Stewart Beck
President & CEO - Asia Pacific Foundation of Canada

Canada Needs to Look Inward to Expand International Trade Relations

Takeaways

  1. Canada has been overly dependent on the US as its main export market. But recent tax cuts and deregulation in the US are making Canadian businesses less competitive and pushing them to look for markets beyond the US.
  2. Agriculture, health care, energy and cleantech are promising sectors for Canadian exports to Asia. Even greater opportunity lies in identifying areas in the supply chain where we can add value to our exports.
  3. Canada’s approach to approving or rejecting investment must be more accessible and transparent. We must communicate our investment approval criteria in a clear, concise, and understandable way.

Action

Canada should focus on what Canada can do on its own to become more internationally competitive. We need to remove or reduce interprovincial trade barriers and create critical infrastructure in order to get our products to market. We also need to ensure that people know and understand which trade agreements we have in place, understand the tools at our disposal, and that they are directed to the right type of opportunities and support.


Why is trade diversification important for Canada’s future economy?

Canada has always assumed that our market is to our south. Canada has heavily relied upon the US since the North American Free Trade Agreement (NAFTA) was signed. Trade with the US has been the main driver of Canada’s economy and we have never had to look beyond our traditional trading patterns to other markets, such as in Asia or Western and Eastern Europe. Recent tax changes and deregulation in the US have made Canadian companies less competitive in the US than they were 18 months ago. That impacts businesses considering locating or investing in Canada to capture the opportunities in the United States – even those considering a foothold in Canada to take advantage of our access to the European market through the Comprehensive Economic and Trade Agreement (CETA). People now realize that you cannot guarantee that the American market is going to be as dependable as it has been in the past. The size of Asian markets and forecasts on their future growth are now attracting Canada’s attention. This is a good sign, but I am not sure whether we have the Asia competence to capitalize on the opportunity.

“China’s growth is still two to three times greater than most developed economies, and India is now growing at close to 7%. These developing countries are huge opportunities for Canadian exports.”

If Canada takes a strategic approach and makes a commitment, we could see some diversification in our trading markets in a relatively short period of time. In the early 2000s, we were going through softwood lumber problems with the United States, which impacted British Columbia’s lumber industry. So, B.C. made a conscious effort to diversify away from the United States into Asia, not just in the lumber sector, but in general. Today, 40% of B.C.’s exports go to Asia. Similarly, Nova Scotia has a China strategy and, as a result, has received attention from China. This has had a positive impact on Nova Scotia seafood exports.


Does Canada understand Asia and does Asia understand Canada?

Canada is understanding Asia more than it has in the past. When the Asia Pacific Foundation was established in the mid-1980s, Japan represented Asia to Canadians, because it was a major trading partner at that time. Japan was growing by leaps and bounds and was having an investment impact in North America. Things have changed dramatically since then. Up until the last few years China has been touching double digit GDP growth, even with its relative slow down recently, its growth is still two to three times greater than most developed economies, and India is now growing at close to 7%. These developing countries are huge opportunities for Canadian exports.

Asian markets tend to be difficult to navigate for Canadian businesses because of linguistic, cultural, and legal differences. A larger multinational company may have the financial wherewithal to be patient and develop an understanding of the cultural differences. However, Canada is an economy of small and medium sized enterprises (SMEs), so it is much tougher for them to succeed in Asia. For example, it took McCain seven years to get its business model up and running in India. It is now very successful there, but that could not have happened overnight. We also need to understand e-commerce platforms in places like China, India, and Japan, and how we can use them to our benefit to help our SMEs.

“Now that our immigration patterns have changed and our three major source countries are China, India and the Philippines, we need to build an understanding of their culture and history.”

APF Canada is helping to bring Asia into the K-12 curriculum so that people understand a little bit more about Asian culture and Asian history. Now that our immigration patterns have changed and our three major source countries are China, India and the Philippines, we need to build an understanding of their culture and history. We are also working to send more Canadian post-secondary students to Asia in order to live and work there on co-operative terms. Exchange programs are important but working in a country builds the competence required for young and small Canadian companies to succeed there.

In terms of Asia’s understanding of Canada, I think Canada has a positive brand image there. Canada is strong in terms of important brand dimensions that may translate into service-oriented businesses like tourism, travel and education, which are all very important to our economy. But brand does not necessarily help our cleantech companies do business in Asia. Understanding scale and building products and services to address scale will be what is required for success.


