Friday, October 24, 2008

Canada will look to the EU in future

Just in time Canada is negotiating a closer relationship with  the European Union (EU). As wealth and influence flow from the United States (US) to China and the Middle East and the US Empire begins to lose its supremacy as the world’s sole super-power, Canada must explore it’s options and find other partners to ensure our future prosperity.

The US under President George W. Bush’s administration has became corrupted by its massive military power, financial fraud, waste of resources and greed. The Republicans under President Bush inherited a US$236 billion surplus, low inflation and a booming economy from the Clinton administration. That’s all gone in just eight years—squandered by financing two disastrous wars with loans from abroad and printing money like drunken sailors and cutting taxes for the richest Americans.

While President Bush and his puppet master, Vice-president Dick Cheney waged war for control of foreign oil, they have virtually destroyed the US economy. The US deficit stands at US$407 billion and growing; spending has risen 16 per cent and military spending is up 50 per cent, including wars in Afghanistan and Iraq costing US$1 trillion.  The size of government under President Bush has grown more than under any president since Johnson’s Great Society and Roosevelt’s New Deal.

Canada sends about 80 per cent of its exports to the US, representing about 60 per cent of our GDP. However, Senator Barack Obama seems poised to win the presidency on Nov. 4 and has committed to renegotiate the North American Free Trade Agreement (NAFTA) and that may not be good news for Canada.

The European Union is one of Canada’s oldest and closest partners. The relationship between Canada and the EU dates back to 1976 when a Framework Agreement was signed with what was then the EC, and is the EU’s oldest formal relationship with any industrialized country. This relationship has evolved over the years to become a strategic partnership.

Canada and the EU share common values of the most fundamental nature, and have enjoyed close historical and cultural ties. This is evidenced by the increasing frequency with which they vote together in international organizations—sometimes over 90 per cent of the time during sessions of the UN General Assembly—a clear demonstration of like-mindedness and shared belief in international multilateralism.

Canada and the EU already work closely together on many global challenges such as membership in NATO, climate change, energy and security and stability throughout the world. This co-operation encompasses a broad spectrum from research into alternative energy sources to providing police training in Afghanistan.

The EU, with a population of 500 million, is Canada's second-largest trading partner. In 2006 two-way merchandise trade between Canada and the EU was about $78 billion while two-way investment reached $263 billion. Not very significant figures when you consider the $626 billion in our two-way merchandise trade with the US and $497 billion in two-way investment.

Reducing trade barriers and liberalizing trade services would produce “gains” of about $22.5 billion for the EU and about $16 billion for Canada up until 2014, according to a joint Canada-EU study published on Oct. 16. Measured by GDP, Canada would gain the most, with a 0.8 per cent lift compared to 0.1 per cent for the EU.

Unlike NAFTA, a Canada-EU trade agreement would allow for Canadian and European workers to work in each other’s regions and allow for EU and Canadian companies to bid on government procurements on both sides of the Atlantic.

Full negotiations between Canada and the EU are expected to begin next year, with the launch of the deal coming as early as 2010.

Canada as a conduit between the world’s two greatest free-trade unions provides a seductive image.


  1. I, on the other hand, disagree with you completely. The EU is an incredibly unproductive bureaucratic state whose best years are long behind it. It will be destroyed by competition from India and China. The EU is tying its future to the Arab oil states and North Africa, which is clearly a path to social destruction.

    In contrast, the USA has a much more flexible workforce, less regulated and more dynamic companies, and will be able to compete with China and India. The US is also far more successful than Europe at integrating immigrants, though obviously there are issues.

    I'll take the future of the struggling but historically always coming out on top USA, over the socialist, decadent, soon to be over-run EU any time.

    I remember only 20 years ago, when every single "expert" predict that Japan and its hardworking citizenry was going to destroy the US economically. What a laugh - Japan is now a nation of senior citizens that has been in a 15 year economic slump.

    And, one final point. Demographics in Europe are disasterous. Only Japan's are worse. USA demographics are still favourable.

  2. Mikhael, I don't know what your politics are, but you sound like a George Bush "them or us" Republican. I favour strong, balanced relationships between the US and the EU.

    I also take issue with how well you seem to think the US will be able to compete with China and India.

    China currently holds about US$490 billion in U.S. Treasury securities and has foreign exchange reserves totaling more than US$1.5 trillion.

    Right now China holds US "paper," but it won't be long before it begins to demand "hard" assets. There is already talk of America’s Asian creditors demanding their IOU’s be converted into shares in US corporations and property. And Sovereign wealth funds from the Arab oil states and Singapore may soon demand chunks of premier US corporations and property.

    Consider also that the printing of billions of new dollars to prop up the US's sinking economy, finance its staggering $1 trillion annual deficit, and pay increasing foreign debts will eventually create a ruinous level of inflation that will yet beggar many Americans on fixed incomes.

