June 24, 2009

Calling for an Anti-Protectionist Strategy to Go with Rhetoric

By Michelle Collins
June 17, 2009
Embassy Magazine

MONTREAL—Gone was the talk of promoting human rights, providing opportunities for prosperity and, as a result, the strengthening of democracy and stability in a wartorn land. Instead, during a press conference with visiting Colombian President Alvaro Uribe in Ottawa last week, Prime Minister Stephen Harper took a different tack in spelling out why Parliament needed to pass the Canada-Colombia free trade agreement.

"I call on Parliament to pass this free trade agreement and send a clear message from Canada against protectionism," Mr. Harper said as his Latin American counterpart looked on. "It is the right thing to do for Canada, to do for Colombia and the right thing to do for the global economy."

Protectionism has quickly become the negative buzzword of the financial crisis, especially, it seems, in Canada. Exactly how big a threat protectionist policies are for a recovery depends on who one asks, but most agree that Canada's best defence is to have a good offence, including a real plan of action, which—rhetoric aside—has been largely absent.

With so much unknown when it comes to the current crisis, most experts refer back to the Great Depression of the 1930s to point out how protectionist policies implemented by great powers such as the United States and Great Britain exacerbated the tough times.

Though hesitant to say the world, and the United States in particular, has again followed such a path, experts say the edge of the cliff is not far off.

At the Economic Forum of the Americas in Montreal last week—a small-scale model of the Davos conference usually dominated by grand talk of growing economies and burgeoning markets in the developing world—great minds gathered to comment on the current state of affairs, and make cautious predictions for the future.

World Bank President Robert Zoellick avoided panic by describing the rate of protectionism he's seen as only a "low-grade fever" for now. Former U.S. secretary of state Madeleine Albright, however, was more pessimistic in her assessment and warned that protectionism could lead to "an economic Armageddon."

In Montreal, the protectionism theme carried the conference, with most agreeing that nothing good could come of it. Luis Alberto Moreno, president of the Inter-American Bank of the Americas, followed the view that much of Latin America's wealth depends a great deal on the success of free trade agreements there, declaring that Latin American countries will "trade their way out of the recession."

Meanwhile, Canadian Trade Minister Stockwell Day has also been warning against protectionist activity in every speech he makes.

"When protectionist walls get built up, economies come down," Mr. Day declared in Montreal. "We are sending out a signal, first of all, for our own interest, because we believe this will advance our interests, but also as a signal to the rest of the global community that we do profoundly believe one of the ways to move through this time of downturn is to open up these doors."

But as the world economy has become increasingly integrated and complex, closing a nation's "doors" to trade has become just one method of protectionism.

"Protectionism can take many forms," said Danielle Goldfarb, associate director of the International Trade and Investment Centre at the Conference Board of Canada. "We're even seeing that it's difficult to separate the actual protectionist action versus protectionist rhetoric, and there's a range of things that one could use that could protect domestic industry from outside competition."

Indeed, Canada is already feeling the impact of these various forms of protectionism taking hold in the U.S., said Jayson Myers, president of the Canadian Manufacturers and Exporters Association.

The "Buy American" provisions slipped into America's massive stimulus bill has become but one hurdle for Canadian businesses to jump, Mr. Myers said, warning that such local-content requirements will show up in even more U.S. legislation.

"Governments have become more creative, so they've created other barriers to trade in goods, services and investment often now in the forms of policies like Buy American, buy local," said Debra Steger, a law professor at the University of Ottawa. "Sometimes product standards, even other standards on goods, can be a barrier to trade if the standard is applied differently to domestic production than to other countries. [Protectionism] has been around for a long time; I guess what has changed is the form it takes."

Exactly what the Canadian government is doing to make up for the effects of protectionism has also become somewhat tricky to follow, experts say. While the government's outspoken interest in quickly finalizing trade agreements with countries such as Colombia is not without economic merit, the experts agree that Canada's time and energy is better spent resolving problems with the U.S.

"I think those are less important, quite frankly," Ms. Steger said of the trade agreements Canada is pursuing in Latin America. "We're not doing those so much for trade as we are for political reasons. If you take a purely trade and economic perspective in terms of what's in it for us and our own economy, our own economic well-being, I would say focus on eliminating the problems with the U.S. relationship and get down to negotiating this big bold agreement with the EU."

Most encouraging up till now, say experts, is that Canada's provinces have signalled they are interested in opening their public procurement tenders to foreign investors, particularly the U.S., but they urge the federal government to more aggressively pick up the lead.

"I think we need a strategy here, we need a very clear strategy with the provinces on board, one that goes beyond the short-term," Mr. Myers said. "What's our strategy to keep our markets open? That's going to require a lot of political courage as well as support from the provinces."

The Federation of Canadian Municipalities recently passed its own resolution on local-content requirements, but experts say that such retaliatory protectionist measures will do more harm than good, suggesting a more comprehensive plan needs to be formed.

"It seems like there's some defensive actions taking place. What works better is to be more pro-active and put in a better framework, not just fighting every protectionist action taken," Ms. Goldfarb said.

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