Protecting Canadians from unfair trade practices

Letter to The Honourable Mary Ng, P.C., M.P., Minister of Export Promotion, International Trade and Economic Development, regarding Global Affairs Canada’s economic security consultation.

Dear Minister Ng:

Re: Global Affairs Canada’s economic security consultation

I am pleased to share with you the Business Council of Canada’s (“BCC”) views on your department’s economic security consultation.

The BCC appreciates the opportunity to participate in this important consultation. We have long advocated for the Government of Canada to work collaboratively with Canada’s business leaders to safeguard Canadians’ economic security, which is increasingly threatened by mercantilism, economic coercion, and other unfair trade practices.

As we asserted in our 2023 report, Economic Security is National Security:

Canada and its allies adhere to a common set of market values – such as the rule of law – that ensure that economic competition takes place on a level playing field.

Strategic threat actors reject these globally recognized rules. They are increasingly adopting mercantilist practices aimed at giving their state champions the advantages necessary to replace imports with domestic production, climb global value chains, and seize dominant global market share in strategic sectors.

The catalogue of predatory practices is lengthy. It extends well beyond generally accepted support for home-grown industries, to include manipulating local currencies to give their state champions an unfair price advantage in foreign markets, requirements for foreign firms to transfer advanced technology to state champions as a prerequisite to access their markets, and the showering of massive industrial subsidies on state champions that allow them to engage in unprofitable activity that wipes out foreign competition.

These mercantilist interventions mean that Canadian firms are not competing with a typical commercial company. Instead, they are operating on a skewed playing field, competing with the full strength and resources of a foreign state…

This, in turn, destroys domestic industries and gives Canada no choice but to rely on state champions for critical economic inputs.

That reliance is especially problematic. The blurred lines between state policy and private pursuits means that even ostensibly private firms often have no choice but to support their government’s national security objectives. This includes providing support, assistance, and cooperation to intelligence agencies.

In addition, we warned:

Our reliance on international trade makes also us vulnerable. Strategic threat actors seek to expand their global influence by weaponizing Canada’s dependence on trade to pressure, induce, or influence the Government of Canada into taking actions that conform with their national priorities.

Strategic threat actors use diverse tactics to coerce the Government of Canada. They can restrict the movement of critical goods for which there are no substitutes, withhold reciprocal access to domestic markets, and subject Canadian goods to onerous import inspections and conditions.

With Canadian exports supporting more than one out of every six jobs in the country, weaponized trade can directly threaten the livelihoods of Canadians…

Weaponized trade may also have broader societal costs. As Russia’s unprovoked invasion of Ukraine has highlighted for our European allies, overreliance on a strategic threat actor for critical economic inputs, especially one with systemically divergent values and interests, can prove both costly and deadly for society during a crisis.

Canada is dependent on strategic threat actors for a broad range of commodities vital to Canadians’ safety, security, and prosperity…

To mitigate these and other serious economic security threats identified in our 2023 report, the BCC urged the Government to adopt a new national security strategy, one that for the first time puts economic security considerations at its core. To flesh out this strategy, we further offered the Government nearly 40 detailed policy proposals.

We are pleased to see the Government has followed our advice by announcing that it will soon publish its first national security strategy in over two decades. We are also pleased to see that the Government has adopted many of our detailed policy proposals, including amending the Canadian Security Intelligence Service Act to authorize CSIS to proactively share threat intelligence with Canada’s private sector, and modernizing the national security provisions of the Investment Canada Act to better target and screen out malicious foreign investments.

However, several key recommendations from our 2023 report – which have direct relevance to your department’s current consultation – have not yet been addressed. We urge that you reconsider these proposals.

Specifically, we recommend that:

• To blunt the impacts of mercantilist practices, the Government should create new legal mechanisms to block the import of foreign goods and services that have benefitted materially from unfair economic practices. The Government’s initial focus should be on blocking strategic threat actors’ market access to critical industries where they are using illegal means to catch up and surpass Canada.

• To safeguard our continued access to critical economic inputs while strengthening the Government’s capability to act independently on the global stage, the Government should work with sectors vulnerable to economic coercion to strengthen the depth and resilience of critical supply chains. This should include conducting vulnerability reviews, sharing threat information, developing robust mitigation strategies, curbing excessive dependence on strategic threat actors, and increasing availability of free-market alternatives.

