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Canada’s New Trade

and Technology

Paradigm.

Finding the Right Policy Mix

At a Glance

• Canada faces a dramatically changed global economic context, including a

rebounding U.S. economy, the end of the commodity super cycle, uneven

performance in the BRIC economies (Brazil, Russia, India, and China), growth in

traded services, increased importance of foreign affiliate sales, the emergence of

new global business models driven by new technologies, and the rapid acceleration

of global data flows.

• Canada can no longer rely on high commodity prices or on manufacturing, and the

old model of promoting exports via tariff reductions is insufficient to position Canada

for this future.

• In addition to completing free trade agreements in progress and focusing on the U.S.

and China, Canada will need to advance new policies at home and abroad to position

Canada for success in this new trade era.

BRIEFING JUNE 2016


For the exclusive use of Glen Hodgson, hodgson@conferenceboard.ca, The Conference Board of Canada.

Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

Executive Summary

Canada faces a dramatically changed global

economic and business context. The economy

is now characterized by weak growth in

Canada, a rebound in the United States, and

more moderate yet still strong growth in

emerging markets.

At the same time, the global operating environment for business has

been dominated by accelerating flows of data, people, services, and

investment. The ability to digitize information and send data anywhere

gives any individual or small business the potential to trade globally. The

flipside is that competition has intensified. Digitization has also created

new types of trade in digital products and services, and led to dramatic

growth in traded services and Canada’s global sales of services as a

result. Digitization is also permeating traditional trade in manufactures.

In future, manufacturing and engineering companies will really be data

companies with huge amounts of customer behaviour and logistics data.

Those that can best leverage the acceleration of global data flows will be

in the best position to take full advantage of global markets in the future.

More disruptions are on their way, and Canada will need to position

itself to leverage the benefits of new technological developments while

mitigating any negative impacts. Potentially disruptive technologies

include automated vehicles, intelligent software, cloud computing,

Internet of Things sensors, and advanced robotics.

Climate change and related climate policies are another factor that could

affect Canada’s trade and supply chains. In addition to environmental

impacts, climate change and anticipated policy changes present both

risks and opportunities for Canadian businesses.

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Future trade deals

will need to go

further to better

advance and

promote innovation.

This dramatically changed global context raises new challenges for

Canadian policy-makers. Canada will no longer be able to rely on high

commodity prices driving Canadian exports and wealth. Canada’s future

trade gains will not look the same as in the recent past, and we will need

a new strategy to fully seize these gains.

Strictly focusing on eliminating tariffs for Canada’s exports will be

insufficient to position Canada effectively for this future. A foundational

priority must be to develop ways to better measure and track changes

in these newer types of trade. A focus on the U.S. and China will be

critical to advancing Canada’s trade interests. Policy-makers will need

to complete deals already in progress that start to address newer types

of trade, and future deals will need to go further to better advance and

promote innovation. Policies will need to place much more emphasis on

the freer movement of data, people, services, and investment. Domestic

policies need to invest in much-needed infrastructure, as well as the next

generation of broadband and technological infrastructure. Policies should

lay the foundation for all businesses to become tech companies and

position themselves to leverage a data-driven future.

Introduction

The global economy has undergone rapid and dramatic changes in

recent decades, which are poised to accelerate, raising new possibilities

and challenges for Canadians and policy-makers. This briefing examines

these changes and the forces behind them, and considers the policy

response that would best position Canadian firms and the entire

economy to take advantage of the opportunities presented.

The Global Economic and Trade Context

The commodity price supercycle, high-valued Canadian dollar, and

booming growth in emerging market demand defined Canada’s global

economic context in recent years. That context has now changed.

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

The imperative for

Canadian firms

to go global has

never been more

important than

today.

Canada’s Weak “New Normal” and the Need to Go Global

It should be very clear by now that demographic forces, specifically

an aging workforce, are lowering Canada’s long-term growth potential.

Annual growth of 2 per cent or less is the “new normal” for Canada. In

this context, going global becomes even more important as a potential

driver of the economy.

Soft domestic growth and fewer trade barriers mean Canadian firms

should be tapping into foreign markets to generate growth. Conference

Board of Canada research on Canadian businesses and SMEs in

particular showed that, all else being equal, exporting boosts company

sales and profits. 1 Exporting also boosts productivity and, in turn, living

standards for Canadians. So the imperative for Canadian firms to go

global has never been more important than today.

A Rebounding U.S. Economy

Canada’s trade flat lined during the 2000s, largely because of modest

economic growth in the U.S. Expanded competition and a stronger

loonie were also factors. By contrast, we expect the next era to be

characterized by recovering demand from the U.S. (See Chart 1.) The

U.S. economy has finally pulled out of the doldrums, led principally by a

recovery in consumer demand fuelled by falling unemployment and rising

real wages and consumer confidence. The projected U.S. growth of

around 2.5 per cent in 2016 and 3 per cent in 2017 is still below its past

trend. More robust and well-anchored U.S. growth is critically important

to global demand for Canadian exports, which are deeply integrated into

global value chains through our over-arching trade and investment with

the U.S.

Robust U.S. demand, aided by a lower-valued Canadian dollar, and

the benefit of proximity presents huge opportunities for Canadian

companies. We examined 38 sectors with export potential and identified

1 Sui and Goldfarb, Not for Beginners.

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Chart 1

Next Trade Era Defined by U.S. Rebound

(real Canadian goods and services exports, average annual compound

growth rate; per cent)

United States

Other countries

12

8

4

0

−4

1990–99

2000–09

2010–19*

*forecast years are 2015–19

Source: The Conference Board of Canada’s Interactive Trade Forecast.

nine that are likely to see very strong U.S. demand in the coming years,

including machinery manufacturing, electrical equipment manufacturing,

and management services. 2

To seize this potential, Canadian industries will need to rebuild their

exporting capacity. This will be easier for some industries or companies

to take advantage of than for others. Many companies failed to invest in

boosting capacity when the loonie was strong or when U.S. demand was

weak and, as a result, may struggle with inadequate production capacity

or a lack of skilled workers. Others may not have invested in machinery

and equipment when the dollar was high and will find it more costly to do

so with a weaker dollar.

The good news is that 11 industries are well-prepared to take full

advantage of the U.S. rebound, according to Conference Board of

Canada analysis as shown in Table 1. 3 While a few of these wellprepared

industries are in the manufacturing sector, many more are in

2 Palladini, Canada’s Next Trade Era.

3 Ibid.

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

the services sector. The U.S. has been experiencing—and is expected

to see—phenomenal growth across its high-value services sectors,

including computer and IT services, and financial services.

Table 1

Industries Well-Prepared to Take Advantage of U.S. Rebound

(industry’s share of Canadian exports to the U.S., excluding oil and gas, percentage)

1995 Share 2014 Share Change

Machinery manufacturing. 5.1 6.1 0.9

Food manufacturing. 2.7 5.9 3.2

Other commercial services 2.9 5.1 2.3

Management services 0.5 2.2 1.7

Fabricated metal product manufacturing. 2.0 2.1 0.1

Transportation and government services 1.8 2.1 0.3

Computer and information services 0.3 1.8 1.4

Electrical equipment, appliance, and

component manufacturing.

