Thank you very much. It's an honour to be asked to appear before you.
I'm going to limit my comments to two main areas: the effectiveness of current trade promotion programs and the necessary condition for improved market access. I'll deal with trade promotion first.
Before I even address the issue, I think I have to ask a more fundamental question: should trade promoters be asking what products and attributes are demanded in foreign markets and then providing advice as to how to meet that demand, or should they be promoting existing products? I would argue for the former.
Trade promotion ranges from efforts to increase demand to technical assistance. In terms of technical assistance, the types of things provided are information about foreign markets, dealing with logistics, and general questions of distribution channels.
The government's focus has shifted to an industry-led market promotion scheme. The programs are built around the Canada brand and the provision of market information and intelligence.
The market information and export capacity-building components of Growing Forward involved $21.2 million in 2009 and $26.4 million in 2010. Measuring the effectiveness of this money is, to say the least, fraught with problems. In terms of promoting demand, the measurement problem is determining what would have happened in any event.
Canadian advertising and promotion has focused on the Canada brand. This brand is intended to identify the product with the attributes and values of Canada. Once a country has become known as an exporter of quality products, presumably it raises the level of all products.
With product brands, companies are free to change their advertising strategy as consumer demand changes. Countries, however, are in a more limited situation as to what they can change with respect to the perception of the country. One sector's quality problems can quickly tarnish a national reputation.
National branding as an instrument of export promotion involves a number of problems: a lack of unity of purpose, difficulty in establishing actionable and measurable objectives, and a lack of influence over inputs and control over outputs. Empirical evidence about the effectiveness of things like country of origin labelling is mixed.
In terms of the provision of market information, the main body is the Agri-Food Trade Service of Agriculture and Agri-Food Canada. The ATS mandate is to provide analysis of domestic and international market demand, consumer trends, and opportunities. The ATS maintains an extensive website that contains market analysis, trade statistics, and other information about trade events and programs. However, much of this information is available through other agencies, such as the Foreign Agricultural Service of the USDA, and in fact many of their reports are drawn from attaché reports.
The ATS AgriMarketing program serves small and medium-sized enterprises by cost sharing for market development and promotion. Most of these activities involve trade shows, advertising, and export marketing activities, but what it doesn't involve to a great extent is technical training. There is some, but probably not as much as you might wish. They provide advice with respect to tariffs, customs procedures, labelling, protocols, and even some information on available distribution channels, but here's where they come up short.
A study by DFAIT found that in terms of the trade commissioner service, the firms that took advantage of the service tended to export about 18% more than comparable firms that did not.
In summary, trade promotion activities are often targeted simultaneously to a large number of disparate markets. Poor performance is often blamed on a lack of critical mass, and there is no correspondence between what exporters say is important and what they actually do.
Performance ultimately depends on credibility, and this depends on the resources available.
I'll switch to market access. For the most part, market access is not part of Growing Forward. However, effective market access is a necessary condition for trade promotion to work. You can't sell something where you don’t have access to a market.
Market access works both ways: it includes exports and imports as well. Imports are necessary for downstream industries and consumers. They offer a greater variety of choice, and ultimately they provide discipline to domestic firms that must prepare themselves to compete in international markets. All of these things increase the welfare of the country.
Improved market access includes reducing tariffs and reducing import quotas, but increasingly it also depends on non-tariff barriers such as sanitary and phytosanitary measures as well as technical barriers to trade. The preferred method of liberalization has always been a multilateral approach through the WTO. Multilateralism protects the interests of medium-sized countries such as Canada, while checking the ambitions of the larger players and offering a larger menu of trade-offs to achieve gains from trade.
The problem with the WTO Doha development agenda is that the talks have stalled, and there's no end in sight. Furthermore, our largest trading partner, the U.S., is on a course of negotiating regional trade agreements that may result in a relative loss of the preferential access we gained through NAFTA. Although Canada and the U.S. have negotiated bilateral agreements with common countries such as Chile, there are important exceptions, such as the U.S.-Korea FTA. Even with the reopening of Korean beef markets, we are at a disadvantage without an FTA.
Canada is undertaking a number of regional negotiations, such as the Canada-EU comprehensive economic and trade agreement, but the benefits appear to be limited. Some sectors, such as the EU beef sector, will remain protected because of a ban on hormone-treated beef. Likewise, Canada’s supply-managed systems probably will remain protected. The EU wants to continue to exclude our genetically modified products from its markets, while wanting Canada to recognize geographic indicators for a wide assortment of products. Canada is also moving towards preferential trade agreements with a number of countries, including India, while the U.S. is focusing on the trans-Pacific partnership.
While regional and bilateral agreements have advantages--they are possibly easier to negotiate and may contain provisions that cannot be negotiated in multilateral arenas--there are a number of downsides. Preferential agreements create a discriminatory environment for non-members, and this creates inefficiencies in that imports are bought from less competitive sources. Furthermore, restrictive rules of origin can cause exporters to use the original multilateral or MFN tariffs, rather than the preferential rates negotiated. The proliferation of regional trade agreements can greatly complicate the trading environment and create a spaghetti bowl of regulations.
Most non-tariff barriers relate to technical and sanitary, or phytosanitary, regulations. In these cases the standard-setting bodies are international organizations separate from the WTO. Moreover, our exporters face a growing number of private standards. The U.S. Food Safety Modernization Act became law in January 2011; this act could adversely affect the competitiveness of Canadian exports and add to the transaction costs of Canadian-origin supply chains.
Many of the increased costs relate to monitoring activities. The U.S. Food and Drug Administration has been given the power to require import certification that attests that the food was produced in compliance with U.S. laws and regulations. This certification process would require HACCP and traceability to be applied. This is probably a bigger issue for the grains and horticulture sectors than for the livestock sector, where HACCP, though not mandatory, is a fact of life. Canada is well positioned to meet and influence international standard-setting bodies, and we should continue to do so.
Ultimately it's firms that trade, not countries. All governments can do is establish the necessary conditions for trade. The most fundamental of these are the conditions for reliable market access. These conditions require sufficient resources to analyze markets, to promote trade, and to negotiate agreements.
With that, I thank you.