50 years of trade and co-operation: Work in progress

Canada is a trading nation. As a geographically large country, rich in natural resources and with a relatively small population, trade was a natural starting point. But Canada has built on this foundation and today boasts a highly skilled and educated work force, a well-developed physical and financial infrastructure, a transparent and predictable regulatory environment, and a high degree of openness to trade and investment.

As a result, Canada enjoys growing trade flows, with both exports and imports in excess of half a trillion Canadian dollars annually. Foreign direct investment stock in Canada is growing even faster than trade and now totals more than CAN$500 billion, while Canadian direct investment abroad is slightly higher. Per capita GDP in Canada now stands at close to US$40,000, higher than the OECD average of US$34,000; unemployment peaked in 2010 and is now below 8%.

Canada’s recent economic performance is all the more impressive in light of the global economic crisis. But past success is no guarantee for future success, and the global landscape is changing rapidly. Brazil, China, India and Russia are perhaps better described as emerged, rather than emerging, economies; and a number of other developing countries, particularly in Asia, are themselves beginning to emerge. Moreover, developed countries–including those in the EU, Japan and the US, as well as Canada–are adjusting to the resulting shift in global economic activity.

Globalisation brings with it international fragmentation of production and global value chains. Today’s firms are outsourcing and offshoring in order to acquire higher quality inputs, lower costs, and generally improve their competitiveness. Intermediate goods and services– these are used as inputs to produce other products–now dominate trade flows, representing 56% of trade in goods and 73% of trade in services across the OECD area. The implications are enormous. Import barriers designed to protect domestic jobs deny firms access to the goods, services and know-how they need to compete internationally; trade barriers don’t protect, they cost jobs. Policy needs to recognise the benefits from imports as well as those from exports.

Canada’s overall tariff profile for agriculture and industrial goods does so, with the simple average tariff generally below 3% and over two-thirds of all tariff lines at zero. But there are exceptions that warrant attention, notably for supply-managed agricultural commodities, where tariffs can exceed 100%, and for some agricultural and industrial products, whose tariffs increase with higher degrees of processing. Canada has always been actively involved in OECD work on trade and agriculture, and these issues have been closely examined. A considerable body of research is already available to inform the development of alternative farm policies that would address Canada’s domestic interests, while at the same time not restricting trade.

Canada is also involved in OECD work on trade in services. As in many developed economies, Canadian services sectors have grown over the past five decades, and now account for almost three-quarters of economic activity and close to half of employment.

Yet, globally, the share of services in international trade has remained stagnant at relatively low levels. Unlike tariffs applied at the border, the policies that impact services sectors are “behind the border” and not easily measured. These include such measures as barriers to commercial establishment, for example foreign ownership caps and joint venture obligations, or discriminatory registration requirements and licensing procedures. As a result, little is known about the impacts of different policies across services sectors and countries. Canada is a strong supporter of work recently launched at the OECD to address this information gap. Our aim is to develop a “services trade restrictiveness index”, underpinned by a regulatory policy database. It would provide policymakers with the information they need to identify barriers, improve their domestic policy environment and negotiate multilaterally to open up trade in services. This work is only possible with the full and active participation of the world’s major service providers.

These are just two areas where Canada and the OECD have worked closely together over the years, for the mutual benefit of Canada and the global economy. With trade set to be an ever more important driver of global progress in the years ahead, even closer international co-operation offers the potential for even greater mutual benefits.

See www.oecd.org/tad

©OECD Observer No 284, Q1 2011

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