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Canada. Beyond merchandise trade, our communications systems are intertwined, as well as our transport and energy networks. In fact, about the only major economic activities that are independent — or where we at least maintain the option of independent action — are our monetary and fiscal systems, but they are key areas in maintaining Canadian independence. 46 Yet our integration may not be as close as it seems on the surface. Despite the large proportion of Canadian output going across the border, even measured by trade flows, the US and Canadian economies are far less integrated than those of the European Union (EU). Just under 63% of EU member countries’ exports go to other EU countries, representing 16% of their combined GDP. 3 The comparable figures for Canada and the US are 37% and just 3%. But unlike the level of investment, these proportions are much higher than they were a decade ago. Policy intervention seems to be the driving factor. (In the current debate about the brain drain, productivity, tax differentials and the possibility of a currency union, the extent of integration with the US is often exaggerated. Heightened media comment about relatively short-term situations like an “undervalued” Canadian dollar, should not drive policy on long-term issues such as increased or decreased economic integration.) The Canadian economy has changed dramatically since the start of the North American Free Trade Agreement (NAFTA) in 1991, which significantly reduced our costs of trading with the US relative to other countries. The proportion of our gross domestic product accounted for by trade with the US has risen steadily (as the chart on page 48 shows). During the 1980s, Canadian shipments to the US were around 17% of GDP. In the early 1990s, as NAFTA was phased in, the relative importance of our US trade began to grow rapidly. By 1998 it had reached 31% of GDP. Imports followed a similar pattern, rising from 15% of GDP to 23%. The important automobile industry, our top exporter to the US, best demonstrates the way in which policy has shaped our trade flow. Before the Canada-US Auto Pact (the first step toward NAFTA) was signed in 1965, effectively removing the border as a factor in the industry, auto exports were only 1% of shipments south. Today they contribute 23% of all shipments across the border. Meanwhile, auto exports to the rest of the world are a mere 0.3% of the total. Is the automobile output of southern Ontario or Quebec so unique that Canadian-manufactured vehicles are competitive in the US market but nowhere else in the world? Proximity to the US is clearly one factor dictating the market, but major producers like Japan and South Korea are able to export to markets far away from their home bases. Policy has shaped the trade. Close ties between the Canadian and US economies are natural, even inevitable, given our geographic proximity and the cultural similarities of our peoples. These ties have been reinforced by economic policy. To the extent the policies enhance the inherent complementarity of our economies, they are commendable. But policy should be based on economic reality. At issue are not the gains that the free-trade agreement brings to our economy, but the distortion this policy intervention in trade flows may cause in our economic relationship with other regions. If Canadian business had access to other markets at the same level they enjoy with the US, the pattern of our economic relationship might be less skewed. At present, Canada has a free-trade relationship
similar to that with the US with only three other countries — Mexico, Chile and Israel. These countries, none of them economic giants, accounted for just 1.7% of our total trade in 1998, compared with the 77% accounted for by the US. The way to rectify any imbalance brought about by North American free trade is clearly not to forgo the access we have gained to the US, but to seek similar levels of access to other major regions, notably Asia. The government has pursued this objective globally through the GATT and WTO, and regionally through such groupings as APEC and the Free Trade Area of the Americas. Worthy as these efforts may be, they are very long term — the GATT/WTO process has been under way for some 52 years and still has a long way to go. APEC’s vision of free trade in Asia Pacific is not due to be fully realized until 2020, and could well run out of steam long before that. A shorter-term solution would be to seek free-trade and investment agreements with other major trading partners, especially our second-largest partner, Japan. These would be intermediate steps toward broader economic liberalization, and would help offset the policy bias that now appears to exist toward the US. Once negotiations began, they would promote debate on the distortion NAFTA has brought to our economic relationships and send business a signal about looking for markets beyond the US. There is no reason this should detract from Canada-US investment or trade. Rather it would likely stimulate interest and develop a greater level of expertise in areas of trade and investment that are currently neglected due to ignorance. Once major Canadian companies or institutions began investing in, say, Japan, the way they now do in the US, Toronto stock analysts would quickly develop an interest in Japanese investments. 47 A BALANCING ACT Growing integration, or at least interdependence, is the outstanding feature of today’s global economy. The integration is far from even, focused on clusters of countries in North America, Europe and East and Southeast Asia. There are few signs of significant crossborder integration in Africa or South Asia and it is relatively less developed in Latin America, despite efforts underway to create a free-trade area linking North and South America. The pattern of integration is also very uneven within countries, concentrated in certain industries, especially electronics and high tech. However, the general trend is for greater cross-border integration. As argued in What is Globalization? in Chapter 1(page 12), this integration, whether regional or global, is the result of the interaction of a series of developments in technology, communications and transport. It is not directly the result of policy decisions by any government or international body like the WTO. However, policy choices, especially decisions to remove direct and indirect barriers to flows of goods, people or capital, establish the framework within which these factors interact. They can have a considerable influence on the resulting pattern of industries. Ideally, policy should be balanced, not unduly favouring any of the elements at work in the integration process. It should also touch on the broadest possible range of a country’s economic relationships. Of course, in the real world of politics and entrenched interests, it is impossible to advance on all fronts simultaneously. In the case of Canada and the US, the flow of goods and capital between the two countries has been liberalized to a
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Page 5 and 6: October 2000, we will hold the firs
Page 7 and 8: OVERVIEW 1 asia in convalescence 7
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Page 11 and 12: GRADE ‘98 Inward Investment C- In
Page 13 and 14: THE CHALLENGE OF GLOBALIZATION Unde
Page 15 and 16: The largest pool of investable Cana
Page 17 and 18: enabled Canada to take a stronger r
Page 19 and 20: emoval. However, most of the change
Page 21 and 22: MAJOR EVENTS 2 a year in review 21
Page 23 and 24: stock markets were climbing. As the
Page 25 and 26: six-fold in Thailand. With the exce
Page 27 and 28: the past played a very small role i
Page 29 and 30: it had allowed in recent years. A m
Page 31 and 32: SECURITY BACKTRACK While economic c
Page 33 and 34: Outbreaks of violence in other part
Page 35 and 36: ECONOMIC RELATIONS 3 looking for a
Page 37 and 38: TODAY’S DELAY IS TOMORROW’S LOS
Page 39 and 40: ○ ○ ○ ○ ○ ○ ○ ○ ○
Page 41 and 42: to achieve operating efficiencies t
Page 43 and 44: Finally, foreign investment by Cana
Page 45: NORTH AMERICAN INTEGRATION 4 too mu
Page 49 and 50: British Columbia provides a recent
Page 51 and 52: part of US-assembled goods bound fo
Page 53 and 54: ASIAN EXPERTISE 5 hidden advantage
Page 55 and 56: cautioned that “not every Asian C
Page 57 and 58: usiness skills to enhance Canada-As
Page 59 and 60: 6 DEVELOPMENT ASSISTANCE ODA for a
Page 61 and 62: the term “development assistance
Page 63 and 64: The report emphasizes the need to
Page 65 and 66: ASIA PACIFIC FOUNDATION OF CANADA 7
Page 67 and 68: CANADIAN EDUCATION CENTRE NETWORK T
Page 69 and 70: NOTES CHAPTER 1 1. Based on markets
Page 71 and 72: NOTES 5. Research by Tamim Bayoumi
Page 73 and 74: REFERENCES —. Statistics Canada.
Page 75 and 76: REFERENCES United Nations Conferenc
Page 77 and 78: STATISTICAL APPENDIX ASIAN MOTHER T
Page 79: STATISTICAL APPENDIX CANADA’S TRA

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