1.5 1.5 0.0

Finance and insurance services 0.8 1.5 0.8

Non-metallic mineral

product manufacturing.

1.0 0.7 –0.3

Fishing, hunting, and trapping 0.3 0.2 0.0

18.8 29.2 10.4

Sources: Industry Canada Trade Data Online; U.S. Bureau of Economic Analysis; The Conference

Board of Canada.

Canadian companies have their work cut out for them even if prepared

with the right people and capacity. Over the past decade and more,

Canada lost market share across industries due to competition from

China and Mexico. Selling to the U.S. is not a sure thing: companies

need to be able to compete in the highly competitive U.S. market, and

policy-makers need to smooth the path for them to do so.

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China’s

economic rise

has dramatically

reshaped the

global economy

and Canada’s.

The Rise (and Fall of Some) Emerging Markets

The past decade has seen a clear transformation in the locus of global

economic and trade growth. The conversation has shifted away from

discussing “poor” or developing countries toward the growth prospects

of emerging markets. According to the International Monetary Fund,

developing-country markets now represent half of the global economy

in terms of purchasing power parity. While global FDI inflows declined

by 16 per cent in 2014, inflows to developing economies actually rose to

their highest level at $681 billion, with China now the world’s largest FDI

recipient. 4 Moreover, developing Asia now invests abroad more than any

other region. 5 Going forward, the McKinsey Global Institute expects that

nearly half of global GDP growth to 2025 will come from 440 cities in

emerging markets—most of them not currently household names. 6

Business leaders and policy-makers have focused their attention on the

large economic powerhouses of India, China, and Brazil. Other “nexttier”

markets in Southeast Asia, Latin America, the Middle East, Africa,

and Eastern Europe have also come onto the radar screen. Even with

the recent slowdown from the rapid growth of the past decade, emerging

markets represent much higher growth potential than do Canada’s

traditional trade partners.

While emerging markets are now the centre of global growth, their

individual performance has become highly uneven. The famous BRIC

countries are headed in very different directions and the entire BRIC

concept may have run its course.

China’s economic rise has dramatically reshaped the global economy

and, with it, Canada’s. China has both challenged Canada’s traditional

U.S. market share and driven growth in Canada’s commodities trade.

However, China is transitioning. Its “new normal” is growth of around

7 per cent annually as it endeavours to shift its core growth drivers

from external demand for exports and investment toward domestic

4 United Nations Conference on Trade and Development, World Investment Report 2015.

5 Ibid.

6 Dobb, Manyika, and Woetzel, No Ordinary Disruption.

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

consumption. Canada may no longer be competitive selling into

most Chinese manufacturing sectors, but there may be considerable

potential to sell services into both Chinese manufacturing and services

sectors. Since sectors run by state-owned enterprises such as

telecommunications are less competitive and dynamic than non-stateowned

sectors, 7 potential may lie in examining services opportunities in

sectors that are not state-owned.

Chart 2

Mexico and China Will Lead Trade Growth

(average annual growth in real exports, 2015–19, per cent)

Mexico

China

U.S.

U.K.

South Korea

Euro zone

Rest of world

Brazil

Japan

0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5

Source: The Conference Board of Canada, Canadian Interactive Trade Forecast—2015.

We expect China to be one of Canada’s fastest-growing export markets

over the coming years, as shown in Chart 2, and one of Canada’s most

important future markets, as Table 2 indicates. Chinese demand for

energy—whether LNG, oil, renewables, or clean technology—should

be robust.

7 Brandt, Policy Perspectives From the Bottom Up.

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Table 2

Canada’s Most Important Global Markets

(high country potential and high Canadian engagement)

GDP

($ billions)

Population

(millions)

GDP

(% world)

Population

(% world)

Tier 1 17,348 319 23 4

United States 17,348 319

Tier 2 13,307 1,429 18 20

China 10,357 1,364

United Kingdom 2,950 65

Tier 3 14,948 606 20 8

Brazil 2,347 206

France 2,834 66

Germany 3,874 81

Japan 4,602 127

Mexico 1,291 125

Tier 4 9,462 1,474 12 20

Australia 1,443 23

Belgium 534 11

Hong Kong 291 7

India 2,051 1,295

Italy 2,148 61

Netherlands 881 17

South Korea 1,410 50

Switzerland 704 8

(continued …)

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

Table 2 (cont’d)

Canada’s Most Important Global Markets

(high country potential and high Canadian engagement)

GDP

($ billions)

Population

(millions)

GDP

(% world)

Population

(% world)

Tier 5 5,239 424 7 6

Chile 258 18

Indonesia 889 254

Norway 500 5

Peru 203 31

Saudi Arabia 746 31

Singapore 308 5

Spain 1,407 46

Taiwan 530 23

United Arab Emirates 399 9

Total all 5 tiers 60,303 4,251 80 80

Note: GDP and population represent the size of the economies listed.

Sources: The Conference Board of Canada; International Monetary Fund; World Bank.

In terms of growth potential, India may have surpassed China in the

near term. Its challenge will be to maintain the economic policy reform

momentum and ambitions under Prime Minister Modi, opening up its

economy to international trade and investment while ensuring that its

fiscal and monetary policies are sustainable. Canada’s trade statistics

suggest limited engagement by Canadian firms in India, which can be a

difficult market in which to do business. Nevertheless, India has growth

opportunities in sectors in which Canada has proven expertise, including

automobiles, machinery, transport, education, energy, communications,

retail, food products, and financial services. 8

8 Goldfarb, Hottest Prospects for Canadian Companies in India.

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Canada’s most

important future

markets include the

U.S. and Europe.

In sharp contrast to India’s promising growth potential, two of the

BRIC members—Brazil and Russia—have recently “hit the wall.” Both

countries were sharply affected by the end of the commodity supercycle

and the drop in oil and other commodity prices. Both countries

experienced deep recession in 2015 that is spilling into 2016, and neither

has an economic program that will easily restore diversified and robust

economic growth. Political forces in both countries are adding to the

complexity of effective economic policy-making. The BRICs are thus

fracturing as an entity and the clever acronym may have run its course.

Which country is the next China? It is unlikely that China’s spectacular

rise since the early 1980s can be replicated by any one country, but

there are many strong-growth countries in south and east Asia—Taiwan,

South Korea, Indonesia, Malaysia, and Thailand, to name a few—that

will complement China’s continued growth and deepen the economic

integration of the region. Canada grew its trade and investment with

emerging Asia during the 2000s, mostly driven by the commodities

supercycle. Moreover, while the absolute value of Canada’s trade with

Asia has increased, Canada’s market share in the region has declined. 9

Other industrialized countries have done a better job than Canada of

boosting their market share by selling more services to those markets.

