Evidence of meeting #51 for International Trade in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was data.
A recording is available from Parliament.
Chief Economist, Office of the Chief Economist, Department of Foreign Affairs and International Trade
Thank you, Mr. Chairman.
I think that the problem relates to the state of advancement of the science of modelling rather than to the data as such.
We have a way of looking at statistics in order to assess the impact of the change. The way we do it is to say that if the tariff on a product being sold in a market is moved from its current level down to zero, let's assume that the price in the country falls by the same amount; what will the effect be on the quantity of the product shipped from Canada?
There are two key questions in that analysis. One is whether the price is going to fall by as much as the tariff has fallen; the other is whether the elasticity--that's the nature of the response of the consumer in that country--is accurately specified in the model. Then when you aggregate all these things across a wide range of products, are you sure the supply impact in Canada is going to be accurate?
My colleague Dan Ciuriak may get into a bit more detail in a couple of seconds, but if you were, for example, to imagine that a country were to lower its tariff on Canadian pork, would the Canadian market be able to produce as much pork as that country would buy? Would we be taking product market share away from another country also selling in that market? Would we be taking market share away from domestic producers? The real problem in modelling is not whether we have 20% of the share of the market now or 17%; it is what's going to happen when the price of the Canadian product falls. Have we got our estimate of what the new price is going to be accurately in our model? We do the modelling, but we don't make our decisions on whether to negotiate a trade agreement exclusively on the basis of the model's predictions, because we know there are limitations in that.
Conservative
The Chair Conservative Leon Benoit
Mr. André, your time is up, but Mr. Ciuriak, could you give your response? I think you're getting to the nuts and bolts of why we had you here today.
Acting Director and Deputy Chief Economist, Policy Research and Modelling Division, Department of Foreign Affairs and International Trade
Thank you, Mr. Chairman.
To add to what Tony said, once you've got the estimate of the trade flow, there's the question of the estimate of the trade barrier with goods. It's typically a tariff, but it can also be a non-tariff barrier. For goods, we typically have fairly good tariff-equivalent measures of the barrier, but when we get into services and investment, then we have very poor-quality information on the barriers to services trade or to investment flows, so you need both the measure of the trade flow and the measure of the barrier.
Further, you need to know to what extent the trade negotiation will lower that barrier. Again, with tariffs it's clear, but with non-tariff measures, if you change an administrative measure that affects imports, for example, into a country with which we're negotiating, we then have to be able to translate that change in the administrative measure into a price--a tax--and that involves a fair amount of judgment, so there are limitations to our ability to give precise answers to the question of what services trade liberalization and also investment trade liberalization would imply.
With investment, and with services as well, there's a further complication in that you can do international commerce either across the border, which is what trade models measure, or you can do it by establishing a commercial presence in the foreign country. Insofar as in the presence of tariff barriers a country, Canada, may have invested abroad in order to produce in that market for that market, when you lower the tariff, perhaps the Canadian company might choose to export directly, so investment might fall and trade might increase, or vice versa. Because of the substitutability of trade foreign investment, they become complex issues for modelling how companies would actually react when both trade and investment barriers are being lowered. That is, again, a further level of complication.
The fourth level of complication involves translating trade games into what policy-makers really want to know: what the impact will be on Canadian GDP, on Canadian jobs, on Canadian welfare--the economic benefits. There we need to track the trade flows back into the economy. This is done through input-output tables, which track the impact on demand when a Canadian company exports. If we export a car, what's the impact on demand for steel, on jobs, etc.? There again we get into a considerably higher level of complication. As you can see, we have more confidence in estimating trade flows directly, but then we get into a lot more assumptions in terms of trying to estimate the ultimate benefit to the Canadian economy in terms of jobs and GDP.
That is one of the main functions of my division. We do our best. We believe we can provide estimates, a range of estimates; we would consider these not as a final answer on what the impact of a trade agreement might be, but rather as an invitation to discussion and debate to inform further policy considerations.
Conservative
Conservative
Ted Menzies Conservative Macleod, AB
Thank you, Mr. Chair.
Thank you, gentlemen. This has been very informative. I think we've all wondered about it as we filled out StatsCan forms that were this deep sometimes, it seems. On my farm I always used to get the big version, and I'm sure the chair did too. I'm glad to see that it went to good use. We all knew that it did, but it's great to have this reassurance.
I think that's why we wanted to have you here to speak to us on this issue. We all know how much data is collected, or we imagine how much data is collected; how does that actually benefit Canadian industry? That's what this trade committee is all about: to find out what else we can do, what else government can do, to provide a seamless opportunity for Canadian businesses to prosper. That's what creates jobs; that's what grows the economy. We wanted to see how those work.
How do you decide what data are of benefit to Canadian businesses, as opposed to what data are sensitive and can't be released? We've all heard the argument that the Canadian Wheat Board has made for years and years; it is that they have sensitive market information that can't be divulged. Do you have access to that information? We as farmers, in our farmer-owned Canadian Wheat Board, don't have access to it.
That's a quick question, and then I've got one other.
Director, International Trade, Statistics Canada
I can certainly address the one on the Wheat Board. We get average prices from the Wheat Board. We have to amalgamate our different qualities of grain into one class. We face the same--
Director, International Trade, Statistics Canada
What we get is an average of the market transactions, but they don't give us the detail on any individual transaction.
Conservative
Ted Menzies Conservative Macleod, AB
Okay. I wanted to ask that question.
Going back to my more serious question, how do you decide what data is needed to benefit Canadian industries?
