Wednesday, April 7, 2010

Canada ready to lead the world recovery

Actions have spoken louder than words for the federal government

By Jayson Myers
Source: The National Post

In the run-up to this year’s G20 meetings, which Canada will host, Prime Minister Stephen Harper is warning world leaders that economic recovery is by no means fully assured and is asking each one to continue to take steps to stimulate economic growth. Above all, he is urging governments to work together to avoid protectionism and open markets even further to encourage international trade and investment.

Harper’s advice reflects his government’s priorities, based on the sensible rationale that the private sector economic and job growth needed to sustain economic recovery, depends on access to business and investment opportunities around the world.

From the Canadian point of view, this is self-evident. Exports account for more than half of Canada’s industrial output and imports for 30% of total domestic demand. High value jobs in the country depend on the ability of Canadian businesses to expand and find customers for their more-specialized products, services, and technologies around the world. At the same time, they need to attract investment and draw on the best of goods and services, skills, knowledge and technologies that international markets have to offer.

Actions have spoken louder than words for the federal government. To encourage business investment, it has cut Canada’s federal corporate tax rate. By 2012, the average combined federal and provincial tax rate on business income will fall to 25%. The government has also introduced a two-year depreciation rate for investments in manufacturing equipment and accelerated write-offs for investments in clean energy and information technologies. As a result of federal support, value-added consumption taxes will be in place in all but three smaller Canadian provinces by this summer.

In a bold move, Harper’s government took the initiative to open Canadian markets to international trade and investment. The recent federal budget eliminated tariffs on all imported machinery and equipment and manufacturing inputs. And the government went further in its plan to loosen investment restrictions in Canada’s telecommunications and other regulated services sectors and to improve the tax treatment of foreign venture capital funds invested in Canada.

On the trade front, the Harper government has concluded free trade agreements with Colombia, Peru, Jordan and EFTA, and has launched trade negotiations with the European Union and more than 10 other countries and regional trading blocs. The recent procurement agreement that the Canadian government concluded with the United States will keep provincial and municipal procurement markets in Canada open to U.S. producers in return for exclusions for Canadian manufacturers from Buy American restrictions applied under the American Recovery and Reinvestment Act. It also commits Canada and the United States to enter into negotiations on a more open procurement agreement covering state, provincial and local jurisdictions.

Some economic experts may believe that during this period of fragile markets and dependency on government stimulus, Harper’s call for concerted action to liberalize trade may seem altruistic. In the face of continuing overcapacity and intense international competition in many industrial markets, his commitment to open the Canadian economy even further to international trade and investment may even appear naive.

As host of the G20, Prime Minister Harper surely has an obligation to remind world leaders of their commitment not to erect protectionist barriers, but the reality over the past year has been an increasing array of regulatory and procurement restrictions put in place around the world that favour domestic producers. The result — mounting tensions among governments.

The political stakes in economic recovery are high. As Prime Minister Harper insists, it will take real leadership to overcome the short-term political attractions of protectionism. But, that is what will be required to ensure a sustainable economic recovery.

We know the consequences of a game plan based on restrictive preferences and retaliation. In today’s world of internationally-integrated financial markets, supply chains and business operations, jobs cannot be secured anywhere when economic opportunities are being restricted more and more to domestic markets.

Canada and other economies around the world will suffer if Harper’s advice is ignored. Yet, my bet is that at the end of the day, the economic advantage will go to those countries that follow our lead.

We are the little country that could, and did. It’s time the globe followed our lead as we chart the course to economic renewal and prosperity.