In our current trade environment, trade wars will increase costs to the consumer, and the risks for employers, shareholders and employees of cross-border businesses. However, what will remain unchanged will be Canada’s need to generate our standard of living through success in the global marketplace. Current customers need to be retained and new ones found. Input cost changes will require significant creativity to preserve trade flows and margins.

Canadian politicians and economists have been talking for a very long time about our over-dependence on the U.S. market and the need to diversify. The diversification message coming from the Canadian government to businesses today has a special note of urgency, reflecting the risks which are being added seemingly daily for cross-border businesses.

And there’s been all kinds of attempts over the years to encourage Canadian companies to look elsewhere. Well, now you have a circumstance in which our best market, the United States, may become less attractive as a place to do business. This should provide Canadian corporations with an opportunity to reassess where else in the world their products can be marketed, products and services.

Companies can’t diversify their global markets without the right tools

We’ve got to turn this to our advantage. This is a real moment in time for Canadian trade and organizations striving to do cross-border business.

We know that knowledge preserves margins. Knowledge is power in all human activities, but particularly so in international trade. Market intelligence translates directly into market power. Value-added exports create higher margins the closer the producer gets to the customer. Availability of information is therefore critical to export growth, sustainability and job growth in a supplier’s jurisdiction.

The Forum for International Trade Training (FITT) and Export Development Canada (EDC) are heavily involved in efforts to grow the number of small businesses taking advantage of opportunities in the global marketplace through upskilling and building international business know-how.

As more people take FITTskills courses, their businesses will be increasingly prepared to make the risk calculations necessary to do the business and preserve their margins.

But this is also the perfect opportunity to refocus the way trade promotion services (TPO), such as the Canadian Trade Commissioner Service and private sector advisors, have been relating to their client base.

Trade promotion organisations and advisors need to give businesses what they really need – qualified leads

Look to TPOs like Saskatchewan Trade and Export Partnership, who are doing it right! Their number one deliverable to their Saskatchewan member companies are qualified trade leads.

Provide the qualified international leads to local businesses that are prepared and interested in doing a transaction. This is very difficult work. It’s far easier to do a speech to a chamber of commerce talking about how the GDP in Costa Rica has gone up 6.4% last year. Frankly, businesses don’t care about that. What they care about is who in Costa Rica is buying what I’m selling.

When I was an ambassador to the Philippines, we had the Asian financial crisis in ’97-’98. I went to a meeting of our ambassadors from around Southeast Asia and many people were despondent that the region would no longer be a priority market for Canada. I asked, “What’s the problem? Indonesia hasn’t stopped. Imports haven’t stopped. There may be fewer customers now, but go and identify some new ones.”

These guys were all tied in up in the idea that if you’re not a priority market, then you’re not quite as good. We don’t need priority markets. Canadian business needs customers and partners.

Serving businesses by thinking like one

Trade advisors and trade promotion services need to think more like the small businesses they serve and less like economists.

A major impact of the internet has been the facilitation of direct connection between buyers and sellers all over the world. Thanks to cyberspace, more customers are now in touch with more suppliers than ever before. A larger portion of Canadian companies became active and successful in international trade through the receipt of an unsolicited request for their product than you might think. One day, somehow, somebody heard about their product who wasn’t in Canada, and they became “accidental exporters.”

So, rather than establishing and promoting priority markets and sectors, TPOs and advisors’ priorities should instead concentrate on the selection of strategic services that will be offered to any qualified client.

Let’s leverage our assets to mitigate common exporter challenges

Classic trade promotion programs remain very important to the success of national economies in the global marketplace. Focused, targeted offshore marketing strategies work well. If exporters are to sell on something more than price, quality must be anticipated by a customer before it is experienced.

Similar challenges face exporters in every country:

• Need for a healthy and growing customer base
• An absence of support organizations in their communities
• Need to understand new markets, domestic and foreign
• Lack of skilled international trade practitioners in the economy
• Shortage of time to pursue opportunities over the horizon
• Low level of understanding in the community of how integrated local business has become in the international economy

We have the assets to facilitate global business:

• Young, highly educated professionals whose talents are at a global standard
• Access to the internet and global television news
• Access to global support organizations ex: logistics, standards, design, etc.
• Access to telecommunications and air connections enabling anyone to be anywhere in a day
• Access to public resources devoted to economic development initiatives (international and domestic public sector resources)

Public sector resources devoted to addressing these challenges, or capitalizing on these assets tend to be wasted when trade advisors endeavour to determine, rather than facilitate, the direction of the economy. The role of government advisors should be to leverage the efforts of the business community. Best practice dictates, therefore, that all advisors and service providers both public and private should apply resources to save the exporter time and effort.

