Thank you very much, Mr. Chairman.
Good morning, members of the committee.
I want to make four key points, based on my own experience. I was at Finance Canada and I spent 10 years at Export Development Canada, where I was the VP of policy. I've been with the Conference Board for eight years.
We have a centre at the Conference Board that does pretty deep original research around Canada's fit into globalization. It's called the International Trade and Investment Centre. We've not studied the Trade Commissioner Service per se, but I've had experiences along the way and I thought I would share that with you this morning.
Point number one is that it's really important that Foreign Affairs and International Trade, and the Trade Commissioner Service in particular, have the right conceptual model for what trade is today. If you're going to do trade promotion, you have to know what you're promoting.
I had an idea that I developed with my colleagues at EDC, including Stephen Poloz, who I understand may be coming later today, and with other colleagues there. I came up with a brand for modern trade called “integrative trade”. You may not have heard of it, but it's now being actively used within EDC and foreign affairs as a foundational model.
What integrative trade means is that modern trade is built around what are called global value chains, which means you take apart components of production within a firm and reposition those elements of production around the world to where it makes the most sense to make you as profitable and competitive as possible. You do that through foreign direct investment.
I know this is a complex concept, but one the key points is global value chains. Firms can now take apart their production processes—and I'll give you a couple of examples—and then use foreign investment, both in Canada but also abroad, as a way of building the strongest possible model for this integrative trade.
One example of a global value chain might be that people have taken apart...well, the BlackBerry is one example, or the iPhone.
In terms of the iPhone, for example, half the value is created in the United States through intellectual property—development of the ideas, the marketing, the finance. A lot of the key components are made in Japan and Korea, probably another 45%, and the final 3% to 5% is the assembly in China. When we buy the iPhone or iPad, it says “Made in China” on the box, so we think it's a Chinese product, but in fact most of the wealth is actually made within North America and other industrial countries. That's one example.
You can do the same thing in the auto industry. An automobile manufactured in Canada probably has about 30% Canadian content. Most of the contents of the car, or the value of the car, comes through value chains from imported goods from the U.S. or elsewhere around the world.
These are examples of how the whole nature of trade has changed today. We still find core products, and a lot of the resources that Canada exports have very high Canadian content; oil from the oil sands, for example, would probably have 80% Canadian content, but the more you get into sophisticated goods and services, the more you see that value is dispersed, because firms are really engaged in global trade to make an end product or a service.
I'll mention one other piece of research we've just released. Unfortunately I didn't bring a copy this morning, Mr. Chairman, so I apologize for that omission, but it's on our website.
We are developing a concept of value-added trade, of measuring Canada's trade in value-added terms. We've released the first of three studies. The importance of this is that if you take out the duplication of trade numbers, let's say auto parts that cross the border to the U.S. get turned into something else, and then come back.... We know that an average car actually gets traded across the border seven times before the end product is made. If you take out the double counting, the things that go back and forth many times, you discover that the U.S. share falls. It's not a sharp fall, but it falls from about 70% of trade measured in conventional terms to about 63% in value-added terms. Of course, this means the share goes up for a lot of other countries in the world. It goes up for China, Japan, Europe. That gives you, again, a very different model.
The content, as well, of products and services changes, and the service share becomes much more important. It's not just services that are tradable, because a lot of services today.... You can send a document to western Africa overnight, for example, and have it translated into French and sent back. Thanks to the Internet and interconnectedness, you can trade services that historically were not tradable before, and also services that support trade, such as legal services, shipping services, and transportation.
I commend that paper to you. We'll be doing two more papers, drilling into it in much more detail to really take apart Canadian trade in value-added terms.
That was all by way of ensuring that the TCS, when it goes out there and tries to sell Canada to the world, is operating with the right model—not operating with the conventional trade model with the data from StatsCan that you can download from Strategis, but with a much more penetrating view built around integrative trade and global value chains.
On the second point, we have to ensure that the TCS is in the right places and that their model is in constant evolution. When I was at EDC, there was an effort back 10 or 12 years ago to open up many more offices in the United States, to go much deeper into the U.S., and probably sacrifice representation in other parts of the world. Based upon our analysis on things like value-added trade, we have to be opening up our minds to having trade commissioners more in emerging markets where the high growth potential is for our trade.
We still have to have a strong presence in the U.S. and have people doing the engagement region by region there. I've known a lot of trade commissioners on the ground; they're doing an excellent job. This is more a question of resource allocation around the world, ensuring that we are going places in order to be on the cutting edge of Canadian trade, getting there as the exporters and investors are reaching out, and looking at the Middle East, Africa, and certainly at the Asia-Pacific areas. There's a deeper examination required there about whether we have the commissioners in the right places to maximize the benefit to Canada.
On the third point, and this is based upon many engagements with trade commissioners but also on my experience at EDC, we need to take a Team Canada approach when we go abroad. This doesn't mean we all have to be in the same place or automatically have to be co-located, but EDC has people abroad, CCC has people abroad, BDC is either seeking the power or has acquired it to go offshore and support Canadian companies as international investors, and of course there is the Trade Commissioner Service itself.
We have to find a way to ensure that we offer as seamless a service as possible, so that if somebody goes to a Canadian trade representative for assistance and the representative is not the expert, they know exactly where to go to go to build an integrated whole around that.
Lastly, flowing from that thought, is understanding that relationships on the ground are the real value-added aspect from the Trade Commissioner Service. It's knowing who to talk to, who decision-makers are, and how to get things done.
With the Internet and the incredible search engines that are available now, information is easy to find. I'm astounded by the information I can gather with two or three clicks of a mouse while I'm sitting in my office, but that's not the issue; the issue is relationships—knowing who to get to, how decisions are made, how deals are put together. Clearly that area has become a core skill set and a core responsibility of the Trade Commissioner Service, and it should be incented. We should be ensuring that we have the right objectives for people in the field. We should be able to evaluate and measure people's ability to build relationships and maximize value for the client, which is the Canadian economy and Canadian businesses.
I'll stop there, Mr. Chairman, but thank you for the chance to address the committee.