Business without Borders: All for one, none for all?

Is the growth of overseas provincial trade offices helping or hurting Canadian trade?

On a trade mission to trumpet their “New West Partnership” last May, the premiers of B.C., Alberta and Saskatchewan cut the ribbon on a new trade and investment office in Shanghai, China’s commercial and financial capital. Conspicuously absent was federal Treasury Board president Stockwell Day, who had accompanied the premiers on some other stops on their Asian tour.

If they missed him, the premiers gave no sign. At the opening, Saskatchewan’s Brad Wall said Western Canada needs to “augment” the Harper government’s efforts at rapprochement with China after years of frosty relations. The provincial office will also do some things on behalf of the West that the feds haven’t been doing. “We have a specific story to tell, and we need to do that,” Wall said.

The joint western Canadian office represents the first such collaboration between the provinces, but it’s by no means their first foray into foreign relations. B.C. and Alberta each had nine foreign offices before this one opened. Quebec, under one mandate or another, has 26, plus two delegations to multilateral organizations. Ontario maintains 10 “international marketing centres,” though unlike the other provinces, it takes care to locate them within Canadian diplomatic missions. Even smaller provinces are getting into direct trade relations. This year, Manitoba signed up a private consultancy in India to act as its trade liaison there.

The encroachment of the provinces on Ottawa’s exclusive jurisdiction over foreign affairs is a fact. What’s less clear is whether the provincial missions enhance Canada’s trade relations with the rest of the world or simply balkanize them. Is taxpayers’ money put to good use marketing Canada’s New West to potential partners in China who have only a hazy idea of what Canada is?

Opinion is divided. “I don’t think it takes away from the national policy. I think it enhances it,” says Jeff Brownlee, vice-president of communications for Canadian Manufacturers and Exporters, a national industry association. “From our members’ perspective, they need all the help they can get.” However, others argue that the provincial presence abroad serves to confuse prospective trade partners and deliver mixed messages about doing business in Canada. Provinces can even end up competing with one another for investment, with negative consequences for the country as a whole.

George Fleischmann, who teaches business-government relations at the University of Toronto’s Rotman School of Management, points out that in the United States, the Fair Trade Commission prohibits permanent representation by states in foreign countries for the purposes of promoting commerce. “That’s the role of their federal government,” he says.

But it’s also a matter of where taxpayers’ dollars are best spent. Given that the provinces, not Ottawa, bear the burden of exploding health-care costs, Fleischmann asks, “can we afford to be squandering money in an area where the federal government has an obligation and responsibility and is delivering trade commissioners?” A former senior bureaucrat in Ottawa, he warns the shadow network of provincial foreign affairs will be quickly entrenched. “You get an infrastructure created, a whole bureaucracy, [and] it’s very hard to kill it.”

If anything, the provinces intend to expand their international footprint. A 2007 report by the Alberta Foreign Offices Review Committee noted, following consultations with other government departments and the private sector, that “the biggest criticism of Alberta’s international office network is that it is limited in the locations it serves.” The committee recommended establishing offices in India, Brazil and California, in addition to Shanghai. Other priorities were Russia and the Middle East.

“It’s about taking responsibility for your local markets,” explains Alberta Minister of International and Intergovernmental Relations Iris Evans. Provinces are responsible for natural resources management and higher education, things that increasingly have an international dimension, she argues. Evans notes how the provinces are involved in Canada’s free trade negotiations with the European Union because they control government procurement. Evans won’t go so far as to say Foreign Affairs has failed to respond to regional concerns, but she credits Alberta’s foreign network with doing much of the spadework to reopen Chinese, Japanese and Korean markets to Canadian beef following the BSE (bovine spongiform encephalopathy) outbreak of 2003.

Doubtless, the growing complexity of Canada’s international relations is coming to intersect with areas of provincial jurisdiction. “We don’t have a federal education minister,” observes Rolf Mirus, director of the Western Centre for Economic Research at the University of Alberta. Provincial offices are thus instrumental in facilitating exchanges between Canadian and foreign universities, and that is a not inconsiderable contributor to increased trade. Mirus also notes that what the provinces are doing is little different from regional governments elsewhere; he recalls seeing a Bavarian mission not far from the European Parliament in Brussels.

Do more offices result in more trade? Canadian stats are hard to come by, but a 2007 paper by University of California Berkeley professor Andrew Rose found that the opening of the first U.S. consulate or embassy in a country correlated with a doubling of exports to that country, but that subsequent consular openings saw increases in trade of only 6% to 10%. Since virtually all of the provincial offices are located in cities and regions with Government of Canada representation ??? not to mention other provinces ??? it follows that they don’t have a big impact on national trade numbers, and may even cannibalize other provinces’ trade, says Keith Head, a professor at the University of British Columbia’s Sauder School of Business.

Along with colleague John Ries, Head recently authored a controversial study that suggested “Team Canada”-style travelling trade missions produced no increase in trade in the years to follow. However, Head hesitates to write off permanent trade offices as similar products of political expediency. They have the potential to play a worthwhile matchmaking role between foreign markets and Canadian suppliers, he says. Hard evidence remains elusive, however.

The federal Department of Foreign Affairs and International Trade, by contrast, has worked hard to justify the existence of its trade commissioner service. This year, the department published a study as part of its annual “Canada’s State of Trade” report that shows firms that access its trade commissioner services export 18% more goods than those that do not when entering foreign markets. The research also indicated that the trade commissioners helped these companies expand their horizons; companies using the service reported exporting to 36% more countries than those that didn’t.

The federal case is upheld by those who say that, especially in Asia, the endorsement of a government agency provides credibility that a company can’t conjure on its own ??? and that it’s Canada that resonates in foreign customers’ minds, not Saskatchewan or Ontario. “I know that the Chinese look at Canada. They don’t look at a province,” says Brian Trendel, whose Edmonton-based firm, TAK International, has helped Canadian firms sell products and source inputs in China for 25 years. “When I go over there, I’m not an Albertan. I’m a Canadian. That status is held in high regard.”

Ironically, even if that message isn’t being heard by the provinces, Canada’s largest cities are taking note. Economic development commissions representing 11 of our largest cities have devised a single “Consider Canada” campaign to pitch foreign investors. Following a meeting with federal trade commissioners in Quebec City in September, the C11 group vowed to work more closely with each other and with Foreign Affairs to attract business and investment to Canada, and to refer business more suitable to other parts of the country to C11 partners. Noted Ottawa region representative Michael Darch, “Our large cities have much more to gain from banding together than competing against each other for growth opportunities.”