Measures of success for trade advisors

Without the effective intervention of TPOs and advisors, business will still happen. But exporters, particularly SMES and those new to cross-border business, will be less equipped to handle challenges in the global marketplace, and will yield margins to someone in the process (customers, agents, or distributors).

How can TPOs and advisors measure success in their efforts to equip businesses to go global? Focus on the creation and impact of deliverables. For example:

• Capture the number and measure impact of qualified business leads to client companies
• Measure the number, and impact on corporate behaviour, of market research reports
• Track the retention and growth of the TPO or consultant’s client base
• Track client participation in trade fairs, missions, conferences and other events and document feedback

These are relatively simple measures, but they are effective. The challenge is to demonstrate real value to SMEs who have the potential to become clients and, in turn, successful exporters.

Help for business new to trade

Another challenge SMEs and organizations new to trade face is the overwhelming number of public and private organizations offering solutions. How do they know where to go? Overlap, duplication, scattering of resources and ignoring real areas of need are all too common within these organizations. Emphasis must be placed on cooperation and coordination between agencies focusing on economic development and reducing anxiety at early stages of development.

The key driver in the domestic and international support networks can and must be the TPOs and export advisors. They are in a unique position to:

• Create and drive the vision behind the national export strategy
• Make visible the current and potential impact on international trade on the economic wealth of the nation
• Identify and build the trade support networks which serve the needs of exporters
• Translate demand from the global marketplace into transactional market intelligence delivered to interested and active export companies

Trade advisors must lead the effort to create cross-border support networks that are driven by vision, designed by the private and public sectors, and guided by performance measures. The measures chosen have to impact the daily work of all involved.

The unfortunate truth is that no trade agreement ever created a direct job, except perhaps for the negotiators. Jobs are created when suppliers identify and satisfy buyers or visa versa. The needs of business are universal: qualified business leads, competitive intelligence, contacts with key decision makers and data on technical standards.

Equipping exporters with the knowledge they need to qualify customers and understand the competitive forces at work the will translate directly to more success and the higher margins.

The Canadian economy is built on a backbone of lucrative trade in our abundant natural resources, manufacturing, innovative products and services with other nations.

This country has eleven free trade agreements, involving dozens of nations, with major agreements such as the TPP and the TTIP in the works to further facilitate international trade.

While we have placed international trade in a position of national importance, making every effort to expand and grow our trading relationships globally, our domestic trade remains limited, blocked by provincial barriers that cost our industries billions of dollars through their inefficiencies.

Canada is handing an unrecognized multibillion dollar invoice to our exporters through barriers to internal trade.

Their products and services are starting at a disadvantage, and all of the inefficiencies of Canada’s internal trade are costing exporters when they go abroad, lowering their competitive advantage.

Why are we doing this?

Provinces are overriding the constitution

In the Canadian Constitution Act of 1867, trade barriers, specifically tariffs, are clearly prohibited.

However, many trade barriers exist between provinces today, based on province-specific rules and regulations, designed to protect the regions’ interests at the cost of distorting the markets. There are also regional programs, which effectively remove competition from other regions for the sake of promoting local industries.

So, how can provinces enact trade tariffs when they are strictly prohibited by Canada’s constitution?

The history of provinces battling the federal government over trade goes all the way back to the founding of the nation.

Individual provinces enforce their constitutional rights through Section 92 of the Constitution Act (also known as the Trade and Commerce Clause) to override provincial policy originating from the federal government when it concerns local issues.

This provincial authority includes regional procurement restrictions that protect local industry, resulting in all different types of trade barriers.

The many ways we restrict interprovincial trade

This ultimately means that the prices and availability of everyday staples like chicken, milk, and eggs aren’t dictated by market demand. They are being controlled by provincial marketing boards whose priority is to protect the interests of producers in their own jurisdiction at the cost of efficiency, free trade and distribution.

Though the boards’ primary focus is on the welfare of local producers, recent studies have shown that they may actually be hurting the farmers in their sectors.

Current trade barriers are limiting agriculture, labour mobility, the energy sector, beer, wine and spirits, and complicating regulations by maintaining differing standards.

The dairy industry has come under criticism for its quota system, not only for restricting price and trade but for controlling production.

