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Opening Doors to the World: Canada's International Market Access Priorities 2000

1. Introduction

Canada is a trading country, and trade is vital to our continued prosperity. International trade accounts for one in every three jobs in Canada. Five years ago, exports of goods and services accounted for only 30 percent of our gross domestic product (GDP). That figure is now 43 percent, higher than any other G-7/G-8 nation. Foreign direct investment (FDI) in our country has experienced similar growth, rising 54 percent since 1993. The vast majority of the more than 1.9 million jobs created since 1993 have come from the growth in exports. There can be no doubt that Canada's exposure to international competition has energized our economy, spurred innovation and created hundreds of thousands of jobs for Canadians.

Although Canadians have been successful in selling to the world, our ability to fully exploit opportunities in key markets is often limited by a variety of barriers. To ensure secure and predictable access to the world for Canadian traders and investors, the Government will continue its efforts to bring down barriers in key markets. This means strengthening the institutions and the rules that govern international trade and investment, forging relationships with new partners, and ensuring that other countries live up to their commitments.

Opening Doors to the World: Canada's International Market Access Priorities -- 2000 presents significant market-opening results over the past year and outlines the Government's priorities for 2000 to further improve access to foreign markets. The Government will pursue these goals multilaterally, through the World Trade Organization (WTO) and the Organization for Economic Cooperation and Development (OECD); regionally, in such fora as the Free Trade Area of the Americas (FTAA) and the Asia-Pacific Economic Cooperation (APEC); and bilaterally, with key partners, principally the United States, the European Union (EU), Japan and through the negotiation of a free trade agreement with the European Free Trade Association (EFTA) countries. In all cases, the Government's objective will be to ensure that Canada's traders and investors benefit fully from international trade agreements, because participation in world markets is Canada's path to prosperity.

Dynamic Performance of Canadian Exports of Goods and Services

Canadian exports of goods and services reached $409.8 billion, or 43.2 percent1 of GDP, in 1999. This continued the dynamic performance of the past half decade, which saw trade grow by 9.1 percent on average. This trade performance was accompanied by solid growth and outstanding job creation, especially in the most recent period (see Figure 1).

Although much of the attention in discussions about trade is focussed on exports, the increased flow of imports actually facilitates export production. Producers benefit from lower prices from foreign suppliers and a greater variety of goods and services than are available in the domestic market. Not only are a wider variety and improved quality of goods directly beneficial to consumers, they also may enhance the efficiency of production to the extent that the variety and/or quality of intermediate goods contribute to productivity. In Canada, 1999 imports of goods and services totalled $385.2 billion, an increase of $26.2 billion, or 7.4 percent over 1998.

A number of developments contributed to an outstanding 1999 Canadian trade and investment performance. Investment Partnerships Canada continues to work to increase Canada's share of global direct investment by promoting strategic investments in key economic sectors in Canada. Internationally, the economic picture remained mixed, but a clear improving trend is visible. The U.S. economy continued to maintain above-potential growth; the EU economies showed signs of firming growth; and the East Asian economy continued to rebound with surprising swiftness from the 1997-1998 downturn. The rally of world oil prices was also significant, and has led to the rise in the value of trade in the energy sector.

Canada believes that trade is vital in helping the global economy stabilize from the crisis of 1997-1998. As such, we have continued to participate actively in discussions to strengthen global rules and continue to pursue policies that will further liberalize global markets. We reported our objectives to the Standing Committee on Foreign Affairs and International Trade (SCFAIT) in November 1999 and are committed to continue to consult actively with Canadians in regard to ongoing trade policy development.

More and more, Canadians are recognizing the benefits of trade. They support Canada's role in international trade as long as it benefits Canadians as a whole, reflects our heritage of democracy and openness, and advances our quest for a just society. Economies that trade are more competitive, more dynamic, feature stronger productivity growth and witness rapid assimilation of technology.

