Free Trade Agreement: Planning for a stronger Canada

Canadian-and-EU-Free-Trade-AgreementWHO CUT THE CHEESE PRICE?

 

The Free Trade agreement in principle was recently signed between Canada and the European Union. 

It was hailed as a significant step to boosting the economy of Canada while having minimal negative impact for Canadians.

Free trade

 

So what is a Free Trade Agreement? 

Essentially it eliminates tariffs or taxes on cross border imports/exports making it easier for companies to trade products and/or services with neighbouring countries.

It’s not just as simple as that though, there has to be limits or quotas set where each trading partner agrees to a set level.

Depending on what the country exports or imports the most can determine what is set in the quotas.

So for instance Canada has a lot of trees and the US needs to build a lot of houses, it would be in both of their interests to eliminate the tariffs on trees for, let’s say the first 100,000 tonnes.

Anything past the 100,000 tonnes then tariffs will be applied so companies would have to budget their exports in order to keep with-in the quota.

That’s great for Canada, they’re selling trees like they’re going out of fashion, but what’s the US getting out of the deal?

They put forward something like domestic car imports as there are no Canadian Car Manufacturers. You could call it an agreement to cut through red tape.

Trading partners

 

Does this trade agreement make sense for Canada? Well since 1989 Canada has benefited very well from the CUSFTA which later became the NAFTA when Mexico joined.

Surely setting up another trade agreement with the EU is going to be just as beneficial? After all the European Market is enormous compared to the Canadian market.

I watched a good proportion of the speech from Brussels because it affects an awful lot of people. Some of it I’ll admit I was a little lost on when it comes to details. I’m not an Economist, I’m just a regular guy who likes to stay informed.
 
According to the government “it’s an excellent deal”, but the government does not always have the interests of the common man in mind.

Economy changes 

 

Sure, there were talks of reduced prices for Canadians at the cheese counter because the imported European cheese would be duty-free.

Sounds great for me because I’m a bit of a cheese monster and there’s nothing better than good cheese from the old country. Saying that, I’m not employed in the cheese industry so maybe my selfish wants are vastly out weighing the Canadian cheese producers needs.

After all, I’ve previously written about how supporting nearby producers can stimulate the local economy.

But this trade agreement is not about the local economy, it’s about Canada’s economy. Tax or Tariff free exports to the European Union will boost the national income as Canadian made products will be cheaper to buy in Europe.

A strong economy is good for Canadians, it should promote wealth in the forms of higher income, more employment and less reliance on welfare, better competition, less taxes and more able to look after an aging population.

I hadn’t realized that the Canadian economy in the early 1980′s was in such bad shape until I started doing a little homework for this post. I wasn’t here so I won’t remember it and I won’t try to fool you into thinking I would, so if any of you do remember that period maybe you can confirm or deny.

This is good news to generation “Y” who are currently suffering from an employment drought. Not only do we need to look after Canada’s economy now but for the future too. It needs to be sustainable though.

Export and Import benefits

 

Canada has a lot of good products, highly skilled people and natural resources. Being able to export larger amounts at cheaper prices increases cash flow. The increased exports are varied and cover:

  • Beef, Bison and Pork products (fresh and frozen)

A large industry especially west of Ontario. Beef export quotas would go up to 65,000 tonnes inclusive of high quality beef. Pork quotas would increase from there current 6,000 tonnes to 80,000 tonnes per year.

  • Metals and Minerals.

This would lead to an increase in demands for ore processing, transportation, equipment production, labour etc.

  • Wood and Wood products

After the credit crunch of 2008/2009 wood exports to the US under the NAFTA or North American Free Trade Agreement have fallen significantly. Increasing exports to Europe would be beneficial to the forestry industry.

  • Domestic Car maker

Car makers gain an increase in exports from 10,000 units per year to 100,000. Plus European import cars will get progressively cheaper over the next 7 years due to the phasing out of the 10% tariff. It makes that ludicrously expensive Ferrari just that little bit less ludicrous.

  • Wheat and plant-based oils.

Canada is already one of the largest producer of grain in the world. Expanded export room will only increase the income potential.

There are drawbacks, there always is in a deal. Pharmaceuticals would be set to increase, but apparently not until 8 years time with talk of possible government subsidizing. Seafood exports to the EU after three years will supposedly have the minimum processing requirements removed.

That’s probably not good for places like Newfoundland but export tariffs will be removed so it’s a little of a mixed bag. The problem with all the facts and figures developed from these negotiations is, they are still yet to be confirmed. The agreement won’t take effect either until 2015 once implemented.

All 10 Canadian provinces and all 28 EU members have to agree, so we will have to wait and see what this agreement develops into.