So far, Canada has engaged in limited trade and investment with India,

other growth markets in Asia, and emerging markets in Latin America,

Europe, the Middle East, and Africa. However, links to emerging markets

have been growing. Several standout Canadian companies interviewed

by The Conference Board of Canada have successfully grown their

businesses in emerging markets, in sectors from financial and IT

services to food manufacturing. 10 In particular, Canada has grown its

links with Mexico, which we expect to be the fastest-growing export

market for Canada in the near future. (See Chart 2.)

9 Palladini, Raising Our Game Across the Pacific.

10 Audet, Selling to the World.

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Canada’s New Trade and Technology Paradigm

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When the CETA

kicks into effect,

it will reduce the

impact of many

barriers to trade,

investment, and

labour mobility.

Using indicators of country growth potential and Canadian business

potential, we find that Canada’s most important future markets include

the U.S. and Europe as well as several fast-growth economies that are

lower on the radar screen. 11 Countries such as Peru and Indonesia

represent important potential since they have some complementarity with

Canadian business strengths and have experienced rapid GDP growth

over the last five years. (See Table 2.)

Fading Potential for Most Industrial Countries

In contrast to emerging market growth of the past decade and more,

the growth performance and underlying potential for most industrialized

countries has faded, in some cases badly. The European Union and

Japan have both seen significant slippage in economic growth, and are

facing an extended period where stagnation or feeble growth is more

likely than robust growth.

Japan continues to debate and pursue policy reform under “Abenomics.”

However, the country’s crushing public debt burden, ongoing battle

with deflationary forces, and uneven commitment to structural reform—

combined with an aging and shrinking population base and labour

force—have limited the ability to boost Japan’s sustained growth beyond

1 per cent annually. Europe continues to grapple with excessive public

debt and fiscal austerity, but has not embraced a comprehensive and

active market-based, structural policy reform agenda. That said, these

large, wealthy markets still represent considerable potential for Canada.

(See Table 2.)

Britain’s June 2016 vote to exit the EU (Brexit) threatens to unravel

the entire EU project and certainly negatively impacts the European

economic outlook, perhaps for years to come. Despite Europe’s

slower-growth path, it is still a wealthy market of more than 500 million

consumers. If the Europeans are not too distracted by Brexit in the near

term, Canada and Europe may proceed to sign the CETA as planned in

the fall of 2016. If the CETA kicks into effect, it will reduce the impact of

11 Palladini, Canada’s Most Important Future Global Markets.

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More globalized

production means

that Canadian

companies that are

linked into global

markets may be

more vulnerable to

global risks.

many barriers to trade, investment, and labour mobility between Canada

and the European Union, opening up opportunities. Canadian companies

will need to pick their spots carefully, however. According to a recent

Conference Board analysis, 12 southwest Europe’s larger consumer

markets—France, Italy, and Spain—may appear to offer the best

Canadian business opportunities at first blush, but are relatively closed

and difficult to navigate. Still, they represent important potential in the

medium term as their growth catches up to the rest of Europe.

Since the smaller Nordic and Baltic countries are the most open and

integrated into the global economy, they may also represent important

longer-term trade and investment potential.

The U.K. already has a strong commercial relationship with Canada and

serves as an important market with strong demand potential, though

that market is mature and highly competitive and will likely be wrestling

with the after-effects of Brexit for some time. In any case, the U.K. and

Canada may need to negotiate and sign their own, CETA-like deal.

The New Global Business Model

Rise (and Fall?) of Global Value Chains

Declining communication costs and the ability to digitize production

have made global coordination easier and more attractive. As a result,

companies have rapidly accelerated their use of global inputs and

services during the 2000s, locating each aspect of their production chain

in the most optimal global or regional location.

For Canada, this trend toward optimizing global value chains has meant

that competition at each stage of the chain has intensified. Canadian

companies need to have a world-leading product and service offering to

be able to succeed in global markets. Even Canadian companies that

sell only at home often face global competition.

12 Colijn and Goldfarb, Understanding the Four Faces of Europe.

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Canada’s New Trade and Technology Paradigm

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Traded services

represent half of

global trade and

close to half of

Canada’s total

trade.

At the same time, more globalized production means that Canadian

companies that are linked into global markets may be more vulnerable

to global risks such as those associated with climate change, natural

disasters, or geopolitical risks. This may cause Canadian companies to

diversify their supply sources to protect against such risks. Companies

may find themselves intertwined with countries and counterparts that

have different norms than our own. Companies will need to ensure

that their entire supply chain meets reasonable working conditions and

ethical standards to, at the least, protect their reputations, which can be

destroyed quickly and easily. They will also need to innovate constantly

and find local partners they can trust to protect their ideas and products

from theft of intellectual property, both in person and in cyberspace.

Globalized production also strengthens the importance of public policies

that do not create unnecessary barriers to imported inputs. In the face of

cross-border or global supply chains, shutting out imported inputs hurts

Canada’s competitiveness.

There have been signs recently that the growth of global value chains may

be plateauing. Canadian trade has actually grown faster than the global

average in recent years, largely on the strength of services and resources.

Meanwhile, global trade in products has been growing more slowly than

world GDP in recent years. Some of this is due to declines in commodity

prices, though there has also been a decline in trade for both intermediate

inputs and finished goods. This could reflect some maturation of global

value chains and relocation of value-chain activities closer to consumers.

However, the slowdown in global product trade does not necessarily mean

that globalization is tapering off. As we discuss below, there has been an

explosion in the flows of services, data, and people that are not reflected

in traditional product export data.

The ever-present question is where Canada’s international business

activity places it in terms of the status and influence in global value

chains, and what the country’s businesses and policy-makers need to do

to ensure Canada anchors itself in stable, higher-value activities.

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Rise of Services Trade

Distance now matters less for selling services than it once did.

The ability to digitize information and communicate globally has

made it easier and more attractive to sell many kinds of services in

global markets.

Traded services get less attention than resources or manufactured

exports, but they should not be merely an afterthought since they

represent half of global trade and close to half of Canada’s total trade

when it is measured according to the value it adds. 13 Moreover, services

have been the most dynamic part of global trade in recent years. There

has also been a continued shift toward foreign direct investment (FDI)

in services, with services accounting for 63 per cent of global FDI stock

in 2012—more than twice the share for manufacturing. 14 Canada has

taken some advantage of global growth in services: three out of the five

fastest-growing Canadian exports over the last decade were financial

services, computer services, and management services.

Demand for high-value services, such as computer, IT, technical, and

scientific services, has been both strong and growing extremely rapidly. 15

(See “High-Value Business Services.”) The U.S. is the largest consumer

of high-value services in the world, and Canada has established

links to the market, particularly in computer and information services.

Meanwhile, Europeans have solid demand for professional and technical

expertise, but Europe is a mature market with slower growth prospects,

especially post-Brexit. 16 There are exciting opportunities for fast growth

beyond traditional markets. For example, Asian markets for high-value

services are both large and fast-growing. 17 Despite common perceptions

of China as a manufacturer, China’s services sector will soon exceed

13 Palladini, Spotlight on Services.

14 United Nations Conference on Trade and Development, World Investment Report 2015.

15 Goldfarb and Palladini, Becoming a Services Superpower.

16 Ibid.

17 Ibid.

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its manufacturing sector in size. 18 Canada is not yet fully tapping into

these opportunities, yet it has proven strengths in many areas that are in

high demand, such as engineering and architectural services associated

with Asia’s massive infrastructure needs.

