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Go Big on Tariff Elimination, Canadian CEO Group Says

2016-02-27 10:55:59

A group of Canadian CEOs has a bold suggestion for Ottawa: drop all tariffs and, in effect, sign a free-trade deal with the rest of the world.

Instead of running around negotiating free-trade deals, Canada should unilaterally eliminate tariffs on imports, emulating actions in Hong Kong and Singapore, the Canadian Council of Chief Executives said Monday.

The lobby group argues that tariffs on imports are akin to a tax on exports because they raise the cost of imported inputs. Eliminating them will make exports cheaper to produce and therefore more competitive.

Its report estimates scrapping all tariffs would generate 20 billion Canadian dollars a year ($18.4 billion) in economic activity, equivalent to a 1% increase in gross domestic product, five times the value of the foregone revenue from tariff collection. The estimate does not include direct investments such a move could draw from overseas. (Jingliang Xiao's estimation)

Dan Ciuriak, one of the authors of the report, said it would be a tough sell politically, but argued it would lower prices for businesses and consumers.

The move would be “like signing a free trade deal with the rest of the world,” Mr. Ciuriak, previously deputy chief economist at Canada’s foreign affairs and trade department and a senior official at the finance ministry, told Canada Real Time.

Ottawa is aggressively pushing to forge trade deals in pursuit of its agenda to create growth and jobs. But Mr. Ciuriak said separate trade deals are difficult to secure, take a long time to negotiate, and often aren’t fully implemented until years after they are signed.

The group’s report emerges just as Canada’s central bank frets about lagging export growth. The Bank of Canada is hoping for exports, and business investments, to take the baton from tapped-out consumers and drive economic growth.

Four years ago, Ottawa said it would eliminate by 2015 all remaining tariffs on more than 1,000 inputs and machinery and equipment used in manufacturing, a move which would make it the first tariff-free country for industrial manufacturers in the G-20 group of industrialized nations.

But it seems unlikely the government will go as far as Mr. Ciuriak suggests because it would face intense opposition from several quarters, including Canadian dairy and poultry farmers who are heavily protected via tariffs. A modest easing of tariffs on imported cheese negotiated in the recent trade deal with the European Union drew widespread protest from farmers.

The report said the world may be witnessing “the twilight of reciprocity in trade policy” and unilateral trade liberalization is the new “made in the world production paradigm.”

“The question is: can Canada contemplate catching this wave and riding it to its logical conclusion?”

A spokeswoman for Trade Minister Ed Fast directed questions to the finance ministry. A finance ministry official said Canada has, since 2009, unilaterally eliminated nearly 1,900 tariffs, providing more than C$525 million in annual relief to Canadians. The government will by the end of this year have a full assessment of the measure on retail prices “which will help guide future decisions on tariff reductions,” he said.

(Source: The wall Street Journal)