Trade negotiators harm themselves with a reworked Golden Rule

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Most of us remember as children learning the Bible's Golden Rule: "Do to others what you would have them do to you." It's too bad that so many of our politicians and trade negotiators seem to have forgotten this, especially around free trade and procurement.

The pitfall with trade liberalization is that governments want only the parts that work in their favour. They would love it if their domestic or provincial businesses were to have broader access to bid on contracts or sell product into other jurisdictions with no tariff barriers or obstacles. But when it comes to outside companies gaining access on their home turf, suddenly they believe the free-trade agreement needs some tweaking.

Consider the latest hilarious tweak offered by the government of Ontario, requiring "local knowledge" by companies wanting to bid on construction projects. This tilts the advantage so clearly in favour of Ontario businesses that outside bidders could be completely shut out. What constitutes local knowledge of Ontario anyway? Whether I can name the provincial bird? Or rhyme off street names for small towns?

I can hardly imagine the outcry from Queen's Park if it were the government of Quebec or the United States – Ontario's two closest trading partners – announcing local knowledge requirements. Does anyone in Ontario remember the fury directed at the U.S. government when it announced a preference for U.S. contractors and steel makers in its post-recession infrastructure spending spree? How is Ontario's local knowledge requirement any different?

The same problem will arise with the trade deal between Canada and the European Union. Over the next two years of ratification, there will be countless fingers pointing out the need for a special exemption here, or an exceptional case there. That representatives from all the provinces and regions are involved will only make it worse. But, really, who can blame them? They are sent to represent the interests of their own provincial economies. The greater benefits of a true free-trade deal will be blithely ignored because politicians know they will face the wrath of industry associations if they open the trade gates too wide.

A good example is when the City of Calgary hired a Spanish architect to design and build a new pedestrian bridge in 2010. There was the typical outcry from taxpayers' groups and some cranky local newspapers about the cost and the political manoeuvring involved, but one of the biggest criticisms was about local procurement. "Surely," said some, "there's a local firm that could have designed a nice bridge!"

At about the same time, Ottawa-based Bridgewater Systems Inc. announced that it had won a major contract from four big mobile data operators in Europe, North America and Asia. A Canadian information technology service provider was awarded a contract in Spain, and a Spanish design company won a contract in Canada. This is precisely how global trade is supposed to work.

The reluctance to fully embrace free trade comes down to Canada's own economic insecurities. Canadians naturally want their domestic companies to be global leaders, gaining a foothold in other provinces and countries and going toe-to-toe with the big guys. Every province's economic development ministry talks about their province being a true global competitor. But then barriers are erected out of Canadian insecurity in the ability of domestic businesses to compete at home.

Sadly, I can't think of any solution to this dilemma. The economic gains of free trade – often months or years in the coming – are easily outweighed by the political backlash that is immediate and cruel. It gets back to a truism that defines countless other government decisions: There's an economic answer and there's a political answer, and the political answer always wins. The Golden Rule about free trade seems to be, "Do to others until they do it to you. Then rewrite the deal."

Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.