Report December Barriers at the Border The Costs of Impediments to Business Mobility. Trade, Investment Policy and International Cooperation

Transcription

1 Report December 2008 Barriers at the Border The Costs of Impediments to Business Mobility Trade, Investment Policy and International Cooperation

2 Barriers at the Border: The Costs of Impediments to Business Mobility by Michael Burt About The Conference Board of Canada We are: The foremost, independent, not-for-profit applied research organization in Canada. Objective and non-partisan. We do not lobby for specific interests. Funded exclusively through the fees we charge for services to the private and public sectors. Experts in running conferences but also at conducting, publishing, and disseminating research; helping people network; developing individual leadership skills; and building organizational capacity. Specialists in economic trends, as well as organizational performance and public policy issues. Not a government department or agency, although we are often hired to provide services for all levels of government. Independent from, but affiliated with, The Conference Board, Inc. of New York, which serves nearly 2,000 companies in 60 nations and has offices in Brussels and Hong Kong. Preface Impediments to the mobility of business people across international borders impose real costs on the Canadian economy through lost trade and investment. In this report, The Conference Board of Canada identifies the most important barriers to business travel and then uses statistical methods to estimate the direct costs of these barriers in terms of lost investment and trade. Finally, the report recommends policy actions to reduce these costs The Conference Board of Canada* Printed in Canada All rights reserved ISSN ISBN Agreement No *Incorporated as AERIC Inc. Forecasts and research often involve numerous assumptions and data sources, and are subject to inherent risks and uncertainties. This information is not intended as specific investment, accounting, legal, or tax advice.

3 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Contents Executive Summary... i Chapter 1 Introduction... 1 Why Impediments to Mobility Matter Outline... 3 Chapter 2 Constraints on Mobility Constraints Affecting All Visitors... 5 Constraints for Short-Term Visitors Requiring a TRV... 6 Constraints for Short-Term Visitors Who Do Not Require a TRV... 9 Constraints for Long-Term Visitors Chapter 3 Assessing the Costs English Is Important French Is Less So Foreign Office Presence Affects Exports More Than Imports Visa Requirements Are Not as Important for Trade in Goods Chapter 4 Recommendations Increase Canada s Foreign Presence Reduce the Effects of TRVs Chapter 5 Conclusion Appendix A Canadian Offices and TRV Requirements Appendix B Technical Analysis Appendix C Bibliography Appendix D Related Products and Services... 32

4 Acknowledgements The author wishes to thank the members of the International Trade and Investment Centre, as well as Paul Darby, Mario Lefebvre, and Glen Hodgson for comments on an early draft of this report. International Trade and Investment Centre Members The Conference Board of Canada is also grateful to the champion and lead members of the International Trade and Investment Centre which, through their membership, support the Centre s research program. 1 Champion Members Export Development Canada Foreign Affairs and International Trade Canada Lead Members Alberta International and Intergovernmental Relations Bank of Canada British Columbia Ministry of Technology, Trade and Economic Development Business Development Bank of Canada Canada Mortgage and Housing Corporation Farm Credit Canada Federal Express Canada Ltd. Forest Products Association of Canada Industry Canada Ministère du Développement économique, de l Innovation et de l Exportation du Québec Natural Resources Canada Ontario Ministry of International Trade and Investment Purolator Courier Ltd. RBC Financial Group Sun Life Financial Inc. TD Bank Financial Group TransAlta Corporation Western Economic Diversification Canada About THE International Trade and Investment Centre The International Trade and Investment Centre aims to help Canadian leaders better understand what global economic dynamics such as global and regional supply chains mean for public policies and business strategies. The Centre brings together business and government leaders in an off-the-record forum to discuss successful trade and investment strategies. The Centre s independent, evidence-based reports propose effective policy and business solutions for improving Canada s trade and investment performance. For more information Please visit 1 These organizations do not necessarily endorse the research conclusions of this paper.

