Canada’s trade tightrope with ASEAN needs flexibility
Canada’s trade tightrope with ASEAN needs flexibility
To gain preferential access to the ASEAN market, Canada needs to navigate a delicate balance between its Progressive Trade Agenda, which could pose challenges for less-developed economies, and a flexible, differentiated approach to liberalisation that takes into account the varying levels of economic resilience between ASEAN member states.
On the sidelines of the 2024 Asia-Pacific Economic Cooperation Summit in Lima, Indonesian President Prabowo Subianto and Canadian Prime Minister Justin Trudeau jointly announced the ‘substantive conclusion of negotiations’ for a Canada–Indonesia Comprehensive Economic Partnership agreement. Set to come into effect in 2025, this agreement highlights Canada’s progress as a latecomer to the Southeast Asian economic stage just three years after introducing its Indo-Pacific Strategy.
Ottawa’s modus operandi for accessing Southeast Asia’s markets combines both bilateral and regional approaches. For years, Canada has been negotiating a regional free trade agreement with the ten ASEAN member states, including Indonesia.
Prior to Canada, the European Union attempted to reach an interregional agreement with ASEAN. But the European Union’s ambitious vision ‘clashed with the actual heterogeneity of ASEAN member states’. In 2009, facing disagreements within ASEAN, the European Union chose a cooperative approach focusing on bilateral agreements.
While the European Union opted for a regional first, bilateral later approach, Canada is pursuing both at the same time. But negotiating with ASEAN is far from easy.
Canada is progressive, even when it comes to international trade. Canada’s Progressive Trade Agenda (PTA), which was launched in 2017, sets high standards in areas such as environmental protection, labour rights and gender equality through its trade agreements provisions. These ‘new generation’ agreements are on the rise, but may prove dissuasive due to financial, institutional or political obstacles to their implementation — especially for developing economies focusing on competitiveness. With some ASEAN member states counted among Asia’s least developed economies, they likely would not be receptive to Canada’s progressive demands.
The scope of the agreement may need to be adapted for these less resilient economies. Agriculture is a telling example. Lowering tariff barriers in the agricultural sector exposes small farmers to economically devastating competition, not to mention other serious social consequences. And given Canada’s supply management system for products such as dairy, poultry and eggs — relying on quotas and high tariffs to protect domestic producers — full agricultural liberalisation is probably not on Canada’s agenda either. Exclusions are to be expected.
Considering these less resilient economies, adapted or differentiated liberalisation schedules are essential. When ASEAN’s free trade area was established in the 1990s, advanced countries such as Indonesia, Malaysia, Thailand, the Philippines and Singapore were given shorter implementation periods than less-developed ones like Vietnam, Laos, Cambodia and Myanmar. Yet ASEAN’s member states exceeded expectations, completing liberalisation ahead of schedule. A similar two-track liberalisation model is not out of the question for the Canada–ASEAN partnership.
ASEAN’s signature free trade agreement, the Regional Comprehensive Economic Partnership (RCEP), is a prime example of a trade agreement tailored to the economic realities of its parties. Member states’ autonomy over concession lists has resulted in significant exclusions such as agricultural products, labour-intensive manufactured goods, strategic products such as vehicles and goods with negative externalities. The RCEP also sets a 20-year ceiling for tariff reduction, granting leeway to Southeast Asia’s least resilient economies. Its a la carte design lets states opt for either a single concession list for all, or individual lists for each. Flexibility and inclusivity come at the cost of simplicity.
A flexible, RCEP-style agreement could be the favoured approach for ASEAN’s less-developed economies as it provides control over concession lists, exclusion of sensitive sectors and long implementation timelines. But it doesn’t serve the immediate interests of more developed ASEAN member states such as Indonesia or Singapore.
Alternatively, a high-standard and progressive ASEAN–Canada agreement is a scenario worth considering given Ottawa’s commitment to its PTA. Keeping exclusions minimal and shortening timelines would swiftly unlock the agreement’s full potential.
To avoid less-developed economies’ vetoes, Canada is likely to propose compensatory measures such as expert deployment, capacity-building initiatives or financial support, likely through official development assistance channels. The application of the agreement would be contingent upon compliance with the PTA standards, rendering the ‘Canada–ASEAN minus X’ model the most realistic option. Unlike the European Union’s rigid approach, ASEAN’s open regionalism allows for a more flexible and accommodating integration process.
Be that as it may, Canada is walking a tightrope. To secure preferential access to the ASEAN market, Ottawa should adopt a flexible and conciliatory approach, especially as it braces for a major trade storm with the protectionist Trump administration back in the White House.
Alan J M Bron is an LL.D Candidate at Universite Laval in Quebec, Canada. He is affiliated with the Research Chair on New Challenges of Economic Globalization at Universite Laval and the FTU Institute for Creative Research at the Foreign Trade University in Hanoi, Vietnam.
Source: EastAsiaFourm
