The Importance of the Canada-ASEAN Free Trade Agreement
On November 16, 2021, Canada and the Association of Southeast Asian Nations (ASEAN) member states announced the launching of Canada-ASEAN Free Trade Agreement (CAFTA) talks between the two sides.
With a population of over 670 million people and a combined Gross Domestic Product (GDP) of $2.8 trillion, the ASEAN countries represent a strategic trading partner and a strong possibility for increased trade diversification. ASEAN was Canada’s sixth-largest trading partner with trade with ASEAN countries totalling C$26 billion while two-way direct investment stood at C$11 billion.
There are many economic arguments for a free trade agreement between Canada and ASEAN including:
- Opening new markets for Canadian companies,
- Diversifying Canada’s trade partners to reduce our national dependence on one or two countries,
- Reduce and eliminate tariffs,
- Encourage investment between the two regions,
- Set rules around government procurement, intellectual property, and e-commerce,
- Provide a structure to solve non-tariff barriers, and
- Allow consumers in both areas access to new goods and services.
Overall, the potential for an effective trade agreement is quite high with the two sides having economies that are more complementary to each other than competitive. For example, the rising population and incomes in ASEAN mean a greater need for foods and agriculture products something that Canada is a world leading exporter of.
But while most of the focus of a potential free trade agreement with the ASEAN region will be on the economic benefits of the agreement, a Canada-ASEAN Free Trade Agreement should not be seen solely through an economic lens.
One of the complaints you will hear often overseas is that outside the United States, Europe and multilateral agencies, Canada’s engagement with the world is limited and sporadic. As a result, countries such as those found in Asia are often hesitant to include Canada in larger regional and geopolitical discussions out of concern that Canada will move on to other issues.
However, Canada’s commitment to negotiating a free trade agreement with the ASEAN member states is a signal that Canada is committed to Southeast Asia, helping the ASEAN member states grow economically, and supporting the regional and global economic order on which both Canada and ASEAN depend. Furthermore, by creating stronger and more stable trading relationships, Canada is adding to its own economic strength and security.
The simple act of negotiating the CAFTA raises the profile of the ASEAN region in Canada, its economic opportunities, and its importance to global trade on much of Canada economic success rests. Likewise, the CAFTA announcement is raising Canada’s profile in Southeast Asia amongst regional governments and companies.
As Canada looks to develop and overarching Indo-Pacific strategy, the economic plank of Canada’s foreign policy for the region is becoming clearer. Canada is building a network of either bilateral FTAs (such as the Canada-South Korea or Canada-Indonesia) and multilateral agreements (CPTPP, CAFTA) to strength its ties with the region. Upon completion of a Canada-ASEAN FTA, Canada will have free trade agreements with most East Asia countries with the main exceptions being China and Taiwan.
While much is being written about the great power competition between the United States and China and how countries such as the ASEAN member states impacted or need to choose sides, these arguments are overly simplistic and too often written by outsiders to the region.
While there are definite concerns in the region about China’s growing economic strength and its security positions in the region, ASEAN countries are not looking to pick a side between China and the US. Instead, they are looking for additional partners to provide strategic alternatives, a role that Canada is well suited to play. As medium power that neighbours a global superpower and a staunch supporter of the global multilateral system, Canada has much in common with Southeast Asia nations.
A Canada ASEAN Free Trade Agreement has the possibility of providing significant economic benefits to both sides, but the CAFTA should not be the last step in increasing engagement between Canada the Southeast Asia region but instead it should be the first step.
There is room to grow the relationship between Canada and ASEAN, but the effort must be consistent and authentic. By leveraging its economic relationship, Canada can upgrade its foreign relations in Southeast Asia with more comprehensive political, security and developments plans.
As Southeast Asia becomes more important to the global economy and the focus of much geopolitical tension, Canada with its strong positive international reputation, would be a welcomed presence to the region by the ASEAN members states. As a country without any past colonies and with no plans for control in the region, Canada is a potential strategic partner to ASEAN countries who are looking for partners who will support them as they grow and develop.
What is ASEAN?
Association of Southeast Asian Nations or ASEAN is an economic union comprising 10 member states in Southeast Asia – Brunei, Cambodia, Laos, Indonesia, Malaysia, Myanmar, Philippines, Thailand, Singapore, Vietnam. While ASEAN is often synonymous with Southeast Asia and the two terms are used interchangeably, the former is an intergovernmental association while the latter is the geographic region.