High-Value Business Services

High-value business services have been linked to product exports that are more

competitive, increased business profitability, and higher-paying jobs. High-value

business services include:

• communications—e.g., telecommunications, Internet access provisions, and

maintenance of networks;

• computer and information—e.g., technology support, software development,

database services, and news agencies;

• intellectual property—e.g., royalties and licence fees, trademarks, copyrights,

patents, manufacturing rights, franchises, and the use of produced manuscripts

and films;

• financial services—e.g., lines of credit, foreign exchange transactions, consumer

and business credit services, and brokerage services;

• insurance and pensions;

• R&D—e.g., applied research, and experimental development of new products

and processes;

• professional and management services—e.g., legal, accounting, advertising,

and management consulting;

• technical and scientific services—e.g., architectural, engineering, scientific, and

services incidental to mining, oil and gas extraction, agriculture, and forestry

Source: The Conference Board of Canada.

The rise of services is not about the end of manufacturing. Services

represent some of the highest-value contributors in production chains.

Activities such as R&D that are performed at the beginning of the

18 Brandt, Policy Perspectives From the Bottom Up.

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production chain, as well as activities performed at the end, tend to add

more value to the product than the processing activities that occur in the

middle of the production chain. (See Exhibit 1.)

Exhibit 1

“Smiling Curve” of Production Value

Marketing

Higher

Valueadded

Research and

development

Intellectual

property

Design

Purchasing

Manufacturing

Transportation

and storage

Wholesale

and retail

Maintenance,

training,

and support

Financing

options

Lower

Time

Production chain

Source: Good Service is Good Business: How Services Add Value to Canadian Goods Exports, The Conference Board of Canada, adapted

from Stan Shih.

Conference Board research shows that services represent almost onethird

of the value of Canada’s manufactured exports. 19 Understanding

this reality means that, rather than focusing exclusively on ensuring

manufacturing per se takes place in Canada, leaders should aim for

Canadian activities that contribute high value along the production value

chain. This could be accomplished through research and development,

marketing, training, or by adding technology services to manufacturing

19 Palladini, Good Service is Good Business.

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Digitization makes

it easier to invest

abroad.

activities, as well as manufacturing itself. It could also be done by adding

value to Canadian-made products or services, or by adding that value to

U.S. or global value chains.

Rise of Foreign Affiliates and Foreign Direct Investment

A related trend is the rapid acceleration of direct investment abroad,

boosted by the emergence of developing economies as key investment

players. This represents a huge shift. Exports and FDI relative to GDP

are now higher than ever before, and the global stock of FDI is now

about $US 5 trillion more than exports. 20 According to the United Nations

Conference on Trade and Development (UNCTAD), global FDI inflows

grew by more than 10 per cent in 2015, and will continue to grow in 2017

and 2018. 21

Companies invest abroad to expand their access to local markets and

consumers, secure resources and key inputs, and tap into manufacturing

capabilities and technologies. Despite technological advances that

make it possible to digitally sell services anywhere in the world, many

companies see the importance of using foreign direct investment

to set up a local presence elsewhere to sell into local and global

markets. In fact, digitization makes it easier to invest abroad, coordinate

operations, and share data globally. The reverse also holds true: global

companies can more easily invest in Canada and coordinate with their

headquarters elsewhere.

Many Canadian companies are actively selling into global markets via

their affiliated offices in global markets. Foreign affiliates are particularly

important for longer-distance trade: Canadian companies sell more via

their non-U.S. foreign affiliates than via U.S. affiliates. 22

Services, in particular, depend on face-to-face relationships, so it is

not surprising that Canadian companies sell twice as many services

via foreign affiliate sales—such as computer downloads—compared

20 Grant, Strengthening Symbiosis.

21 United Nations Conference on Trade and Development, World Investment Report 2015.

22 Koldyk, Quinn, and Evans, “Chasing the Chain.”

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to direct services exports. Research by the Organisation for Economic

Co-operation and Development (OECD) suggests this business model

is true even for the most borderless of activities such as IT services.

Selling services in person is better, and that requires a foreign presence.

Explosion in Digital Globalization

While global flows of goods as measured by traded products have

flat-lined in recent years, flows of data have been accelerating at a

phenomenal pace. We can translate all kinds of real-world information

into strings of zeros and ones, and send the information anywhere in

the world—instantly. Cross-border bandwidth has grown 45 times larger

since 2005, and it is projected to grow ninefold in the next five years as

digital flows of commerce, information, searches, video, communication,

and intra-company traffic continue to surge. 23 These data flows are

now central to traditional forms of trade in products, as well as trade in

services, new technologies, and digital trade. While cross-border data

flows were negligible just 15 years ago, today the combined effects of

data flows on GDP now exceed the impact of global trade in goods. 24

Moreover, according to the McKinsey Global Institute, we have not

seen anything yet; the Institute expects global data flows to explode.

See Chart 3.

Airbnb is one example of a new type of business that has emerged

because of the ability to digitize information and send it globally instantly.

Airbnb connects people who want to rent homes, including in another

city or country, with those who want to rent their homes. Essentially,

Airbnb is a technology company that is upending the hotel industry.

Although the company does not own a single hotel room, it has a market

capitalization similar to that of the Hilton Hotel chain.

There are many similar examples. One Canadian example is Vancouverbased

Global Relay, which specializes in software that archives data

to comply with financial regulations in the U.S. and globally. With the

23 Manyika and others, Digital Globalization.

24 Ibid.

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Canada’s New Trade and Technology Paradigm

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The next

generation

of Canadian

entrepreneurs will

face more intense

competition.

emergence of e-mail, messaging, and other forms of data, this company

has developed software that allows bankers to easily archive and retrieve

their messages.

Chart 3

Global Data Flows Exploding

(total cross-border bandwidth use, 000s of gigabytes per second)

2,000

1,800

1,899

1,600

1,400

1,200

1,000

800

600

400

200

0

5 46

211

2005 2010 2014 2020

Sources: McKinsey Global Institute; The Conference Board of Canada.

Another implication of this explosion in digital globalization is the

dramatic fall in the costs of entering international markets. These costs

have fallen both for Canadian companies and for companies worldwide.

It is much less costly and possible for companies to be “born global”

or “micro-multinationals”—for example, via websites such as eBay,

Amazon, Etsy, or Alibaba. Even the smallest enterprises can be born

global: 86 per cent of worldwide, tech-based startups surveyed by the

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McKinsey Global Institute report some type of cross-border activity. 25

Toronto-based RIWI Corp. is a good example. This survey company,

which had 15 staff in early 2016 and is growing rapidly, provides survey

data from countries around the world to international organizations and

Fortune 500 companies. It does very little business in Canada, which is

a new phenomenon. In the past, companies typically built up a domestic

following before going global. Not only is it possible to go global from

the start, but some companies must go global to make it. For example,

margins on digital products are relatively low, so companies making apps

need access beyond the Canadian market to be able to survive.

