The blurring of economic and diplomatic interests

OpenCanada.orgPablo Heidrich and Laura Macdonald | October 20, 2014

Earlier this month, Trade Minister Ed Fast delivered a speech to the Economic Club of Canada, focusing on how the government can help small and medium-sized enterprises (SMEs) to leverage new trade opportunities. In his speech in Toronto, Minister Fast elaborated on ways in which SMEs could take advantage of new trade deals and emerging new markets to expand their opportunities abroad. The speech was a follow-up to Canada’s new Global Markets Action Planthat was announced by Fast in November 2013.

Though Minister Fast emphasizes the benefits of new trade opportunities for Canada’s SMEs, overall, the way the GMAP has been framed indicates that the purpose of the government is deeper and more encompassing than simply raising exports — it is a possible redeployment of diplomatic assets from the political and development sides of DFATD to its commercial section. In turn, such blurring of economic and diplomatic interests could further erode Canada’s already diminished global reputation, with no guarantee that the economic benefits promised will actually materialize.

This month’s announcement was just the latest in a series of attempts to shore up the global position of Canada’s SMEs. The Global Markets Action Plan is itself a successor to the 2007 Global Commerce Strategy (GCS). That strategy identified 13 priority markets throughout the world. The GCS portrayed countries like China and India as the source of “tremendous market opportunities” but also “powerful new sources of market competition.” These so-called emerging economies are thus represented as both opportunities and threats.

The 2013 Global Markets Action Plan (GMAP) builds upon the earlier strategy but lays out an even more aggressive pro-trade agenda. The GMAP identifies more markets “that matter to Canadian businesses” and distinguishes between “emerging markets with broad Canadian interests” and “emerging markets with specific opportunities for Canadian businesses.”

It is hardly the first time that a Canadian government has recognized the importance of diversifying trade. In the 1970s, the Trudeau government’s famous “third option” also identified the goal of promoting new trade ties with the emerging new markets of the day. That strategy floundered, and was eventually scrapped by Mulroney’s Conservative government, replaced by the Canada-U.S. Free Trade Agreement. The financial crisis of 2007-2008 and the rise of powerful actors like the BRICs have led to a return to the diversification imperative.

Earlier in their mandate, the Harper Conservatives placed priority on achieving this goal through the signing of new trade agreements with a raft of new partners. Despite this aggressive strategy of trade deal signing, the Canadian economy remains very much in trouble. While world trade has grown by 70 percent in the 2000s, Canadian exports have only grown by 11 percent. Meanwhile, U.S. exports, for example, have grown by a full 100 percent in the same period and EU exports have grown by 87 percent.

In short, Canada is losing global market-share and doing so very quickly.

The new strategy represents an implicit recognition by the government that the invisible hand is not too effective in mobilizing SMEs’ participation in global trade, and that it requires a helping hand from government. Signing trade deals alone will not overcome traditional inertia of Canadian businesses accustomed to the U.S. market.

To address this gap, the GMAP identified the concept of “economic diplomacy” as the “driving force behind the Government of Canada’s activities through its international diplomatic network.”

The document states that Canada must be more “aggressive and effective” in the light of the “intense competition we face” and that “all diplomatic assets must be marshalled on behalf of the private sector in order to achieve the stated objectives within key foreign markets”. The strategy also refers to “putting boots on the ground,” a traditional military metaphor, although here it presumably refers to the boots of newly energized Canadian trade commissioners.

A major focus of the GMAP is the objective of expanding the involvement of SMEs in international trade opportunities, recognizing their important role in employment creation in Canada, and the fact that large firms are by far best equipped to take advantage of increased trade opportunities. Currently, while Canada hosts about a million SMEs, only about 40,000 of those businesses export at all, and only about 11,000 export to markets outside of North America. The plan lays out the ambitious goal of increasing Canada’s SME export presence in emerging markets from 29 percent to 50 percent by 2018, increasing the number of companies involved in exporting outside of North America to 21,000.

Fast’s most recent speech provides more details about how this goal is supposed to be reached. While small businesses in the past were able to go to agencies like Export Development Canada (EDC) to assist them with locating export opportunities, they apparently told the ministry that these services were confusing and hard to access. Fast states, “the job of a trade commissioner is not about sitting in a government office tower waiting for the phone to ring. Our trade commissioners are expected to be proactive on the front lines, helping to support Canadian companies, providing them with ‘on the ground’ intelligence regarding the regulatory system, legal framework and business environment they will experience when they enter a new market.”

As part of this strategy, Fast will travel across the country, hosting workshops for small businesses, “bringing Ottawa to Main Street.” Trade commissioners and agencies like EDC, the Canadian Commercial Corporation, the Business Development Bank of Canada will be urged to be more agile and responsive to the needs of EECs. As well, 25 trade commissioners will be “embedded” in business and trade commissioners across the country to serve a liaison function. Whether this strategy will translate into a significant increase in trade is questionable. The problems of exporting for small and particularly micro enterprises into new markets are not superficial, and not easily addressed, even if an army of newly energized trade commissioners vacates their Ottawa offices and places their boots on the ground.

Moreover, the way the GMAP has been framed indicates a deeper, and concerning, purpose.

When articulating the strategy in 2013, Fast stated that “all diplomatic assets must be marshalled on behalf of the private sector in order to achieve the stated objectives within key foreign markets.”

Taken at face value, this statement is alarming, implying that Canadian diplomats will abandon traditional efforts to promote such goals as peace, security, human rights, development and strong global institutions. Even if recognized as hyperbole, the statement implies that the GMAP represents new government thinking about how to position Canadian foreign policy, particularly towards the developing world.

Is this a redeployment of diplomatic assets of DFATD to its commercial section?

There are legitimate reasons to be concerned about this shift in ministerial resources.

As well, the design of the strategy suggests politics have infiltrated commercial diplomacy goals to an extent that undermines Canadian business interests. In Latin America, small markets such as Uruguay and Paraguay are designated as emerging markets with specific opportunities but other much bigger markets and much more important trading and investment partners for Canada such as Argentina, Ecuador and Venezuela are ignored. The same is true for Asia and Africa, where some markets are inexplicably absent and others are again inexplicably present. The only constant is that those countries presented as priorities have governments widely identified with conservative politics or neoliberal economic plans, while those absent are often more centre or centre-left and have less neoliberal policies. So, politics is undermining the map of opportunities for Canadian SMEs. A clearer explanation of how markets are chosen as priorities is needed to generate credibility for this policy.

In order to flourish in a changing global economy, Canadian businesses may benefit more from an industrial strategy that promotes the involvement of SMEs in a strategic fashion in global value chains than from renewed economic diplomacy. And Canada’s relationship with countries whose economies are growing rapidly may be better served by an expansive foreign policy aimed at identifying common interests than by a transparently self-interested policy.