World economy is rapidly globalizing through improved communications, increased competition and due to the creation of international economic communities. The effect of these communities on Canadian economy can be ambiguous: on one hand, free trade agreements will create more space for economic development; on the other hand, intensive penetration of foreign investments and competitors might cause tension for local entrepreneurs. The purpose of this essay is to consider various aspects of impact of international economic communities on Canada.
An evident effect of globalization is the rise of capital and trade market flows between countries, increase of investment flows and, as a result, strong integration of business activity worldwide. There are several drivers of globalization, such as reduced transportation costs, improved IT technologies and communication, creation of virtual environments and teams and the development of international communities and related free trade agreements. It is expected that opening borders to competition will result in better performance/productivity and intensified innovation for Canada. However, this competition will create more pressure for the companies, and will require to restructure all business activities in order to match world competition.
A strong impact on Canada was performed by the Canada-US free trade agreement in 1989: two economies became significantly integrated, and new possibilities for Canadian companies for entering the US markets were created. NAFTA agreement in 1994 has further strengthened the integration of economies, which also radically changed the face of competition in Canada, turning national competition into continental.
At the same time, international economic communities allow Canadian companies to diversify value chains and to optimize operations by becoming multinational enterprises. Optimization of labor and production costs is now happening worldwide, with Chinese and Asian economies being the best place for production activities, Indian economy is traditionally strong in services.
International communities might increase tensions with economies tending to be global powers, which are generally trying to translate their business culture into external environment. For example, when Canada selected a position of modest relief with regard to 80% dominance of US magazine sales, the US complained against Canada to the WTO, and currently more than 85% domestic sales of magazines in Canada belong to the US companies. Also, recently several international trade agreements have not been successful due to strong opposition of the nations to such drastic competition change (for example, Free Trade Area of the Americas and Multilateral Agreement on Investment). It is possible to determine that global economy is consolidating into several regions, and it might be most effective to explore the opportunities of these regions (such as European Union and MERCOSUR) without opening the barriers to worldwide competitions and staying on the continental level of integration.
Besides competition, another significant effect of international communities on Canadian economy is the growth of foreign investments. This naturally gives a boost for the economy, but one of the common concerns is the large level of foreign control over Canadian enterprises. Existing Investment Canada Act was criticized by the Organization for Economic Cooperation and Development for too strict regulations which slow down capital inflows into the economy. However, the level of foreign control in rapidly developing and critically important sectors of economy ranges between 26 and 49 percent.
Thus, participation in international economic communities and trade agreements might have both positive and negative effects for the Canadian economy. Since Canadian economy is of middle intensity, it is not beneficial to open the barriers and remove all limitations for foreign companies and investments; rather, it is optimal to regulate integration with international community to the level when it revives the economy and brings economic advantages, but avoid total domination of external capital and business within the country. In addition to this, Canada has strategic advantages in R&D and education, which it can successfully utilize to participate in international specialization.