With Canada’s largest trading partner just a day away from a new administration, the importance of having a solid negotiation team, especially in the midst of talks involving tearing up NAFTA, is imperative to the success of the Canadian economy. That’s why, if you’re not yet familiar with Francois-Philippe Champagne and Chrystia Freeland, it’s about time you know who they are. Champagne, the new Minister of International Trade, and Freeland, Minister of Foreign Affairs, are now two key players in the future economic stability of Canada.
Both individuals are spearheading the international trade game in Canada. But why is international free trade so important to the economy?
In economics, there’s something called the law of comparative advantage. This dictates that countries producing goods over which they have a comparative advantage will make those goods better, faster and cheaper than their trading allies.
Protective trade restrictions, such as tariffs and quotas, conflict with the above principles and tend to harm the efficient operation of free trade. They also risk driving certain trading activities underground, resulting in illegal smuggling. When Donald Trump talks about imposing tariffs on imports into the U.S., it makes sense that the international community raises concerns.
In recognition of the benefits of international free trade and the dangers of protectionism, numerous international free trade agreements (FTAs) are now in place between various countries around the world, covering multiple industries. Canada is currently involved in several of these FTAs, with recent ones including the Comprehensive Economic and Trade Agreement (CETA) involving Europe and the Trans-Pacific Partnership (TPP) with Pacific Rim countries. These are designed to reduce and eliminate barriers to trade so that producers are able to compete on a more level playing field within the global market. Among other things, FTAs often involve lower import duties, thereby reducing the cost of imported goods.
Developing countries, in particular, reap the benefits of international free trade. FTAs help to ensure that these countries have access to economic resources, are able to exploit these resources efficiently, and raise living standards by enabling goods that are unavailable or expensive to produce to freely flow across their borders. Evidence also supports the fact that countries open to trade are generally wealthier than protectionist countries without free trading regimes.
Working within the realm of FTAs can be complicated. If you need any assistance acquiring, completing or reviewing a NAFTA Certificate of Origin – or indeed deciphering whether your goods are eligible for NAFTA treatment, Orbit Brokers can help.