Services Trade Continues to Grow

Canada's two-way trade in services was valued at $104.9 billion in 1999, an increase of $6.2 billion over 1998. The increasing share of trade in services relative to GDP indicates its growing importance to the overall economy. Exports of services as a share of Canadian GDP was up from 4.3 percent in 1994 to 5.2 percent in 1999, while the share of services imports to GDP was up from 5.8 percent in 1994 to 5.9 percent in 1999.

While the United States is Canada's single largest trading partner for services, its share of Canada's services trade is less than its share of merchandise trade. Between 1994 and 1999, the importance of the United States as a supplier of services to Canada has increased slightly from 60.6 percent to 61.5 percent. The EU, on the other hand, has maintained a stronger market share in services than it has in goods. Figure 2 presents the share of our partners in total exports and imports of services in 1999.

While Canada's trade in services has grown steadily, it has lagged behind the growth of trade in merchandise, which has been especially strong over the past ten years. Accordingly, the services component of Canada's total exports has declined slightly from 12.9 percent in 1993 to 12 percent in 1999. Similarly, the share of Canadian imports of services to total imports was down from 19.1 percent in 1993 to 12.5 percent in 1999.

Importance of Investment: Inward and Outward

Two-way direct investment helps strengthen Canada's link with our trading partners. Inflows of foreign capital into the economy are instrumental in propagating new production and management technologies. Canadian investment abroad is also important as a way to spread the use of Canadian technologies, support Canadian exports of goods and services and establish the reputation of Canadian firms abroad.

The stock of foreign direct investment (FDI) in Canada reached $217 billion in 1998, a gain of $20.4 billion from 1997. Meanwhile, Canadian direct investment abroad (CDIA) rose to $240 billion in 1998, a 17 percent increase over the previous year.

Most FDI in Canada was directed on the finance and insurance industry, followed by energy and metallic mineral industries (see Figure 3). Although at a much larger share, the finance and insurance industry accounted for 33 percent of CDIA in 1998 (see Figure 4). A significant share was also invested in mineral industries.

Focus on Atlantic Canada

For a closer look at the significance of the opening of markets to Canada, one need only look at the experience of the Atlantic provinces over the past few years. The early 1990s were difficult economic times throughout Canada, particularly so in the Atlantic provinces. The post-recession, latter-half of the decade saw a return to solid growth and business opportunity. According to Statistics Canada, the economy of Atlantic Canada grew by 10 percent in the 1990s, while employment increased by 80,000.

While we might wish to point to one or two explanations for the rebound, such as the general resurgence of markets and investment across North America, a variety of other factors have contributed to this turnaround. These include the upgrading of workforce skills, growth of the information technology (IT) sector, development of offshore petroleum fields and investment in infrastructure. Such factors, combined with the opening of new markets under the NAFTA and the WTO have created new manufacturing and service opportunities throughout the region.

The Atlantic Economy is Changing

When thinking of the economy of the Atlantic provinces, Canadians west of Quebec City have traditionally tended to envisage hundreds of thousands of Atlantic Canadians earning their livelihoods from the sea, farms, mines or forests. The new reality is that innovative Easterners, who may have come from those traditional backgrounds, and other investors are embarking upon new endeavours in areas that would not be considered as traditional Atlantic Canada economic activities. For instance, many new opportunities have come in high-skill and knowledge-based fields, such as aerospace/defence industry production, telecommunications, distance education, geomatics research, marine biotechnology, Internet-based and multimedia services, music and sound recording.

It is also not generally appreciated that Eastern Canadians have been successful at diversifying traditional industries. The shortage of groundfish has resulted in more emphasis on product quality, high-value shellfish and aquaculture, all of which have contributed to the remarkable continuing strength in fisheries' exports. The positive impact of offshore energy field exploration and development goes beyond the petroleum exports themselves to affect manufacturing and services capabilities in the region. Another traditional sector, forestry, has seen export growth and diversification in high-value building components and pre-fab housing, as well as in fine papers and other consumer paper products.

