Category Archives: Trade and Treaties

Interview With a Canadian Trade Commissioner: Part IV

(At the end of September, I was fortunate to be granted an informal interview with one of the Canadian Trade Commissioners abroad. This is the last in a four-part series of articles based on that talk.)

One of the most interesting parts of out talk was learning about the various areas where the International Trade Office helps Canada. To be honest, before meeting with the Trade Commissioner, I thought their main role was helping to bring smoked salmon and Blackberries abroad (only half-joking). In fact, there are 5 main areas that the combined Departments of Foreign Affairs and International Trade operates. The last two categories, unfortunately, we didn’t get into great detail about.

Environment, Bioengineering, and Energy

As mentioned in part III, there are several foreign companies investing in the energy sector in Canada. This ranges from solar and wind farms to the oil sands.

The environment and sustainable energy is a focus, however, and the Department of International Trade is involved with endeavours like Globe Vancouver, a trade show and conference (dubbed “the Davos of Sustainability”) dealing with the link between business and the environment.

Agriculture and Food

Because it is less noticeable than a shiny Blackberry or a towering wind turbine, agri-food is sometimes forgotten, but it is a major component of international trade.

Regulation is important, and the exchange rate is a large variable. Because of the strong yen recently, Japan has increased its purchases of Canadian commodities like grain and canola oil.

Other large players in this category are seafood, meats, maple syrup, ice wine, and though some readers may not like to know this, horse meat to Japan, where it is a delicacy. (Don’t knock it till you try it!)

High Tech, ICT, and Medical

Information and communications technology (ICT) is a large component of the trade between Canada and other countries, and RIM is only a small part of the pie.

Within ICT, Canada and Japan have worked together on Intelligent Transportation Systems (ITS). This is technology using Middleware to link smart cars and smart roads. These systems are being designed to help with fuel efficiency, and can reduce traffic accidents and congestion.

Companies like Bombardier, Bell Helicopter, and Toyota also fit into this category, as the aerospace and automotive industries are large links between Canada and Japan. The cities of Hiroshima and Montreal, for example, are trying to deepen bilateral ties.

Building and Consumer Products

Canada is considered and advanced housing materials provider, exporting both unprocessed and cut lumber, insulation, flooring, and pre-fabricated components such as cabinets, doors and kitchens.

General Economy and Culture

All the other odds and ends of trade, as well as the areas that fall under the jurisdiction of the Department of Foreign Affairs.

Through these 5 categories the Department of International Trade plays a major role in connecting Canadian businesses to the world.

Closing Thoughts

Unlike visiting the Canadian Embassy (which is like a fortress to gain access to) I found the Office of the International Trade Commissioner to be very open, and inviting. When I first walked into the reception area of the office, they were surprised (I hadn’t called in advance), but extremely friendly and excited about the idea of this article series. After a brief description of what I proposed to do, the Trade Commissioner quickly opened his schedule and we came up with some possible times to have our discussion. He emailed me personally that night with some requests to avoid red-tape (If I were to use his name or give the specific location of his office, this process would have had to go through official channels). We met a few days later.

My talk with the Trade Commissioner was a lively and informative talk. It moved through many topics and geographic locations. He is young, energetic, and has a genuine desire to have Canadian businesses succeed in Japan.

I would encourage anyone interested in International Trade to contact their local Trade Office to see if an informal chat could be set up. From my experience, they are more than willing to help educate at the grass-roots level.

Interview with a Canadian Trade Commissioner: Part III

(At the end of September, I was fortunate to be granted an informal interview with one of the Canadian Trade Commissioners abroad. This is Part III in a series of articles based on that talk. )

My last post dealt with Canadian export to foreign countries, but the Department of International Trade is also very much involved with Foreign investment in Canada. In the case of Japanese investment in Canada, a good and widely known example can be found in the Toyota plant in Cambridge Ontario.

Here we have the reverse of the trade route. Toyota executives made contact through a Trade Office located in Japan. The Trade Office then contacted officials in Canada as well as at many Regional Offices in Canada. Eventually an agreement was made to create Toyota’s first plant in Canada.

The inflow to the Canadian economy didn’t stop with the creation of the plant. In order to have the factory (which produces the Lexus brand) run smoothly, several executives from the Kyushu plant in Japan were relocated to Southern Ontario. The Kyushu plant produces Harriers, which is a high-end model of car. These executives and engineers moved to Ontario to provide expertise and guidance.

Considering everything, there are actually several layers of investment and participation in the Canadian economy with such a venture. Construction companies were contracted to build the plant, workers hired, materials and resources purchased, parts manufacturers contracted, and taxes paid. There is also another effect, albeit small, which is the result of all the Japanese executives and their families moving to Ontario; these 50 or so families need to rent homes, buy food and other products, and pay taxes.

