foundation of canada asia pacific - Content Tagged with

ECONOMIC RELATIONS
3
looking for
a new model
35
For more than a decade, the Government of Canada and, to a lesser extent, the provincial
governments, have adopted policies and programs intended to boost Canada’s business
relationship with Asia. Through membership in the Asia Pacific Economic Cooperation
(APEC) Forum, through the much-publicized Team Canada trade missions, and through
support for the Asia Pacific Foundation itself, Ottawa and at least some of the provinces
have demonstrated their belief that greater economic ties with Asia are beneficial to the
development of the Canadian economy. They showed this most consistently in their
support for expanded trade. These efforts seemed to be paying off in terms of exports,
at least until the Asian economic crisis hit. After six years of stagnation, exports grew strongly
in the mid-1990s, even though development of markets was hindered by an overly heavy
reliance on commodities and lightly processed raw materials.
The other element of the economic relationship with Asia — investment — followed an
opposite trend. After growing strongly in the early 1990s, at a time when the Canadian
dollar was strong, Canadian direct investment in Asia (DIA) has been relatively flat since
1994, perhaps reflecting the low-key promotion of outward investment by Canadian
governments, a depreciated Canadian currency, plus the strong rival attraction for Canadian
business of the vibrant US economy. If it were to continue, this slowdown in DIA would
have a long-term dampening effect on our trade with Asia. Changes that globalization
brought to the relationship between investment and trade have made foreign direct
investment (FDI) a major stimulus to trade, rather than a substitute. Canadian governments
are just beginning to recognize this by looking to a new model for developing commercial
ties with Asia — one that promotes outward direct investment with equal vigour to
that given to trade.
Globalization has changed the way countries trade and the reasons why companies
invest offshore. Traditionally, economies traded resources which they had in abundance
or products they could produce more competitively than their rivals. Companies made
foreign investments to secure their sources of raw materials or to manufacture their
products inside protected markets on the same terms as domestic firms, without having
to worry about tariffs and other import barriers. In this environment, foreign investment
was a substitute for trade. Today that scenario no longer holds true. Foreign