The restrictions basically bring interprovincial trade in these goods to a halt, ultimately costing Canadian consumers at the supermarkets. With any thought, it is unequivocally clear that a 300 percent tariff on butter is ridiculous for a free trade nation.

In contrast, New Zealand’s dairy industry provides an example of a flourishing free market. The country produces only 2 percent of the world’s dairy but drives 40 percent of the world’s trade in dairy products.

Is it easier to trade outside of Canada than within?

All of these complicated internal trade hurdles have created an environment where many exporters find it easier to trade with other countries than within Canada.

A popular way to put trade barriers into perspective is through the beer, wine and spirits industry. For example, in Ontario it is often easier to get your hands on a bottle of a Châteauneuf-du-Pape from Southeastern France than it is to acquire a bottle of Cabernet Sauvignon from British Columbia.

Perhaps John Manley, President and CEO of the Canadian Council of Chief Executives said it best last June,

“It makes no sense for Canada to provide greater benefits to our trading partners than to companies, workers and consumers within our country. We urge all levels of government to cooperate in the elimination of all unnecessary barriers.”

Where is the pressure for internal free trade?

Recognizing the need for some reform on internal trade barriers, the Agreement on Internal Trade (AIT) was signed in 1994, with the promise of enabling the removal of any unnecessary barriers to trade within Canada. The agreement proceeded the signing of the NAFTA agreement.

In the intervening twenty years since the agreement was made, it has accomplished marginal changes to labour mobility, increased government procurement transparency, and improved dispute resolution, but has done little else to remove hurdles to trade. In fact, many of the provisions are now out of date and provide few rules that are binding to provincial governments.

And policymakers, they step back. As much as we seem to be moving in the direction of maintaining a momentum for a “free trade environment” world, Canada’s efforts are impeded by our refusal to deal with a large number of domestic issues.

Politically sensitive bodies of influence and privilege have grown up and it’s difficult to adjust that. Consider this well-worn adage:

If a politician tries to solve a real problem and sets out a measure to correct it before the public has identified it as a real problem, then the politician’s solution becomes the problem.

This is true in every country, but the problem for Canadians is, trade makes up two thirds of our GDP.

This begins to paint a picture of why the process to eliminate these recognizably troublesome barriers has been so slow and unproductive, and why the collective consciousness of these realities needs to change in this nation.

Understanding the true cost to Canadians

We will never be a truly successful trading economy until we have a free national labour market, and exports of goods and services.

In Canada, we still protect close to 23 percent of our GDP through trade regulations, and that means that the companies and industries that are largely unprotected have to be even more successful to compensate for the fact that a large chunk of our productive economy is protected. That is an incredible burden to place on companies in other industries that are not protected by provincial controls.

If that sounds strange to you, it is! Canada remains the only G7 country that expects their companies to compete globally, but routinely denies them portions of the domestic market. The result is that Canadian companies are competing with much smaller margins, both in Canada and internationally.

When companies are operating less efficiently than they could be without interprovincial barriers, those inefficiencies are passed down to Canadian consumers.

Additionally, the lack of coordination between different levels of government has led to duplication of effort in bureaucratic administration and compliance, and an overlap in federal expenditure.

When the Canadian economy becomes less competitive than it usually would be, it puts the education system at risk and the healthcare system at risk, because we’re we are working with less capital and resources than we could be with a more efficient system.

There is a direct connection between trade inefficiencies and the lack of ability to build a new hospital.

So if we do not become the most efficient international trade platform that we can be, all Canadians pay the price.

Decades ago, when trade barriers, marketing boards, provincial regulations were originally put into place, there was a real need for them. They were built into the system for a good reason. But as a nation, Canada has moved passed those needs.

What was once helping us is now hurting us.

There is no longer any justification for interprovincial trade barriers, and the sooner we can recognize that as a nation and create free trade in our own country, the sooner we will truly be a great trading nation.

Are there any Canadian industries you think should continue to be protected? How could Canadian companies and consumers benefit from reduced internal trade barriers?

Canada is a trading nation. Roughly 60% of our GDP is generated by international trade. It’s therefore important to get an accurate picture of international trade in this country to highlight trade stats which matter in a meaningful way.

If only 5% of our total economy was wrapped up in international trade, we could afford to report only the top level numbers, but when 60% of our economy is generated by international trade, we have to be more granular in the way we analyze and publish the statistics.

We simply can’t afford to create a false impression, or be guided by false impressions.

So which of the international trade statistics available really matter and why?

