1 Think Creative. Think Competitive. Think Bottom Line. Think Canada. The Canada – U.S. Trade Relationship Global Supply Chain Management Conference Plattsburgh,

1

Think Creative.Think Competitive.Think Bottom Line.

Think Canada.

The Canada – U.S. Trade Relationship

Global Supply Chain Management Conference

Plattsburgh, NYJune 15, 2010

Michael Flaherty Senior Trade Commissioner Canadian Consulate General Buffalo

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Real GDP Growth and Projections (%)

0.8 0.7

0.3

0.70.5

-0.5

3.1 3.2

1.81.6

1.0

1.71.9

-0.6-1.0

0.0

1.0

2.0

3.0

4.0

Cana

da

U.S.

U.K.

Fran

ce Italy

Ger

man

y

Japa

n

%

2010-11

2006-09

Canada has a Relatively Strong Economy Despite the Global Slowdown

Source: Consensus Forecasts, April 2010, Consensus Economics Inc.

Canadian Response to Recession

$13 Billion - Personal Tax Cuts

+$21 Billion – Infrastructure Investment

+$9 Billion – Housing Stimulus

+$9 Billion – Business Assistance Programs

$52 Billion 2009-2010 Stimulus

In Canada it was More Like an “Average” Recession………Why?

Auto-Making

Bankruptcies

Sectors Effected

Banks

Credit

Net Worth

U.S Response

$787 Billion stimulus

Banking, Automotive, Insurance bailouts

American Recovery and Reinvestment Act (ARRA)

Strengthened Buy-American restrictions Unintentional

consequences for Canadian Companies

Why is This Important?

•Canada is top export market for 35 U.S. States

•Canada-U.S. trade supports over 7 million American Jobs

•$675 Billion in bilateral trade is the largest in the world!

Canada-U.S. trade

Canada’s trade in goods and services with the

U.S. is more than twice the size of its trade with the rest of the world.

Source: Statistics Canaa

The U.S. #1 trading partner

= Canada

Distribution of U.S. Merchandise Trade 2008

17.7%

12.0%

10.8%6% 4.5%

48.9%

Canada

All Others

Japan

China

MexicoGermany

REGIONAL SHARES OF CANADA’S TRADE IN GOODS AND SERVICES, 2004 AND 2008

(PERCENT)

Exports Imports Total Trade

2004 2008 2004 2008 2004 2008

World 100.0 100.0 100.0 100.0 100.0 100.0

US 78.5 72.8 67.1 62.4 73.1 67.7

EU 7.7 9.3 11.2 11.6 9.3 10.5

Japan 2.3 2.4 2.9 2.6 2.6 2.5

OtherOECD

3.6 4.5 5.8 6.0 4.6 5.3

Non-OECD

8.0 11.0 13.0 17.4 10.3 14.1

Canada-NY Trade

•Merchandise trade (2008)

•NY exports: $14.2 billion

•NY imports: $28.3 billion

•Trade: $42.6 billion

Our Solid Foundation

… our trade is based on the fact that we make things

together!

35% of border shipments are intra-firm transfers

20% Automotives and parts The world’s largest

single integrated industrial value chain

50%+ of merchandise trade is materials and products (i.e. plastics, machinery, medicines, equipment) used as inputs for other goods

Geographic proximity

Many Canadian production hubs are closer to key US markets than corresponding American centres.

Of Canada’s 20 largest cities, 17 are within 100 miles of the border. Approximately 90% of Canadians live within this distance.

