Playing from Strength: Canada’s Trade Deal Priorities for Financial Services

The financial services sector plays a crucial role in the growth of the Canadian economy. How and where Canada looks abroad for opportunities will be critical in determining the future success of this industry. The announcement by the United States President-elect that he would withdraw his country’s signature from the recently concluded Trans Pacific Partnership, may in fact create the conditions for a flurry of negotiations aimed at concluding narrower deals. This Commentary summarizes the important competitive strengths that Canada has built in financial and related services, and ranks the markets which Canadian trade policymakers should prioritize in order to exploit these advantages. To evaluate high priority countries for Canada’s trade negotiators, we created a ranking methodology. Specifically, we sought to answer two questions that evaluate attractiveness and feasibility respectively: • Where would opening up trade in financial services provide the greatest benefit to the Canadian economy? • Where is it most realistic, given what we already know about these particular countries? Results from analyzing these two questions suggest a set of five priority markets. First, is the continued importance of TPP signatories, Mexico, the United States, and Chile, all of which Canada has agreements with, as well as Australia, Japan, Malaysia and Vietnam, with which Canada does not. Although the TPP is unlikely to survive, something like it, or a “plan B” involving the TPP signatory countries, should be on the Canadian government’s agenda. China is next on our priority list. From an attractiveness standpoint, China ranks at the top, as it is a fast-growing emerging market but remains fairly closed, meaning there is much potential in principle for a trade agreement with that country to have a positive impact on Canada. The next country on our priority list, India, is another large emerging economy that is strong from an attractiveness perspective but with whom our assessment of the feasibility of doing a deal is less glowing. Nevertheless, despite labour market concerns that have derailed previous attempts to conclude a trade agreement, India remains a strong candidate. ASEAN countries such as the Philippines, Indonesia and Thailand continue to be valuable targets for Canadian trade negotiators. All have different strengths and weaknesses, but both individually and as a group they offer much from a Canadian perspective. In the Americas, we suggest that smaller partners such as the Dominican Republic could be new and interesting targets for Canada. While not themselves powers in financial services, they have shown a clear interest in liberalizing trade, including in services, and have good growth prospects in the heart of what is a fast-evolving Caribbean basin. Even in the current environment, Canada can likely successfully promote services trade liberalization, focusing on areas of existing and emerging advantages such as financial and related services – many of which it shares with the United States – and on markets that are likely to be more promising and receptive. Such sectoral and bilateral approaches continue to hold a lot of potential for growth.