Brexit is in the news day in and day out. If the headlines are to be believed, a world cataclysm is fast approaching and the end is nigh. Trading relationships will crumble, isolationism will reign supreme, and Britain’s plunging currency is only the beginning.

But for those not affected by the moody ponderings of the press, Britain’s self-inflicted exit from the European Union does present an interesting case study; a window into the decline of global trade.

Global trade has stagnated

Truly global trade is a fairly recent phenomenon.

While countries have shipped commodities across borders and oceans since the days of the Incense Route in ancient Abyssinia, it was only in the immediate post-war years of the late 1940s that global trade truly took off.

Today, the moniker is slightly misleading, for there are really only three truly global trading partners: the United States, the European Union (Britain has no intention of severing its trading relationship with the EU) and the behemoth that is Japan.

However, while the import and export of goods on a massive scale continues daily across the world’s oceans and land borders, the rate of trade and corresponding economic growth between trading partners has stagnated. Some experts say that ‘peak trade’ already occurred back in 2007.

Increasingly autonomous nations even out imbalances

A consistent factor in the decline in global trade is the lack of imbalance between trading partners. Typically, trade flourishes when a superpower exchanges finished goods for raw commodities with a lesser economy.

Latin America, for example, flourished during the 1980s. Milton Friedman controversially cited the ‘Chilean Miracle’ as proof that inflation could be stopped in its tracks by stable government and economic restructuring in the place of military juntas. In recent years, the Chilean Miracle has trickled down to other Latin American economies, increasing self-sufficiency and lessening the economic divide with ‘The Big Three.’

“Trade flourishes when there are imbalances,” says Peter Labrie, veteran investment banker and faculty member at Ashton College.

“It stagnates where countries are self-sufficient. Latin American countries have always been exporters of raw materials, but they used to import nearly all their finished goods. More and more of those finished goods are now made in Latin America. Alternatively, these countries trade between themselves, sometimes through barter.”

Both trends of self-sufficiency and trade within regions undermine global trade because countries are more autonomous.

Autonomy is rapidly becoming the norm within global trading partnerships, but it’s far from the only factor affecting global trade growth. Energy independence and a significant drop in the price of crude has put a serious dent in global trade.

“The U.S. and Canada are importing less oil from outside of North America” says Labrie. “A VLCC tanker used to carry $100 million in crude. That same shipment today is valued at $30 million.” If the price of oil is any indication, it would seem that we have indeed hit peak trade and that the ride down the mountain may not be as smooth as the way up.

But economists, investors, and politicians alike are urging the dispassionate to see the silver lining in the cloud. While the World Trade Organization is expecting a 2.8 percent decline in global trade growth during the 2016 fiscal year, things are expected to pick up in 2017 with an increase of 3.8 percent. And with demand for imported goods increasing in Asian economies as well, the recent dip may be just that: a brief interlude that is at best only temporary.

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The Comprehensive Economic Trade Agreement, or CETA

While it has been overshadowed in the media by the TPP (Trans-Pacific Partnership), CETA is Canada’s largest bilateral initiative since NAFTA was signed in the early 1990s. The agreement is designed to lower trade tariffs by eliminating 98% of them between Canada and the EU, and increase the trade of goods and services. CETA is part of a strategy to make the most of two qualities that define both signing partners: Canada’s immense natural resources and the EU’s large population.

“Gold Standard” deal still met with serious criticism

CETA was designed from the ground up to streamline the trade process between signing members, but has also been met with immense criticism on both sides of the Atlantic.

From the Canadian side, much of the criticism has to do with rising costs in pharmaceuticals, as well as the potential for outsourcing to severely handicap the dairy and automotive industries. It should be noted, however, that the Canadian federal government has promised to compensate the industries affected to the tune of an estimated $4.3 billion.

On the European side, criticisms of CETA are much different. First and foremost of these is the implementation of a suitable legal framework. When one considers that from the EU side, a full 28 member states are involved in the deal, compared to only one on the North American side, it seems that the EU’s fears are justly warranted.

“We live in an era of increasingly complex global issues,” says Rick Badger, International Trade instructor at Ashton College in Vancouver. “The completion of a legal review of CETA is of importance to everyone involved.”

Considering that Canada has been sued a total of 34 times for trade violations as a result of NAFTA, the fears of EU member states are understandable.