In the early 1990s, Prince Edward Island had no aerospace industry. Since the closure of the former Canadian Forces Base Summerside in 1989, its airport and other assets have been used to build the nucleus of such an industry. By mid-1999, approximately 340 Islanders were employed in full-time, year-round, high-skill, well-paying jobs making aircraft interior components, engine turbines and other precision-machined products. Some firms also have secured long-term repair, overhaul and maintenance contracts for products made by other aerospace companies. This industry's sales now account for roughly one-fifth of PEI's exports, and these firms, together with Nova Scotia's aerospace companies, are developing a solid cluster in the region. In fact, the aerospace industry has grown so rapidly that the demand for skilled labour in PEI has begun to surpass the supply. In response, the Aerospace and Industrial Technology Centre in Slemon Park, PEI was officially opened in May 1999 to provide specialized training in order to create a larger pool of skilled workers who can assist in the industry's growth. Since the opening of the Centre, two firms have announced new investment that is expected to result in the creation of approximately 200 new high-skill jobs in PEI over the next four years.

New Brunswick business and government leaders decided in the early '90s to position that province as the premier North American location for knowledge- and technology-based companies. They developed a world-class telecommunications system and together with the federal government provided computer and technology education for kindergarten through college levels. They also fostered an increased awareness and facility for the everyday use of technology by average citizens by incorporating it into the delivery of most provincial government services. There is ample proof that the results are extremely attractive to a number of North American and global companies that have set up new operations in New Brunswick specifically to take advantage of the excellent infrastructure, availability of a highly-skilled workforce and access to international markets.

The Atlantic provinces, and in particular New Brunswick, have done well in attracting call centres as part of an ever-increasing service economy. As of mid-1999, there were approximately 70 call centres in New Brunswick employing over 7,500 people. Nova Scotia has 20 call centres employing more than 5,000, with Convergys being one of the largest in the country. From these centres, well-paid Maritimers are providing important commercial and consumer services, mostly in the United States. For example, if someone in Boston needs to book a hotel room and rent a car in Philadelphia, odds are that the call will be taken and the arrangements made through an Atlantic call centre. If someone needs to track the delivery of a courier package, they'll probably be talking to someone in New Brunswick.

Atlantic Canada also sees the potential in electronic commerce, and institutions such as Dalhousie University are committing resources and facilities to the IT field. Dalhousie is educating approximately 700 students in computer sciences and, in conjunction with Cisco Systems, is offering a Master's program in internetworking. As part of a new computer science building, Dalhousie has established a Global Information Networking Institute to spearhead e-commerce and pursue partnerships with companies such as IBM. These are all examples of Atlantic Canadians taking advantage of new developments in technology and e-commerce to export their services in the global marketplace.

Another area of the services economy worth noting is film production. Worth $150 million in Nova Scotia alone during 1999, the success of this activity confirms the desirability of location and advanced infrastructure of this region. In May 2000, Halifax will host a world conference of independent film makers and public broadcasters.

Growth in Nova Scotia's economy is being assisted by the presence of one of the world's foremost research and development (R&D) environments, with major research concentrations in health, agriculture and marine biosciences. Within the Halifax Regional Municipality resides the second-largest concentration of marine expertise in the world. Half of the marine technology firms in Canada are located here. In this field alone there are 500 doctoral-level professionals bringing expertise to public-private partnerships in a wide range of marine/biotech specialities. By 1999, 95 companies employing some 750 professionals were working in life sciences, with growth estimated to occur at twice the national rate. Exports of this industry's goods and services (such as health products, herbal medicines, pharmaceuticals, diagnostic test kits and telemedicine services) increased by an astounding 72 percent in 1998. In keeping with this activity, Halifax will host two major events: Softworld 2000 and Biofusion 2001.