Mexico City

1000 km

500 km

Los Angeles

Denver

Houston

Atlanta

Seattle

Miami

New York

Boston

PhiladelphiaWashingtonBaltimoreDetroit

Chicago Cleveland

St. Louis

Pittsburgh

Milwaukee

San Francisco

St. John's

CalgaryVancouver

ReginaHalifax

TorontoMontréal

WinnipegCharlottetown

Edmonton

VictoriaOttawa

Windsor

QuébecFredericton

Saskatoon

Connectivity

Rail

11

Road

Power

Supply Chain Integration Supports a Huge Trade in Energy

• Largest supplier of energy,

• 92% of Canadian energy exports go to U.S. markets

• Completely integrated energy infrastructureNorth American Gas Pipeline Grid North American Crude Oil

Pipeline Grid

Supply Chain Integration

Canadian Owned Companies

• 49% of Canadian FDI goes to the U.S., • 16,000 Canadian owned companies in the U.S.• These companies depend on integrated supply chains

-Bombardier - 46% of suppliers are US firms-Boeing – 35 Canadian suppliers help produce aircraft

The size and diversity of our relationship hides a significant constraint…

Most of our trade flows through only a few border crossings14

Automotive Industry Benefits from a Highly Integrated U.S. – Canada Supply Chain

•Auto parts may cross the border 7 times before final assembly

•Integration has allowed both countries to specialize in different areas of expertise

•Assembly plants and major parts companies are clustered in Southern Ontario and Interstate – 75 to enable efficient integration of cross-border supply chains

•Detroit 3 operate high volume assembly plants in Canada, producing over 1.3 Million vehicles in Canada in 2008

•Canada is the largest market for U.S. vehicles, 36% of total vehicle exports

•U.S. is the largest market for Canadian vehicles, 25% of total vehicle exports

Case Study – Chevy Equinox

Case Study – Wastewater and Pipe Sector

•$6.2 B – 25% U.S. exports go to Canada•$2.1B U.S. trade surplus •Majority of both countries infrastructure projects depend on cross-border supply chains•Canadian innovations contribute to a cleaner environment and safe drinking water.

ARRA BA Restrictions

Canadian companies accustomed to “traditional” BA provisions on iron and steel in place since 1930s

ARRA extends BA restrictions “All manufactured goods used in

the construction, maintenance or repair of a public building or public work funded by ARRA be produced in the USA.”

Consequences of BA

Threaten to disrupt the highly integrated supply chains in the North America, making US and Canadian companies less competitive in the world market

Increased project costs

Delays in project start-ups

Unintended consequences - retaliatory protectionism could further disrupt trade and lead to further loss of jobs

BA’s Unintended Consequences: City of Salem, NJ

City of Salem, NJ water project

GE Water Systems USA providing equipment Water filtration equipment manufactured

by GE Canada

Salem had to apply for an EPA waiver; a cumbersome and expensive process Professional engineering and management

consulting firm to assist in the application process

EPA issued the waiver after eight weeks (June-August 2009)

Importance of Resolving the Issues

Millions of jobs have been generated through bi-lateral business agreements and relationships over decades

Secure and predictable access underpins our trading relationship. NAFTA is a fundamental example of this

Cooperation supports the global competitiveness of our exporters and is key to creating and sustaining employment in both of our countries

Permanent, reciprocal commitments under the World Trade Organization (WTO) Government Procurement Agreement (GPA) with respect to provincial, territorial and state procurement.

US is providing Canada with access to procurement by 37 states

Canada is providing access to procurement by all provinces and territories, except Nunavut, in accordance with GPA undertakings.

The Canada-USA Agreement on Procurement : Three Elements

The Canada-USA Agreement on Procurement : Three Elements

Until September 30, 2011 (when ARRA funds will all be spent): Canada has agreed to provide U.S. suppliers;

Access to construction contracts across the provinces and territories, as well as in a number of municipalities.

United States has agreed to provide Canadian suppliers;

Access to state and local public works projects under seven of the programs funded by ARRA with no BA restriction.

The Canada-USA Agreement on Procurement : Three Elements

Commitment to enter into discussions within 12 months with a view to expanding commitments on government procurement

Both sides agreed on a fast-track consultation process to engage consultations no later than 10 days after a request has been made

The Agreement Works for Both Canada and the US

With this agreement, we are sending a clear message that jobs are better secured by opening economic opportunities rather than by closing them – now and in the future

US and Canadian local, federal, and provincial governments can source from wherever makes the most business sense, increasing efficiency and finding the best solution for individual projects

ARRA funding can bring the quickest and biggest bang for the buck

Everybody wins