Europe not happy with ISDS

European fears surrounding CETA stem from the fact that the majority of international trade agreements include a built-in ISDS (Investor-State Dispute Settlement) clause. This allows corporations to essentially launch private arbitration against international trading partners (national governments) if they feel that trade agreements are not being adhered to.

Fearing a repeat of NAFTA-era legal disputes, European countries like Germany have repeatedly cited fear that CETA’s ISDS would drastically lessen protection for European governments from trade deals gone wrong. Arbitration aside, the ISDS component of international trade deals are precisely the reason for their success.

From the Canadian side of things, formalized agreements and ISDS clauses allow smaller Canadian businesses to compete on a level playing field with larger EU corporations, says Badger.

Romania and Bulgaria threaten veto

Still, CETA has been a hard sell for Europeans, extending all the way into immigration. With all 28 EU member states needed to sign off on the deal – and by all accounts, this is imminent – the concerns of two states in particular, Romania and Bulgaria, threaten to derail the entire process. While Romania and Bulgaria are EU members, previous political problems have caused Canada to insist that travellers from the two countries need visas to visit. And given that CETA won’t be fully ratified until all 28 nation states sign off on it, Romania and Bulgaria have a powerful bargaining chip in the form of veto power.

The ratification of CETA is expected to take approximately 12 months. But given that the document is 1,500 pages in length, the ratification period is designed to iron out any remaining kinks. Judging from the latest round of spats in the press between Canadian dairy farmers and autoworkers, pharmaceutical firms and Eastern European countries, it’s safe to say that there is still much work to be done before all signing parties are satisfied.

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They’re white, furry, massive, and the subject of a brouhaha between environmentalists, the Inuit, and two major world governments.

Polar bears, the symbol of Canada’s North, are at the centre of an ongoing dispute between the U.S. Fish and Wildlife Association, Canadian federal and provincial governments, and several Inuit bands.

The dispute involves efforts by the U.S. to implement a ban on polar bear products (hides, meat, etc.) and to have the bears classified under the same category as elephant ivory, effectively rendering any hunting or trading of the bears illegal.

During the last two annual Conventions on International Trade in Endangered Species, the U.S. Fish and Wildlife Association sponsored votes for a total ban to come into effect.

Attack on a traditional hunt

Repeated American-led efforts to ban polar bear products have been strongly criticized by Inuit groups and the Canadian government. Polar bear hunting is a viable source of income for many isolated Inuit groups.

The Canadian government is supportive of a hunt that has been done for thousands of years in a sustainable manner with a low environmental impact.

However, thinning ice fields in Northern Canada correlate with smaller bear populations and environmentalists are quick to point to photographs of emaciated bears with little to eat and ever increasing distances to swim.

The reality, however, is quite different. While bear populations plummeted in the 1970s due to aerial and ship-based trophy hunting, controls have been implemented that sustain the viability of the industry, in addition to maintaining good population numbers.

Today, there are an estimated 16,000 polar bears spread across specific geographic regions in the country.

The real culprit for low population

Despite those numbers, the polar bear has been categorized as a ‘vulnerable’ species, as the U.S. Fish and Wildlife Association highlights.

But for Canada, this is a sticking point because, while the bear population may not be what it once was, the numbers do not justify being placed in the same endangered species category as elephant ivory.

The push to ban bear products has been ongoing for some time, and in recent years the U.S. has been joined by countries such as Germany and the United Kingdom, all of whom oppose Canada’s position on the legitimacy and necessity of the hunt.

In 2013, Russia added its voice to the fray, accusing Canadian hunters of using the bear hunt to launder illegal kills that fall outside of the annual number of acceptable hunts.

The following year, an investigation into the hunt was carried out by an international review committee. Greenpeace, the World Wildlife Fund (WWF), and several scientific bodies and NGOs all ruled that the hunt was sustainable and that a ban on hunting was unnecessary.

The real culprit for dwindling bear stocks? Climate change

As a result of the independent review and pressure from Canadian lobbying, the U.S. has now ceased its efforts to ban the hunt and include the bears in the same endangered species category as elephant ivory.

According to Maclean’s magazine, the U.S. Fish and Wildlife Association has quietly dropped its anti-bear hunt campaign and the association’s website simply says:

Though we remain concerned about the commercial use of polar bear hides as an additional threat to the species, we are not pursuing increased … protections at this time.

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If you’ve read the news at all during the past month, you’ll know that something big has been brewing. To quote Shakespeare’s Macbeth, “something wicked this way comes.”

