Canada’s Gateway Economics

05.29.13

Canada’s Gateway Economics

05.29.13
Jason RansomJason Ransom

On May 24, 2013 Canada concluded the latest round of negotiations for entry into the Trans-Pacific Partnership (TPP), a grouping of states that includes Australia, Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. However, the TPP is only one aspect of Canada’s broader strategy to promote trade and economic growth.

In a recent interview, Ed Fast, Canada’s Minister of International Trade revealed the savvy behind Canada’s macro-economic strategy. While Canada has sought trade relations with a variety of states, the underlying purpose of these linkages is to establish platforms for regional connections. In a recent interview with the Canadian Broadcasting Corporation Ed Fast referred to the strategy of securing free-trade agreements with the purpose of attaining regional connections in the future as ‘gateways.’ The thinking is brilliantly simple: establish trade links with important regional actors and use that relationship as a springboard to extend economic connection regionally.

States looking to secure free-trade agreements should take a page out of the book Canada’s current government is writing. Particularly in Latin America, Canada has sought a great deal of economic linkages since 2006. Under the leadership of Stephen Harper, Canada has secured comprehensive agreements with a variety of Latin American states that include: Colombia, Honduras, Panama and Peru, in addition to the previously established agreements with Costa Rica, Chile and Mexico. Of the handful of states Canada holds free-trade agreements with in Latin America many of them are members of a regional trade bloc called the Pacific Alliance. Employing Ed Fast’s gateway economics Canada has secured trade deals with states that are interconnected with other regional economies. It is a trade policy that expands through derivation.

Analyzing what Latin American states Canada has secured trade deals with and what those states mean to the Latin American region offers an impactful image of Canada’s diplomatic savvy. For example, in a recent Regional Economic Outlook Report, the International Monetary Fund reports that Peru has attracted a lot of investment capital as a result of its expanding mining economy, and inflation has remained low and stable. Furthermore, according to the Central Intelligence Agencies’(CIA) World Factbook Peru is a member of the Pacific Alliance and has deep trade ties to regional economies such as Brazil, Chile and Ecuador. From Canada’s establishment of the free-trade deal with Peru, a developing state with deep ties to other regional economic powers, illustrates Ed Fast’s logic of gateway economics. In light of the Canada-Peru relationship it becomes clear that Canada has sought to create a positive relationship wherein both states benefit. Peru gets to buy and sell resources to meet development goals and Canada gets to use Peru as a launching pad into relations with powerful regional players. When considering that Peru has strong trade links with Brazil, Canada achieves a linkage to Brazil via derivation.

Another poignant example of Ed Fast’s gateway strategy is seen in Canada’s relationship with Chile. While Canada signed a free trade deal with Chile back in July of 1997, Chile has since taken advantage of its massive natural resource deposits and its economy has grown tremendously. For example, according to the World Factbook Chile’s 2012 foreign direct investment inflows grew 63% from 2011, a statistic which signifies the intensity of Chile’s integration into the world economy. Furthermore, Chile exports a great deal to Brazil and imports from Brazil and Argentina. For Canada, Chile’s growth with regard to its GDP and its entanglement with global and regional economies means that Canada stands to benefit via Ed Fast’s gateway logic.

Since Brazil is arguably the Latin American state with the greatest potential to become a major global economic power, it too is likely to take a formative role on the development of Latin America’s development pattern. In this way, although Canada does not have a trade agreement with Brazil, through Ed Fast’s gateway premise, Canada has established links with growing states like Peru and Chile, which in turn have positive links with Brazil. Hence, Canada by extension is poised to reap the economic reward of linking with states that will profit alongside the region’s economic hegemon. Hence, Harper’s government stands to benefit from the recent free-trade deals in Latin America due to the gateway they provide to regional powers, such as Brazil. With Particular emphasis in Latin America, Canada has struck convenient trade relations that will encourage indirect access to Brazil’s continued growth and influence in the region at large.

States looking for strategies to enter entangled economic relationships in important regions of the world should take note of the Harper’s governments maneuvering in Latin America. It is an intelligent innovation on comparative advantage logic which allows states to indirectly link their economic futures to bourgeoning economic powers. Harper’s government has faced a great deal of criticism for domestic policies at home. However, the reputation of the government may be saved by providing a model for establishing mutually beneficial and savvy trade relationships with newly developed states, particularly in Latin America.

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