Director, Balance of Payments Branch, Statistics Canada
I'll give you a general answer.
First of all, we consult fairly widely--as widely as we can--with users, whether they're in business or they are our colleagues in the policy departments. We have a series of advisory committees. We try to go out to speak to businessmen and businesswomen and organizations as much as we can.
It's a continual trade-off with a limited budget...what are the best data and so on and also what are the least burdensome to collect. Certainly we have a whole series of organizations that advise us. We have an advisory committee on international trade. We meet with them twice a year to talk about where those trade-offs might be and how we can try to do those.
We certainly conduct discussions with our policy analysts. We try to keep ahead of the direction they might be thinking of going or where they might have data needs that we're not meeting now. We can't always meet them all. Unfortunately, there are challenges on that, but we certainly try to become aware.
We try to keep in touch with business organizations to the extent that we can as well, to get their points of view on what data is necessary and important for them.
Conservative
Ted Menzies Conservative Macleod, AB
So that's fluid, then. It can vary as trends change or as disposable income in different countries changes.
Director, Balance of Payments Branch, Statistics Canada
Yes. Well, we like to keep a certain level of stability in the system. What's trendy today or maybe not necessary today may well be the most crucial piece of information you need next year. That's always the tough decision.
A certain industry may be totally healthy this year, but it may have problems next year, and it may be crucial that we know about those things. So we have to look ahead.
Conservative
Ted Menzies Conservative Macleod, AB
One quick question, if I could, and then I'd like to pass it over to Mr. Cannan.
A large percentage of foreign direct investment comes from the diaspora in this country--families sending money back home. How do we gauge that? Is that classified as foreign direct investment?
Director, Balance of Payments Branch, Statistics Canada
No, that's not foreign direct investment, but it's an important flow. It's probably one we don't measure as well as we could.
I think this was recognized at the G-7 summit three years ago, that there are measurement difficulties for all the big countries now that immigration is a much more important factor and families are sending money back to their families.
There is an international effort to try to improve that data. There are major changes coming in the BOP manual, which I spoke of earlier, and there's a working group that is trying to come up with new methods so we can improve our estimates.
I had one project in the last year that raised our estimates a little and improved the quality. I still think we have some way to go on that. I think it's a very important issue.
Conservative
Conservative
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Okay. I'll be really quick.
During your opening comments, there was a reference to NAFTA being good for import-export trade--both ways--in respect of increased growth in our level of trade.
This trade committee is looking at ways we can develop a report next month to enhance our trade opportunities.
From your day-to-day experience on the ground with the security and prosperity partnership, what kinds of initiatives can we put in place to help increase and provide more efficient movement of goods and services across the border?
Raymond Bédard Director, Partnerships Division, Admissibility Branch, Canada Border Services Agency
Well, the key one would be the eManifest project, which you may be aware of. The CBSA is responsible for numerous deliverables. I won't bore anybody with them right now, but certainly eManifest is the big one.
To make a long story short, eManifest is pushing the borders out. Rather than looking at things at the border and assessing duties and taxes there--applying business management techniques--we're going to look at things when they're boarded on ships in Europe and Africa and Asia. So we're pushing the borders out.
What it also means is we're going to be able to track goods coming into the country, from entrance to in transit. It really is the answer to many of the issues that Stats Canada has with transshipment and those types of things.
But this is not tomorrow; we're talking five or six years. It's a huge project. We just received $400 million to put it together. A lot of people are working on it. At least for CBSA, eManifest is the number one project that will help streamline things and move things a little faster at the border while maintaining a high level of security.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
That's very encouraging.
I have one supplemental. With regard to the issue of foreign trade and our policy that we've been discussing, the member from the NDP spoke about the income gap between the rich and poor as growing.
Mr. Burger, could you maybe expand, from an economist's perspective, on any correlation between that assumption and where our trade policies are?
Chief Economist, Office of the Chief Economist, Department of Foreign Affairs and International Trade
Thank you, Mr. Chair.
There are two issues. One is the share of income going to the poor--let's say to the bottom 20% of the population--falling or rising, and the other is what's the distribution of the rest of the income. There is clear evidence that in this period of globalization, income distribution is changing, but to get beyond that, as to who the beneficiaries are and who the losers are, is quite a complicated story, and linking that to changes in trade volumes and trade flows is also very complicated.
There is evidence that the top-most percentiles have increased their share of income. There is also evidence that the poorest have not necessarily been the ones to suffer. We are certainly looking at this to see if there is a link between these statistics and specific trade measures. This is a global phenomenon, and that suggests to me there is not much that can be done in terms of trade liberalization or limited trade liberalization that will impact on that. This is more an issue for social policy within a country.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Cannan. Two or three supplementals for one question was enough.
Mr. Marston for five minutes.
NDP
Wayne Marston NDP Hamilton East—Stoney Creek, ON
Mr. Burger, I was pleased to hear that you were going to be here, with the breadth of your experience.
We are concerned about Kyoto. We know there are expectations on Canada around reduced domestic greenhouse gases and buying of carbon credits, and of course the export of green technologies and green investments to other countries. Mr. Myers of Canadian Manufacturers & Exporters stated recently that buying carbon credits to meet Kyoto standards could cost $25 billion between 2008 and 2012, and that $25 billion, he said, is going offshore and is not going to reduce our own greenhouse gas emissions. He called it a poor use of the money.
I just wonder what your view is on the role of carbon credit buying to keep our Kyoto obligations, to what extent the export of green technology as an investment could help reduce the requirement to buy those credits, and whether there is a win-win situation for us anywhere in this.