5 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Executive Summary Barriers at the Border The Costs of Impediments to Business Mobility At a Glance Impediments to the mobility of business people can limit economic growth. Language differences, the lack of a Canadian foreign office, and visa requirements significantly reduce trade, investment, and visits to Canada. To reduce the costs due to this lost economic activity, policy makers should reduce wait times for visas, increase the use of multi-entry visas, and expand outsourcing of visa processing. Targeted expansion of Canadian overseas offices should be considered, and if necessary, resources could be reallocated from low-impact offices to those with potentially higher impact. Our world is increasingly globalized. Thanks to reduced direct barriers to trade, such as tariffs and lower transport and communication costs, businesses are slicing production into smaller pieces, producing each product or service where it is most efficient. Because the resulting higher productivity and lower costs improve the global standard of living, obstacles to trade and investment flows have the potential to limit economic growth. Impediments to the mobility of business people are one such obstruction. They are a non-tariff barrier that hinders such productivity enhancing activities as improving resource allocation, encouraging managerial efficiency and effectiveness, and increasing innovation and technological diffusion. As a non-tariff barrier, impediments to the mobility of business people have the potential to limit economic growth. Factors that affect the mobility of business people coming to Canada include the visitor s citizenship, country of residence, and the length and purpose of their visit. Those who require a temporary resident visa (TRV) face a number of problems: many countries have no Canadian trade or immigration representative, payment rules vary with each processing centre and can be complicated, processing times vary greatly depending on security requirements and capacity constraints, the process of completing an application can be difficult and confusing, and the use of multi-entry visas is discouraged. The Conference Board of Canada tested to see if factors such as visa requirements, the availability of a Canadian office, and the use of English and French in foreign countries affect trade and investment. Seven equations were estimated for the relationship between these factors

6 ii The Conference Board of Canada and the following: imports and exports of services, imports and exports of goods, the stock of foreign direct investment (FDI) in Canada, the stock of Canadian FDI elsewhere, and the number of travellers coming to Canada. We found that the prevalence of English in a foreign country does lead to increased trade, investment, and visitors, with the exception of outbound Canadian FDI. This is likely due to the concentration of Canadian FDI in resource industries, where the location of the resources is the most important factor in determining its destination. The presence of a Canadian foreign office significantly boosts trade, investment, and the number of visitors. Although use of English is a significant factor, use of French in a foreign country does not seem to boost trade or investment. Only in the case of inward FDI was French found to be significant. This is probably because of France s strong investment ties to Quebec. The presence of a Canadian foreign office significantly boosts trade, investment, and the number of visitors. This particularly benefits outflows of Canadian trade and investment; it has a lesser effect on inflows. The persistence of home bias in investment decisions may be a factor. The presence of foreign offices accounts for more than $10 billion of Canada s stock of outbound FDI. In addition, exports of goods and services are nearly $3 billion higher than they would otherwise be. TRV requirements significantly dampen trade in services, investment, and visitors. Trade in goods is not significantly affected, which may be because they require less movement of business people. As a non-tariff barrier that limits foreigners travelling here rather than Canadians travelling elsewhere, it is not surprising that TRVs have a greater effect on imports than on exports. As a result of visa requirements, imports and exports of services are $926 million and $330 million lower respectively, while the stocks of inward and outward FDI are $8.9 billion and $4.7 billion lower respectively. This study concludes with recommendations on how to reduce these impediments to the mobility of business people. The report suggests countries where new embassies could be developed, and lists countries where resources currently allocated to embassies could be put to better use elsewhere. Several actions could reduce the effects of TRV requirements, including cutting wait times, increasing the use of multi-entry visas, and doing more outsourcing. These actions should be focused on large, emerging economies where Canada has visa requirements, such as China, Russia, India, and Turkey. Wait times could be cut by adopting international best practices, improving technology, and making allowances for people who have travelled to Canada before and those who are sponsored by a trusted source. Increased use of multi-entry visas could reduce both the workload of Citizenship and Immigration Canada personnel in overseas offices and the difficulties that applicants face. Using more outsourcing would reduce the problems caused by the lack of a local office in many locations, and it could reduce capacity constraints in individual offices. Such changes would reduce the impediments to business mobility caused by TRV requirements and the limited number of Canadian missions abroad, thus increasing trade and investment flows for the Canadian economy. Canadian firms would garner additional indirect benefits, such as reduced operating costs, productivity gains, and technology transfers. It is time to assess whether our immigration policies and systems are in line with the requirements of a world that is experiencing leaps in the exchange of goods, services, and investment, and, correspondingly, movements in people.

