Transcript Document

Industry Industrie
Canada Canada
Canada-U.S. Trade and Investment
Linkages
Presentation to the
Standing Senate Committee on Foreign Affairs
Someshwar Rao
Industry Canada
October 07, 2003
Canada
The Canadian economy has become much more
outward oriented...
Ratio of Exports and Imports to GDP
Ratio of Foreign Direct Investment* to GDP
Percent
Percent
50
40
Exports
45
35
40
30
35
25
30
20
25
Imports
20
15
10
15
5
10
1962
0
1962
1972
1982
1992
2002
Source: Industry Canada compilations based on Statistics Canada Data
Inward
Outward
1972
1982
1992
2002
*Stock
Source: Industry Canada compilations based on Statistics Canada Data
2
...largely as a result of closer linkages with the U.S.
in trade...
U.S. Share of Canadian Goods and
Services Trade, 2002
Canada-U.S. Trade
Exports
$ Billions
82.0%
800
600
18.0%
400
Other
countries
200
Imports
0
90
92
94
96
98
00
02
70.0%
Source: Industry Canada compilations based on Statistics Canada Data
30.0%
Other
countries
3
…direct investment
U.S. Share of Canadian Direct
Investment, 2002
Canada-U.S. Foreign Direct Investment
Stock
Inward Stock
$ Billions
35.8%
Other
countries
500
64.2%
400
300
200
Outward Stock
100
0
90
92
94
96
98
00
02
Source: Industry Canada compilations based on Statistics Canada Data
46.7%
53.3%
Other
countries
4
Increased Canada-U.S. trade linkages are pervasive
across all provinces...
Share of Canadian Exports* going to the U.S., by Province
Ontario
Prince Edward Island
New Brunswick
Alberta
Quebec
Nova Scotia
Manitoba
Newfoundland
British Columbia
2002
Saskatchewan
1993
0
20
40
60
*Merchandise exports
Source: Industry Canada compilations based on Statistics Canada data
80
100
5
Canada’s trade links with Mexico are still not very
strong but have increased considerably
Canada-Mexico Trade*
Mexico Share of Canadian Trade*
Percent
$ Billions
4
15
Imports
3
10
2
5
1
0
93
95
97
99
01
02
Exports
0
93
95
97
99
01
02
*Merchandise trade
Source: Industry Canada compilations based on Statistics Canada Data
6
More than 80 percent of Canada’s manufacturing
output growth in the 1990s can be attributed to
exports
Exports Contribution to Manufacturing Output
Growth, 1992-1999
Clothing
Electrical
Machinery
Furniture
Misc.
Chemicals
Textile Mills
Computers & Electronics
Wood Products
Mineral
Transportation Equipment
Textiles
Paper
Rubber & Plastics
Food
Primary Metals
Petrol & Coal
Fab. Metals
Printing
Beverage Tobacco
0
50
Source: Industry Canada compilations based on Statistics Canada Data
100
150
Percent
200
250
7
The FTA raised manufacturing productivity
Increase in Value Added per Worker in
Manufacturing due to the FTA: 1988-95
Net Exit of Firms in Manufacturing:
1988-95
Control
Control
Low Tariffs
Low Tariffs
Medium Tariffs
Medium Tariffs
High Tariffs
High Tariffs
-2
0
2
4
6
%
8
10
12
-6
-5
-4
-3
-2
-1
0
1
% per year
Note: "Control" refers industries with a net effective tariff reduction equal to 0, "Low Tariff" refers to 0-3%, "Medium Tariff"
refers to 3-6% and "High Tariff" refers to > 6%. "net effective tariff reduction" refers the relative change of the Canadian tariff
against the U.S. to the rest of the world between 1988 and 1995.
Source: Trefler, D., 1998, The Canada-U.S. Free Trade Agreement: an Assessment for Canadian Manufacturing
8
Foreign-controlled firms on average are more
productive than Canadian controlled firms
Relative Multi Factor Productivity Level of Foreign
Affiliates in Canada, 1993-95
(Manufacturing)
Domestic Controlled Firms = 100
Transportation Equipment
Rest of Manufacturing
Stone, Clay and Glass
Chemicals
Primary Metal
Food and Beverages
Textile Mill Products
Paper and Allied
Electrical Mechinary
60
80
100
120
140
160
*Includes Tobacco; Furniture & fixtures; Printing & publishing; Leather industries; and Other manufacturing.
Source: P.S. Rao and J. Tang "Are Canadian-controlled Firms Falling Behind Foreign-controlled Firms in the Canadian
Manufacturing Sector?", Industry Canada, Working Paper, No. 31. 2002
9
Competition from Mexico and China in the U.S.
market is rising
Share of U.S. Imports
18.4
19.8
18.1
11.6
10.8
9.2
6.5
6.1
3.1
1990
1996
2002
1990
1996
2002
1990
1996
2002
Source: Industry Canada’s compilations based on data from the U.S. international Trade Commission
10
The booming U.S. economy was the main driver of
our export success in the 1990s
U.S. Imports and the Canadian Exports to the U.S.
Percent
20
Canada’s export
growth to the
U.S.
U.S. import
growth
15
10
5
0
-5
-10
1990
1992
1994
1996
1998
2000
2002
11
The depreciation of the Canadian dollar was another
reason for the expansion of exports
Change in Competitiveness-Manufacturing
1990-2002 (in percent)*
Value of Canadian Dollar vis-à-vis an
U.S. Dollar
18.7%
Gain
0.9
Change in Unit Labour Cost
(in $U.S.)
0.8
-1
0.7
-19.7
U.S.
0.6
Canada
80 82 84 86 88 90 92 94 96 98 00 02
Source: Industry Canada compilations based
on Bank of Canada
Hourly
Compensation
Growth
44.0
Labor Productivity
Growth**
Depression of
Canadian
dollar
45.0
23.3
33.3
U.S.
Canada
U.S.
* Based on logarithmic decomposition
** Growth in real value added per hour worked
Source: U.s .Bureau of Labor Statistics
Canada
-29.7
10.7%
Gain
21.7%
Loss
29.7%
Gain
12
Canada needs to address the productivity challenge
Canadian Productivity Relative to the U.S.
Percent
100
90
U.S = 100
Labour Productivity*
Total Economy
80
70
60
Labour Productivity**
Manufacturing
50
82 84 86 88 90 92 94 96 98 00 02
*Real GDP per hour worked, PPP based
**Real GDP per hour worked, based on the methodology of the Centre for the Study of Living Standards
Source: Industry Canada compilations based on data from Statistics Canada, U.S. Bureau of Labor Statistics,
and U.S. Bureau of Economic Analysis
13
We need to maximize the full benefits of
Canada- U.S. economic linkages
 North American economic linkages on balance have been
beneficial for Canada.
 But, to fully realize the benefits of increased Canada-U.S.
economic linkages, Canada needs to:




reduce border risks and impediments;
facilitate the efficient operation of markets;
encourage private sector entrepreneurship and dynamisms;
attract and retain highly qualified people and investment in
key sectors of the knowledge economy; and
 improve Canada’s innovation and productivity performance.
14
Industry Industrie
Canada Canada
Canada-U.S. Trade and Investment
Linkages
Canada