Take the automotive industry as an example

With an industry such as automotive, which is extremely important, we tend to focus just on the high level number, the total exports. With only export numbers, you miss that most vehicles exported from Canada contain a significant percentage of imported components. This is true of the industry in most countries.

There’s nothing wrong with that. That’s what keeps those companies manufacturing here – the ability to develop international supply chains.

But the numbers we should be looking at are not the gross numbers of automotive exports. To get a clear picture of trade in Canada, we need to look at the net numbers.

Last year, there were around $89 billion in automotive exports, but in that same year we imported $58 billion worth of auto parts.

Both numbers are important, but in policy formulation terms, you’ve got to be very clear as to where the highest ratios of Canadian value-added are positive, and not to suggest any changes which might diminish those ratios, even if they would increase gross export statistics.

A significant portion of the components in the cars manufactured in Canada involved value-add, meaning that components were being imported from other regions and added to the vehicles before being exported. This number is far from insignificant.

But a few years ago when we did an input/output analysis of Canadian exports, and from the Canadian value-added perspective, the most important sectors were agriculture, mining and forestry.

It’s therefore important to use statistics which reveal what percentage of exports are truly domestic, and focus efforts around initiatives that will increase those numbers to have the maximum effect on the Canadian economy.

We are missing out on some of the positive

When the media report on monthly trade fluctuations, they can miss good news buried in the bad, and bad news buried in the good. The way trade statistics are typically reported, there may be a newspaper story triggered by a sudden drop in exports, right?

For example, there has been no shortage of news stories generated by the price of petroleum.

The price of oil is obviously important, but if the price and the volume of exports are dropping because of oil prices, yet it turns out that exports of automotive parts are up by 40%, and canola oil is up by 15%. That’s also important, and should be reported to give the full picture of what’s happening to understand the full net effect on Canada’s international trade.

Merely looking at the dollar value doesn’t tell you the entire story.

Re-exports are good, so let’s talk about them

This misreporting is occurring in the same way with trade stats that get talked about in several Canadian provinces. There’s a great deal of significance given to total exports in each province, but that becomes a problem when we start looking at provincial exports in competitive, rather than cooperative, terms.

If re-exports grow, that’s good! By re-exports I mean products that are imported from one province and exported out of another. For example, canola oil is imported from Saskatchewan and exported from British Columbia to other markets. It’s a re-export.

Since British Columbia is Canada’s Pacific gateway, a huge amount of what goes through B.C. ports comes from the rest of Canada, particularly the Prairies.

This certainly doesn’t diminish the important role of ports in British Columbia in Canada’s trade, but it shows the focus on re-exports from this province. Plus, it shows how significant the efficient running of B.C. ports is for the whole country, not just the province.

Re-exports are still important to the Canadian economy and that of each province but, if there was a strike in the port of Vancouver, which there was recently, the impact would not be solely on B.C.

Intuitively we know that.

But if we tracked the re-exports from B.C. and their source of origin, and put those measures out in press releases, the national impact of good public policy, on Canada’s West Coast specifically, would become more apparent than it may be the at the moment.

So how can Canada use these statistics to work to establish a strong trading environment?

That is a good question.

It’s a question that we are throwing out to the major trade associations, such as the organizations that stepped up to create FITT.

It’s well past the time that we took a good look at the private sector. From the private sector, what are the barriers, and how can we best measure them statistically? From the private sector, where can governments at all three levels intervene to assist business in achieving the goals they set up? We don’t want a government plan here, but one driven by the private sector.

I’m tired of governments trying to direct Canadian companies. Instead of directing, governments should be asking: Where are you going, what statistics do you need to know, and how can we help you get there?

We can’t compete on price alone

The reality is we are still heavily exchange-rate driven in our success in international trade, and that factor will always be there. But the more we can sustain our economy on the basis of creativity, innovation, trading smart, and the less we have to rely on a relatively cheap dollar to succeed, the better off we’ll be.

Canada should be building margins through knowledge gained from trade statistics and trade training, not through the movement of the Canadian dollar.

Long-term, we have to do whatever it takes to ensure that the capacity is built throughout Canadian industry that matches the best of our best companies.

There are a lot of fantastic companies doing wonderful things around the world and leading by example, who are clearly driven by innovation, market research, knowledge and skills.

What we need now is a better understanding of the statistics behind these companies, and how we can foster more companies with this same level of success.

How do you think Canada can better use trade statistics to strengthen the environment for trade?