7 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Chapter 1 Introduction Chapter Summary Impediments to the mobility of business people reduce trade and investment. In a world characterized by integrative trade, the need for business people to interact is growing, and any impediments to these interactions can detract from trade and investment. Impediments to the mobility of business people are non-tariff barriers; they reduce competitiveness and productivity. investment is equal: policy makers would like their jurisdictions to attract high-value activities. Though this term is not clearly defined, presumably policy makers are interested not just in high value-added activities, but also in activities that are knowledge-intensive, pay high wages, and offer other spin-off benefits such as innovation. Canadian policy makers also face a more intense globally competitive environment, which might influence Canada s ability to attract investment. Canadian businesses face a dynamic, competitive operating environment. Large developing economies are growing rapidly, fuelled by dramatic investment growth. Reductions in transportation and communications costs, as well as the ability to send documents electronically, allow companies to obtain components or services from anywhere in the world. Imports are now more fully integrated into exports, and foreign direct investment (FDI) is fuelling trade. The ability to source globally means that Canadian businesses face a wider range of competitors than in the past. Canadian policy makers also face a more intense globally competitive environment, which might influence Canada s ability to attract investment. Further, not all The ability to take advantage of trade and investment opportunities and engage in global supply chains matters. According to the evidence, slicing production into smaller pieces and producing each part where it is most efficient to do so tends to improve productivity. Productivity, in turn, drives living standards higher. Globally oriented companies also tend to grow faster than comparable locally focused companies. 1 Also, buying inputs globally could offset some of the expected slowdown in economic growth potential associated with Canada s aging population. Moreover, the benefits of both inward and outward investment for Canada have been well documented. 2 1 Evidence for a range of countries is provided in Lewis and Richardson, Why Global Commitment Really Matters! Baldwin and Gellatly, Global Links discusses this issue in a Canadian context. 2 Hodgson and Paris, The Benefits of Foreign Direct Investment.

8 2 The Conference Board of Canada Governments, business, and academia are starting to grapple with the ramifications for Canadian leaders of a world of more integrated global production. Trade and investment policies have traditionally focused on the movement of goods. An important part of the equation, however, is assessing the degree to which the movement of people complements trade and investment for both goods and services, in turn improving overall prosperity. This is especially important as the difference between services and goods is increasingly blurred. A better understanding of barriers to the mobility of business people is key to creating policies that enhance the competitiveness of Canadian companies. Why Impediments to Mobility Matter Impediments to the mobility of business people are a form of non-tariff barrier. Non-tariff barriers can be defined as all the obstacles to the entry of merchandise or services into a given country, with the exception of customs duties and tariffs. To be considered non-tariff barriers, these obstacles must be sufficiently expensive to discourage the trade of certain goods and services. It is probable that trade and investment flows between countries are lower than they could be due to limitations on the ability of people to interact, conduct sales calls, consider investment opportunities, and carry out a variety of other business functions. A recent Conference Board of Canada study discussed how non-tariff barriers reduce competitiveness and productivity in the Canadian economy. 3 This study and other empirical work especially by the Organisation for Economic Co-operation and Development (OECD) provide evidence that competition-enhancing policies can foster higher productivity and economic growth by improving resource allocation, encouraging managerial efficiency and effectiveness, increasing innovation and technological diffusion, boosting employment, and spurring capital investment. The Conference Board of Canada asked business leaders which non-tariff barriers affected their businesses. Restriction on labour mobility was the fourth most-cited barrier. The movement of business people matters more for trade and investment in some goods and services than in others. Most raw materials and basic manufactured goods can be used with few complementary people movements. Others, however, depend on a regular flow of, for example, engineers to support production. And capital goods often require people to install them and provide service support. As well, services tend to require more face-to-face interaction for contract negotiation and/ or service delivery. Many of these jobs are knowledgeintensive and pay high wages. Trade and investment flows between countries are lower than they could be due to limitations on the ability of people to interact, conduct sales calls, consider investment opportunities, and carry out a variety of other business functions. Today s faster travel times and lower transport costs are probably making transactions that entail movement of business people more attractive. But if there are other impediments to people moving efficiently between countries to maintain capital goods or provide services, firms might choose to source their goods and services from other economies. Problems or delays in obtaining entry visas, or delays at points of entry into Canada, may also hamper the development of new markets for Canadian companies abroad, as well as Canada s image as a desirable place to do business. There are other potential benefits to increased mobility for business people. For example, an increase in the number of travellers may result in spin-off tourism benefits. In addition, such interaction could provide private and public social benefits: better understanding between peoples, increased goodwill, and creative interactions leading to new opportunities and ideas. Hence, free global labour mobility is expected to generate benefits far larger than the expected gains from the global liberalization of goods trade. 4 3 Beckman et al., Death by a Thousand Paper Cuts. 4 Goldfarb, Effective Aid and Beyond.