Another situation of Japanese companies investing in Canada has been in the renewable energy sector. Over the past several years, Japanese companies have been investing in the Canadian solar industry, either through investment in Canadian companies, or by setting up their own solar farms and stations.

A recent rule on wind power in Ontario has caused a trade row between Japan and Canada, as the Japanese companies say that the support for wind power creates a trade barrier for them, and is especially painful because the ruling came after their large investment in the province.

The dispute is unresolved as of yet.

The next article in this series will talk about the five specific areas that the Trade Office deals with, as well as some examples within each sector. They very much overlap with my last post and this, and will hopefully give some further clarification into how deeply intertwined countries and countries are. Toyotas and Blackberries are only the suface.

Interview With a Canadian Trade Commissioner: Part II

(At the end of September, I was fortunate to be granted an informal interview with one of the Canadian Trade Commissioners abroad. This is Part II in a series of articles based on that talk. )

There are several ways in which the Department of International Trade can help Canadian companies and the Canadian economy. While Japanese export to Canada is not a focus, the Trade Office does deal with it a lot because of Japanese companies coming to them for that reason. Their main mandates, however, fall under the goals of Canadian export to Japan, and Japanese investment in Canada (or the country of said Trade Office).

In the case of a Canadian company wanting to sell its product or service abroad, they would first go to their regional trade office. While we did not get into the specific details, we did talk in general terms, and Research in Motion came up, so let’s use them as an example.

Research in Motion would go to a regional Trade Office (say in the Kitchener-Waterloo area) and state their desire to sell Blackberries in Japan. They would register with the Trade Office to gain access to the database of market research. The regional office would contact the office in Japan and pass on any important information to them. From that point onward, RIM would be in direct contact with the Trade Office in Japan.

The Trade Office would then introduce RIM to the big cell phone players in Japan, and it would then be up to RIM to decide which provider is best suited for their needs. As Blackberries are only available on the DoCoMo network, we can guess what their decision was.

Another route for Canadian companies to gain access to a foreign market is through trade fairs. This may be as simple as setting up a booth at a foreign fair (think Bombardier sending planes and staff to the Dubai Air Show to gain orders) or in the case of at lease one Canadian company, being more proactive and setting up something yourself.

Clearwater Seafood of Canada, for example, was very proactive in Japan. In July of this year they sponsored the “Homard Festa,” in which they teamed up with about 80 restaurants in Fukuoka Prefecture, to highlight Atlantic seafood for the entire month.

The Trade Commissioner and I didn’t talk about the results of this endeavour (as it was only a couple of months ago, so not enough data is in) but my assumption would be that if a restaurant experienced consumer satisfaction resulting from the Atlantic seafood, they may add it to their permanent menu, in which case they would continually import from Clearwater.

In both of the above examples, we have situations where Canadian companies have made efforts to sell their products abroad. Of course, it is not always that direction. Sometimes foreign companies want to invest in the Canadian economy.

And we will deal with that in the next post: specifically, Japanese companies wishing to invest in Canada’s infrastructure.

Interview With a Canadian Trade Commissioner: Part I

(At the end of September, I was fortunate to be granted an informal interview with one of the Canadian Trade Commissioners abroad. This is Part I in a series of articles based on that talk. )

Walking into the office of the Canadian Trade Commissioner, I am met with memories of home: maps of Canada and the individual provinces line the walls, a small Canadian flag sits on the cabinet by the entrance, about 20 bottles of Canadian wine and maple syrup are on display, and the assistant to the Trade Commissioner (who doubles as receptionist) ends her sentences with eh.

I’m thrown for a little bit of a loop, however, as I quickly realize that all three of the people who staff the small office (The Commissioner of International Trade, The Commissioner of Foreign Affairs, and their assistant) are Japanese citizens. Through my talk with the Trade Commissioner, however (whose Blackberry sat on the table throughout our interview) I found out that there are two types of employees working at Canadian offices abroad.

The Canadian Basis Staff (CBS) are Canadian citizens and are brought over from Canada. CBS make up the various Ambassadors and Diplomats that act on behalf of Canada abroad.  Locally Engaged Staff (LES) also represent Canada, but are hired by the Canadian government in the foreign country.

What I found interesting from this is that while LES are mostly citizens of the foreign country in question, anyone could become a LES. A Canadian citizen in China, for example, could be hired as a LES if he or she spoke Chinese at a native level. In practice, however, LES are almost always citizens of the host country, as not only language ability, but also a deep understanding of the local culture is very important when dealing with international trade.

