The Truth About Canada (32 page)

Now, any sector of the U.S. economy that feels threatened by competition can use the domestic system to impose penalties and engage in constant harassment — read softwood lumber, beef, steel.

Let’s face it: This is a painful and uncertain time in our relations with the United States.
¹⁵

For Axworthy, we should not be “listening to the chorus of continentalist claptrap promoting more Canada-U.S. integration.” For Michael Byers, widely respected professor of international politics at the University of British Columbia,

It’s time to stand up for Canada — by insisting that the energy provisions be removed from NAFTA, that international law rather than U.S. domestic law be applied to all trade disputes, and that the protections for foreign investors be substantially revised. In the meantime, whenever our southern neighbour reneges or procrastinates on its promises, Canada should refuse to capitulate.
¹⁶

Jeff Faux, distinguished fellow at the Economic Policy Institute in Washington, D.C., puts it succinctly: “NAFTA protects the interests of large corporate investors while undercutting workers’ rights, environmental protections and democratic accountability.”
¹⁷
Oh, yes, for all the NAFTA enthusiasts, the U.S. Coalition for Fair Lumber Imports has already announced that the United States will
never
accept a pro-Canada NAFTA ruling: “If necessary, our government will change the laws.”

Stephen Harper proudly announced that the agreement he reached with the Americans regarding softwood put to rest the issue for many years into the future. But on June 16, 2007, a
Globe and Mail
article informed us that

less than one year after Ottawa signed a deal that was supposed to end the Canada-U.S. softwood lumber dispute, fresh U.S. complaints are forcing it to consider concessions that could mean higher export taxes for some Canadian firms … concessions to Washington that could cost tens of millions of dollars.

And by August 2007, the U.S. government, prodded by the Coalition for Fair Lumber Imports, launched formal complaints because Canada “violated” the terms of the agreement that brought Mr. Harper such pride.

Meanwhile, as Canada runs short of natural gas — which heats almost 50 percent of homes in this country and is the main source of energy for more than half of our manufacturing — because of NAFTA we must continue to supply the Americans with well over half of our entire production, like it or not.

In January 2008, U.S. officials said that under NAFTA provisions they expect to formally challenge Stephen Harper’s $1-billion aid package for single-industry towns that have been hurt by plant closures resulting from the slowing U.S. economy.

I hope you will keep all this in mind when you read the conclusion of this book.

29

TRADE IN GOODS AND SERVICES

“A rear-view mirror approach to the world”

C
anada prides itself as being a major trading nation. And indeed we are, but not quite as “major” as many Canadians assume. In fact, some of us have been saying for many years that while we certainly fully recognize the importance and the value of trade, far too many of our business leaders, and too many of our politicians, put too much emphasis on trade and not nearly enough on domestic production and on the upgrading of our resources.

Among the OECD countries, 14 have a higher level of trade as a percentage of their GDP than Canada. Measured this way, Canada is well behind such countries as Luxembourg, Belgium, the Czech Republic, and Ireland, is well behind the OECD average, and is even further behind the EU15 average.

What will surely surprise many trade advocates in Canada is that the supposed great trading nations, the United States and Japan, both have small trade-to-GDP percentages, Japan at only 12.2 percent and the United States at only 12.7 percent. No other OECD country comes anywhere near these very low figures. We’ll look at Canada’s percentage shortly.

Measured another way, when you compare Canada’s total exports with the exports of other countries, in a list of the top 40 exporting countries, we’re in ninth place. When you consider our exports as a percentage of total world exports, only the United States, Germany, the United Kingdom, Japan, France, China, Italy, and the Netherlands have a larger
share. Canadian exports are well ahead of such countries as South Korea, Mexico, Russia, Sweden, Australia, Brazil, and India, for example.
¹

In 2006, Canada’s share of world exports was 3.2 percent, slightly down from the previous 10-year average of 3.74 percent of all exports, and also down from 1994’s 3.6 percent, the year we joined NAFTA.

While some rightly complain that Canada’s share of world exports has been declining, the same is true for every G7 country. France fell from 6.3 percent in 1992 to 4.2 percent in 2006, Germany from 10.6 percent to 8.8 percent, Italy from 4.9 percent to 3.5 percent, Japan from 8 percent to 4.8 percent, the United Kingdom from 5.4 percent to 4.6 percent, and the United States from a high of 14 percent in 1999 to 10 percent in 2006. Total OECD exports fell from 76.7 percent of all exports in 1992 to 65.2 percent in 2006.
²

Looking at per-capita exports, Canada was in 14th place in 2004, behind such countries as Switzerland, Norway, Belgium, Luxembourg, and the Netherlands, but ahead of the great trading nations such as the United States, Japan, the United Kingdom, and Germany.

Canada’s merchandise exports to the world in 2006 were just over $455.7-billion — a record — but imports rose almost four times faster than exports, to a record $404.4-billion. This brought our merchandise trade balance down by over $11-billion to $51.3-billion, its lowest level since 1999, while the trade surplus with the United States came in at $96.1-billion, the lowest amount since 2003. If you measure imports and exports in chained
³
2002 dollars, while exports exceeded imports by $50.9-billion in 2002, by 2006 imports exceeded exports by $39.9-billion for a huge negative change of $90.8-billion.
⁴
Canada’s exports to the United States were 78.9 percent of all our exports, down slightly from 81 percent in 2005. Canada’s total trade deficit with all other countries amounted to $43.94-billion. By 2007 exports to the U.S. had fallen to 75 percent of all exports.

