Opening Up New Trade Routes for Financial Services: Canada's Priorities

The importance of services to Canada’s economy is often lost in the discussion of how Canada can take advantage of trade agreements such as the Trans-Pacific Partnership. In this Commentary, we look to close this gap with respect to the vital financial services sector. In order to determine the countries that Canada should target as realistic priorities in trade negotiations – with a focus on financial services – we ranked markets from the viewpoint of both economic attractiveness and the feasibility of concluding negotiations. We find that Canada’s first priority, which exploits Canada’s advantages in financial services, should be to ratify the TPP, as many of the countries ranked high on our list are involved in this agreement. Next, Canada should respond to China’s still outstanding offer to negotiate a trade agreement. In addition, we should build on our existing agreements and reinvigorate negotiations with Latin America, as well as with India, and engage with ASEAN nations such as Indonesia, the Philippines and Thailand. While not an exhaustive list, successful liberalization of financial services in these markets would bring significant gains to the Canadian financial sector and economy as a whole. This conclusion is supported by our empirical analysis of three liberalization scenarios – one the TPP as recently signed; second, a Canada-China comprehensive trade agreement that assumes, however, only minimal direct liberalization of financial services; and last an exercise in liberalizing only financial services with some key markets. From this wide range of scenarios, we find gains for Canada’s financial services sector to liberalizing trade. These gains come from the overall positive impact on economic growth of trade agreements, from any actual reduction to barriers affecting financial services, assumed to be fairly modest in all cases, and from the reduction of uncertainty that results from the “binding” of these barriers at levels much lower than what countries are allowed to impose under World Trade Organization rules.