As a result, the next generation of Canadian entrepreneurs will have

easier access to global markets, but concurrently face more intense

competition. Larger, more established Canadian companies may

face competition without much warning from competitors in both the

developed and emerging world.

All companies, large and small, will have access to an unprecedented

stream of new ideas, data, and technologies. Canada generates its

own ideas and innovations, but more often relies on imported ideas

and technologies. 26 Taking full advantage of these new ideas, data,

and technologies will be central to positioning Canada for the next

era in global trade. Issues now include protecting digital identities and

reputations, safeguarding private information, and protecting intellectual

property (IP). As the economy becomes more virtual- and knowledgebased,

IP will become increasingly important and determine where the

greater value is in global value chains.

25 Ibid.

26 Curtis, What’s Not in the TPP.

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Emerging Disruptors and Opportunity Creators

Technology

The pace of technological advance has accelerated, shortening the

lifespan of ideas, business models, and market positions. 27 Several

promising technologies have the potential to upend international

business models and challenge the status quo. (See “Disruptive

Technologies.”) These technologies present a threat to Canada’s

businesses that fail to anticipate or adapt, but they also represent a

massive opportunity to become technology leaders and develop stronger

competitive positions in global value chains.

Disruptive Technologies

Here are 12 technologies that have the potential for massive disruption in the

coming decade:

• next-generation genomics: low-cost gene sequencing, and synthetic biology;

• advanced materials: materials designed to have superior characteristics such as

strength or weight;

• energy storage: devices or systems that store energy for later use,

including batteries;

• advanced oil and gas exploration and recovery: techniques that make extraction

of unconventional oil and gas economical;

• renewable energy;

• advanced robotics;

• driverless vehicles;

• 3D printing;

• mobile Internet;

• Internet of Things: networks of cheap sensors in everyday objects;

• cloud technology: networks of data centres that deliver services over

the Internet;

• automation of knowledge work: intelligent software systems.

Source: Dobbs, Manyika, and Woetzel, No Ordinary Disruption.

27 Dobbs, Manyika, and Woetzel, No Ordinary Disruption.

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Driverless vehicles

represent a

huge opportunity

for Canadian

companies.

Each technology presents unique challenges and opportunities. Some

Canadian companies have been pioneers in using cloud computing,

in which people share software and collaborate on files through the

Internet. Using the cloud makes it possible for companies of all sizes

to boost their efficiency. However, the cloud is mainly controlled by

large companies that are primarily based in the U.S., in contrast to the

development of the publicly accessible Internet. 28 This potentially puts

Canada’s mostly smaller companies at an IP disadvantage.

Another technology that upends traditional economic norms, threedimensional

(3D) printing, may change where Canada’s manufacturing

activities are located. This type of additive, on-demand manufacturing

means customized manufacturing produced close to the customer can

cost as little as those that are mass-produced, making economics of

scale less important. This could lead to shorter supply chains, with the

production of goods closer to end users.

Automated vehicles are another emerging technology that Ontario and

other jurisdictions are pilot testing. If governments can keep up with an

appropriate regulatory framework, driverless vehicles—including large

transport vehicles and smaller personal vehicles—could lead to big

changes in the way trade facilitators (e.g., ports and airports), companies,

and individuals organize their activities. Ports, for example, could operate

around the clock in theory. While driverless vehicles are undoubtedly

a threat to taxi drivers, truckers, and others who drive for a living, they

could represent a huge opportunity for Canadian companies to develop

the huge amounts of computer code for these vehicles. They could also

be a part of the low-carbon economy, using fuel more efficiently for each

kilometre driven.

The Internet of Things, in which cheap sensors are attached to almost

everything, is another important emerging technology. Data are being

constantly recorded, and nearly all Canadian companies and their global

competitors will be data and technology companies. Manufacturers will

have huge amounts of data to harness for innovation and new products

28 Curtis, What’s Not in the TPP.

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Advanced robotics

will certainly

reduce the need

for unskilled labour.

and services. One technology already under development is that of a

“digital twin.” In the past, businesses would develop a product, run the

prototype, and then ship it. If problems developed, the company would

not find out until someone wanted a replacement six months later; in

the meantime, it would continue to develop products with the same

defects. With a digital twin, each physical product has a perfect virtual

replica. When you ship the physical product, the company keeps a digital

representation of what it has gone through, what it is going through now,

and how well it is working. This enables the engineering and research

department, as well as sales and marketing, to interact with this digital

understanding of what is happening with a physical product that could

be thousands of kilometres away. This enables the company to identify

problems instantly, and change the process immediately for ongoing and

new production. This is just one example of how some manufacturing

companies are moving closer to full digitization of their activities.

The Internet of Things also means that all of these data are likely to be

sitting in data centres and in the cloud, heightening the importance of

data storage technologies and unrestricted data flows. Given the growth

of data flows, the question of who owns, stores, evaluates, and controls

data will become increasingly important. Highlighting the value of owning

data are stalled partnerships between car manufacturers and technology

companies to produce automated vehicles. A key issue is who will have

access to the massive amounts of logistical and customer behaviour

data that automated vehicles will generate.

Technological developments such as advanced robotics will certainly

reduce the need for unskilled labour. Machine learning has reached

new heights, and even knowledge work is likely to become more

automated. In 2016, Google’s AlphaGo technology, which is modelled

on the human brain, defeated the best “Go” player in the world. The

defeat was significant since the world’s best Go players rely much

more on intuition than chess players. This is because there are about

10^700 (10 to the power of 700) possible positions in which pieces can

be arranged on the Go board. Defeating the world’s best Go player,

therefore, cannot be done by using brute computing force to determine

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Managing the

impacts of climate

change can be

a competitive

business

advantage.

all of the possible moves; rather, it relies much more on learning over

time from its weaknesses. The techniques behind AlphaGo represent a

huge advance in artificial intelligence, and are already leading to major

advances in facial-recognition technology with better-than-human results,

advanced robotics, real-time universal voice translation, and many other

applications. This is just one example of advances in machine learning

that could start to replace some aspects of knowledge work, raising both

technological opportunities for Canadian companies and challenges to

adapt to these new norms and technologies.

Technology companies have also developed, or are developing,

advanced virtual reality or augmented reality programs in which people

are completely immersed in an experience with full 3D content. This

can have applications for cultural industries, education, medicine, and

trade, potentially making it easy for people to interact with each other

across global markets. Another area that could transform trade, including

Canada’s, is emerging financial technologies. These companies are

typically populated by employees from outside the traditional financial

sector—computer science, engineering, or IT—and typically based

in technology hubs such as San Francisco, London, Tel Aviv, Berlin,

Singapore, or New York City. These companies do not typically look

like traditional banks or insurers, though many banks—including

Canadian banks—are integrating financial technology (fintech) into their

offerings. TransferWise is one example of a fintech company. It is a

global app-based brokerage, highly active in Europe, and launched in

Canada in 2016. TransferWise connects people who want to transfer

money from one country to another with others who want to do the

opposite transaction, allowing each party to simply transfer money

to others within their country. This avoids foreign exchange fees and

dramatically reduces the time it takes to transfer money from four to

five days to seconds. These types of innovations in financial technology

may transform the way trade takes place to newer, more nimble players

outside of traditional banking.

