The “spaghetti bowl” has been a vivid image since 1995 for the proliferation of bilateral trade agreements. Though Canada played an important part in the trend, thanks to the Canada-U.S. free trade agreement of 1989, this country has sometimes got lost among the global bowl’s entangled, overlapping noodles. Witness Ottawa’s unwieldy, painfully prolonged negotiations with the European Union and South Korea. But what if we could get the benefits of more free trade, with no negotiations at all?
Enter Dan Ciuriak and Jingliang Xiao, two Canadian economists, and their research paper drawing attention to the potential of unilateral trade liberalization. It means lowering your own protectionist walls, regardless of what other countries do. It’s a great idea, which may explain why you’ll hardly ever hear it mentioned. It has obvious benefits for consumers, in the form of lower prices. And in the world of global manufacturing supply chains, it makes a great deal of sense to allow components into one’s country duty-free, in order to manufacture and re-export. A number of emerging economies, including China and India, have adopted the practice.
Bilateral free-trade agreements require rules of origin for goods, that is, whether they come from inside or outside the free trade area. With global supply chains, it’s increasingly burdensome to determine what proportion of a product comes from where. It can be less costly to simply cut the Gordian knot, and simply allow imports to enter, without charging customs duties. Ottawa quietly moved in this direction in 2010, but regressed in the 2013 budget, introducing new tariffs on goods from dozens of countries.
Mr. Ciuriak and Mr. Xiao acknowledge that unilateral liberalization is far from likely with goods that are massively protected, especially poultry and dairy, which are subject to Canadian tariffs at hair-raising rates of 85 per cent and 193 per cent. There are deeply entrenched, well-connected interests. But leave agriculture aside. There’s a whole world of goods that could enter Canada duty free. The two economists say that would deliver a one-per-cent increase in GDP, under their preferred scenario, or $20-billion in economic activity.
Taking this step would not involve negotiations with other countries. Canada would simply tear down most of our tariff walls. The beneficiaries would be Canadian businesses using imported parts, and Canadian consumers.
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