OTTAWA: Canada's global trade presence may not be all it's cracked up to be, according to a Conference Board of Canada study.
Adding Value to Trade Measures: An Introduction to Value-Added Trade suggests Canada is less trade-dependent than previously thought, has a smaller trade relationship with the US than commonly believed, and relies on the services sector for a much larger share of its trade.
"These findings challenge some of the core views about what Canada trades, who it trades with and how much it trades," said Michael Burt, the Conference Board's director of industrial economic trends.
The dichotomy arises from conventional trade measures that do not accurately gauge transactions when more than one country is involved in the production of a product. Applying what the Ottawa-based research organization calls "value-added trade measures" suggests Canada's description may be less accurate than previously believed.
"Value-added trade may also help to explain in part why Canada was less affected by the recent global recession than other countries," said Burt.
The term refers to the increase in worth of a good or service due to a specific step in the production process. It eliminates double counting, which occurs when inputs cross borders multiple times before becoming a finished product; and it allocates the value embedded in a traded product back to its source. For example, an exported car contains a variety of inputs including raw materials, engineering services and even electricity.
According to the findings, Canada is less trade-dependent with its share of global trade falling from 3.1% to 2.9%.
Canada's trade mix is also different. Services account for about 40% of Canada's trade, compared to 16% using conventional statistics. Gaining increased prominence are business and financial services, as well as trade, transportation and communications services.
And Canada's trade relationships have changed, particularly with the US, which has declined from 69% to less than 62%. Other regions increase their share of Canada's overall trade, particularly Europe (up more than 2%) and Japan (up 1%).