On April 3rd, the so-called ‘Panama Papers’ were unveiled by news outlets around the world.

Coverage of the story is likely to last for quite some time due to the size and substance of the leak, and the amount information that needs to be analyzed.

What’s the story with the Panama Papers?

In brief, the story so far goes something like this: In early 2015, Munich daily newspaper Süddeutsche Zeitung received a large cache of documents from an anonymous whistleblower using the ubiquitous pseudonym ‘John Doe.’

The documents themselves, totalling some 2.6 terabytes in size, were bundles of confidential documents detailing overseas financial holdings – many in so-called shell companies – for hundreds of thousands of individuals and corporations.

In layman terms, the documents demonstrated how the world’s rich and famous store their capital and kept it away from the hands of the taxman.

Panamanian law firm Mossack Fonseca, the original holder of the documents, was implicated in the leak.

The leak is so substantial that it dwarfs both Edward Snowden’s 2013 release of U.S. secret intelligence documents and the ‘WikiLeaks’ scandal of 2010 several times over.

In the days immediately following the leak, Iceland’s Prime Minister Sigmundur Davíð Gunnlaugsson, who was implicated in the Panama Papers, resigned amidst a flurry of protests. Gunnlaugsson was the first big name casualty of the leak, but no doubt there will be others.

Russian President Vladimir Putin and football star Lionel Messi have both been alluded to as well.

Why should Canadians care?

One question on the minds of many Canadians is “So what? What does this mean for me?”

Well, the answer to that takes a bit of crystal ball fortune telling, but also some hard facts.

If you’re not in the upper echelon of banking and business and you pay your taxes like a good, upstanding citizen, you really have nothing to worry about. But what about the 350 Canadians named in the papers, the list of which includes a former Newfoundland cabinet minister?

What about the Royal Bank of Canada, after it worked with Mossack Fonseca to set up 370 offshore accounts? Well in this case, the old adage of ‘perception is everything’ holds true.

There is nothing suspect or even illegal about holding capital in offshore bank accounts. In fact, it’s far more common than one might think.

The problem is that for every ten “good” accounts, there’s one or two “bad” ones storing capital that was acquired with ill-begotten means.

For politicians in countries with less than stellar records of democracy and financial transparency, the papers are a clear indicator of what has been said for years: that the political system in many countries is suspect, shady, and more often than not, untrustworthy.

Canada’s banking system is the ‘envy of the world’

For Canadians however, there’s really very little to worry about. “Canada has one of the best and most secure banking systems on the planet” says Peter Labrie, veteran financial securities broker and instructor in the Financial Services department at Ashton College.

I wouldn’t really recommend that people deposit money in offshore accounts. If they do, there needs to be a legitimate reason for doing so.

“That said, some offshore jurisdictions are pretty opaque.” Labrie stated.

The often murky nature of these offshore accounts means that perception in the public eye really does matter.

This is why for many Canadians, the very words ‘offshore bank accounts’ and ‘tax haven’ conjure up images of shady deals, struck in the dead of night, with anonymous brokers carrying briefcases full of money.

Facts are facts: it is estimated that offshore tax havens account for 50% of all world trade.

That means companies, many of which are well known to us, aren’t paying taxes on the commodities they import and export.

This in turn means that the capital accrued isn’t going back into its country of origin to help low income earners. Instead it just sits somewhere offshore, collecting interest and waiting to be drawn upon by the private sector.

That’s why being implicated or even named in the Panama Papers leak is bad news for PR. Royal Bank of Canada CEO David McKay told the CBC earlier this week that he was unhappy that Canada’s banking institutions were being “dragged into” the muddled controversy of the Panama Papers with no evidence of any wrongdoing.

“As a CEO, I have to be concerned about our brand and reputation, particularly in a situation where there’s absolutely no allegation of wrongdoing,” McKay said.

We just happen to have a couple hundred files, going back 40 years, that are attached to this legal firm, that’s all that’s been reported.

That being said, the fear surrounding Canadian banks being linked to the papers is unjustified.

Bank of Montreal CEO Bill Downe said last week that Canada has increased its anti-money laundering controls “dramatically” and that the result is an even safer banking system.

Canada’s banking system is the envy of the world, and while the Panama Papers scandal doesn’t do the banks justice in terms of public relations or the court of public opinion, Canadians should know that the system they utilize on a daily basis is doing exactly what it was set up to do: to provide safe, secure and above all, honest financial services.

Do you think Canadians should be worried about offshore tax havens?

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