By Sharon Zhengyang Sun
Trade Policy Economist
How to Increase and Diversify Exports: British Columbia
British Columbia relies on its ability to trade for economic growth. With the economy taking a major hit due to the COVID-19 pandemic, it will be vital that B.C. is able to take full advantage of its trade opportunities once the pandemic subsides. Recent trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), give B.C. the potential to expand trade through the diversification of products (what it trades) and markets (where it trades). However, realizing the full potential of these agreements requires information that allows exporters and government agencies that assist them to target the full range of new opportunities.
Scheduled tariff reductions are one of the most obvious approaches to trade diversification. New modelling of the effect of Japan’s tariff reductions on Canadian exports under the CPTPP now provides this information at a level of specificity that is actionable by small and medium-sized firms.¹ An extension to the report More Than the Usual Suspects: Western Canadian Export Opportunities to Japan under the CPTPP, this policy brief identifies the export opportunities for B.C. with Japan.
Across all Western Canadian provinces, B.C. has the largest number of products expected to see export gains with Japan under the CPTPP. The model shows 171 currently exported products will see gains as a result of Japan’s tariff reduction (of the 194 identified for Canada). Of these, 60 products are expected to see increases greater than US$100 thousand, and 10 of these could see opportunities greater than US$1 million in total gains with Japan.
Despite gains from tariff reductions, the limited number of product gains demonstrates that true product diversification is limited by the tariff reductions in trade agreements, and by the capacity and characteristics of experience, geography and resources. Nevertheless, having identified this narrow list of specific products, export promotion agencies (EPAs) can focus outreach activities that efficiently target the right firms and discuss further the capacity and export readiness.
Digging into the specifics
B.C. export gains with Japan
Figure 1 illustrates some of the largest expected export gains for B.C. with Japan as a result of tariff reduction under the CPTPP. It also includes the potential impact of U.S. competition from the recent U.S.-Japan partial deal, effective January, 2020. The table is rank ordered from largest to smallest total expected export gain for B.C. (Column 2).
B.C. sees the largest gains in some of its already highly traded products with Japan. Most of these are non-agricultural products, including: coniferous wood, oriented strand board, chlorate of sodium, unwrought hafnium and germanium oxides/zirconium dioxide, having a total expected gain of US$80 million. In addition, the province has a competitive advantage over the U.S. for these products. The province already, based on the five-year historical average, exports more than the entirety of the U.S. for all of these identified products (compare Columns 1 and 6). For example, 94% of Canadian coniferous wood (HS44710) exported to Japan comes from B.C. from 2013 to 2017. Additionally, under the U.S.-Japan partial agreement, there are no tariff reduction provisions for these products (Column 7).
B.C. also sees some large gains in the fishery industry including dried fish livers, frozen fish, fresh or chilled Atlantic salmon, frozen Pacific salmon, frozen sockeye salmon, frozen fish livers, sea urchins and frozen herrings. Japan’s tariff schedule for the U.S. does not include reductions for any seafood products. Canada already exports more than the U.S. for most of these seafood products except for frozen fish livers, sea urchins and frozen herrings. Japan is Canada’s third largest export destination for fish and crustaceans (HS03). Of the US$219 million fish and crustacean exports to Japan in 2018, 43% comes from B.C. followed by Nova Scotia and New Brunswick (see Figure 2). Canada should take advantage of Japan’s tariff reductions under the CPTPP for the aforementioned products before the U.S. expands the partial agreement with Japan.
Pork – particularly fresh or chilled and frozen pork, and less-traded frozen pork products – is expected to see some of the largest export gains for B.C. with an estimated total gain of US$125 million or a total growth by 422% (Columns 1 and 2). But pork also faces high competition from the U.S. as the U.S. already exports on average more than Canada (compare Columns 5 with 6) and has now received the same, if not better, tariff provisions than Canada under the new U.S.-Japan bilateral partial trade deal (Column 7, Figure 1). Nevertheless, Canada has gained traction over the U.S. for fresh or chilled pork in Japan. Coupled with the one-year advantage over the U.S. in tariff benefits for fresh or chilled pork and the market strategy that focuses on higher quality, Canada may capture the estimated gains.
Finally, historically less-traded products such as wood parquet flooring, wool sweaters, crude canola oil erucic acid < 2% and builders wood joinery all see potential gains with no threat from the U.S.-Japan trade deal.
For each product, Columns 1 and 3 displays the five-year (2014-2018) average baseline of B.C. and Western Canadian exports to Japan. Columns 2 and 4 are the calculated total expected export gains for B.C. and Western Canada respectively. Columns 5 and 6 compare the historical five-year average (2014-2018) of Canadian exports and U.S. exports to Japan for additional insights on the degree of Canadian export competition with the U.S. for Japan. Column 7 compares Japan’s tariff schedule under the CPTPP with the U.S.-Japan agreement to identify products where Canada has the same, better or worse provisions than the U.S. for potential areas of export competition.
B.C. action plan
Canada West Foundation’s modelling has narrowed the list of export targets by tariff reduction, identifying new opportunities for both already highly traded and less-traded exports at a level of specificity that is useful for businesses. This policy brief has further narrowed the focus to identify what matters for British Columbia. To test the usefulness of our results, we consulted with various industries to gain further insights into the feasibility, capacity and export readiness for some of these products as well as the threat of U.S. competition. The pork industry is one such example. This verification process should be repeated with each opportunity. EPAs should use our results to target the right businesses and take our results further with conversations on capacity and export readiness that considers industry specific characteristics, as well as current supply chain and logistics structures. The results should also save EPAs time and resources in determining the kind of assistance required, which may differ depending on firm size.
While our study did not include products that do not experience tariff reduction such as canola seeds, this does not mean that these products are not important for Canada and for British Columbia. However, the focused results allow EPAs to more efficiently and effectively identify the right businesses and develop targeted seminars and outreach programs rather than “boiling the ocean.”²
In a separate policy brief, we make the case that this dataset needs to be made available through new online tools, that allow businesses to directly use and search for specific export opportunities. This would allow EPAs to engage more businesses in an efficient, effective and affordable manner and make the pursuit of smaller volume trade opportunities more viable.³ This kind of modelling should be done for other members of the CPTPP beyond Japan, as well as other agreements, to identify export opportunities for Canada. As it becomes standard practice, Canadian businesses can maintain their first mover advantage.
¹ Dan Ciuriak and Canada West Foundation’s modelling has windowed a list of good candidates to increase exports under the agreement.
² Refer to More Than the Usual Suspects: Western Canadian Export Opportunities to Japan under the CPTPP for detailed inclusion/exclusion criteria of our study.
³ Dade, Carlo. Trade (Assistance) Diversification. Canada West Foundation, March 2020.
This What Now? policy brief is part of a larger series stemming from the report, More Than the Usual Suspects: Western Canadian export opportunities to Japan under the CPTPP.
Click here to see other briefs in the series and read the report.