There’s an age-old saying that’s quite true here;

You can please some of the people all of the time, you can please all the people some of the time, but you can’t please all of the people all of the time
Abraham Lincoln.

Do you have any concerns as a Canadian with this free trade agreement?

Money-quote

 

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Photo Credit: Janoon028/Freedigitalphotos.net

Mr. CBB
I’m from the UK and now a recent permanent resident in Canada. I bought my first house at the age of 21 after University then my second at the age of 24. I’ve always been fascinated with personal finance, savings, learning to make money and watch it grow while combating debts along the way. Canadian Budget Binder is a place where I get to share my experiences with personal finance and learn about yours along the way. I hope you stick around and check me out on Twitter, Facebook and Pinterest where I am active on all social media sites. Cheers, Mr.CBB
Mr. CBB
Mr. CBB

Comments

  1. I had no idea about that as I’ve been disconnected from the news. Anything that reduces taxes and prices for customers is good in my opinion, trading more means more growth too so that is a win win.
    Pauline recently posted…Cheap DIY Halloween costumes: How to Make Fairy Wings, Wand and CrownMy Profile

    • Hi Pauline, I’m not sure it’s just the reduction in tariffs and/or taxes that have the residents worrying. We shall see what the details reveal in the coming months.

  2. Christine Weadick says:

    I’ve read a little about the new free trade agreement but not a lot so far. Certainly not enough to form an opinion yet. It has to be ratified by the provinces and the EU members, that might prove interesting…… As always with these deals the devil is is in the details. We must be sure to read the fine print carefully.
    What I remember from the 1980′s economy isn’t a whole lot. I was rather busy raising babies back then, (kids were born in 1981,1983,1988). I do remember the interest rates as we had just bought a house with an interest rate around 13% and hubby was laughed at for getting such a high rate. We caught things on the upswing and the guys that laughed then, weren’t laughing when their mortgages came up and they had to renew at 19-20% a year later. Brutal. We managed but some didn’t ….

  3. I have to disagree with you about this one Mr. CBB.

    NAFTA heavily weighed the economic advantage towards our neighbours to the south at the cost of Canadian workers (R.I.P. Canadian softwood lumber industry, for one) and although leaders say we can walk away from it on short notice, we all know the heavy cost in both trade and diplomacy that would arise from doing so. Duties and tariffs came into being for a reason: To help ensure the health and vitality of local industries. Removing that protection may have advantages to countries like China who care nothing for the health and safety of their workers or the environment, or to the biggest bully on the block – the country with the most clout in world court – like the US, but penalizes developed countries like ours, putting our natural resources up for grabs and resulting in an overall decrease in our standard of living.

    The EU and the Euro have not been particularly successful economic experiments either. Europe’s much larger population means that crises there would impact our economy in a far greater way than anything we might do would hurt theirs and, trade tariffs or no trade tariffs, we produce products (wheat immediately springs to mind) that they need and will import regardless. Why would we tie our small dingy to that sinking ship?

    • Hey Beth,
      I did a little more research

      The Canada – US Lumber agreement goes back to 1982

      In 1986 Canada and the US agreed to add a 15% tax on imports to the US. This was before the 1994 introduction of NAFTA

      The Canada – US Softwood Lumber agreement gave the forestry product exports a boom in profit margins from 1996-2001 but with thousands of job losses across the industry in order to make it more profitable.

      From 2002 – 2006 the US imposed the Anti-Dumping and Countervailing program to combat cheap softwood imports from Canada. This add taxes onto imported wood from Canada into the US as the US believed the wood was being sold at a cheaper price than it took to produce and that the Canadian government was subsidizing the product.

      The Japanese (3rd largest importer of Canadian wood products) export market started to decline.

      The strength of the Canadian Dollar rose against the US Dollar making products harder to export.

      Then weakening prices of wood products from 1996 to 2006.

      I do agree that some of the problems were partly to blame when the NAFTA encompassed the Lumber industry but problems had already existed beforehand. All industries will have a boom and a decline. After all Canada was built on the fur trade, but that industry isn’t anywhere near what it used to be.

      • As a west coaster, I have to say it looks different from here. The imposition of the anti-dumping and countervailing program effectively closed the door to our largest export market, and while it’s true that the dollar rose, the shift in pricing you mention was in large part due to the fact that the US – having blocked access to our products – artificially dropped the price on their own softwood as a means of garnering the international markets Canada had turned to as an alternative. The matter was taken to the world court, who found in Canada’s favour. The US refused to comply with their ruling and the borders remained closed.

        There were lots of factors in play, not least that the Canadian government had allowed US ownership to increase within the Canadian forest industry. They simply bought out their competition, dismantled the mills, and threw a huge number of our coastal forestry workers out of work. The same thing has since happened with our pulp and paper industry, with the White logging truck company (bought out and closed down by Chrysler), Christmas tree farms on both the west and east coasts…The list is long..

