Being a Spoke in American Trade Isn't Enough for Canada

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The Globe and Mail Mar 30, 2012

Canada is launching free-trade talks with Thailand and Japan in case Plan B must turn into Plan A, because Plan A is in trouble, thanks to what is being described as American bullying.

Plan A is the Trans Pacific Partnership, a set of trade talks currently involving the United States and eight other Pacific nations that Canada badly wants to join. Negotiators from the two countries are attempting to secure a pre-agreement so that the Americans will support Canada’s accession to the talks.

Supply management is the biggest issue. This is the system of quotas and tariffs that protect the Canadian dairy and poultry industry from competition.

Canada is willing to put everything, including supply management, on the TPP table, but only after reaching that table. The Americans, however, insist that Canada must signal its readiness to abandon supply management as a condition for joining the talks.

The American intransigence – “bullying” is the word that gets most often used – has led to a theory that is making the rounds in Ottawa circles.

According to that theory, the Obama administration is employing a hub-and-spoke approach to foreign trade.

That is, as the Americans pursue new trade agreements, they seek to place the United States at the hub of any relationship, with smaller nations serving as spokes.

The spokes supply the U.S. with whatever it needs to make things, and the U.S. then sells the finished product back to the spokes and to other countries.

The Americans see Canada as a valuable spoke, safely secured through the North American Free-Trade Agreement. But that agreement is imperfect, in American eyes, because Canada continues to protect certain sectors of the economy, including dairy and poultry.

The Americans seem to think that if the Harper government is willing to surrender those protections in order to get America’s blessing to join the TPP, all well and good. If not, then there’s no need to let Canada into the TPP, since it is already joined to the American hub through NAFTA. This, at least, is how the Canadians characterize the American position.

From this side of the border, it looks as though the American are attempting to negotiate a NAFTA 2, with everything to the American’s advantage and nothing to Canada’s. Such a position for Canada is a non starter. Stephen Harper may be willing to sacrifice supply management as the final stage of signing a Trans Pacific Partnership treaty. But he is not going to make such a politically charged decision until all other options – including entrenching protections for Canada farmers within that treaty – are exhausted.

There is still plenty of space, and several months of time, for the Americans and Canadians to forge a compromise on TPP. In the meantime, there’s Plan B, which involves negotiating a separate set of bilateral agreements with Asian nations. A free-trade agreement with India is already underway, and exploratory talks have started with China. The South Korean talks are stalled, but could restart if there is real progress with the Japanese. And Thailand offers another opportunity to deepen trade within the Asian market.

These one-on-one deals are not easy. The countries involved are afflicted with complicated domestic politics; non-tariff barriers that are hard to capture in a free-trade agreement are rife; in some cases, corruption undermines the government’s ability to stand by its word.

But the Harper government’s determination to expand trading relationships is a hell-or-high-water priority. If multilateral agreements are unavailable, then bilaterals will have to do.

And increasingly there is another aim to Plan B: to show the Americans that Canada is no longer willing to be just another spoke.

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