    I would love to see America return to a more sane approach to running its country and hope it will soon, but in the meantime Canada will be wise to diversify its trade relationships.

  3. I don't see how having large amounts of US dollar debt will permit China or Arab nations to "demand" American assets.

    They can buy them using those US dollars they have. Fair enough. That's the marketplace, that's capitalism, and I'm all good with that. And when they do, the corporations will be stronger, share prices higher, and America will benefit.

    And I am not saying that that US will have an easy time competing with China. It's hard to compete against a nation of 1 billion controlled by an ambitious dictatorship. But surely it is far better positioned to do so than the EU, with its insane wages and worker benefits, and its aging educated population. The US still spends more on research, generates more patents, and wins more Nobel science prizes (exclude peace, lit, and economics) than the rest of the world put together. Its universities still trump those of the EU.

    And what will happen in China once a real middle class starts to form? Do you think they will be content to work for 2$ an hour and no benefits? Or will the best and brightest go to the US? And does China have the institutions in place that will promote innovation and productivity in the long run? Have those institutions ever existed in China?

    The EU frightens me. It is a bureaucratic oligarchy that has given up pretense of democracy at this point. It has insane social policies and is the current residence of many of those who championed communism before US-styled capitalism brought that "inevitable world dominating ideology" to an end as well. I also remember how many people were convinced that communism would inevitably triumph in the 1960's, how a vast Red Army would crush the decadent Americans, and how many Western intellectuals managed to convince themselves that communism was not so bad.

    The notion of Canada getting entangled with this dysfunctional superstate makes me uneasy. I'd rather take our chances in the Americas, maintaining not only close ties to the US, but encouraging ties with South America.

    Yes, I am a US fanboy. I am also a student of history. I can recognize that the US is going through a hard time now. But no harder than the 1970's, no harder than the Depression. But there is still enough human and societal capital there for me to feel confident that it will bounce back again, and to have more confidence in the future of the US than in that of any other country in the world.

  4. Mikhael, you miss my point.

    "I don't see how having large amounts of US dollar debt will permit China or Arab nations to "demand" American assets."

    If China owns the most productive assets of the US, the US won't be competing with China, China will be competing with China!

  5. "I don't see how having large amounts of US dollar debt will permit China or Arab nations to "demand" American assets."

    China and the Arabs will refuse to accept US paper in the future if they loose confidence in its value. Then they will demand hard assets in return for their oil and to finance America's foreign wars and budget deficits. No one has to accept paper.

  6. "China and the Arabs will refuse to accept US paper in the future if they loose confidence in its value."

    Not that I believe that could ever happen, but I'd be grateful if the Americans could not buy Arab oil. So many of the world's current ills have a root in Arab oil money.

    I believe that if the Americans were properly incentivized to drastically reduce or eliminate their dependency on foreign oil, they would do so in a decade. Failure to address this is, in my opinion, the greatest failure of American leaders of the past 20 years.

    China's economic success is built on world-wide consumers for their product, of which Americans are a key part. They are not going to be shooting the golden goose any time soon. Or ever. The interdependence of world economies means that we all sink or float together to a large extent. If the US dollar drops its value by 50%, then China has lost 50% of the value of their reserves, no?

  7. Before we get all lathered up about a free tade agreement with the E.U. let's be sure of the costs. The E.U. is probably the most over-bureaucratized organization on earth, with the exception of the U.N. They have gone on a wild enviromental crusade that is decimating their industrial base and heaping prohibitive taxes on their citizens. The consumer purchasing base is shrinking under the costs of over-regulation and unafordable social programs.
    What will be the E.U.s demands for a free trade agreement? More stringent environmental regulations? A complete ban on seal hunting to please the PETAs of Europe? What else will these socialist engineers demand? Personally, I'll rely more on the freedom of the U.S. consumer to eventually pull the world out of this economic mess. Trade with the E.U...yes, but not at any cost.

  8. Of course the demographic issue has been raised already, but China is also going to go pear shaped starting in the 2020's as the negative effects of the "One Child" policy and the imbalance of the worker/retired ratios come to fruition.

    Russia will also cease to be a factor in Wrold affairs in the 2030's as their ethnic Russian population is reduced ba almost half (who will man the factory floors or guard the borders?) The EU will also be entering its death spiral by that point as well.

    We should not be too smug; Canada also has a below replacement birth rate, so one possible future is "Red State" Americans with Sarah Palin sized families will discover a largely empty land with developed infrastructure and natural resources right on their doorstep. Since we will be hurting for workers to pay for our elaborate welfare state, this wave of rich, educated and skilled immigrants will be welcomed (at least until until they start to vote).

    The future is demographics, and "we" should be looking at the United States and India as our future markets, not pinning our hopes on declining markets like the EU.