In 2006, our leading exports were machinery and equipment, followed by industrial goods and materials, energy products, automotive products, forestry products, and agricultural and fishing products.
⁵

Since 1971, Canada has always had a trade surplus in forestry, energy, and agricultural products. But as we’ve already seen, autos, which in 1999 had the largest trade surplus of any sector (more than $14.3-billion), went into a deficit in the summer of 2006. Auto exports reached a high of $97.9-billion in 2000, but declined to $82.5-billion in 2006, the lowest amount since 1998. Energy exports passed forestry exports in 2000, and the energy surplus reached a record $53-billion in 2005, mainly due to our increased natural gas exports. Forestry exports amounted to almost $43-billion in 2000, but fell to $33.3-billion in 2006.

Statistics Canada says that

on average, resources have accounted for about half of our exports over the last 15 years. In 2005, the proportion jumped to 57%, with energy exports to the U.S. leading the way.

In contrast to resources, exports of finished products fell sharply after 2000.

There was a marked drop in the U.S. share of imports into Canada in recent years, unprecedented in the history of Canada-U.S. trade. The U.S. share of our total imports declined every year from their peak in 1997. In 2005, they made up only 56.6% of our total imports, the lowest since the 1930s.

Since 2000, Japan has fallen behind China to third place on the list of our largest trading partners.
⁶

In 2006, only machinery and equipment exports, at $94.7-billion, were greater than our rapidly growing energy exports, which increased from only $29.9-billion in 2000 to over $86.8-billion in 2006.

Most of our imports still come from the United States. Our biggest imports are, in descending order, machinery and equipment, industrial goods, automobile products, consumer goods, energy products, agricultural and fish products, followed by forest products at only just over $3.1-billion.
In terms of our manufacturing exports as a percentage of total exports, Canada is way down in 25th place among OECD nations, and well below the G7, EU15, and OECD averages.
⁷

In recent years, the pattern of Canadian exports has changed dramatically. Heather Scoffield of the
Globe and Mail
writes, “Canada’s trade surplus has become dependent on energy and commodity exports, marking a major shift in the structure of the country’s economy and raising a worrisome question about its diversification.”
⁸
Statistics Canada reports that “only record high surpluses in energy and industrial goods have sustained the trade surplus at a high level.”

For Peter Hall of Export Development Canada, the decline into deficit in our auto sector trade is “ominous.” Hall says the “high” dollar is taking a major toll on manufacturing, forestry, and auto exports.
⁹

In March 2005, David Crane reported on a speech given by World Bank president Jim Wolfensohn, who expressed surprise that Canada, which likes to portray itself as a trading nation, sent only 6 percent of its exports to the huge markets of the developing world, which include China, India, Mexico, Brazil, and South Africa. Crane writes:

Canada’s business community — with a few notable exceptions — is pursuing a North American strategy, not a global strategy. It’s an approach shared by think tanks like the C.D. Howe Institute and by strong enthusiasts for deep integration into the United States like Allan Gotlieb, Michael Hart and Thomas Courchene, as well as Tom d’Aquino and the Canadian Council of Chief Executives.

But, this rear-view mirror approach to the world could cost Canadians a lot in the years ahead. It means that Canada could miss out on the vast economic opportunities that will emerge as populations grow and economies advance in the rest of the world.

Canada’s future well-being will depend on companies with a global strategy, not a North American strategy. But where are their voices to counter the intense propaganda
campaign by the deep integrationists to tie our future to the United States?
¹⁰

From 1994 to 2004, our two-way trade with the European Union was less than one-10th of our total trade, but since imports from the EU increased substantially, our trade deficit increased to $11.2-billion in 2006. The annual rate of growth in our imports from the EU was second only to the rapid growth of imports from China. As our imports from China have risen dramatically, quadrupling over the past four years at a rate 60 percent faster than Chinese exports to the United States, Canada’s perennial trade deficit with the rest of the world other than the United States is set to increase rapidly. In 2006 and 2007 our two-year trade deficit with China increased to some $54-billion. At the same time, China became the number one seller of goods to the United States, replacing Canada in that position.

Canada does poorly when it comes to trade in services. Services, as defined by the
IMF Balance of Payments Manual
, include freight and passenger transport, travel, postal, telephone, and satellite communications charges, construction, insurance, financial services, computer and information services, royalties, licence fees, cultural and recreational services, and professional fees. Twenty-four OECD countries have better service trade balances, and only four have worse. The United States, the United Kingdom, and, surprisingly, Spain have the largest service trade surpluses, the United States with a $47.8-billion (U.S.) surplus, followed by the United Kingdom with $39-billion (U.S.), and Spain with $27.6-billion (U.S.). Canada has had a service trade deficit every single year since 1950. In 2006, it was a record $15.2-billion.

The OECD average for the export of services is about 22 percent of the country’s total exports. In Canada, it’s only 12.5 percent.

While we very frequently hear about Canada’s exports, we seldom consider imports into Canada. Import penetration, as defined by the OECD, “shows the extent to which the demand for goods and services is being met by foreign producers rather than from domestic production.” In import penetration of goods and services as a percentage of total
expenditure, in 2006 Canada stood at 29.7 percent. This is well above the OECD average of 21.1 percent. In comparison, the United States was at only 14.4 percent and Japan 9 percent.
¹¹

Of course, it’s a given that Canada, with so much foreign ownership and control, and so many branch plant operations, will have a high level of non-arms-length imports from parent firms, mostly in the United States.

Philip Cross and Ziad Ghanem of Statistics Canada expand further:

The importance of resources to our overall exports is often discussed, with a figure of 40% commonly cited. This share has risen to 50% of gross exports thanks to the commodity boom of the last two years. But subtracting out the higher import content of manufactured exports raises the share of resources to over 60%. This puts Canada in a unique class of major industrial nations, alongside nations such as Norway and Australia, where resource exports dominate. They are polar opposites of Japan, which imports most of its resources and exports almost none.