A different deal

Hey there, time traveller!
This article was published 22/07/2023 (833 days ago), so information in it may no longer be current.

AT a time when Manitoba needs to grow its trade to fund services at home, the opportunity to do so just got a significant boost. But it will only benefit the province if exporters and support agencies start to think differently about trade.

The good news for Canadian and especially Manitoba business is that the United Kingdom is about to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) trade pact whose members circle the Pacific Ocean, include Canada and now extend to Europe.

It’s a big deal when a trade pact that already has close to 15 per cent of global GDP adds the world’s fifth-largest economy to the fold. The problem with this good news is that the first question from business, the media and governments is invariably — how much more corn, cattle and canola will we ship to the U.K.? Not finding a ‘sound bite’ answer, attention is immediately lost and with it the opportunity to expand trade — in Asia. Yes, Asia.

Think of the opportunity presented by the new trade pact as a bank shot as opposed to a straight shot in a game of pool. Or, along these lines, think of it as greatly expanded NAFTA.

With three parties to NAFTA, Canadian business has had the opportunity to not only make products in Canada to sell to the U.S. but to also use inputs from Mexico — parts, labour and services — to sell goods into the U.S. under the same favourable NAFTA rules. It’s a bank shot of sorts; using Mexico’s membership in NAFTA to sell mixed Canadian-Mexican goods to the U.S. that better compete on price and quality against goods from Europe and elsewhere where businesses from many countries pool inputs and specialty skills to make products. In this light, selling more products to Mexico was simply a bonus, not the main benefit of the agreement.

The same potential is there for Canadian firms in Asia with the UK joining the CPTPP.

Take Winnipeg-headquartered New Flyer International — the largest manufacturer of buses in North America. The company “makes buses” in Canada, in the U.S. and, more recently, in the UK. If it wants to sell buses in densely urban Asia, it will need to assemble the best combination of inputs from its various subsidiaries to make the most competitive product for highly demanding, diverse Asian markets. In essence, the more tools in its toolkit the better its chances.

If New Flyer uses inputs from the U.S., it cannot take advantage of the benefits of the CPTPP to sell in Asian CPTPP countries, since the U.S. is not a member of the agreement. Using U.S. inputs would put the company at such a competitive disadvantage in markets like Japan and Malaysia as to potentially keep it out of those markets.

If, however, New Flyer uses inputs from the UK — for example manufactured parts, engineering and skilled workers to service equipment it sells — it can do so under the preferential benefits of the CPTPP. That the UK is English speaking and culturally similar makes doing this easier than in many other CPTPP countries.

Farming out or sharing production jobs with the UK to increase exports from both companies makes Winnipeg-headquartered New Flyer stronger as a company. These days, simply holding on to a global company is a win.

But if the company grows, then so do headquarter jobs in Winnipeg. More senior executives, lawyers, engineers, designers and others means more talent to create spinoff companies and new ventures in Manitoba. This translates into economic growth, diversification and hopefully jobs at all skill levels.

In a world where the same trade agreements that open foreign markets to our commodity exports also open our market to foreign competitors, the choice is to be competitive or lose the whole company.

This way of thinking about exports is a subtle, not obvious argument that is not as easy to pitch as an ‘X’ per cent increase in canola or pork exports.

But as in a game of pool, if you do not understand all the angles and potential shots on the table, you’re going lose and walk away poorer.

With the U.K. joining the CPTPP there are new opportunities on the table if business and export support agencies take a moment to step back and look at all the angles.

Carlo Dade is Director of the Trade and Investment Centre at the Canada West Foundation.