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Climate Change

Climate change is an accepted reality and something governments

are increasingly committed to addressing. At the same time, managing

sustainability and the impacts of climate change can be a competitive

business advantage. Canada has proven expertise in climate-friendly

technologies, 29 representing an important opportunity as policies

designed to stimulate such activities unfold.

Canada’s challenge will be to ensure that companies are able to seize

this challenge as an opportunity by helping to create opportunities and

foster demand for, and use of, climate-friendly technologies and services

in Canada and globally. Much of the public policy discussion in Canada

has been on the supply side—i.e., how to grow our capacity to create

and supply climate-friendly technologies and services. Less evident are

the Canadian policies and practices that will fuel demand for climatefriendly

technologies and services. These could include:

• government procurement practices;

• principles and standards for low-carbon private sector procurement;

• domestic business financing by state-owned organizations;

• principles and standards for business financing from the private sector

and cooperatives;

• international trade and investment financing, and insurance by stateowned

organizations;

• innovative regulations that help shift the economy and society toward

more efficient energy use in areas such as:

– urban and community design and density;

– standards for new structures and refits;

– the transportation grid and public transit;

– vehicle regulation—heavy transport (trucks) versus light vehicles.

29 Goldfarb, Global Climate-Friendly Trade: Canada’s Chance to Clean Up.

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There are

concerns about

the protection

of Canadian

intellectual property

under TPP.

Redefining Canadian Trade Policy

Enhancing the Traditional Framework—Trade/

International Policies

Given the evolution in global value chains, the rise in services trade,

foreign affiliates, and the acceleration of global data flows, a focus

strictly on export policies and programming makes little sense. A more

comprehensive trade strategy that aligns with the reality of global

business today and tomorrow is critical. The new federal government is

reviewing many aspects of economic policy, including trade. So where is

Canada’s trade policy going, and where should it go?

The CETA free trade deal with the European Union was more or less

irreversible until Brexit. Canada should now work hard to finalize and

implement CETA. Although EU countries will be distracted by Brexit

and its implications, the EU will have an even stronger incentive to

boost growth and complete trade deals now. A separate Canada–U.K.

deal might be negotiated later. Both parties will benefit from the deal,

which would provide a modest boost to underlying growth potential in

Europe and Canada. The Conference Board of Canada had undertaken

extensive research on what CETA means for Canadian businesses,

which shows that the capacity of individual firms for innovation and

adaptation will determine which ones will be able to take advantage of

free trade with Europe. 30

The other big deal is the Trans-Pacific Partnership (TPP), which is a

modern trade deal with wide coverage. TPP is not a perfect deal, as

few things are. Some of its specific elements are problematic, notably

Canada and Mexico having a shorter time period than the U.S. for

eliminating auto sector tariffs on Japanese imports.

There are also concerns about the protection of Canadian intellectual

property under TPP. Some are concerned that the IP provisions negotiated

in the TPP will have a negative impact on Canadian businesses and

the economy. The TPP does not create IP policy but rather entrenches

30 Goldfarb and Sui, For Innovators Only; Chu and Goldfarb, Stronger Ties.

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Canada could be a

major global player

in services trade.

national IP policies in the treaty. 31 This is raising concerns since national

IP systems generate many low-value patents that can encourage, for

example, patent trolls and ultimately reduce innovative activity. 32 These

national rules, and their enforcement, may work against the interests of a

small economy like Canada, which imports more IP than it generates. 33

Another important issue is that the IP rules in the TPP do not promote

new types of innovation and economic activity such as digital trade, or

even new ideas in existing industries. Instead, the rules simply create

higher returns for those who already hold IP in industries such as

pharmaceuticals or film production. 34

What is clear is that as Canada’s trade and global trade becomes

increasingly knowledge-based, and as IP becomes incorporated into

trade deals, it will be critical to examine the impacts they might have from

Canada’s perspective. These rules have not been studied as deeply as, for

example, the impacts of tariff reductions on Canada’s economy. Moreover,

these types of rules will set the new standards for global trade. In addition,

given that innovation is changing in nature and transcends borders—and

Canada is a nation of mostly smaller businesses that are mostly importing

ideas and, therefore, buying IP rights—it will be critical to ensure that the

rules of global trade do not dampen Canadian innovation.

In any case, the TPP is not going to be re-opened for further negotiation.

The real decision will be made in the United States. If the U.S. Congress

ratifies the agreement, Canada would have little choice but to ratify as

well, in our view. Otherwise, countries like Japan, Mexico, and Australia

would have more preferential and wider access to the U.S. market than

Canada. We would essentially be shooting ourselves in the foot with our

dominant trading partner.

31 Curtis, What’s Not in the TPP.

32 Ibid.

33 Ibid.

34 Ibid.

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With CETA and TPP in place, Canada would have free trade deals

with most of the world that has a material impact on the Canadian

economy. What’s next? We see two overarching priorities for Canadian

trade policy.

The first priority is to deepen Canada’s trading relationship with the

United States, which is still our dominant trading partner. Tariffs with

the U.S were eliminated decades ago, however a wide variety of subtle

non-tariff or regulatory barriers continue to inhibit trade. These barriers

are particularly important to trade in high-end services such as finance,

IT, computing, media, entertainment, and professional services. Canada

could be a major global player in services trade, building on our strong

educational system and cultural and linguistic diversity. Easing the

movement of Canadians into the U.S., which is fundamental to delivering

high-end services, would be a great place to focus.

The second trade policy priority is China—the second largest national

economy and our second largest trading partner. Although Canadian

trade with China has grown in real terms, other nations’ trade with

China has grown much faster, particularly Asian countries. As a result,

Canada’s share of Chinese imports has been cut in half over the past

decade to only 1 per cent.

Without deeper trade engagement as part of a larger China strategy,

Canada’s trade and investment shares in China will continue to shrink.

Expanded and freer Canadian trade with China could be advanced either

by China actively seeking to become a party to TPP—once the current

participants have ratified the agreement—or through our own bilateral

negotiations. If we do nothing, however, Canadian trade with China is

likely to lose more market share.

Ultimately, the proof of the pudding will be in the eating—through

concrete policy action on existing and future international trade files,

and by Canadian businesses embracing the benefits of international

trade and acting upon improved access to foreign markets. If the new

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Business leaders

need to tap into

immigrant talent

better.

federal government pursues an active strategy to strengthen trade

linkages, Canada can use advances in trade agreements to underpin

economic growth.

Removing Remaining Barriers to Value Chains

Given the growing and sizable use of Canada’s foreign affiliates to

sell globally, especially beyond the U.S., it no longer makes sense to

narrowly focus on barriers affecting the exports of products. Canada’s

governments need to concurrently address barriers to exports, imports,

investment, people, and data.