9 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada 3 Outline In Chapter 2, this report discusses the types of impediments that people face when attempting to travel to Canada. In Chapter 3, the report develops a methodology to assess whether these impediments affect trade, investment, and foreign visitor inflows. Seven equations are estimated for imports and exports of goods and services, the stock of inward and outward FDI, and the number of visitors coming to Canada. The results vary by equation, but in general, impediments to business mobility are found to hamper trade and investment flows. Chapter 4 discusses several policy options that could reduce the effects of these impediments. The two main hurdles discussed are the lack of Canadian representation in foreign countries and temporary resident visa (TRV) requirements. Following the conclusions in Chapter 5, two appendices provide extra details. Appendix A lists the countries for which Canada has a TRV requirement, as well as the countries where Canada has a foreign office. Appendix B provides technical details about the methodology used, as well as the results for the estimated equations.

10 Chapter 2 Constraints on Mobility Chapter Summary Restrictions on the mobility of foreign business people travelling to Canada come in many forms, including a lack of transportation links, legal restrictions, and the lack of a nearby Canadian foreign office. Restrictions vary depending on the purpose of the visit, the visitor s country (or countries) of citizenship and residence, and their intended length of stay. Restrictions are highest for people from countries that have no Canadian office and a visa requirement, because those travellers may be required to visit a third country before they can travel to Canada. Constraints on the mobility of foreign business people wishing to travel to Canada come in many forms. Factors include the person s citizenship, their country of residence, their intended length of stay, and the purpose of their visit. Citizenship is the major determinant of whether someone needs a visa to enter Canada. This is also a factor in the length of time a visa application takes. Country of residence is also a factor, since many countries do not have a Canadian foreign office. Finally, the length and purpose of a visit also determine whether a person needs a visa, and what type of visa they need. Constraints on business travel also include immigration rules, labour market restrictions, border security rules, and uncertainty regarding the processes to overcome these travel and entry restrictions. Of course, these policies have non-economic objectives, such as stopping criminals and terrorists, or limiting the number of refugees coming to Canada under false pretences. However, these constraints come at a cost. Citizenship is the major determinant of whether someone needs a visa to enter Canada. This is also a factor in the length of time a visa application takes. For example, a 2006 federal government study found that there was a perception of delays and problems in obtaining TRVs to conduct business in Canada. 1 That study found that a lack of information about the visa rules was a major problem, and that information provided on government websites was confusing and inconsistent. Another major concern was that business travellers from countries without TRV requirements are heavily inspected at ports of entry. There are constraints even between North American Free Trade Agreement (NAFTA) countries. NAFTA increased labour mobility between the three signatory countries for certain occupations, but there are still limitations in 1 Citizenship and Immigration Canada, et al., Facilitating Business Travel and Admission to Canada.

