A new Conference Board of Canada study released by the International Trade and Investment Centre challenges the conventional wisdom about Canada’s trade profile. Canada is less trade-dependent than previously thought, has a smaller trade relationship with the United States than commonly believed, and relies on the services sector for a much larger share of its trade.

“These findings challenge some of the core views about what Canada trades, who it trades with and how much it trades,” said Michael Burt, Director, Industrial Economic Trends. “Using value-added trade measures, the description of Canada as a ‘small, open economy’ may be less accurate than previously believed. Value-added trade may also help to explain in part why Canada was less affected by the recent global recession than other countries.”

The publication, Adding Value to Trade Measures: An Introduction to Value-Added Trade, argues that conventional trade data—namely measures of imports and exports—can distort the “real” trade picture. Conventional trade measures have not been adapted to gauge transactions accurately when more than one country is involved in the production of a single good. This analysis utilizes a new methodology to estimate value added in the context of trade.

Value-added trade refers to the increase in worth of a good or service due to a specific step in the production process. For example, if a chair is worth $10 before being painted and $12 after, the value added by painting is $2. The first major outcome of the value added trade method is to eliminate double counting, which occurs when inputs cross borders multiple times before becoming a finished product. The second is to allocate the value embedded in a traded product back to its source. For example, an exported car contains a variety of inputs including raw materials, engineering services and even electricity.

From the analysis, the three key findings are:

• Canada is less trade-dependent – Using value-added trade measures, Canada’s share of global trade falls from 3.1 per cent to 2.9 per cent. These results may help to explain why declining global trade during the recession had less of a net effect on Canada’s economy than it did in other countries.
• Canada’s trade mix is different – using value-added trade, the services sector becomes more important relative to goods-producing sectors. When measured in value added terms, services account for about 40 per cent of Canada’s trade, compared to 16 per cent using conventional statistics. Gaining increased prominence are business and financial services, as well as trade, transportation and communications services.
• Canada’s trade relationships change – the largest adjustment occurs in Canada’s relationship with the United States. Using value-added measures, the U.S. share of Canada’s overall trade falls from 69 per cent to less than 62 per cent. Other regions of the world increase their share of Canada’s overall trade, particularly Europe (up more than two percentage points) and Japan (which gains more than one percentage point).

This is the first of three Conference Board publications on value-added trade. The next briefing will examine in more detail how the Canadian industrial trade mix changes when estimated in value-added terms and how our trade relationships with the rest of the world change. It will also shed more light on Canada’s role in global value chains. The final briefing in the series will reveal Canada’s comparative advantage and competitiveness in a world of value-added trade.

The analysis is supported by the International Trade and Investment Centre, which helps Canadian leaders better understand what global economic dynamics —such as global and regional supply chains, barriers to trade, U.S. policies, or tighter border security—could mean for public policies and business strategies.
www.conferenceboard.ca/itic/default.aspx

Prime Minister Stephen Harper is hailing a new set of border agreements between Canada and the United States as a merger between security concerns and the need for commerce and travel.

The wide-ranging plan pledged to expedite the movement of goods. There will be screening of cargo from foreign countries to Canada and the U.S., so that it is screened just once for both nations, the document stated.

Some companies in either Canada or the U.S. that ship goods across the border will be given “trusted status” so that the shipment is pre-screened at the factory instead of the border.

Several Canadian manufacturing and trade organizations — including the Canadian Vehicle Manufacturers’ Association, Food & Consumer Products of Canada, the Chemistry Industry Association of Canada and the Canadian Chamber of Commerce — welcomed the agreements. See detailed comments from these groups below.

Harper says the deals on perimeter security and regulatory harmonization represent the most significant steps forward in Canada-U.S. co-operation since the North American Free Trade Agreement.

In the text of a speech delivered after a meeting with President Barack Obama in Washington, Harper says the agreements create a “new, modern border for a new century.”

The prime minister says Canada shares U.S. security concerns, but he adds measures to deal with criminal and terrorist threats can thicken the border and hinder efforts to create jobs and growth.

He calls the border deals “practical steps to reverse that direction.”

Both countries agree the best way to deal with trouble is with smarter systems at the continental perimeter, minimizing multiple inspections of freight and baggage.

“We also believe that, just as threats should be stopped at the perimeter, trusted travellers should cross the border more quickly,” Harper said.

“Indeed, these priorities are complementary: The key that locks the door against terrorists also opens a wider gate to cross-border trade and travel.”

The second joint initiative will reduce regulatory barriers to trade by streamlining and aligning standards “where it makes sense to do so.”

“Naturally, in this area, as in all others, no loss of sovereignty is contemplated by either of our governments,” Harper said.

“Every rule needs a reason,” he added, and “where no adequate reason exists for a rule or standard, and that standard hinders us from doing business on both sides of the border, that rule needs to be re-examined.”


IT COMES AS WELCOME NEWS:

Canadian Vehicle Manufacturers’ Association: “We are very pleased,” said Mark Nantais, president of the Canadian Vehicle Manufacturers’ Association, which represents such car companies as Ford, Chrysler and General Motors. “The direction is what the industry has asked for.”

"We have invested heavily as trusted traders," he said. "We want to make sure we get the full benefit of these programs and the fact that these programs are going to be more in line with the United States is exactly what we've been looking for. Execution in terms of these action plans is what we have to work on quickly."

The governments' pledge to harmonize standards for such goods as automobiles also pleased Nantais. "Over time there have been differences that add additional cost to industry for no real public benefit and only complicate matters in terms of compliance," he said. "Part of the exercise moving forward is to deal with existing regulatory differences and work toward a process for dealing with future regulatory development on a truly binational basis.(source)

Food & Consumer Products of Canada: “The plan released by Prime Minister Harper and President Obama is an exciting, and much needed step forward that will save taxpayers money and benefit Canadians with innovative products that are made in Canada. It will also help boost the economy, enable Canadian companies to better compete on the global stage, while maintaining Canadian sovereignty and the world-class safety and quality of the products Canadians trust.” (www.fcpc.ca)

The Chemistry Industry Association of Canada: “Canada’s chemistry industry sends 76 percent of its exports — more than $20 billion worth of products — to the U.S. every year,” says Richard Paton, CIAC’s President and CEO.  “The measures outlined in the Border Action Plans are critical to keeping our industry competitive, and to strengthening Canada’s manufacturing sector.” (www.ccpa.ca)

Canadian Chamber of Commerce: “Sometimes governments get it right, and that’s the case today,” said Perrin Beatty, president and CEO of the Canadian Chamber of Commerce. “Today’s announcement is a major victory for businesses and citizens on both sides of the border.” (www.chamber.ca)