Which sectors of the Canadian economy represent the best opportunities for exports to Asia?

Canada can compete in a number of sectors. The superclusters identified and invested in by the Government of Canada have extremely promising trade potential in Asia. In particular, the digital supercluster, the marine supercluster, and the protein supercluster can succeed in Asian markets. Aligning our domestic investments with our international potential and opportunities will accelerate our capacity to trade internationally.

“The superclusters identified and invested in by the Government of Canada have extremely promising trade potential in Asia. In particular, the digital supercluster, the marine supercluster, and the protein supercluster.”

The US-China trade war is helping Canada’s agricultural sector in Asia. We have water and land, so we can supply the types of products required in the Asian marketplace. They are high quality, safe and can be produced in the large quantities to meet Asian market demand. So, agriculture will be an important part of our export mix to Asia for the next 30 years. We now have to think about areas in the supply chain where we can add value. For example, we could be shipping semi-processed or fully-processed products instead of raw produce.

Clean technology, environmental remediation, and health care are other promising sectors for Canadian exports. Our development of technology for our aging population is highly applicable to many rapidly aging Asian countries. Data analytics is another area where Canada’s expertise is valuable to the world.

“Providing energy security is a huge opportunity for Canada, especially in Asian countries like China and India.”

Providing energy security is a huge opportunity for Canada, especially in Asian countries like China and India. Neither of them has the necessary resources to drive economies with a billion people, so they have to source their energy from other locations. Canada should be in that mix but right now, our energy is only going in one direction. 96% or 97% of our energy goes to the United States whether it is oil and gas or hydroelectric power. The domestic market for Liquefied Natural Gas (LNG) has not been very strong, so the cost of new LNG plants in B.C. was not justifiable. But being able to sell our energy to Korea, Japan, and China through the LNG Canada project is a significant geostrategic development for Canada. It demonstrates that we have an important energy security role to play in a very important region of the world. I only wish we could do the same off the East Coast where we could not only ship gas to Europe, but also to India. LNG Canada will also help to reduce greenhouse gas emissions in China by moving some of its energy production away from coal and on to gas.


Which policy changes are necessary to improve our trade relations with Asia?

The Canadian government is investing in trade diversification, which is evident from its last budget. It is putting money into Asia and it moved the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) through Parliament last October, a deal that represents half a billion consumers and is now in force. Once we have the commitment to diversify, we need a strategy, and finally we need to find the financial and human resources to implement our strategy.

“Aligning our domestic investments with our international potential and opportunities will accelerate our capacity to trade internationally.”

I would focus on what Canada can do on its own to become more competitive in terms of international trade. We need to remove or reduce interprovincial trade barriers and create critical infrastructure in order to get our products to market. We also need to ensure that people know and understand which trade agreements we have in place, understand the trade facilitation tools at our disposal, and are directed to the right type of opportunities and support. Finally, we should also be using the knowledge networks of our diaspora in order to build trade in their countries of origin.

“While our geographical proximity to Asia will never change, we need to be on a level playing field with Australia in terms of trade agreements and other trade facilitation mechanisms.”

As an example, a country that has done this well is Australia. The difference between Australia and Canada, given that we basically compete in the same commodity sectors, is that Asia for Australia is the United States for us. Asia is Australia’s backyard, so it has invested heavily in building its Asia competence. Australia has much stronger ties with Korea, Japan, and even India than Canada does. When I was in India, I saw that Australia has a very large bilateral trade position with India. While our geographical proximity to Asia will never change, we need to be on a level playing field with Australia in terms of trade agreements and other trade facilitation mechanisms.


What should Canada’s position be on investment from Asia?

I think it is important to bring the focus to investment attraction. It is not like we did not do investment attraction earlier, but Canada’s Investment Hub combines strategy and resources to streamline the process. The ultimate deal is closed at the municipal level and the provinces play an important role in that process. The role that the Investment Hub or the federal government plays is in promoting the country as an investment destination. It is one thing to have the money, but it is also important to align the regulatory environment with the mission. While we may be experiencing a temporary setback in our relationship with China, we need to have further discussions about investment from China, whether it is from the state-owned or private sector. The Chinese government controls most domestic and international Chinese investment. On the other hand, China has a lot of money and is willing to invest whether it is in natural resources or technology. When it comes to approving or rejecting investment, we need to have a more accessible and transparent approach. Our investment approval criteria need to be clear, concise, and understandable.