Harper talks tough, but we should beware Russian retaliation

When Prime Minister Stephen Harper travelled to Kiev recently to show support for Ukraine's new government, he took a hard line on sanctions against Russia and mused about kicking Russia out of the G8.

Mr. Harper's tough language likely reflects the fact that Canada has far less to lose in a diplomatic row with Russia than other countries, particularly the members of the European Union. Unlike the EU, which relies on Russia for most of its energy needs, Canada's trade with Russia is less than $3-billion annually, making it our 18th largest trading partner.

However, the trade figure has been growing rapidly in recent years. And before the standoff over Crimea, Canada had put a priority on increasing commercial ties with Russia.

The value of Canadian exports to Russia has increased by 7.5 per cent annually on average since 2007. Most of that consisted of manufactured goods and agricultural products, especially pork.

While Canada's overall trade with Russia is relatively small, there are other key relationships. Several Canadian companies, such as Bombardier Inc. and Kinross Gold Corp., have operations in Russia. Russia is also an important player in the Arctic Council, which Canada is currently chairing and trying to turn into an economic forum.

Canada could face repercussions if further sanctions are imposed. Until now, the punitive measures have consisted largely of assets freezes and travel bans aimed at more than 30 Russian and Ukrainian individuals.

The United States and the European Union have threatened to introduce so-called "third-stage sanctions," which would target Russian economic sectors such as finance, energy and defence.

Russia would almost certainly retaliate, potentially causing havoc for Canadian businesses operating in the country.

CHRISTINNE MUSCHI/REUTERS

Bullish on the Bear: Canadian investment

Rapidly increasing interest in Russia from Canadian companies and investors and Ottawa is expected to be put on hold, whether new sanctions are imposed or not. In 2012, Canadian direct investment in Russia hit $4.8-billion, up from just $540-million in 2007, according to Statistics Canada.

While energy and mining have been important sectors, Canada’s pharmaceuticals, construction, aerospace and agriculture industries have also been eyeing new opportunities. Experts say future sanctions that restricted dealings with a large number of Russia’s banks or Russian companies, or a long list of business figures could great restrict investment in a country already seen as a risky place to do business.

Russian direct investment in Canada hit $1.2-billion in 2010, the last year that figures were available.

SIMON HAYTER FOR THE GLOBE AND MAIL

Pigs, machinery and frozen shrimp: Canada’s exports

Canada’s $1.7-billion in exports in 2012 to Russia was mostly in machinery and equipment. But Russia is also an important market for Canadian pork, although Moscow recently restricted imports from Canada and other countries over a drug given to pigs. Russia said last month that it intended to lift its import restrictions on Canada soon – although whether this will happen amid the current crisis over Ukraine is unclear. Canada also exported $79-million worth of crustaceans to Russia in 2012, much of it frozen shrimp. If trade sanctions cut off this flow of goods, some Canadian producers would be forced to find alternative markets.

DAVID STOBBE/REUTERS

Oil, fertilizer and little else: Canada’s imports

Canada imported just $1-billion in goods from Russia in 2012, much of it oil and fertilizers, with small amounts of rubber, steel and precious metals. But Canadian imports from Russia fell by an average rate of almost 8 per cent a year between 2007 and 2012. If, as U.S. President Barack Obama has suggested, future sanctions were to target Russia’s energy industry, those oil imports could dry up. But Canada’s oil imports from Russia are tiny compared with the dependence of the European Union on its aggressive neighbour.