Author: Rolf Mirus & Chris Ryan
Since 1995, the first full year of NAFTA’s operation, exports have become a more important part of the income in three of the four western provinces, with BC being the significant exception. Total exports from the West have grown at a faster rate than those of the rest of the country. But western GDP grew faster than exports during the time period, with the result that both Canada and the West showed exports as a lower proportion of GDP in 2007 than in 1995.
Western Canada’s exports also constitute a smaller fraction of world exports in 2007 than in 2001. This is despite recent favourable commodity prices and a prospering world economy during the last six years. As to the causes, an appreciating currency will have the effect of slowing export receipts when products sold are priced in US dollar terms; therefore, the significant natural resources content of western Canada’s exports (which are priced in US dollars) is part of the explanation.
There has been a marked shift of western Canadian exports toward the NAFTA markets. The US share of western exports grew from 62.8% in 1995 to 75.5% in 2007. The corresponding figures for Mexico are 0.7% and 1.2%. Thus, the NAFTA was a success for western exporters in expanding market access and trade opportunities with these countries.
Japan, the EU, China and South Korea are the most important non-FTA trading partners of Canada’s West, with BC most involved with Asian markets and Alberta the least involved.
The four western provinces are unique in their export composition, with BC strong in forestry, Alberta in energy, petrochemicals and agricultural products, Saskatchewan in oil, fertilizer, uranium and agricultural products, and Manitoba diversified across mining, agriculture and electricity.
There are successful manufacturing exports from Alberta’s energy and Manitoba’s transportation equipment sectors that may herald more diversification, hence more stability of provincial economies. The economies of Alberta and Saskatchewan are still the most volatile of the western provinces.
The emergence of China as an export power house helps explain why Canadian exports lost market share in the US from 1995 to 2007. Had it not been for Alberta’s exports of oil and gas, the same would have been true for western Canada’s exports. As it was, western exports just managed to maintain their market share in the US.
The good-to-adequate performance in the US and Mexican markets contrasts with a disappointing performance in the fast growing Asian markets. Overall, then, a mark of B– may be a generous grade for western Canada’s exporters. In a slowing world economy the prospects are not rosy. This has to be of concern to business, labour and political leaders.
The volatility of exports and the importance of the US market suggest policies that facilitate labour market adjustments, harmonize the regulatory framework, and pay attention to the US border. Delays and uncertainty at the border affect not only trade but also the location of much needed productivity enhancing foreign direct investment.
Most importantly, the report identifies markets where western Canadian exporters have the most to lose from the failure of the WTO’s Doha Round and the resulting trend towards more bilateral trade agreements. Using a methodology developed specifically to this end, China, Indonesia and India emerge as the highest priority candidates for free trade and investment agreements from a western Canadian perspective. This is so because competitors are negotiating, or have concluded, free trade deals with these important customers. To defend against the erosion of their sales, western Canadian exporters need similar preferential access to these countries. In terms of the 2006 or 2007 export experience, the West is at risk of losing $9.8 billion of exports to competitors in these markets. The federal government is urged to devote its (limited) negotiating resources to these priority candidates. The priority candidates are: China, Indonesia, India, Sri Lanka, South Korea and Bandladesh.