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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.

 

The quest for diversification- Canadian Trade

Friday, March 08, 2019 > 15:06:46
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Canadian Trade



The quest for diversification



Regional trade with the US and Mexico remains key for Canada, despite some progress in its diversification efforts; Canada maintains a fairly open trade regime, but more work is needed on areas such as dairy, poultry, wine, investment; Trade deals are helping to unlock business opportunities and provide greater certainty for firms amid global policy turbulence - by Doug Lippoldt



Evolution of trade flows



Canada has long been a global trading nation and is currently the 12th largest trader of goods and services in the world. The US remains Canada's top trading partner (72% of Canada's exports in 2017, 52% of imports), but Canada's trade has diversified over time. China is now Canada's second largest trading partner (4% of Canada's exports, 10% of imports). Development of Canadian-China trade relations is one component of Canada's trade diversification strategy. (Chinese foreign direct investment (FDI) into Canada grew by nearly fourfold over 2007-2017, albeit the US still accounts for around half of Canada's total FDI.) Mexico ranks third, accounting for 1% of Canada's exports and 6% of imports.



In pursuit of trade liberalisation



Since striking its first trade deal with the US in 1989, Canada has pursued an active trade liberalisation agenda. It has unilaterally reduced tariffs over time and is the only G7 nation to have trade agreements in effect with all other G7 countries. In fact, Canada's trade deals currently span 51 markets including such economies as the EU, Korea, Japan, Vietnam, Australia and New Zealand. It is also exploring or negotiating with other markets such as the Pacific Alliance, India, China and the Association of Southeast Asian Nations.



Barriers to trade



Although liberalisation efforts have helped drive down barriers to trade in Canada, restrictions remain. For example, the dairy and poultry sectors are highly protected in terms of state support and high tariffs. Canada's foreign investment screening regime, and restrictions on foreign equity and foreign personnel on boards may also restrict trade and investment from abroad. There are also restrictions on selling foreign wine in British Columbia. But Canada has tackled some of these barriers via concessions in trade deals.



Opportunities for businesses



Canada has recently concluded large trade deals such as CETA with the EU and CPTPP with ten other Pacific-Basin countries. These will open up new trade opportunities for Canadian businesses. The EU is a key market for auto parts and clean-tech products, while expanding middle classes in the Asia-Pacific region present opportunities for Canadian agri-food and engineering services exports. Such agreements also increase certainty in trade relations. Diversification can help to manage policy risks such as uncertainty in the ratification process for the US-Mexico-Canada Agreement (USMCA, i.e. the new NAFTA) and the new US national security tariffs on steel and aluminium in 2018.



 



Doug Lippoldt is Chief Trade Economist HSBC


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