Premier Kathleen Wynne returned last week from a whirlwind trade mission to India, visiting five major cities in eight days. Wynne’s group included 80 leaders from the province’s political, educational and business sectors.
It sounds impressive. Yet, while trade missions are evidently popular with politicians and their business constituents, their usefulness is open to question.
Some call them valuable sales trips. Others see them as exercises in diplomacy and bridge-building. Still others dismiss them as useless boondoggles.
The Ontario government website asserts that “trade missions help to create jobs and boost economic growth.” The federal government, which is planning its own high-profile trade missions to China and India in March, makes similar claims about its missions’ impact on trade and investment.
When delegations return to Canada, governments typically issue a string of press releases crediting missions with millions or even billions of dollars in business deals. The Ontario government says Wynne’s India mission, for instance, resulted in 65 agreements worth $240 million that will translate into 150 new jobs.
Some experts are skeptical of these claims. Dan Ciuriak, a trade consultant and former deputy chief economist at the Department of Foreign Affairs and International Trade, says that consulates and embassies may come under pressure to line up “deliverables” in the lead-up to a mission, so that the trip can be promoted as a rousing success. It’s often hard to tell whether these business deals were already in the pipeline before the mission, and would have happened even without the trade mission, he notes.
Indeed, a 2010 study concluded that Canadian trade missions do not reap the benefits leaders claim they do.
Two University of British Columbia economists analyzed bilateral trade data between 1993 and 2003, when Jean Chrétien was prime minister. They found that Canada’s trade missions during that period had little to no impact on trade and investment.
According to the study, the countries that Canada targets as destinations for its missions are ones that already have a high propensity to trade. This is due to a host of factors, such as the trading partners’ GDP, their large trading communities, currency rates and languages. The implication is that while trade may grow in the wake of a mission, it was already growing prior to it, the study says.
However, Lawrence Herman, an international trade lawyer, is doubtful that missions’ impact can be assessed purely on the basis of trade data. Trade statistics fail to capture many business deals, and the success of a trade mission can’t be measured only by numbers, he says. They have many less tangible benefits, such as helping participants strengthen existing business links, developing contacts for future ones, and reinforcing political relationships between countries, Herman argues.
We also can’t know what would happen if Canada didn’t go on these missions while other countries did, observes Daniel Schwanen, an economist at the C.D. Howe Institute.
And despite his skepticism of government claims about the deals generated by trade missions, Ciuriak suggests that if Canada and another country were equally well placed to provide the same good, the scales may be tipped in favour of the country that’s been working hard to promote itself.
Trade missions can also lay the groundwork for future trade agreements, Ciuriak says. And such agreements have been shown to have a big impact on trade flows. According to a 2007 study in the Journal of International Economics, trade agreements are responsible for roughly doubling bilateral trade between signatories after 10 years.
Thus the Trudeau government is touting its forthcoming missions to China and India as setting the stage for future trade deals with both countries. While a mission is unlikely to lead to an agreement if it’s an “abstract exercise in friendly relations,” Herman says, it might move things in the direction of formal trade agreements if the delegation is made up of the right people and organized around realistic goals.
But even mission boosters will say promoting trade and investment is about more than organizing splashy foreign trade missions. “You can’t just say Canada’s open for business and hope that results in business deals,” says Herman. Domestic laws, policy and the overall business climate need to be conducive to trade and investment.
Canada ranks 35th out of 43 in an OECD survey on investors’ perceptions of countries’ regulatory regimes. “Uncertainty matters,” says Ciuriak.
Some of Canada’s foreign investment rules, particularly those under the Investment Canada Act, erect barriers to foreign investment. The act has been criticized for its unpredictability, opacity, and for imposing an unfair onus on foreign investors to prove that their acquisition will bring a vaguely defined “net benefit” to Canada.
This requirement irrationally assumes that foreign and Canadian companies have different reasons for making an investment. Liberalizing these rules might go much further than another trade mission in improving Canada’s reputation among international business leaders.
At the provincial level, Ontario has no shortage of ways in which it could bolster its attractiveness. A 2010 Institute for Research on Public Policy study notes that a high-quality labour force, commitment to research and development, modern infrastructure, and stable macroeconomic environment all help to encourage investment.
The government also needs to ensure it doesn’t ignore our booming knowledge-based economy, says Schwanen. Canada is strong in services like communications, financial and professional services, research, and technology, he notes, but because the country has kept some of its sectors – like dairy – closed to foreign competition, other countries may not be as keen to open their sectors to Canadian know-how. “We’re protecting the old economy at the expense of new investments that could come into Canada,” he says.
Trade missions may matter, but not as much as governments claim they do. Our leaders should be under no illusions: swanning around foreign capitals is no substitute for doing important – if less sexy – work at home.
Lauren Heuser is a lawyer and a Munk fellow in global journalism.
Photo credit: Queen’s Printer for Ontario/flickr.com
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