Beyond the Resource Curse? - Canada and the Case for Bilateral Trade Agreements

This paper examines the case of Canadian trade bilateralism through the lens of the resource curse. As favored federal policy option for economic diversification, Canada's bilateral trade agreements have underperformed even as energy exports continued to rise. Given Canada's structural relationship with the global economy and the very low levels of diversification created by preferential trade agreements outside the NAFTA arrangement, there are few strong arguments for an intensification of Canadian bilateralism. However, the political reasons for bilateral trade agreements are better than the economic ones. Even though Canada's pattern of bilateral trade agreements to date does not suggest coordinated attempt to unlock specific region or strategic set of trading partners, political stake in the current system pays dividends both in terms of diplomatic legitimacy as well as in the development of new templates for future agreements.Following the establishment of the World Trade Organization (WTO) in 1995, the number of regional and bilateral trade agreements in force across the globe rose dramatically. In particular, the US and Europe aggressively pursued number of arrangements with regional and hemispheric partners. Canada has been slow to add to the 'spaghetti bowl' of regional trade agreements that increasingly typify the global trading system.1 Aside from NAFTA, Canada has signed only eight agreements with smaller economies, and four of these have come into force only within the past several years. This paper attempts to answer several basic questions about Canada's recent foray into bilateralism. Why has Canada pursued these bilateral trade agreements? What are the perceived and real benefits for Canada and what does the future look like for Canadian trade bilateralism?The first section examines the case for bilateral trade agreements through the lens of the resource curse-a popular concept frequently used to discuss resource dependent states in Latin America and Sub-Saharan Africa, but which also describes Canada's experience to certain extent.2 The resource curse may be too limited concept to fully account for Canadian reliance on primary industries, but it lends some clarity to discussion on Canada's place in the global economy and allows us to consider the trend towards trade bilateralism in the context of larger discussion on economic development patterns. The second section examines the economic rationale for trade bilateralism. It presents four sets of bilateral trade flows for which there is sufficient economic data to track the trading relationship over time: Mexico, Israel, Chile and Costa Rica. The overall pattern of trade represented by these agreements suggests the following question: Is there political dimension to bilateral free trade agreements that gives them symbolic significance regardless of the value of the trade itself? If so, what can these trade flows tell us about the likely future of this trade diversification strategy?Canada's bilateral moment is largely symbolic and will not likely contribute to trade diversification in meaningful way.3 This is not to say that bilateral trade agreements are insignificant. Rather I suggest that they have uses other than what they advertise, including building Canada's reputation as stakeholder in the trading system and providing what Stephenson4 has termed a post-NAFTA template for regional trade agreements. Following the demise of the Free Trade Area of the Americas (FTAA) and the breakdown of the Doha Development Round of trade negotiations at the WTO, bilateral trade deals signify that Canada continues to be stakeholder in trade governance and economic integration in the Western Hemisphere and indeed globally.A Canadian Resource Curse?For number of years, scholars and policymakers have explored the connection between the resource curse that plagues some developing economies and the challenges associated with Canada's place in the global economy. …