August 2009

MAC Economic Commentary

Canada’s trade and investment policy priorities

By P. Stothart

The mining industry ranks alongside financial services and oil and gas as the most international of Canada’s industry sectors. To cite a few statistics, the mining industry accounts for 19 per cent of all Canadian goods exports. Some 12 per cent of Canada’s stock of direct investment abroad is accounted for by the mining sector, as is almost nine per cent of inward direct investment. Three-quarters of the world’s mining equity financings are handled through the Toronto Stock Exchange. Some 60 per cent of the world’s mineral exploration companies are Canadian and they have operated in around 100 countries. Billions of dollars worth of annual export revenues are derived from each of iron and steel, aluminum, nickel, copper, gold, uranium, coal, potash, zinc, diamonds and iron ore.

This international success reflects our country’s geological strengths and long mining history — evidenced in national institutions such as the Geological Survey of Canada — as well as the entrepreneurial and technological skills of the industry’s workers. However, this success also draws upon an extensive network of government support delivered through Canada’s trade “infrastructure” — comprising the overseas embassies and trade commissioner network, trade finance capacity through Export Development Canada, and an array of free-trade agreements (FTAs) and foreign investment protection agreements (FIPAs), among many other components. Developments and improvements with respect to this trade infrastructure, such as those highlighted in early June during International Trade Day in Ottawa, are important to the industry and worth noting.

In recent years, the federal government has adopted a particularly ambitious agenda in modernizing and broadening this infrastructure. In the area of FIPAs, the government aims to double the number of agreements in place, from 23 to 46, over a five-year period. FIPAs are bilateral agreements that place investment-treatment obligations on each country and that provide foreign investors with access to independent rules and arbitrators should disputes arise between the investor and government. These mechanisms can provide Canada’s overseas investors with an added layer of security and, while the actual enforcement components are rarely used, the mere existence of a FIPA helps guide foreign governments with a set of rules and expectations of fairness and transparency.

FIPAs with India, Jordan, Madagascar, Kuwait and five new EU states have recently been concluded by the federal government, while negotiations with China, Indonesia, Mongolia, Poland, Tanzania, Vietnam, Bahrain and Tunisia are ongoing. In some of these cases, the mining industry is the main impetus for the launch of negotiations. As well, negotiations with Malaysia, Kazakhstan, Ghana, Rwanda, Nigeria, Mali, Cameroon, Zambia, Botswana, UAE, Saudi Arabia and Cuba are being explored.

In the broader area of free trade agreements, the government announced in early May that Canada and the European Union had launched negotiations towards a comprehensive economic agreement. This extensive undertaking will face many challenges in meeting the targeted two-year negotiation timeframe. In terms of ongoing FTA files, a free trade agreement with the four European Free Trade Area countries will come into force in July 2009; a Jordan FTA should be signed later in 2009; agreements with Peru and Colombia have been concluded (the Peru legislation is moving through Parliament, while the Colombia FTA will likely move more slowly); and negotiations with Panama, the 15 Caribbean members of CARICOM, four Central American countries, Morocco, South Korea and Singapore are in progress, with varying degrees of commitment. Negotiations with India and Japan are being explored, though these require analysis and approval before potentially moving to a more formal stage.

Successfully concluded free trade agreements can help mining companies by lowering the cost of imported machinery, minimizing technical barriers to trade, enhancing the security of overseas investments, improving regulatory cooperation and facilitating easier cross-border movement, among other positive impacts.

MAC is actively engaged in dialogue with the federal government on a range of international trade and investment issues and will continue to be involved in files such as the Canada-EU negotiations as they evolve over the coming years. Other trade-related items, such as progress in multilateral WTO Doha Round negotiations and the implementation of a policy response on the international corporate social responsibility issue will also be monitored closely by MAC, with interventions being made as appropriate.

Paul Stothart
Paul Stothart is vice-president, economic affairs, at the Mining Association of Canada. He is responsible for advancing the industry’s interests regarding federal tax, trade, investment, transport and energy issues.

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