The Newfoundland and Labrador manufacturing industry's wide range of capabilities include food production, printing and publishing, wood and non-metallic mineral production. In 1998, manufacturing shipments from the province reached a record level of $1.76 billion. Largely dominated by seafood products, pulp and paper and petroleum products, new sectoral growth is also being experienced in advanced technology (satellite communications, medical technologies and environmental technologies) and the traditional footwear and wood products sectors. A revitalized seafood industry has emerged due to its ability to increase its commercial focus on higher-value species like crab and shrimp. The value of seafood production increased from $683 million in 1998 to $950 million in 1999. Newfoundland's offshore petroleum sector has experienced rapid growth in exploration and development since first production of oil from the massive Hibernia field in 1997, and is expected to produce 40 percent of Canada's light crude by 2004.

The high-tech needs of the petroleum sector are one of the primary drivers in Newfoundland's shift to a knowledge-based economy and its emergence as a world leader in ocean technologies. The province has experienced gradual but steady growth in advanced technologies, ranging between 6 percent and 10 percent annually over the last five years. This growth potential is a catalyst for an increased export profile in e-commerce, telemedicine, distance education, multimedia, software development, geomatics and marine technology. Newfoundland and Labrador's expertise in the marine sector positions the province to attract investment in other knowledge-based fields, such as clinical trials management, regulatory assistance, business information and statistics.

Small Businesses -- Huge Impact

As with the rest of Canada, export growth comes from both large and small enterprises. Atlantic Canada has its share of large-scale producers, such as Michelin, McCain, Irving, Clearwater, Fisheries Products International and Oxford Frozen Foods, which make a major contribution to the region's export growth. However, the "new economy" has also created opportunities for small- and medium-sized companies. Thanks to the cumulative effect of these enterprises, thousands of Easterners earn their pay-cheques making and exporting anything from chocolates to batteries and software to water test-kits. Although often located in rural communities, many have "gone global", finding niches in culture and giftware, information technology, foods and health care products.

A Team Effort

Just as the federal government has been very successful in organizing and carrying out a series of "Team Canada" trade missions, the Atlantic provinces have complemented this initiative with "Team Atlantic".

In April 1999, "Team Atlantic" enabled 39 East coast companies to participate in a trade mission to New England. The overwhelming majority of the participants found the trip extremely valuable. The mission generated immediate sales of $2.2 million and created 19 full-time jobs and 10 seasonal jobs, with potential for more. For Royalty Hardwoods Ltd. of Montague, PEI, a specialty manufacturer producing maple, birch, pine, spruce, hemlock and tamarack products such as flooring, mouldings and furniture components, the mission resulted in its first-ever export sales. INNOVA Multimedia Ltd. of Newfoundland had been attempting to penetrate the export market for some time; the Team Atlantic mission provided a huge boost to that effort by enabling them to make contact with companies and organizations that might be interested in distributing their educational software. Fundy Fibreglass of Digby, Nova Scotia completed an initial $170,000 sale to one New England company. Even more exciting is the fact that, because of the technology shift resulting in the application of Fundy's fibreglass components to the U.S. production line, the client has retooled, increased productivity and reduced product costs, allowing them to confidently increase production and sales by 250 percent for calendar 2000. This will represent approximately US$400,000 in sales to one U.S. customer.

The Future

In many areas, economic growth in Atlantic Canada is outpacing both national and international growth in the same sectors. Without question, the success of companies already investing in Atlantic Canada and using the region as their export base for goods and services will convince additional companies of the benefits and rewards to be gained by doing business there.

Market Access and International Business Development

As an integral part of its jobs and growth agenda, the federal government, in partnership with other levels of government and the private sector, has put in place programs and services for trade and investment promotion to ensure that Canadian companies can take full advantage of international opportunities. At the core of this partnership is Team Canada Inc, a "virtual" trade network of 22 federal departments and agencies whose international business development programs and services are accessible to Canadian businesses through a single window, either via the website ( http://www.exportsource.gc.ca/ ) or by telephoning 1-888-811-1119.

