Trade, Innovation and Middle-Class Prosperity

By | April 9, 2015

A lot of media discussion about international trade gets caught up in process – the events at the WTO in Geneva, the next meeting of trade negotiators, plans for the next ministerial gathering, what’s happening in the various forums with confusing acronyms – TPP, CETA, NAFTA, ASEAN, APEC, and on and on.

Trying to make sense of all of this complexity, we lose sight of the broader picture.

First and foremost, trade agreements aim to carve out a rules-based system in global commerce from what was in the 1920s and 1930s a chaotic beggar-thy-neighbour free-for-all.

The old GATT that emerged from the war in 1947 and its laudable successor, the WTO Agreement in 1994, represent singular achievements in this regard — creating a rules-based framework for open markets and fair and non-discriminatory dealings in international commerce.

Even with regrettable setbacks in the WTO negotiating processes, the guiding rules in the Agreement remain, requiring that national laws and regulations be free from discrimination and unfair treatment that inhibits the movement of goods, services and capital.

There is no doubt that this entails a sacrifice of national sovereignty to that extent. But trade agreements, like all contracts, entail compromises, giving up uninhibited rights of action for gains in other respects.

It’s not a zero-sum game, however. In today’s world, governments are increasingly sensitive to ensuring that trade and investment agreements simultaneously give them room to legislate for the common good, be it to protect the health and well-being of their citizens or to protect against environmental degradation. This is a hard to achieve, but this critical balance must be maintained.

Within this balance, measuring success in these agreements – be they multilateral, regional or bilateral – is not just about non-discrimination and freeing up the movement of goods across national borders. Success is measured equally in promoting technological development, innovation and entrepreneurial activity across the globe.

For Canada, what does this entail? Here are three guiding elements that should be given greater prominence and that, if realized, will support Canadian innovation and entrepreneurship and, ultimately, improve the well-being for all our people.

First, services. Like the Canada-EU agreement (CETA), other regional agreements, including the proposed Trans-Pacific Partnership (TPP) agreement, must ensure the freest possible market access for Canadian service providers, giving them fair, equitable and non-discriminatory treatment abroad.

That will create new opportunities for Canadian enterprises – bankers, insurers, engineers, transportation industries, architects, computer software design specialists and scientists – in expanded global activities and thereby stimulate entrepreneurial activity and innovation at home.

Of course, Canadian service industries will have to compete against fierce global players from other countries, including from emerging economies. Our service industry is already achieving notable international success but being measured fairly and objectively against the competition through rules that are clear, objective and non-discriminatory will assist Canadians in achieving entrepreneurial successes abroad.

Secondly, procurement. Canada’s trade agreements must provide non-discriminatory opportunities for Canadian bidders in foreign public procurement projects at the national and, importantly, at subnational levels. Canadian public authorities, federal, provincial and even at the municipal level, will do the same on a reciprocal basis.

Guaranteeing a level (or mostly level) procurement playing field in and of itself isn’t a guarantor of competitiveness or a stimulator of innovation. But if Canadian companies enter bidding races abroad assured they will be judged on the basis of their competence, innovation and cost-effectiveness and not inhibited by local market preferences, success abroad will follow from innovation and improved performance at home.

Third, intellectual property. Prospective trade and investment agreements must guaranty intellectual property protection for Canadian companies based on the highest international standards. Some of this is already assured in the NAFTA, the CETA and other agreements recently concluded. Improvements in IP protection are forecast in the TPP negotiations as well as in Canada’s ongoing bilateral initiatives.

While Canada has not been a world leader in patent filings, strong international guarantees for Canada’s offshore-related IP activities will mean Canadian companies can exploit foreign markets with a high degree of certainty — and legal recourse — that their innovations will not be high-jacked by unscrupulous foreign operators.

While this also isn’t a guarantor of Canadian entrepreneurial activity on its own, a more secure international playing field in intellectual property protection is a key ingredient in spurring innovation in here in Canada.

These three elements are often neglected in public discussion, which often pays undue attention to the more political aspects of trade negotiations such as, in recent days, the investor-state dispute settlement (ISDS) regime. There has been talk, for example, about European opposition to ISDS in the recently concluded agreement with Canada (the CETA) and the possibility that this might jeopardize ratification of the agreement by the European Union.

These arguments miss the point. In my view, ISDS could be modified, adjusted and even sacrificed without diminishing the importance of the CETA or other international trade agreements in stimulating global prosperity and innovation in the three central areas mentioned above – services, intellectual property and procurement.

If these three goals are realized in a balanced set of treaty rights and obligations, the compromises will have been worth the candle.