Canada’s Pivot to Asia: now we need the strategy
October 16, 2012
by JOSEPH K. INGRAM and DANIEL POON
The “Canada in the Pacific Century” conference hosted recently in Ottawa by the Canadian Council of Chief Executives could signal a watershed moment in Canadian foreign affairs.
Participants — including leaders of Canadian industry and senior Government policy makers — were encouraged to recognize the urgent need for “trade diversification” and a quick pivot to Asia and its emerging economies. The strategic rationale behind such thinking is driven by our somewhat anemic economic growth and by Canada’s loss in market share of world exports since 2000 – we are among eight of the G20 member countries which have lost market share – a development critical to Canada’s prosperity.
Foreign Minister John Baird and the global guru from the Eurasia Group, Ian Bremmer, were both featured speakers at the conference, with the Minister committing to finalize free-trade agreements that are in the works and Bremmer referring to Canada as a well-placed “pivot state”, though also cautioning against pivoting too much to Asia.
The problem is that despite the wide acceptance of the “pivot” concept, as of yet, there appear to be few details behind the catchphrase. No conference is expected to resolve major topics such as “how to engage Asia”, and the Canadian Council for Chief Executives, as well as the Government, should be commended for casting a bright light on this public policy issue. The challenge for the conference, however, was that with few exceptions, most policy and opinion-makers in attendance fell back on traditional instruments for what is an unprecedented phenomenon requiring both vision and boldness in its approach. Discussion centered largely on the need for more free trade agreements (FTAs) and other formal instruments to ensure a level and secure investment climate, and of course, full reciprocity in market access. In other words, the “how to” aspects of the pivot dovetailed into a call for business as usual.
From this rather conventional starting point, it perhaps wasn’t surprising that the discussion of opportunities and challenges of bilateral investment flows was dominated by suggestions for strengthening ties in natural resources, agriculture and energy sectors. Despite living in the era of the innovation economy and recognition of China’s massive planned investments in R&D, mention of strategic partnerships with the Chinese in higher value-added activities in manufacturing and services was limited.
Indeed, most analysis looking at advancing Canada-China economic relations have similar starting points; they examine broad trade and investment trends and identify current (static) complementary economic activities and sectors where Canadian and Chinese firms exhibit strong competitiveness. Of course, such static analytical exercises are necessary, but they should represent only a first step.
Far more consequential are the opportunities and challenges surrounding the strategic economic sectors Canada and China share in common and where both nations’ firms’ value-addition remain weak. Emerging industries identified in China’s 12th five-year plan – high-end manufacturing equipment, new-generation information technology, alternative energy and new-energy vehicles – speak to China’s ambitions to reach the apex of global supply chains across a wide-ranging set of sectors. While the challenges of plugging into Chinese industrial policy are many; the opportunities are equally vast. And Canada has the capacity and technical know-how to do so.
Viewed in this way, emerging markets and China in particular, offer more than just a greater quantity of bilateral trade and investment flows, but also include structural considerations that have a bearing on the dynamic quality of these flows. Ultimately, successfully overcoming these constraints speaks to the ability of Canadians to break out of their reliance on their North American market and engage increasingly with a global market place, Asia included.
Effectively engaging China will take more than strategic wishful thinking, especially given that China is experiencing no shortage of interested suitors, with some holding more potent bargaining chips. As Ian Bremmer emphasized, the ability to effectively pivot and access Asian markets will depend crucially on Canada’s relative negotiating power and leverage vis-à-vis potential partners.
It is not clear that current Canadian negotiators have yet developed this bargaining savvy, as Canada’s rather leisurely entry into the Trans-Pacific Partnership suggests. Playing one gorilla in the room against another is never easy, but it is a way of life in other parts of the world, like Southeast Asia. Moreover, as empirical evidence has shown, adhering primarily to standard FTAs as an instrument will tend to perpetuate structural weaknesses, rather than correct them.
Instead, Canada may need to selectively borrow from China’s economic playbook. As one U.S. lobbyist quipped, China “has thoroughly examined all the loopholes in the WTO system and it is working to drive trucks through those holes”. Even the austerity-minded UK government seemed to break with convention when they recently announced a new industry strategy that included a business bank to ensure “patient” capital financing to business.
Realistically, a true pivot to Asia will take time and bold experimentation in the policy process. Kishore Mahbubani, Dean of the Lee Kuan Yew School of Public Policy, put it best at the conference when he described the mentality underpinning an effective pivot in Gretzky-like terms: a matter of not just going to where the puck is, but where it’s going to be.
Joseph K. Ingram is the President & CEO of The North-South Institute. Previously, after retiring from a 30 year career at the World Bank, Mr. Ingram served as a Senior Advisor to the World Trade Organization and as a consultant to the UN High Commission on Human Rights, the World Bank and the Canadian International Development Agency. Mr. Ingram has an MA in Political Economy and studied at McMaster and the Harvard Business School.
Daniel Poon is a researcher at The North-South Institute. His work focuses on the increasing engagement of emerging markets in developing countries, and the resulting economic impacts. Prior to joining NSI he held positions with the Institute of World Economics and Politics at the Chinese Academy of Social Sciences in Beijing. Mr. Poon has an MA in Development Policy (Carleton) and a BA in Political Science and Economics (McGill).
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