For example, shutting out imported inputs hurts Canada’s ability to

compete in global or regional value chains. Although tariffs have fallen

considerably in recent decades, Canadian companies still face them in

several global markets, and even relatively low tariffs can have significant

effects. When each production task is carried out in a separate country,

products cross multiple borders, potentially encountering tariffs at

each one.

Positioning Canada to be a World Leader in

Selling Services

Canada’s next generation of trade agreements should be aligned more

with the reality of how businesses are and will be operating, including the

reality of traded services. To promote Canada’s trade in services on their

own or connected to products, Canadian leaders need to both eliminate

barriers to traded products, as well as the barriers to flows of people,

investments, data, and ideas.

Greater two-way people movement requires improved air transportation

access and fewer restrictions on mobility. This is particularly important

to take full advantage of the most time-sensitive and highest-value

activities in global value chains. One idea is to create innovation zones

or innovation visas 35 that foster the global mobility of people, which is

critical to the movement of services and ideas. These might remove

35 Ibid.

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barriers on entrepreneurs or technically skilled people for a period of up

to 10 years. 36 Canada could initially do this unilaterally, with appropriate

vetting and qualification, of course.

Canada could also do a better job of leveraging its immigrant talent to

bolster global sales of services (and products for that matter). Canada

now attracts large immigrant populations from precisely those countries

with which the government is keen to generate more trade: India and

China. Small and medium-sized enterprises (SMEs) owned by new

Canadians are more likely to export both to the U.S. and to other foreign

markets than similar businesses owned by non-recent immigrants. 37

Business leaders need to tap into immigrant talent better. Services tend

to be sold face-to-face to leverage the cultural and language knowledge

of immigrants. Governments need to assess gaps in the needs of

immigrant exporters more systematically, since they are typically wellconnected

in their countries of origin, but less so in Canada. Policymakers

also need to lay the groundwork to ensure that foreign students

are given strong opportunities and incentives to remain in Canada.

Services are mainly sold via Canadian affiliates abroad, so governments

should seek ways to make it easier for Canadian firms to become

established in foreign markets. The quid pro quo for supporting Canadian

investment abroad would be to provide greater openness to foreign direct

investment in Canada, review and reduce remaining restrictions and

barriers to foreign direct investment, and make the federal government

review process more transparent and systematic.

A living trade policy that is open and adaptable to new technologies

and systems will be critical. This means ensuring that trade deals adopt

a “negative” list approach, meaning they include everything unless

specifically excluded. Canada has advocated for, and made inroads in,

applying this approach in its recent trade deals such as the CETA.

36 Ibid.

37 Sui and Morgan, Selling Beyond the U.S.

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IP rules should

promote rather

than stifle

innovation.

In addition, collecting better data on Canada’s international trade and

investment must be central to these efforts. Leaders should build on

Statistics Canada and global efforts to improve data on trade in services,

including foreign affiliate activities.

Government policies aimed at boosting the success of manufactured

exports have typically focused only on manufacturing industries or

on international trade policies and promotion. Since services boost

the competitiveness of manufactured exports, policies also need

to address the underlying role that services play in global sales by

Canadian companies.

Rather than targeting policies to nurture specific industries, governments

should focus on trying to create the conditions to attract and maintain

higher-value activities along global value chains. It is more important to

focus on the value each service or other function adds than on the loss

or gain of specific manufacturing industries. 38

Facilitating Trade in Ideas

The growth of digital trade means that unrestricted data flows are

essential. Data flows are now fundamental to every kind of international

trade and investment—not just trade in virtual worlds or digital products.

This means such technologies are fundamental to Canadian companies’

global success. However, the focus of most Canadian research and

policy to date has been on more traditional trade facilitators and barriers.

Issues such as ensuring the smooth flow of physical trade across the

Canada–U.S. border, improving the state of port infrastructure, and

eliminating tariffs with our trading partners have dominated traditional

Canadian trade research and policy activities, as well as media attention.

To be sure, such issues remain important and, in fact, have strong links

to digital technologies. However, it is time we paid more attention to the

ways in which digital technologies are changing—or, in some cases,

not changing—Canada’s global opportunities across all types of trade

and investment.

38 Palladini, Good Service is Good Business.

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Canada should promote free data flows, subject to privacy and security

considerations, of course. Many countries limit the kinds of data that

can flow across borders, including requiring companies to locate servers

within their countries. This poses challenges to companies that rely on

cloud computing. To be sure, there can be legitimate privacy or security

reasons for countries to filter some types of cross-border data flows.

Often, however, barriers to digital data flows are for protecting domestic

companies (“digital protectionism”) or for clamping down on dissent.

Bans or threats to ban search engines such as Google can have wideranging

repercussions for global business.

Canadian companies and their counterparts around the world now

have access to an unprecedented stream of new ideas, data, and

technologies, and taking full advantage of these will be central to

positioning Canada for the next era in global trade. This is why it will

become increasingly important to get IP rules—and other rules affecting

innovation and access to new ideas—right in current and future trade

deals. These rules and policies should promote rather than stifle

innovation. IP rules can create incentives to innovate, though if the rules

are too stringent, they can discourage innovation.

Canada does not generate all of its own ideas and innovations, but relies

heavily on imported ideas and technologies. To continue to have access

to these new ideas, Canada will need to promote policies that balance

IP protection with innovation promotion. 39 Intellectual property rules and

other new issues addressed in next generation deals like the TPP and

CETA have not been extensively studied from a Canadian perspective.

While their impacts are still unclear, what is clear is the next generation

of Canada’s free trade agreements will include such provisions, and

these are likely to become the global standards. Canada will, therefore,

need to understand the economic, innovation, and trade implications of

such rules better, and work to ensure that policy-makers can preserve

space to develop policies that promote innovation without contravening

trade rules. As a net IP importer, Canada has a large stake in advancing

39 Curtis, What’s Not in the TPP.

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

It will be critical

for Canada to take

steps at home to

create a strong

framework.

international IP rules that promote new ideas rather than creating higher

returns for those that already hold patents (as currently happens under

national IP rules that are now enmeshed in the TPP and CETA). 40

Other restrictions and requirements that could be removed include:

• restrictions on foreign investment, particularly in communications

technologies and digital content;

• requirements to set up a local presence in order to sell in certain

markets. Countries may require search engines to be hosted within

a country. Rather than leading to spin off jobs, these could erode the

speed, flexibility, and cost advantages that cloud computing provides to

local businesses;

• requirements to “buy local”—governments may require foreign

companies operating in their jurisdiction to use local inputs, services,

or content. While this might appear to boost economic prospects, in the

long run it impedes local and foreign companies from adopting the best

technologies at the best prices, reducing company competitiveness.

These information barriers can be far less straightforward to tackle

than tariffs, but they may be even more important if Canada is to

take full advantage of global trade and investment possibilities in a

digitized world.

Ensuring Digital Adoption Across Traditional Strengths

All companies will need to be technology- and data-driven to succeed

in this next era. Canada should support technology adoption across its

traditional strengths in resources, services, and manufacturing. Many

would consider Canada’s relative strength in resource extraction to be

a “non‐digital” activity. However, digitization now makes it easier to sell

services globally and provides the tools to more effectively coordinate

global supply chains. This means Canadian businesses can use

40 Ibid.

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It is essential to

focus policies on

fast and reliable

connectivity.

digital tools to be more effective in global markets in activities such as

mining, as well as to sell their resource-related services more easily in

global markets.

