By R. Bruce Striegler
“In Canada, we’ve been focussed on signing new trade agreements, and that’s very positive, but what agreements do is open a door. The real question is how we get Canadian business through that door,” says Perrin Beatty, President and CEO of the Canadian Chamber of Commerce. For Beatty, the fact is, Canada is falling further behind on international trade and he says, “We have to do something, a great deal, with some sense of urgency to bring it back.”
“It’s eminently doable, but there has to be the determination, coherence and tenacity in terms of seeing there’s a consistency of effort. None of it is brain surgery, it’s just a matter of having the will to put it in place and the determination of seeing it through.” Last May, the Chamber issued “Turning it Around: How to Restore Canada’s Trade Success.” Containing eleven recommendations, Beatty says the report is designed to take a look at the resources that are available to promote Canadian business success abroad. “We examine Canada’s lagging trade performance and offer the case for strengthening trade promotion and economic diplomacy.”
It’s clear that the global economy and the rise of new markets hold enormous potential for Canadian business, especially as domestic growth prospects are limited. But companies are facing significant barriers to internationalization, both at home and abroad. The Chamber concludes that to address these barriers, Canada needs to take measures to improve its productivity and transportation infrastructure and open new markets with free trade agreements.
Nevertheless, there is a growing consensus that these measures are not enough. Canada’s weak business brand may reflect a somewhat passive approach to managing its image abroad. Successive federal governments have neglected to promote and shape Canada’s international brand, with some estimating that Canada spends only 10 per cent of what its G7 peers do on public diplomacy.
Mr. Beatty endorses the Comprehensive Economic and Trade Agreement (CETA) with Europe, along with the Canada-Korea Free Trade Agreement (CKFTA), saying, “These deals are examples of the sorts of agreements we need to have. On balance, they’re positive, they’re the result of negotiation, which means there’s give and take on the part of both partners, but they’re win-win.” Next for trade agreements on Beatty’s priority list would be Japan, India and he says Canada need to come to grips with China, “We’ve been losing trade with China, and we need to determine how, instead, we can further promote our Chinese trade relationships.”
The comfort of slow-growth U.S. markets vs the fear of the unknown
In another sign that Canadian interest in foreign markets is lukewarm at best, June’s poll from the Asia Pacific Foundation revealed that “enthusiasm for building closer social and economic ties” with Asia has plunged in the past year. Those responding indicated that they don’t perceive economic benefits to Canada in closer trade relations and see the region, particularly China, as something of a threat. Even though a third, 33 per cent of Canadians, believe Canada is more part of the Asia Pacific region than it was a decade ago, they are less convinced of the potential economic benefits of building closer ties with Asian countries. Moreover, while Canadians in 2014 are evenly split on whether or not Canada would benefit from more Asian investment in the country (41 per cent agree, 41 per cent disagree), this is a significant shift in opinion from a year ago, when 50 per cent held a positive outlook on Asian investment.
The Foundation notes there may be a perception problem when Canadians ranked their trade with Australia as being more important than trade with South Korea. Trade with South Korea, with whom Canada has concluded a free-trade agreement, is triple that of our trade with Australia, with whom Canada does not have an agreement. Canada’s exports to China are worth $20.2 billion compared to just $1.5 billion to Australia.
Today’s global network of trade and commerce is the result of international trade agreements between nations, but Canada remains oddly focused on one trading partner. When asked about Canadian business pre-occupation with the American market, Beatty replies. “I’m seeing that reliance diminish for a variety of reasons, one of them was the recession. Canadian businesses increasingly recognize that it’s in their interests to diversify. Secondly, we’re seeing too many instances where the American market is closed to us. Issues such as Buy American, country of origin legislation and other matters like this, make it more difficult for us to get into that market. It makes sense to diversify so we don’t have all our trade in one that single American basket. It doesn’t mean doing less with the U.S. but it does mean doing more with the rest of the world.”
Canadian growth remains “lethargic” – Conference Board
He notes that if it hadn’t been for sales to fast growth markets such as China, where the recession saw economic growth drop from nine to six per cent, Canada would have had a very slow recovery given its dependence on the American market. “The American market is less open than it used to be, and we’re missing opportunities in fast growth markets. We’ve been fighting for market share in developed markets that are slow-growth today, where two or three per cent growth is the new norm while missing out on markets seeing sustained growth of anywhere from six to nine per cent. “
Beatty admits Canadian business is playing catch-up. “The American market historically has been so seductive, and we have not yet tapped out that market. It’s very tempting to focus on the U.S and forget about others.” He illustrates the ease of doing business in the U.S. pointing out that one can get on a morning plane, fly to an American destination, sign a contract and be back home in Canada for dinner. “All the time speaking the same language, having the same system of laws and same business practices, that’s a very attractive market to be operating in.”
