Towards More Robust German-Canadian Trade Relations?

Hans-Guenter Bergen, President of the Victoria German Business Network 

In the world-wide financial crisis and economic slowdown triggered by the so-called Subprime Crisis in the USA, 2 countries were economically relatively stable and weathered this crisis better than others - Germany and Canada. Germany is not only today's fifth largest economy, for decades it has been one of the leading export nations. Even in 2009, when its foreign trades decreased by almost 17%, Germany showed a surplus of €134 billion. For 2010 and the succeeding years, an increase in foreign trade is expected, thus creating a higher export surplus. For many years Canada, rated today's tenth largest economy, made a steady export surplus; almost US$ 46 billion in international trade in 2008. In 2009, because of an above-average export loss of 30 %, Canada for the first time showed an export deficit of US$ 4.9 billion which will continue. The deficit of the preceding year (2009) will continue in 2010 and Canada can expect a foreign trade surplus not before 2011.

 

Only 1% of Germany's international trade (2009) concerns Canada; at the same time Canada generates 2.9 % of its trade in the German market. Germany mainly supplies vehicles, machinery and chemical products to Canada and in return Canada mainly delivers raw materials and machine parts. Considering that the economic relations between Canada and Germany have been stable for many years, this volume of trade is far below the possibilities and should be greater. A desirable increase and improvement in this bilateral trade might be reached by a successful signing of contracts in ongoing negotiations between Canada and the EU. The abundance and high export volume of natural resources (iron ore, nickel, and others) and fossil energy sources (crude oil, coal, gas) is, besides tourism, Canada's economic strength. But at the same time the dependency on this primary sector also means economic weakness. In addition to the export of natural resources and the lack of domestic processing, there is no aggregate added value. This has a negative impact on the constant deficient budgetary position. Another major risk for the Canadian economy is the extreme export-dependency (75 % in 2009) on the US market. Because of permanent influence by the US government on bilateral trade relations (e.g. "buy American"), and often biased interpretation of trade agreements, there will be an increasing economic risk for the Canadian economy.

 To reach sustainable economic stability in Canada, expansion of international trade relations with many countries, including the EU - currently Canada's second largest trading partner - is highly recommended. Unfortunately, in the past, Canadian talks with the EU were fairly slow, because Canada could/would not maintain certain European standards. As far back as 2007 during the Canada-EU summit meeting, an economic study was ordered. The following year the positive result of this joint study led to open formal negotiations about economic cooperation in 2009. According to the study, liberalizing trade in goods and services could bring a potential 20% boost to bilateral trade and GDP gains of up to $12 billion (or €8.2 billion) for Canada by 2014. Already 5 rounds of negotiations have taken place and the aim is to conclude the negotiations within 2 to 2½ years. Further talks are scheduled for January 2011 (Brussels) and April 2011 (Ottawa). In contrast to the North American Free Trade Agreement (NAFTA), which is a clean tariff agreement, an EU-Canada trade agreement would require considerably more commitment on the part of Canada. Also, the different standards required in the EU would have to be accepted. It is, therefore, crucial for Canada to get particular support from its relatively autonomous provinces, especially Quebec.

To increase the Canadian GDP it is also necessary to invest more capital into environmental protection and to start more processing of raw materials. In the environmental sector, in energy efficiency, and recycling, there is a lot of work to be done by Canada compared to countries of the EU, particularly Germany. In turn this investment will create many new job opportunities. Power generation from renewable energy sources, such as wind and sun, is highly capable of improvement. So is further thermal processing of garbage and biomass.

Apart from neighbourly dependencies there are sufficient opportunities for a further positive economic development. Canada just has to use these opportunities.