precisely where trade and investment promotion is a ‘continuum’ of trade policy. It helps business use trade opportunities. It informs trade policymakers with data and knowledge from business to better craft trade rules.
At home also, trade cannot be an isolated planet rotating in our economies. It must be part of a wider system rotating in sync with domestic policies such as education and skills building, innovation, infrastructure, social safety nets, all of which are in reality ingredients of economic competitiveness and social progress.
Let’s look at making trade happen abroad. It matters that we support economic development of poorer countries. Not only because we have all committed to eradicate extreme poverty under the United Nations’ Global Goals. A stronger economy, a more robust trade in developing and least developed countries will help anchor progress made in education, access to healthcare, elimination of hunger, and respect for human rights. This is where trade and development policies meet. But also because when developing countries grow and advance they become markets with greater purchasing power.
According to the World Economic Forum, 17 of the 50 fastest growing economies by 2018 are expected to come from Africa. Growth in Asia and Africa are, on the whole, expected to outpace growth of more advanced nations including Canada and its NAFTA partners. However, sub-Saharan African and South Asian countries make up less than 2 per cent of Canada’s trade. And trade with Low Income Countries represent less than 0.5 per cent of Canada’s overall trade. There is ample room for growth. This is also where trade and development policies meet.
To balance the obvious gains for Canada’s economy, there should also be deeper engagement with developing countries and in particular the poorest among them, to help build their capacity to trade. And, to support them to build the hard and soft trade infrastructure that will help their SMEs, their youth and their women to participate in trade. The Aid for Trade agenda which helps poorer countries use trade to generate growth and reduce poverty is also where trade and development policies meet.
As I come to the end of my intervention, I would like to encourage Canada, who has clearly thought about the need to re-cast trade and development policies to bring this wisdom to the World Trade Organisation. And, to lead efforts to craft a positive and relevant multilateral trade agenda that is fit for purpose. This is clearly the time to step up your engagement.
Thank you for your attention.