The Government's concerted efforts to enhance access to foreign markets go hand-in-hand with the export and investment marketing activities presented in Team Canada Inc's three-year Business Plan. For instance, The Department of Foreign Affairs and International Trade (DFAIT) has established new Global Opportunities (GO) teams of trade commissioners, who have been dispatched to 13 markets. These teams are to identify rapidly and pursue new business as a result of liberalization (e.g. Mexico and Chile); to exploit opportunities that flow from Team Canada and other trade missions (e.g. South Korea and Brazil); and, to assess sectoral possibilities (e.g. oil/gas and mining in Russia). In addition, the positioning of additional trade commissioners in priority emerging markets helps Canadian suppliers and investors get the most out of market access openings. In 1999, four new investment counsellor positions were announced (in Berlin, Los Angeles, Dallas and Chicago) to enhance our ability to attract new foreign direct investment.

The Government has a number of trade- and investment-promotion programs in place, notable among which are the Team Canada trade missions. In 1999, over 260 businesses, eight provincial premiers, all three territorial leaders, as well as academic and other institutions participated in the Team Canada mission to Osaka and Tokyo.

In 1997, the Trade Commissioner Service (TCS) embarked on a renewal project called the Performance Measurement Initiative, which centres on creating a more results-driven, client-focussed organization. A key component of this project was to consult with a large cross-section of business and institutional clients and conduct a survey of those who use the TCS in export markets. We wanted to examine the overall performance of the TCS from the perspective of clients, quantify results achieved by clients with TCS support and find out what improvements are required to respond better to client needs. Among the findings, we were told that companies wanted us to focus on six core services: market prospects; key contacts search; visit information; face-to-face briefing; local company information; and troubleshooting. More information on these and other services can be found at: http://www.infoexport.gc.ca/ie-en/About.jsp. The department welcomes feedback from companies using the TCS. Please phone: 1-888-306-9991.

We'd Like to Hear from Canadians Doing Business Abroad

DFAIT consults industry on market access issues through a variety of means, including the private-sector Team Canada Inc. Advisory Board, which provides advice on both market development and trade policy. This body engages the business community directly and complements the various sectoral advisory groups on international trade (SAGITs). In view of the Government's strong commitment to ensure that all Canadians continue to have input into Canada's overall trade agenda, DFAIT has increasingly adopted a multistakeholder approach in several of its consultation activities, in which business and not-for-profit sectors participate.

In 1999, DFAIT launched the Trade Negotiations and Agreements website (http://www.dfait-maeci.gc.ca/tna-nac/) to provide Canadians with accurate, clear and up-to-date information on Canada's trade policy agenda. The website also features a Consultations with Canadians section, which seeks opinions of Canadians on all related issues. We particularly welcome direct input from Canadian exporters and investors describing barriers they have encountered in foreign markets. Individual companies, industry associations and other interested organizations are encouraged to contact DFAIT with specific information on tariff or non-tariff barriers and other business irritants. Business people frequently alert Canadian trade commissioners and other DFAIT staff (such as agri-food or investment specialists based in markets around the world) to situations requiring local advocacy or troubleshooting. Often, these problems are reported to DFAIT headquarters for particular consideration from a strategic market access perspective. Business people are invited to report any problems they are experiencing by communicating in strictest confidence to:

"Foreign Trade and Investment Barriers Alert"
Department of Foreign Affairs
and International Trade
125 Sussex Drive
Ottawa, Ontario K1A OG2
Fax: (613) 992-6002

Business people are also encouraged to remain in touch with DFAIT on market access and other issues through its websites at www.dfait-maeci.gc.ca/trade/menu-en.asp or www.exportsource.gc.ca These sites contain additional information on many of the issues covered in this document.