From: Daniel Schwanen, Vice-President Research, C.D. Howe Institute, written in partnership with the CABC

To: Officials involved in Canada-ASEAN consultations

Re: Canada and ASEAN trade agreement can foster economic recovery, development and well-being

ASEAN Member States and Canada are contemplating their next steps toward a possible trade agreement, even as they continue to be burdened with the health, economic and social impact of COVID-19.

Each country seeks, as a matter of priority, to recover from the devastating economic effects of the pandemic. For economies as trade-dependent as those of ASEAN and Canada, much of that recovery will be shaped over the medium-term by the way demand and supply chains are reconfigured, in the post-crisis era.

Many uncertainties – regarding public health but also whether the world’s larger economies can resist the lure of non-cooperative, zero-sum approaches to international trade and investment issues, could affect the pace of each country’s recovery in coming months.

While ASEAN’s GDP, at US$3.0 trillion dollars in 2018, is the 5th largest in the world, and Canada’s stood at over half that number at $1.7 trillion, making it the 8th largest economy, both economies will remain far behind in size the giant economies of the United States, China and the European Union.

In that context, strong and reliable, yet dynamic and flexible economic relations among mid-sized economies that can provide fair and predictable access to each other’s traders, investors and other business travelers – that limit the arbitrary use of exceptions allowed by trade agreements and agree to resort to impartial dispute resolution mechanisms – will be vital to positively shaping the recovery, and navigating these uncertainties.

Regarding trade recovery and openness, ASEAN and Canada have similar interests. For example, ASEAN and Canada have been at the forefront of emphasizing the need to maintain trade as open as possible, given the paramountcy of emergency public health measures, so as to limit the disruption in supply chains for medical and other critical goods and in travel routes and transport logistics.

The reality is that ASEAN, Canada, and key like-minded regional partners are stronger working together where the issue of security and safety of essential goods and services and the maintenance of trade flows critical to the recovery of incomes is concerned.

A key role of a Canada-ASEAN trade agreement, and associate deeper dialogue and cooperation, would therefore be to foster this joint interest in an open and fair trading system.

In terms of trade, each side would gain from the valuable exchanges that would follow reduced tariff and non-tariff barriers, reflecting comparative advantages. On that score, ASEAN and Canada are complementary economies, both having strengths in specific natural resources, agri-food, other manufacturing, and services such as tourism, logistics, software, and finance. Trade in areas such as medical devices and pharmaceuticals, as well as digital trade, is also ripe for growth in the post-COVID era.

However, a key question will be how to translate these complementarities into both concrete business opportunities and overall economic development – higher standards of living – for residents of Canada and of ASEAN member countries.

Canada’s strong research capabilities, intellectual property, and regulatory regime, combined with preferential access to North America and Europe, and reasonable costs even in advanced technology fields, could benefit the growth of ASEAN businesses in these markets. Meanwhile, greater integration of Canadian businesses into supply chains in the much faster-growing ASEAN region, whose GDP could grow seven-fold over the next 30 years, with commensurate growth in infrastructure needs and consumer demand, is an important piece of Canada’s trade diversification agenda.

Even for the two ASEAN member states, Singapore and Vietnam, who currently not only have free trade with Canada as having ratified the CPTPP, but also have their own trade agreements – as Canada does – with the United States and the European Union, a deal involving Canada and all of ASEAN would allow for integration into more flexible and productive regional production platforms. Indeed, in that vein, Canada and ASEAN should leave the door open to the ability for producers to cumulate origin more easily across their various agreements with third parties.

A regional open trade platform also does not negate the possibility of bilateral agreements between countries that want to pursue a deeper or more pointed bilateral economic agenda, as long as it is not incompatible with the overall agreement.

Indeed, while bilateral ASEAN-Canada exchanges would grow with an agreement, there is a much bigger concept in play, which is that an agreement should allow businesses, other organisations, and talent in Canada and ASEAN members states to more easily partner with their counterparts in other countries member of the agreement, thereby enhancing their competitive position in third markets. In short, growth in bilateral trade is no longer sufficient as a metric of success: growth in joint business ventures including research, and other bilateral links such as the growth of micro-multinationals in each other’s markets, should be closely followed as indicators that an agreement is assisting its signatories grow and compete globally.

Canada and ASEAN should hold parallel talks, as part of their ongoing dialogue, on specific issues that will affect how businesses are actually able to take advantage of better access to each other’s markets, creating better employment opportunities in the process. They should examine how such an agreement can help businesses, investors and institutions better contribute to addressing infrastructure and skills needs, help business in industries as diverse as tourism, transportation or banking,  adapt to new post-COVD trends in demand or to new technological possibilities, for example for virtual collaboration.

The agreement should also support Canada and ASEAN’s joint focus on small businesses, whose growth is so important to raising standards of living in economies as diverse as Canada, Indonesia or the Philippines. Reducing trade, information, and technology adoption costs for small businesses should be a key outcome of this agreement. Fairs around specific themes such as health, clean energy, the use of AI, should be sponsored and open to businesses and professionals operating in Canada or ASEAN member states.

In the age of COVID-19, and the resulting reinforcement of what were already emerging emphases on safety, reliability and sustainability, the time-honoured principle of “know your customer” needs to be augmented by another one: “know your supplier”. As every country evolves policies to take advantage of new trends and technologies that will accelerate post-pandemic, ASEAN member states and Canada will require the policy leeway to steer their own development. At the same time, however, they will need the reliability and flexibility of a common platform that make trade easier, fosters innovative business and professional relationships, and promotes fair competition and high product and services standards, all in the name of raising the well-being of their respective peoples.

A Canada-ASEAN trade agreement should be the centerpiece of such a move, helping position its members for growth as the world economy struggles to recover.