He says it is much tougher to go to Thailand for example and try and develop relationships, operating in a foreign culture and language with a foreign system of laws and different ways of doing business. “It requires major investment in order to be able to do that and yet Canadian business is increasingly is recognizing that it is important to do it.”
When asked if the government has acknowledged or indicated action on the Chamber’s report, Beatty replies, “James Moore, Minister of Industry, came to our international trade day and commented on the report saying he was generally supportive of the direction it was going.” Beatty adds that as part of the government’s global commercial initiative, it’s looking at how it uses its resources in a more coherent and coordinated way to benefit of Canadian business. “That makes a lot of sense, other countries have been doing this for some time. It’s really a refinement of what Canada has been doing in the past, but a more efficient way of using our resources.”
Analysts still are not seeing the growth in Canada that many have been predicting even with some improving signs on the U.S. horizon. No question in the second quarter, exports have surged to a two-years-plus high, reversing the previous string of trade deficits. And while companies here are waiting for an even more significant sales pickup in the United States, Canada’s biggest market, shipments to other major trading partners are also on the rise. Still, the Conference Board of Canada reported in early August that, “Overall, the domestic economy remains lethargic. The business sector seems to be holding back on hiring and investment, governments are by and large in restraint mode, and households are seeing their purchasing power erode.”
Sense of urgency needed to re-focus existing resources
Beatty says that the Chamber’s recommendations, such as providing a single window to access trade promotion services, appointing a special trade ambassador dedicated to leading delegations pursuing specific opportunities, is not something that requires some sort of dramatic change of direction for Canada, “But it requires the willingness on the part of government to act with a sense of urgency and ensure that there is a sense of coherence, that we use the resources we have most effectively.”
If all the recommendations in the Chamber report were implemented immediately, Beatty says we would start to feel the results very quickly. “The key for us is to make sure we use the enormous resources, and the talented people we have got stationed around the world. These people often have exceptionally good intelligence about what is happening on the ground in those markets. If we could marshal those better and put them to work more effectively then we’d find the impact felt quite quickly.” Beatty is referring to the Canadian Government’s network of trade commissioners located in 160 offices around the world who are there to provide expert advice and problem-solving skills.
“We are better focussed than we used to be when it comes to trade. As a result of the global commerce strategy, we have something more decisive in terms of looking at where the greatest opportunities for Canada are. I think that’s very positive.” Beatty is emphatic that neither the business community nor the government is aggressive enough in terms of making the Canadian case and breaking into new markets. “We need to do more. We need to have a sense of urgency because others are there beating on the door. At the beginning of the current government’s term they took the approach for China to come to us, while the rest of the world was beating on China’s doors.”
Beatty says a first good step to rekindle the Chinese connection is the recent signing of the Foreign Investment Promotion and Protection Agreement (FIPA). “It’s time for us to get it implemented. We’ve negotiated it, it’s in Canada’s interest when Canadian businesses are worried about their intellectual property in China, worried about their investments there, nervous about the standard of the rule of law. It makes sense and is in the interests of Canadian business to have an investment protection agreement.”
Although the agreement was signed by the two countries in 2012, it has taken until September 2014 before Canada ratified it. Beatty says he doesn’t know why it did not move forward sooner. “I haven’t heard a good explanation.” He speculates there may be two factors that have stalled it. The first is that the Chinese are still uncertain whether their investment is welcome in Canada, “I think we have to send a very clear message that it is. The second is that the investments they’ve made in the oil sands have not been wholly successful, and so there may be less enthusiasm on the Chinese side than there was previously.”
In early August, headlines trumpeted that exports overall were up 1.1 per cent in June from the previous month to a value of $45.2-billion. Some reports suggested that our declining exports were finally on a rebound since the numbers were more than the $44.5-billion peak in 2008, just before the recession took hold. Sales to the U.S., the destination for 75 per cent of Canada’s goods and services, were little changed at $34.1-billion in June. Perrin Beatty comments that we have to be very careful extrapolating from one data point, “I’d like to see evidence that this is a continuing trend, not just an aberration. If you look at our performance over the last several years, we haven’t done very well on our exports.”
Mr. Beatty notes how we pride ourselves on being an exporting nation, but says that if we take energy exports out of the equation, as well as exports which are more the result of joint ownership and production than traditional exports, Canada’s performance isn’t very good. “Three quarters of our trade is done with one country, 25 per cent with the rest of the world. Increasingly the trade we’re doing with the rest of the world is in commodities as opposed to value-added goods. Thankfully we have the commodities, we should be exporting them, but we also have to demonstrate we can be successful in manufactured goods and other value-added products.