        I am old enough to have been an adult when the treaties were originally signed and I can tell you that there was a lot of division over NAFTA at the time. I am not the only Canadian who was unhappy about Canada undertaking an agreement about which the chief negotiator from the US declared – prior to commencement of the negotiations – “If we don’t get everything we want here, we’re walking away.” The feeling was (and still is for many of us) that our government allowed us to be bullied into an agreement that allows the US access to our resources with very little in the way of return benefits for Canadians.

        There was a conservative government in power in Canada then too, and a similar (if not quite so rabid) laisse faire attitude to big business. I was worried, as were many of my contemporaries, that Canada’s much smaller population and vast natural resources would make her a target for a kind of economic takeover; that we would appear an independent country in name, but have our industries controlled by big businesses with majority stakeholders from outside the country. Looking back, many of us believe that exactly what transpired. I am among a great many Canadians still not happy about NAFTA all these years later, or about the other grand sweeping trade agreements that followed.

        I realize that my political views on this and many other subjects may vary from your own (I am a socialist and I do believe our country will only be strong when it puts people first, before large corporate interests. i have a great distrust of big business, believing that the current system of allowing it to police itself is foolhardy at best.) but I am not alone in this dislike of free trade agreements, or in the feeling that the EU has such major economic troubles that reducing trade regulations with them is foolhardy. It may well provide a partial solution to their bad situation but I greatly doubt it will improve ours.
        I’ll willingly acknowledge that I’m a product of my times (aging hippy girl) but I also have to say that I remember when Canada was a very nice independent country, and I wish it was still.

        • Thank you for you thoughts on this Beth. This is a huge subject, not one that I would normally get into, it just seemed that covering something currently in the Canadian eye would be good for debate. I understand that most of my audience has a lot more Canadian experience and wealth of historical knowledge than myself. I’m always open to everyone’s view on any of the subjects I raise, otherwise it would turn into a boxing match. The UK has gone through stupid policies, alliances etc, some of benefit and some not. I’m so glad we stayed out of the euro currency, others would say it would have been better if we had stayed out of the European Union altogether. Getting back to your side of the story, I can honestly say big business is what drives the economy these days and the biggest businesses are all about the bottom line. I also have to agree with you and say that Canadian politicians need to stand up for the country and residents they represent and fight for a fairer future. Would you be open to a free trade agreement if the terms were different?

          • Good question Mr. CBB. I guess it would depend upon the terms. Thanks for the thoughtful response.

  4. Mary F. Campbell says:

    I am against the EU free trade agreement as well. Like Christine said, “the devil is in the details” and Canada has historically given away our best assets at bargain basement prices without suitable compensation. I also agree with Beth that this is just tying us to the sinking ship of the EU economy in a much bigger way. I don’t understand why we seem to have to drag ourselves down to the depths of despair that some EU countries are experiencing! Someone in Ottawa wants to wear a “hero hat” but IMHO is jest selling the Canadian people further down the river. I pray the provinces say NO, loudly and clearly! :-)

    • I’m sure there will be plenty of discussion on this subject over the next 12-18 months. I’m sure there will be back room boffins crunching the numbers and running “what if” scenarios. Nothing is agreed to yet, just the principle of the idea. We shall see how popular it is in the coming months. I’m still a little on the fence with this. I think more details need to be published first.

  5. Laurie @thefrugalfarmer says:

    Free trade agreements always make me worry about what they’ll do to local businesses and their employers. I don’t know lots about them, but I think about how so many businesses have gone under here in the US, leading to tons of layoffs, because consumers now buy the cheaper imported products instead of the spendier “homemade” ones. Better for the pocketbook of citizens short-term, but not long-term.

    • I agree, cheap imports such as those from China are not good for the economy. A lot of western developed countries like shopping but don’t want to pay a reasonable price for a reasonable product, they want the cheapest possible price. The UK has gone through much the same changes over the years and has resulted in hardly any manufacturing left. A lot of manufacturing goes to places like Mexico, Brazil and so on to keep production costs lower. I don’t think that’s so much to do with Free trade agreements as Supply and Demand economics and companies watching their profit margins.

  6. Hi CBB! I am not a Canadian, but I was very interested in finding out more about free trade agreements. I just wanted to thank you for getting me up to speed on what it means for economies – benefits, potential drawbacks. This whole move seems like a good one for Canada, so cheers to that. And you can enjoy a side of cheese with that!

    • Good to hear from you Tammy. I’m still a little skeptical about the details on the agreement, politicians are not widely know for their honesty. We shall see what happens during the next 12-18 months. I’m hoping it’s a good deal for Canada.

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