Canada to look east in 2005 as disputes cast shadow over trade with U.S.
07:54 PM EST Dec 27
SANDRA CORDON
OTTAWA (CP) - With the loonie flying high against the American greenback, Canada will be casting a much wider net - reaching as far as Asia - for new investment and trade opportunities in 2005.
Trade officials will concentrate next year on expanding Canada's presence in India and China - two voracious economies. "With these markets expanding, this is where growth is going to be," predicts Trade Minister Jim Peterson, now marking his first anniversary in the portfolio.
But the minister insists the search for new trade opportunities far afield won't come at the expense of cultivating new American markets.
After all, he says, the U.S. absorbs 80 per cent of this country's exports, a sector that accounts for about 40 per cent of Canada's gross domestic product.
Such close ties have, however, proved to be a double-edged sword for exporters in 2004. They've been unnerved to see the loonie soar almost 40 per cent in value during the past two years.
So strong a dollar - now hovering above 80 cents US - makes Canadian products steadily more expensive, particularly in the mighty American market.
At the same time, exports into that market have been sideswiped by high-profile softwood and beef trade disputes which made the U.S. appear a little less welcoming in 2004.
All of those factors are making the prospect of a happy New Year less and less likely for a battered export sector.
"I've never had as many companies call me so worried about the dollar as I have in the past couple of months as it went up over the 80 cent (US) mark," said Jayson Myers, chief economist with Canadian Manufacturers and Exporters, the industry's lobby group.
The battered manufacturing sector shed more than 52,000 jobs since summer and one labour economist fears the strong loonie could cut much deeper.
As many as 400,000 jobs could be lost in the next three years if the loonie remains so strong, predicts labour economist Jim Stanford.
"It is quite wrong to conclude that Canada's economy has adapted successfully to the higher dollar," said Stanford, economist with the Canadian Auto Workers union.
"If anything, the evidence to date suggests that the fallout . . . will be worse than what we experienced in the early 1990s."
Although the export sector has managed to cope with the dollar's shocking rise this year, partly because of strong demand for Canadian commodities, experts say that resilience can't last.
"We're already seeing export sales turn down and manufacturing sales turn down with job losses . . . and that's going to be more of the condition for 2005 rather than this (year's) kind of surprising growth," said Myers.
While fears about the strong dollar linger, so do two high-profile trade tiffs that have cost Canadian firms billions of dollars.
The costly battle over Canada's softwood lumber exports continues to rage with no end in sight to the combined 27 per cent duties that have now cost the domestic industry about $4 billion in American penalties.
Even though Canada won several legal challenges under NAFTA tribunals and at the World Trade Organization, the U.S. administration - backed by a powerful lumber lobby - refuses to drop the penalties.
Peterson said he still hopes for a solution in the coming year and pledged to press the issue in January with incoming U.S. Commerce Secretary Carlos Gutierrez.
"I hope we can end (the lumber dispute) . . . get our money back and come to some kind of arrangement to prevent (future tiffs)."
A solution looks much more likely in the 18-month-old mad-cow dispute, which has already cost Canada's cattle producers $5 billion in lost sales since the first case of bovine spongiform encephalopathy (BSE) was discovered in Alberta in May 2003.
After initially slamming the border shut to all Canadian beef products, Washington partly re-opened trade in some items but live cattle are still turned away at border crossings.
But after U.S. President George W. Bush intervened in November, officials on both sides of the border now seem optimistic that a settlement could be found by spring.
Despite the high-profile disputes, trade officials insist they're not backing away from expanding trade across the border.
"This is not about diversification," away from the U.S., a trade strategy popular whenever cross-border relations seem especially strained, said a federal official.
But expanding Canadian investment and trade far beyond this continent is a priority for Prime Minister Paul Martin.
In his fall throne speech, Martin specifically such powerhouses as India and China - boasting a potential market of 1.3 billion consumers - as essential to ensuring Canadian prosperity.
"Canada has always been a trading nation, but never more so than today," said the throne speech, a blueprint for the Liberal government's priorities.
"It is therefore vital that we secure and enhance our access to markets, both in North America and the world."
To show he means it, Martin will lead a major trade mission in January to China - which boasts 1.3 billion possible consumers - as well as Japan and India.
And last month, the prime minister moved to mend fences with Brazil, another exploding market of 174.6 million consumers where Canada hasn't had a major presence.
Exports to Brazil in 2003, the latest available figures, were just under $1 billion while Canada imported $2 billion.
Trade with massive China hasn't been much better.
Canadians sold just under $5 billion to China in 2003 while importing almost $19 billion in goods.
Ottawa is wise "to take advantage of those new business opportunities," said CMA's Myers.
But it will take a very long time before any other market can even begin to rival Canada's links across the border.
"By far, the U.S. is the major market."
Still, the dramatic jump in the dollar is making exporters seriously review their strategies to find new ways of expanding in tougher times.
From an all-time closing low of 62.02 cents US early in 2002, the currency caught fire in 2003, jumping by more than 20 per cent and continuing its rise this year to peek above 85 cents in November.
"This year was surprising strong, given the runup in the value of the dollar . . . but I don't think 2005 is going to be nearly as strong," warned Myers.
© The Canadian Press, 2004
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