• To help Canadian companies compete on a level playing field with strategic threat actors in developing and commercializing emerging and disruptive technologies, the Government should complement the economic and innovative capacity of Canadian companies with a modern industrial strategy. More specifically, the Government must identify and support advanced technologies that are foundational to spurring economic growth, strategic from a national security perspective, and where companies on their own are not yet able to make the investments needed to develop and commercialize such technologies. 

• To reinforce the rules-based economic order, the Government, in partnership with other like-minded allies, should:
  
  • Strengthen the multilateral trading system with the World Trade Organization at its core;
    
    
  • Strengthen or join international frameworks promoting free and fair trade and investment among market-oriented countries, such as the Comprehensive and Progressive Trans-Pacific Partnership and the Indo-Pacific Economic Framework; and
    
    
  • Create and enhance plurilateral measures to collectively deter, withstand, and counter economic coercion and other unfair trade practices, such as through a “NATO for trade” whereby allied nations agree to come to the aid of each other when they are economically threatened. As a part of this initiative, Canada should leverage its economic advantages, such as in the production of energy, food, and minerals, to help reduce our allies’ trade dependencies on strategic threat actors.
    

• To ensure that any new economic security measures are implemented in an effective and timely manner, the Government should create a dedicated planning, decision-making, and coordination unit within the Privy Council Office to engage Canadian businesses and to organize, coordinate, and direct the Government’s responses across the numerous government departments and agencies with competing economic security mandates and responsibilities.

In addition to these recommendations, we note the consultation materials asked stakeholders to comment on potential new measures to improve the competitive standing of Canadian critical minerals projects and related supply chains. Specifically, the materials suggested that the Government may be contemplating additional incentives for the critical minerals sector as well as financing measures to address price volatility and supply chain diversification. The BCC generally agrees that additional attention is needed in this area.

That said, the BCC believes that the competitiveness of Canada’s critical minerals sector could best be enhanced through project approval and permitting reform. The unpredictability and uncertainty of Canada’s regulatory approval and permitting processes is the single greatest disincentive to invest in new critical minerals mining projects. This extends to both the approvals for mines and the critical infrastructure needed to support their operations and access to foreign markets.  

While this consultation asks important questions about Canada’s critical mineral supply, we strongly urge the department to take a broader view to ensure that the country’s diverse energy interests, inclusive of oil and gas, are factored into its work. The strategic importance of our oil and gas sector should not be overlooked, especially at a time when our allies and trading partners are looking to Canada to provide a safe and stable supply of energy in the decades to come.

Lastly, the consultation materials underscore the importance of compliance with international obligations, including those set out in Canada’s various trade and investment agreements. The BCC agrees that this must be a priority – especially for Canada.

As we stressed in our 2023 report:

[The Government’s approach to addressing economic security threats] must be balanced. While it must be capable of tackling the threats facing Canadians at home and abroad, it must also remain consistent with Canada’s democratic values as well as ensure that the domestic and international environment remains conducive to beneficial cross-border activities, such as trade and economic immigration, which are central to our national interests.

In other words, protecting Canada’s economic security should not be used as a veiled excuse for the Government of Canada to undermine Canadians’ rights, adopt protectionist trade and investment rules, or decouple its relations with certain foreign states altogether.

Indeed, if the Government expects foreign states to adhere to the rules-based international economic order, then it is incumbent upon Canada to honour the commitments it has made to its trading partners.

Unfortunately, the Government has taken measures which our closest trading partners believe violate the letter and spirit of our international economic agreements. This includes, most recently, the Government’s decision to unilaterally impose a digital services tax on foreign technology companies which very likely violates Canada’s critically important trade agreement with the United States and Mexico.

Economic coercion, mercantilism, and other unfair trade practices represent a clear and present danger to the economic prosperity of all Canadians. While urgent government action is required, the Government must ensure the measures it takes do not jeopardize Canada’s relations with its closest trading partners. As a trading nation, these partners have, and will remain, essential to protecting Canadians’ economic resiliency and prosperity.

Yours very truly,

Goldy Hyder

c.c.: