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Impact of 2007 Federal Budget on Trade Issues in Canada

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					                                                                                       APRIL 2007




IMPACT OF 2007 FEDERAL BUDGET ON TRADE ISSUES
PRAKASH NARAYANAN AND LINDSAY BUNT


Through long-term proposals in the areas of infrastructure, entrepreneurship and strengthening
Canada's skilled and flexible workforce, the federal 2007 Budget indicates that the Government
recognises the significance of international trade and investment to Canada's growth and
prosperity. It remains to be seen whether this momentum will be sustained in the coming years.

INTRODUCTION

On March 19, 2007, Canada’s Minister of Finance introduced a new federal budget (2007
Budget) in Parliament. The 2007 Budget seeks to implement major elements of Canada’s long-
term economic plan, Advantage Canada, which aims at creating advantages in five separate
areas to improve the quality of life of all Canadians and to strengthen Canada’s economy. The
proposals in the 2007 Budget that impact trade are discussed in the Budget document under
three of these areas:

•   Infrastructure Advantage

•   Entrepreneurial Advantage

•   Knowledge Advantage

INFRASTRUCTURE ADVANTAGE

Under the ‘Infrastructure Advantage’ heading of the 2007 Budget, the federal government
emphasizes the importance of modern, accessible infrastructure for the efficient movement of
people and goods to markets. Accordingly, the 2007 Budget sets out several infrastructure
initiatives that the Government believes will help increase trade flows:

a) National Fund for Gateways and Border Crossings

The 2007 Budget allocates CAD 2.1 billion over a period of seven years (2007–2014) for a
national fund for gateways and border crossings. CAD 127 million of this amount is allocated for
the year 2007–2008. The fund is meant to enhance infrastructure at “key locations, such as
major border crossings between Canada and the U.S., and the Atlantic gateway”. The
Government’s goal for these infrastructure projects is to improve the flow of goods and people
between Canada and its trade partners abroad.



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One of the major projects that the fund will help finance is a new border crossing for the
Windsor-Detroit Corridor which will include a new international bridge, half to be owned by
Canada, a new Canadian plaza, and a new access road to link the proposed bridge to the
Highway 401 network. Accounting for 28% of Canada-U.S. merchandise trade, the Windsor-
Detroit Corridor is Canada’s most important trade corridor and the Government has undertaken
long-term planning studies that have confirmed the need for a new crossing. A binational
planning process for this project is already underway and is scheduled to recommend a location
for the new crossing by mid-2007. A new public entity will be created to own the new assets and
to help realize a public-private partnership between Canada, Michigan and its U.S. partners to
design, build, finance and operate the bridge. The 2007 Budget also allocates CAD 10 million
over three years to Transport Canada to support the legal, technical and financial work relating
to the crossing.

b) Asia-Pacific Gateway and Corridor Initiative

The 2007 Budget allocates close to CAD 1 billion over seven years (2007–2014) to the Asia-
Pacific Gateway and Corridor Initiative to make infrastructure improvements on roads, highways
and road-rail grade separations. Of this amount, CAD 108 million is allocated for 2007–2008.
The Asia-Pacific Gateway and Corridor Initiative is an integrated set of investment and policy
measures focused on trade with the Asia-Pacific Region. Its mission is to establish Canada’s
Asia-Pacific Gateway and Corridor as the best transportation network facilitating global supply
chains between North America and Asia.

ENTREPRENEURIAL ADVANTAGE

Under the Entrepreneurial Advantage heading, the 2007 Budget will impact trade in Canada in
three areas – enhancing internal trade, pursuing free trade in securities with the U.S. and other
G7 countries, and implementing the Global Commerce Strategy.

a) Enhancing Internal Trade

The 2007 Budget sets out a commitment to reducing interprovincial barriers to trade and labour
mobility. In April 2006, the Governments of Alberta and British Columbia signed the Trade,
Investment and Labour Mobility Agreement (TILMA), an internal trade deal that reduces barriers
for the movement of goods, investments and skilled workers between the two provinces. The
federal Government hopes to build on the momentum created by this agreement and has
committed to work with interested provinces to examine how the TILMA provisions can be
applied to reduce barriers to internal trade across the country. The TILMA can have important
implications for Canada’s commercial relations with Asia by providing a combined market with
minimal trade and investment barriers for foreign businesses. The TILMA also complements
other initiatives such as the Asia-Pacific Gateway, especially in the area of infrastructure
development.

b) Pursuing Free Trade in Securities with U.S. and G7 Countries

In conjunction with the 2007 Budget, the Government has set out a plan for creating a Canadian
advantage in global capital markets. Part of this plan is to pursue free trade in securities with the
U.S. and other G7 countries. To achieve free trade in securities, the Government proposes to
increase the efficiency of cross-border access to capital markets for issuers by extending mutual



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recognition to certain foreign exchanges and brokers. On this basis, Canadian investors would
be permitted to directly access securities listed on foreign exchanges through a Canadian
broker or foreign broker and foreign investors would be permitted to directly access securities
listed on Canadian exchanges through their domestic broker or a Canadian broker.

c) Implementing the Global Commerce Strategy

The 2007 Budget recognizes that creating new trade and investment opportunities is crucial to
the success of Canadian business. To further the Global Commerce Strategy envisaged by
Advantage Canada, the 2007 Budget allocates CAD 60 million over two years to:

•   expand Canada’s bilateral trade network;

•   strengthen Canada’s competitive position in the U.S. market; and

•   extend Canada’s reach to new markets, starting with Asia.

In efforts to expand the country’s bilateral trade network, Canada is currently
negotiating/exploring prospects for free trade agreements with several countries including South
Korea, Singapore, the Andean Community, the European Free Trade Association and countries
of the Caribbean and Central America. The Government’s goal in advancing these free trade
agreements is to open such markets, which represent a combined gross domestic product of
approximately USD 2 trillion, for Canadian businesses. At the same time, the 2007 Budget
reiterates Canada’s commitment to the World Trade Organization (WTO) negotiations.

Recognizing that other countries have begun to challenge Canada’s competitive position in the
U.S., Canada’s closest trading partner, the second core element of the Global Commerce
Strategy focuses on reinforcing Canada’s presence in the U.S. and implementing new trade
initiatives through efforts such as engaging private sector experts to assist Canadian companies
in finding new trade opportunities and attracting new investment in Canada.

With respect to the third core element of the Global Commerce Strategy, the Government
proposes to enhance commercial services in new markets by opening offices in important
growth centres in Asia. The Government plans to introduce new measures to enhance Export
Development Canada’s (EDC’s) ability to make strategic equity investments to encourage small
and medium-sized Canadian businesses to participate in emerging markets such as China,
India and Brazil. The Government also plans to introduce regulatory amendments to give EDC
greater flexibility to invest in international partnerships. The Government’s goal for this initiative
is to create opportunities for Canadian businesses to expand the scope of their international
segments and eventually become global companies.

KNOWLEDGE ADVANTAGE

Under the Knowledge Advantage heading, the 2007 Budget seeks to create a skilled and
flexible work force in Canada by attracting talented students to Canada and helping immigrants
succeed in the Canadian labour market.




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a) Attracting Talented Students to Canada

The 2007 Budget allocates CAD 2 million over the next two years for an initiative to attract
talented foreign students to Canadian post-secondary institutions. This initiative will seek to
establish a brand for Canadian education overseas and enhance the visibility of Canadian post-
secondary institutions in important markets such as Brazil, India and China.

b) Helping Immigrants Succeed

Another initiative relating to skilled labour, intended to better align Canada’s immigration policies
with the needs of its labour market, is also set out in the 2007 Budget. The Government has
allocated CAD 90.5 million to be spent on:

•   improving the Temporary Foreign Worker Program, a program intended to help Canadian
    employers meet their immediate skill shortages (CAD 50.5 million over 2 years);

•   permitting foreign students with Canadian credentials and skilled work experience, and
    skilled temporary foreign workers who are already in Canada, to apply for permanent
    residence without leaving the country (CAD 33.6 million over 2 years); and

•   creating a Foreign Credential Referral Office to facilitate the assessment and recognition of
    foreign credentials (CAD 6.4 million per year).

CONCLUDING COMMENTS

The 2007 Budget proposes spending over CAD 6.7 billion on infrastructure, entrepreneurial and
knowledge initiatives that can be expected to have an impact on trade issues. While this is
laudable, it must be cautioned that much of the funding, such as relating to the infrastructure
initiative, is proposed to be invested over a seven-year period, with only a small portion allotted
to the fiscal year 2007–2008. Whether the announced allotment for future years takes effect,
remains to be seen.

The 2007 Budget also remains silent in relation to some important trade and investment aspects
that Advantage Canada highlights. For instance, Advantage Canada suggests that the
Government will review its foreign investment policy framework, including the Investment
Canada Act, in order to make Canada a more attractive destination to invest in and do business
with. This is significant, especially considering that the WTO in its review of Canada’s trade
regime concluded in March 2007, notes that trade barriers still protect certain activities such as
agriculture, and foreign investment restrictions exist in areas such as telecommunications,
audiovisual, and air and maritime transport. The 2007 Budget could have addressed these
issues, but does not.

In any case, the proposals outlined in the 2007 Budget indicate that the federal Government
considers trade-related issues to be significant to Canada’s growth and prosperity. Hopefully the
Government will build on this understanding to further improve Canada’s trade and investment
outlook.




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For further information, please contact:

Cliff Sosnow                  613-788-2233         cliff.sosnow@blakes.com

Prakash Narayanan             416-863-2907         prakash.narayanan@blakes.com

Lindsay Bunt                  416-863-4005         lindsay.bunt@blakes.com

or any member of our International Trade Group.




                                                             Blake, Cassels & Graydon LLP

				
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