Canada’s banking sector is another area of relative global strength. The

small number of players in the sector and highly prudential standards

can be a benefit. The small number of Canadian banks allows them

to invest heavily in technologies—such as those for online and mobile

banking—and to test these technologies extensively on a large group

of customers. Canadian banks can leverage this experience in new

markets, where they are already expanding. Similarly, Canada can

build on its professional services strengths in other areas in which it

has global expertise—such as engineering and waste management

services—now that the cost of coordinating such projects globally has

fallen dramatically, thanks to digital technologies.

A third example is Canada’s traditional expertise in making crossborder

value chains work, as has been the case for decades across the

Canada–U.S. border. Canada could become a leader in cross-border

logistics by adopting technologies and developing leading-edge practices

that allow for better coordination of global value chains.

Domestic Enablers of Trade

Trade policy can only do so much. It will also be critical for Canada

to take steps at home to create a strong framework so Canadian

companies can be globally successful. Sophisticated value chains

also exist within Canada, where there are still many subtle barriers to

the movement of people, capital, and goods between provinces. Key

areas to address include removing internal barriers to services trade,

foreign direct investment, interprovincial trade, and capital formation.

Barriers to foreign direct investment and interprovincial trade hurt export

competitiveness, as do other barriers affecting domestic competition in

both product and services markets. The new federal government has

identified this domestic policy area as a priority—but so have many

previous governments. The challenge will be to turn the desire to reduce

internal barriers into concrete action.

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

Enabling infrastructure is another key piece of the domestic trade

platform. Of course, investments in ports, roads, airports, and rail will

be critical, and Canada is now actively catching up with decades of

under-investment in infrastructure. Internet access is no less critical.

Since the next generation of global businesses will have huge amounts

of data, it is essential to focus policies on fast and reliable connectivity.

Improvements in computing will happen inside the cloud in data centres,

not inside computers. 41 This means Canada needs to provide ongoing

investment in the next generation of broadband infrastructure, in digital

literacy and accessibility, and on ensuring Canadians have the skills to

understand and interpret these data.

It may be tempting for government to leap in immediately and invest in

particular technologies that seem to be emerging as dominant. However,

since infrastructure investments are expensive, governments may be

better off waiting a bit and monitoring technological developments,

then making investments when it is clearer which technologies will win

the day.

Policy-makers will also need to revise regulations much more regularly

in response to these dramatic changes in the global and Canadian

business model, to ensure that public interests are addressed and

businesses can continue to thrive using the latest business models. A

principles-based approach allows for rapidly changing technologies.

As much as possible, policies also need to be interoperable with other

jurisdictions to best facilitate Canadian companies going global.

It is equally important to understand and ensure sufficient protection

against cybersecurity threats, which will become more commonplace

as data volumes skyrocket. If criminals are able to use malware to steal

information and identities, consumers and businesses will not have the

confidence to pay for their goods and services electronically, putting a

damper on international trade. In addition, international business would

be impaired if terrorists attacked communications infrastructure in an

important trading country.

41 “After Moore’s Law,” The Economist.

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The pace of technological change and resulting new business models

will lead to some people being displaced in the short term. Canada’s

governments will need to ensure that Canadians have the training and

skills to be able to adapt to such rapid changes.

The ability to measure and understand these new business models, and

how Canadian companies are faring, will be critical to effective policymaking

in Canada’s interest. Conventional export data fail to capture

the complexity of new global business models. An ongoing challenge

for Canada—and the world—is to measure these new business models

more effectively. This will mean more creatively harnessing new data

sources (big data) to identify how Canada’s trade is changing, as well

as enhancing and better promoting traditional data on traded services

and foreign affiliates. It also means that data needs to be shared better

within the Canadian government, across all levels of government,

and with international partners as all countries grapple with these

new developments.

Conclusion

The global economic environment that Canadian companies will face in

the coming years is changing rapidly and dramatically. Canada can no

longer rely on high commodity prices and the trade successes of the

past. As the U.S. economy rebounds, Canadian companies will have to

reinvest in their productive capacity, which may have been lost during

years of weaker U.S. growth. They will need to look beyond the U.S.

to both mature and emerging markets, and better leverage immigrant

Canadians who have ties with global markets.

Global data flows—almost negligible a short while ago—will explode

and drive new forms of trade, which require new policies, programs, and

regulations. However, the potential to generate new opportunities goes

beyond fintech and virtual products. Digitization is already reshaping

resource, manufacturing, and services companies in Canada and around

the world. All companies will need to think carefully about how to store,

assess, and leverage these immense amounts of data, and lead or

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

quickly adopt innovations that will make them relevant in today’s and

tomorrow’s data-driven economy. Moreover, the Canadian government

will have to adapt its trade strategy to assist companies for the next

generation of economic possibilities.

Tell us how we’re doing—rate this publication.

www.conferenceboard.ca/e‐Library/abstract.aspx?did=8088

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Acknowledgements

The authors wish to thank Pedro Antunes, John Curtis, Michael Grant, and

members of the Global Commerce Centre for their helpful comments, which have

helped shape this briefing.

About the Global Commerce Centre

The Global Commerce Centre helps business and government leaders

respond effectively to the changes in the global economy. The GCC provides

evidence-based tools and strategies to help companies succeed in global

markets, and brings together public and private sector leaders to discuss

effective solutions to global commerce challenges. For more information,

visit www.conferenceboard.ca/gcc.

Champion Level

Export Development Canada

Global Affairs Canada

Lead Level

Atlantic Canada Opportunities Agency

British Columbia Ministry of International Trade

Business Development Bank of Canada

Canada Economic Development for Quebec Regions

Federal Economic Development Agency for Southern Ontario

Innovation, Science and Economic Development Canada

Natural Resources Canada

Ontario Ministry of Economic Development, Employment and Infrastructure

Ministère de l’Économie, de la Science et de l’Innovation.

Scotiabank

Transport Canada

Partner Level

Bank of Canada

Business Council of Canada

Halifax Port Authority

Western Economic Diversification

Canada

Nova Scotia Business Inc.

Important note: These organizations do not necessarily endorse the research

conclusions of this report.

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Canada’s New Trade and Technology Paradigm

Finding the Right Policy Mix

APPENDIX A

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Appendix A | The Conference Board of Canada

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© The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material.

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For the exclusive use of Glen Hodgson, hodgson@conferenceboard.ca, The Conference Board of Canada.

Insights. Understanding. Impact.

Canada’s New Trade and Technology Paradigm:

Finding the Right Policy Mix

Glen Hodgson and Danielle Goldfarb

To cite this briefing: Hodgson, Glen, and Danielle Goldfarb. Canada’s New Trade and Technology Paradigm:

Finding the Right Policy Mix. Ottawa: The Conference Board of Canada, 2016.

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