Guest post by Adriana Vega
In a country that is so active in and dependent on global trade, it is curious to find that trade policy often fails to be proactive. Canada’s participation in the Trans-Pacific Partnership (TPP), for instance, often follows the logic that penalties will result from not joining and it is therefore better, if not ideal, to be in the deal rather than out. Canadians do not often hear trade agreements framed as an advantage to be grasped. Instead, they see a cost to bear.
This attitude is reminiscent of the controversy surrounding the North American Free Trade Agreement more than 20 years ago. Canadians remain sceptical of proactively engaging in game-changing trade initiatives.
Yet based on its track record, Canada could accurately be labelled an ambitious trading country. With free trade agreements in force with more than 15 countries, major new agreements signed across the Atlantic (the Comprehensive Economic and Trade Agreement with the EU) and Pacific (TPP), and the deepening of relations with India and China, Canada is showing the appetite of an influential player on the global trading stage.
But Canadians seem uncertain, debating whether or not we are a trading nation in business and policy discussions. Export readiness for Canadian companies relies heavily on domestic policies, and because of these debates Canada’s weaknesses are surfacing.
According to Export Development Canada (EDC), only 3.6% of Canadian companies are active exporters. Canadian firms struggle to get past the first year of exporting and to make the leap from a mid- to a large-sized enterprise. This poor performance creates an opportunity – if Canada can create the right incentives.
When targeting large foreign markets, particularly but not exclusively India and China, two problems are evident among Canadian exporters: 1) a superficial understanding of the opportunities for their business, and 2) an inability to realistically scale up to market. Canada’s trade promotion agencies do fairly well when it comes to improving market knowledge with more than 160 Trade Commissioner Service offices globally. However, the inability of firms to scale up is a domestic issue.
No free trade agreement will address the challenges that Canadian businesses face on their home turf, such as commercialising their R&D, adopting technologies, or developing a global mindset. What these call for is stronger industrial and innovation policies to counter the shrinking share of manufacturing to GDP that has led to declining exports in historically strong sectors such as auto parts and aerospace in recent years.
Federal support programmes are well intentioned. In last year’s budget, former Prime Minister Harper pledged $50 million to help small and medium enterprises begin exporting to emerging countries. But the measure is poorly targeted: support is not awarded on a sector-priority but on a first-come first-serve basis. Without the right focus, many of these first-time exporters could emerge from the programme as one-time exporters.
Support agencies like EDC, The Business Development Bank of Canada and the Trade Commissioner Service acknowledge the need to work in partnership to help Canada’s companies sustain long-term exports. Policies should be designed more strategically, with a much narrower focus based on the target markets and Canada’s strengths.
Another immediate area of opportunity for federal institutions is to leverage the surging interest at the provincial and city level to engage in internationalisation efforts by supporting them more publicly or even financially. Closer partnerships with business associations, particularly those with a geographical focus, could also help form business ecosystems that share a common goal: addressing the challenge of scale.
Mindset matters, which is why policymakers and captains of industry should be more engaged in the nation’s ambitious trade agenda rather than indulging the popular perception that Canada is being outmanoeuvred by competing nations. Global trade dynamics have changed considerably over the past decade, and Canada’s trade policy has kept pace. Now is the time for domestic policies to catch up.