Why sign trade agreements with other nations? Canada has several trade agreements in effect that aim to give its companies an advantage over the U.S. and other countries. With a trade agreement in place, such as in Panama (where the U.S. does not), Canada receives more benefits in the shape of preferential access to various industries and, of course, reduced costs of importing goods.
In addition to the economic benefits of trade agreements, the pacts can also help cement political relationships between nations, as Canada has done with the Middle East counties of Jordan and Israel. Sometimes these agreements have less to do with direct benefits and are more focused on promoting a diplomatic or military connection.
The History of Canadian Trade Agreements
Traditionally, Canada has entered into agreements with individual countries. That changed in the early 1990s when Canada abandoned a trade pact with the U.S. in favour of the U.S.-led North American Free Trade Agreement (NAFTA), which sought to more closely bind the economies of Canada, the U.S. and Mexico.
For Canada, NAFTA had its downside, but the overall benefit was a jump in exports. Before NAFTA, Canada exported about 25 percent of its gross domestic product (GDP) to the U.S., but after signing the agreement, about 40 percent of GDP came from exports. By 2000, that had jumped to almost 50 percent.
One negative that Canada has found with its trade agreements: economic downturns that mirror its trade partners. When the U.S. experienced financial issues in the late 2000s, Canadian exporters felt the brunt because so much of their business depends on U.S. consumers. So making sure that there are more trade partners in various parts of the world may help to balance economic problems with any one nation, and is a key concern for Canada going forward.
Current Trade Agreements in Place
Canada currently has several trade agreements in place with individual nations, including one signed with South Korea in 2015 and several with South American countries that have been brought into force in the last decade. These include:
- Agreement with South Korea (January 1, 2015)
- Agreement with Honduras (October 1, 2014)
- Agreement with Panama (April 1, 2013)
- Agreement with Jordan (October 1, 2012)
- Agreement with Colombia (August 15, 2011)
- Agreement with Peru (August 1, 2009)
- Agreement with Costa Rica (November 1, 2002)
- Agreement with Chile (July 5, 1997)
- Agreement with Israel (January 1, 1997)
Canada has also signed more broad trade agreements with the European Free Trade Association (effective July 1, 2009) with non-European Union countries in Europe, as well as NAFTA (effective January 1, 1994).
What the Future Looks Like for Canadian Trade Agreements
There are several potential trade partners that Canada has flirted with on and off through much of the 2000s and 2010s, including the European Union and China. In fact, newly elected Prime Minister Justin Trudeau has highlighted a trade agreement with China and potentially one with India as priorities for his administration.
Trudeau also made a case at the January 2016 World Economic Forum in Switzerland about why Canada makes a strong trade partner. He emphasized:
- Innovation, especially in Canada's universities.
- Diversity, with a varied population that welcomes new immigrants such as those from Syria.
- Leadership, particularly with a positive bent that encourages people from all different economic classes to take advantage of available opportunities.
Next, Trudeau has said he plans to go on a high-level trade mission trip that includes visits to China and India. He said he wants to negotiate an agreement with China that mirrors Australia's recent trade deal, where 85 percent of Australian goods will enter China's markets duty-free.
Agreements with China and India, which both boast a rapidly increasing middle class, could open up more places where Canadian businesses can sell their goods. Canada's natural resources may also be in demand from those nations' growing economies.
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Information provided by: NAFTA & Free Trade Dept. - Cole International