As if in swift response to Prime Minister Vladimir Putin’s recent complaint about low levels of trade and investment between Russia and Canada, Ed Fast, the Minister of International Trade Minister, has quite rightly scheduled a trade mission to Saint Petersburg and Moscow in June.
The trade side of this, however, is less promising than the investment potential. The very similarity of the two countries’ natural resources does not greatly lend itself to commerce in goods. Both Canada and Russia are rich in oil and natural gas, metals, forests and potash. These facts do not suggest comparative advantages – as clearly expounded first in David Ricardo’s Principles of Political Economy and Taxation, published in 1817, in which his leading examples of why trade is mutual beneficial were wine from Portugal and cloth, hats and shoes from England. Difference, not likeness, is the key.
Yet the similarity of these two large economies, with their shared strength in natural resources, may well make the transfer of capital, technology and expertise highly valuable. Canada’s uninterrupted experience of a private-sector economy, in contrast to Russia’s Soviet period, means that Canadian companies have much to offer.
The main obstacle is the dubious character of Russian business culture. The imminent accession of Russia to the World Trade Organization, with its various trade remedies, is encouraging. And, at least in theory, Canada already has a bilateral investment-protection treaty with Russia, like the one that Canada recently arrived at with China – a FIPA, short for “foreign investment promotion and protection agreement” – but this agreement was reached in 1991, when there was still a Soviet Union. Russia is a party to it as a successor state.
The Canadian government needs to find ways to help solidify the legal framework in which Canadian firms have to operate in Russia, in a much-changed post-Soviet environment. The Canada-Russia FIPA may well need updating. Mr. Fast and his colleagues should consider this, quite as much as the aerospace and construction opportunities they plan to emphasize.
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