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Now, what can we sell to South Korea?


Canadians are familiar with such South Korean products as Samsung smart phones, LG household appliances, Samsung and LG high-definition TV sets, and Hyundai and Kia automobiles.

But what Canadian products would South Koreans be familiar with?

Lobsters?

There are few Canadian brands that would be known to South Koreans.

So while the Harper government boasts that the proposed Canada-South Korea free trade agreement will “create thousands of new jobs in Canada,” it may be that most of those jobs will be in commodities.

Coal, minerals and metals, lumber and wood pulp, beef, pork and canola, and lobsters and other seafood products are among the top exports from Canada to South Korea.

It’s not clear how the proposed free-trade agreement will change that very much.

Overall, the Harper government claims, the trade agreement will eventually increase Canadian exports by 32 per cent, or just over $1.1 billion, and boost the economy by $1.7 billion.

While any gains in trade and economic activity are welcome, these are not big amounts considering that total Canadian exports worldwide last year were about $480 billion and the economy was about $1.7 trillion.

Of Canada’s $3.4 billion in exports to South Korea last year, almost 75 per cent consisted of coal, minerals and metals, agricultural commodities, forest products and seafood.

In fact, coal for South Korea’s steel industry accounted for nearly one-third of our exports. Conversely, motor vehicles, electrical and electronic products and boilers and machinery accounted for about 78 per cent of our $7.3 billion in imports from South Korea last year.

We do, of course, export higher value products to South Korea, such as aircraft components, machinery, some chemicals and pharmaceuticals, instruments and tools, but the volumes are not large.

The trade agreement, by eliminating tariffs and reducing non-tariff barriers, will expand opportunities for Canadian companies, provided they have things South Koreans want.

But the trade agreement highlights an important Canadian weakness in international trade.

We are important exporters of raw materials and semi-processed products, which to be sure generate wealth and jobs.

But we have few large Canadian companies that can compete in high-value manufactured products.

The Harper government’s background document on the trade deal boasts that “if something can be manufactured, chances are a Canadian is producing it or working on ways to improve it.”

This is hype, not reality.

When was the last time anyone purchased a Canadian TV set, refrigerator, laptop computer or farm tractor?

Data from Statistics Canada shows that larger companies (250 or more employees) are more likely to be innovative, to export, to be engaged in global value chains, to use advanced technologies and to have some operations abroad.

But Canada appears to have a disproportionate number of small (20 to 99 employees) and midsize (100 to 249 employees) companies.

Moreover, the data show that for all enterprises, the proportion that introduced at least one type of innovation in a product or process in 2010-12 was lower than the proportion that did so in 2007-09.

This is the opposite of what needs to happen.

However, there was an increase in the proportion of enterprises that introduced an organizational innovation.

But “this shift towards organizational innovation may reflect enterprises choosing to reduce their costs by optimizing current operations through reorganization rather than introducing new logistics, distribution or production methods,” Statistics Canada says.

Likewise, according to Statistics Canada, Canadian enterprises seem to be pulling back on investments in advanced technology.

In 2012, some 36.5 per cent of all enterprises in surveyed industries invested in at least one type of advance technology in 2012, compared to 49.9 per cent in 2009.

Investment in advanced technology is an important indicator of innovation.

While Canada can count on growth in global demand for mineral, energy, food and forest products, this is not enough to sustain a high standard of living in Canada.

There is a need to focus much more on growing our knowledge-based companies.

At present, there is great attention to start-ups. But much greater attention needs to be paid to scaling up more of our established companies for global competition.

Small business has its place, but larger business is critical in the global marketplace.

It is one thing for government to travel the world signing trade agreements.

But if we fail to develop high-value Canadian companies that can take advantage of these trade deals, then the full potential of wealth and job creation gains will fail to materialize.

Economist David Crane is a syndicated Toronto Star columnist. He can be reached at crane@interlog.com.

 
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