Ever since I've been doing this, there's been this overriding concern in Canada to diversify trade away from the United States. I think that some of that has to do with what happened in the 1990s. In 1990, Canada exported about three-quarters of its goods to the U.S., but by 1999 that had peaked to 87% of Canadian exported goods going to the U.S. market. That stayed there for three years. It's much higher in Ontario, at 93%. Since then, though, the long sought-after diversification to other markets has been going on. With the tailwinds of a stronger Canadian dollar and simply changes in the different sizes of the economies, exports to the U.S. have now gone back to the level they were in 1990, at about 75% of total; still higher at around 80% for Ontario, but much lower in B.C., at 46%.
One way to read this is that the mission was accomplished, that the long sought-after trade diversification away from the U.S. has occurred. But another way of thinking about it is to say we've moved away from trading so much with the U.S., but how did we do it and how can we continue to move in that same direction? I think that leads to the study of what policies have been employed to move Canada away from the U.S.
The one that we were really interested in was the Team Canada approach taken by the governments of Jean Chrétien and Paul Martin from 1984 to 2005. John Ries and I spent a long time going through the numbers and looking at the effects of a series of trade missions that Canada ran during that time. They visited 17 different countries. They made deals that, if you summed them all up, they claimed to be worth $33 billion, and $33 billion is a large number when you consider that in 2000 the total trade to non-U.S. destinations was $54 billion. So we're looking at three-fifths of the total amount of trade during that year.
Then the question was: did these trade missions that were run under the auspices of Team Canada actually work? If you listened to what people said at the time, you'd get highly conflicting accounts. The Ontario premier said, “This trip was an unqualified success”, “trade deals that will expand their business in the short-run”, they “made contacts that will lead to continued trade” and “even more job creation” in the long run. That was his view.
On the flip side, Michael Hart, who had been a negotiator of the trade agreement with the U.S. and long an advocate of more trade with the U.S. and less emphasis on diversification, said that trade missions are popular with ministers, but they have virtually no enduring impact on trade and investment patterns. So there was this alternative view that basically considered trade missions, like Team Canada, to be only photo ops.
We didn't know what the truth of the matter was. Both of those seemed like they could be plausible, so we took all the trade missions.... There were eight Team Canada missions and 15 different Canadian trade missions that were smaller, led by the Minister of International Trade instead of by the Prime Minister. These missions involved a lot of other government officials, premiers often, anywhere from 25 to up to 500 Canadian companies would come along, so they were a big deal. It is important to find out whether they work, because they're attractive to politicians and we want them to be doing them if they actually yield benefits for Canada.
What we found was that if you cut the data in the most naive way possible, it seemed like these trade missions were really successful. Yet when you started drilling deeper, when you started cutting the data in a more intelligent and thoughtful way, you found the effects started to diminish.
What we finally did, what we believe is the most natural thing, was to look at trade between Canada and the trade mission visited country, the trade mission targeted country, and look at how that bilateral trade evolved after the mission. You find there's no significant change. Trade with these countries we visited was higher after our mission to them, but it was higher before the mission. We don't really have any real evidence, any statistically significant evidence, that the trade missions affected Canadian exports to the targeted countries at all, which is kind of a downer.
We also looked at services. The previous panellists emphasized that services are very important. What about foreign direct investment? It's the same sort of story. Nothing was really happening. We were targeting countries with which we already had pretty good commercial relationships. We kept those commercial relationships at about the same level, so, in other words, nothing much changed.
If you believe our results, what does that tell you about the global markets action plan and what things should be done in the future by Canada to diversify its trades? The first observation that I would draw is, a policy that was geared toward photographs of politicians serving Beaver Tails in China is a policy geared toward appearances, and therefore we might expect it to have only superficial effects. In some sense, our results were predictable if you take that kind of skeptical view.
What kind of policy would be better? It would be a policy that works more quietly, behind the scenes. It's not about photo ops, but it's more about Canadians creating the connective tissue of networks between Canadian businesses and the foreign businesses that would buy from them. Everybody working on international trade right now is really obsessed with this process by which firms connect to each other and create trade with each other. Maybe we were late to the party, but we now understand that it's not just about markets, that networks and the formation of networks are vital.
I believe that using consular trade missions to permanent trade missions that are there every day, all year, for years in a row, is a potentially more effective way to do it because it allows for that kind of follow-through, the kind of building of connections, sharing of connections, sharing of all kinds of valuable information that can make a lasting impact. There is research to support that. I don't know if you're going to hear from Dan Ciuriak, formerly of DFAIT. He's done research for Canada showing that consular offices increase exports from Canada to the countries where they're located. Also, for the United States, Andrew Rose, a pretty well-known trade economist from Berkeley's Haas School of Business, has shown this for the United States.
There is some evidence to support it. I would caution that I haven't worked with that data and subjected it to all the same scrutiny that I subjected Team Canada to. It's possible some of these results would not be as strong if we drilled deeper. But I do think that based on the evidence we know so far and simple reasoning, quiet, behind-the-scenes network-building can be more valuable than the kind of flashy stuff that gets done in front of the cameras. That is a very promising aspect of the global markets action plan, namely, its upfront and central emphasis on economic diplomacy. If I understand economic diplomacy the way the GMAP does, then I think that to me seems like a much more promising way of approaching things.
The second thing that I think is a really sensible aspect of the plan is an emphasis on small and medium-sized enterprises. What you see over and over again, if you look at the data from every single country, where anybody's looked at the data, is that large companies have no trouble really exporting. Size and export participation are extremely closely linked. It's the small companies that have the trouble. What do we need to do to get smaller companies more involved with exporting? We need to perhaps have our government act as a facilitator to try to bridge those gaps for them.
Thank you.