With exports still lagging, what more can Canada do to improve trade performance?

OTTAWA – The dollar is down, many global economies are doing better and Ottawa is inking trade and investment deals on a regular basis. So why is Canada’s trade performance still lagging?

The question that has been puzzling Ottawa and the Bank of Canada for several years will again be front and centre later this week when federal Trade Minister Ed Fast unveils the latest government effort to revitalize one of the most critical sectors of the economy.

It was also the subject of two major reports Monday from the Canadian Council of Chief Executives and the Canadian Chamber of Commerce — the first calling for the elimination of all tariffs on imports, the latter a new rethink on how we sell ourselves to the world, including improving the country’s “business brand.”

On Wednesday, Fast will announce details on the government plan to embed more than 25 trade commissioners inside business organizations across the country so as to better co-ordinate government efforts and programs with the companies that can best make use of them. It’s yet another attempt to light a fire under Canadian firms which — except in the resource sector — appear to be having an increasingly difficult time finding foreign buyers for the products they make.

Fast will also announce an upcoming trade mission to Canada by ministers of the 10 ASEAN countries and another by business leaders from Turkey in the first two weeks of June — along with his own plans to visit China next week.

The new initiatives come on top of successful trade negotiations with Europe and South Korea, an investment pact with China and a new global commerce strategy unveiled last year, all of which have so far failed to light a fire under the country’s export sector.

With new export numbers for March being released Friday, Scotiabank Derek Holt predicts more bad news. Under the headline, “How can exports not rebound after the Q1 disaster?” he predicts in a note that March’s performance will likely be torpedoed by the Vancouver port strike.

But it hasn’t just been the first quarter that’s disappointed. Exports overall have still not recovered to pre-slump levels, mostly because the non-commodity industries — such as manufactured goods — remain about 13 per cent, or $27.6 billion, below where they were in 2005. Those numbers constitute a lost decade that explains why provinces such as Ontario and Quebec have had such poor growth and employment records in recent years.

Export Development Canada chief economist Peter Hall says non-commodity exporters have been caught in a perfect storm — they have been trying to sell value-added goods into a penny-pinching U.S. market that was hammered by the recession at a time when the Canadian dollar was appreciating.

“It’s been a tough sell in our principal and dominant market, but given that the U.S. economy is coming back, the prospects of Canadian growth inside that market are what they were before,” he said.

Many have suggested that something more fundamental is at play, including poor productivity improvement compared with the United States and Japan and others, and the oft-voiced complaint that Canadian business leaders tend to be less adventurous than their foreign competitors.

It was a view regularly voiced by Mark Carney when he was Canada’s top central banker, although the current governor, Stephen Poloz, has been more understanding of Canadian caution.

Dan Ciuriak, a trade consultant and former deputy chief economist with International Trade who co-wrote council of chief executives report, says arguing that Canadians can’t do what others seem to be able to accomplish is difficult to demonstrate scientifically. The problem may be that Canadian governments have been too risk adverse, he says.

“The scientific perspective is that there’s something (amiss) in our industrial policy framework,” he said. “There are areas where the government has to be engaged because they are too risky for the private sector to touch but are still important to the economy.”

He gives the example of the British government taking over the jet engine production function of Rolls Royce when cost overruns bankrupted the company. Now Rolls Royce is a global leader in the industry.

“The saying is governments can’t pick winners, but can businesses pick winners? There’s an enormous failure rate in business,” he points out. “The fact that governments will sometimes fail should not be seen as an insurmountable obstacle for engaging in areas where there is significant public good to be had.”

Ciuriak admits the Harper government does not appear predisposed to devising an overarching industrial strategy for Canada, but warns there are only a few more bullets left to be fired in the trade liberalization gun.

“However, there are a whole range of other options you have to consider, and these range from exchange rate policy to industrial policy,” he added.