The Trade Office works under the Canadian government and Embassy as “The Department of Foreign Affairs and International Trade,” which is a merger of the two departments. The International Trade department is further broken down into two components: Regional Offices located in Canada, and Foreign Located Offices located abroad; the two offices work closely together.

The main function of the International Trade Department is to give assistance to Canadian companies in establishing links abroad. A company wanting to sell its product or service abroad would first go to the regional office in Canada. After determining certain criteria, the regional office contacts the foreign located office, which then offers further and more specific advice to the company.

During this process, the company would register with the Trade Office to gain access to a government database of local market data where they could research market reports, gain more understanding of a region’s area and market timing, as well as see lists of trade shows in the area.

The government and Trade Office provide this service free of charge. They can help regarding advice on local logistics or to introduce interpreters, but they do not act as mediators or agents, and are not involved with any ensuing negotiation. Most importantly, they can introduce Canadian business people to Japanese counterparts through Embassy sponsored events. It is these introductions and networking opportunities that are the seeds of international trade.

Part II of this series will deal with some of the company to company, as well as country to country, connections that can occur.

What is the Carry Trade?

A few months ago I wrote this article about how shoppers in Tokyo using social networking are adding to deflation in Japan. In that article I mentioned the carry trade, which prompted a recent reader to write in asking what the carry trade is, and why it moves the yen. In this post, I’d like to only deal with the carry trade itself, and deal with how it affects exchange rates in a future post.

To clarify, a carry trade could involve and move any currency: it is basically borrowing a low yielding currency to buy and invest in a higher yielding currency.

For this post let’s use the Japanese yen and the Canadian dollar.

A few years back, for example, a high yield savings account in Canada may have yielded 4% interest per year. At the same time, someone could take out a loan in Japan for about 1.5% interest per year.

Therefore, (simply put) an investor interested in the carry trade could have taken out a loan in Japan on which he or she would have to pay 1.5% interest, transfer the money into Canadian dollars, drop it into a Canadian bank account and receive 4%: a profit of 2.5% per year.

More likely, however, he or she would have bought Canadian government or corporate bonds yielding much higher.

Of course, the exchange rate is highly linked to how much profit our investor would have made. If the Japanese yen appreciated during the year, it would have eaten into the profit made by the investor.

For example, let’s say an investor takes out a 10,000 yen loan at 1.5% to invest in Canada.  When the investor exchanges the money the rate is 100 yen per $1 CAD (ie, she gets $100 CAD for the 10,000 yen). She puts her money in an account yielding 4%.

After one year she has paid 150 yen in interest and the Canadian bank account has $104 in it (for the sake of this example we are assuming a one time interest payment at the end of the year.) That is static.  But there are three possible scenarios if the investor brings the money back to Japan:

1. The exchange rate hasn’t changed: In this case, the investor moves the money back and receives 10,400 yen. She has paid 150 yen in interest, so has made 250 yen on the transaction.

2. The yen has fallen compared to the dollar: In this case, our investor ends up making extra profit, as moving the money back results in more yen. Let’s say the exchange rate is now 110 yen per $1 CAD – moving $104 back to Japan will give her 11,440 yen. Minus her 150 yen interest, and she is left with a profit of 1290 yen.

3. The yen has appreciated compared to the dollar: This is the worst case for our investor, as she may lose money on the transaction if the yen has appreciated too much. If the yen has strengthened to the dollar, her Canadian dollars will buy less yen. Let’s say the exchange rate is now 90 yen per $1 CAD. In this case her $104 Canadian will only result in 9360 yen. Minus the 150 yen that she paid in interest for the loan, and she is at a loss of 510 yen.

The above are extreme examples, but it illustrates that the carry trade is very much dependant on interest and exchange rates. It can also be dangerous to your financial wellbeing.

However, investors involved in the carry trade look for currencies that tend to be stable and/or that trade in a band. (Until about 2005, for example, the Japanese yen and the American dollar traded in a band of 114 to 117… meaning the Bank of Japan made sure that it never moved outside of that range. It was the Golden Age of carry trade perhaps?)

As a final note, I will say that our bank account example is only that: an example. In reality, the act of taking one currency to invest in another is a carry trade. If I sell my Canadian dollars, buy U.S. dollars, and then buy an American stock, I am involved in the carry trade.

All in all, it is very simple on one hand, and very complex on the other, as it deals with various rates and uncertainties. If done properly though, as many Japanese did for a number of years, it can be very profitable. The problem arises when exchange rates fluctuate, panic sets in, and the carry trade adds to the turmoil.

But we’ll leave that for another post.