11 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada 5 most labour categories unlike in the European Union (EU), which is moving toward free labour mobility As well, post-9/11 security requirements have imposed new constraints. For example, the U.S. Department of Homeland Security and the U.S. State Department have implemented the Western Hemisphere Travel Initiative, which requires all entrants to the United States to have a passport. The rule is in effect at all air and sea crossings, and it will be implemented at all U.S. land borders by mid This could cause significant border delays, even for business travellers who already have the documents they need. For example, delays in implementation of the required technology, infrastructure, and manpower could exacerbate line-ups. If the rule dissuades some business people from crossing the border, it will reduce overall economic activity. It was not until April 2006 that Canada signed another open skies agreement, this time with the United Kingdom. Further agreements were announced with Ireland, Iceland, Barbados, and New Zealand in 2007 and Canada is also in negotiations with the EU to reach an open skies agreement that will cover all 27 EU member states. These negotiations and new agreements are part of Transport Canada s Blue Sky policy, aimed at liberalizing international passenger traffic between Canada and other countries. The objective is to allow market forces to determine the price, quality, frequency, and range of air services provided. This is expected to lower international airfares and increase international traffic. The air links between Canada and other countries are a factor in determining how easy it is for foreigners to enter Canada. Constraints Affecting All Visitors Transportation Links One constraint that affects all types of travellers is access to adequate transportation links. All travellers to Canada, except those entering from the U.S., must fly. Therefore, the air links between Canada and other countries are a factor in determining how easy it is for foreigners to enter Canada. Air travel between countries is not unrestricted. There is a considerable degree of regulation: factors such as the number of flights between countries and which city-tocity links are allowed are generally negotiated through bilateral agreements. However, there has been a trend in recent years to move towards open skies agreements, which significantly reduce the regulations on flights between countries. Canada signed its first open skies agreement, with the U.S., in This dramatically changed air traffic patterns between the two countries, and it even changed the characteristics of Canada s air fleet. One of the most visible results of this agreement was a sizable increase in the number of travellers coming to Canada by air. Between 1995 and 1998, the number of visitors who flew to Canada from the U.S. rose by 33 per cent. The agreement with the U.K. and the potential agreement with the EU are likely to garner the largest benefits for Canada in terms of increased passenger traffic. The U.K. is already Canada s second-largest source of business travellers, and it is likely to be for the foreseeable future. (See Table 1.) In fact, the number of visitors from the U.K. rose by 5 per cent in 2007, even though the Table 1 Top Ten Source Countries for Business Travellers to Canada, 2007 (number of business travellers, 000s) U.S. 2,723.7 U.K Germany 52.4 France 48.7 China* 46.4 Japan 44.4 Mexico 35.1 South Korea 31.6 India* 21.0 Australia 17.1 *A country where TRVs are required. Source: Statistics Canada.

12 6 The Conference Board of Canada Canadian dollar strengthened considerably versus the British pound sterling over the course of that year. As a result, the number of visitors from the U.K. surpassed its previous peak, reached prior to 9/11. (See Chart 1.) Legal Restrictions These impede many visitors to Canada, regardless of their citizenship or the duration of their visit. Legal restrictions can be applied both here and in the traveller s country of origin; thus, some are under the control of Canadian policy makers and some are not. One such restriction is the requirement imposed by some countries that people leaving that country obtain an exit visa. Another example is the limitation on people entering Canada who have been convicted of a crime elsewhere. Legal restrictions increase the time and expense associated with getting permission to travel to Canada. Canadian trade/immigration representative The availability of a Canadian trade or immigration representative in their locality affects some business travellers wishing to enter Canada. Appendix A lists countries where Canada has a presence, whether it is an embassy, consulate, high commission or trade office. The appendix also lists countries whose citizens must obtain a TRV to visit Canada. people can obtain information about travelling to, trading with, and investing in Canada. This problem is most acute for those who require a TRV to come to Canada, since they may be required to deal with a Canadian office that is hundreds or even thousands of kilometres away before they can gain permission to enter the country. Constraints for Short-Term Visitors Requiring a TRV Business people in countries where a TRV is required face a variety of challenges in order to travel to Canada. While the task of obtaining a TRV appears to be simple, this is not always the case. Difficulties range from the process of paying for the visa application, to the problem of possibly having to present oneself at an office many kilometres distant and in another country. Visa-related impediments are discussed in the following sections. While the task of obtaining a TRV appears to be simple, this is not always the case. Difficulties range from the process of paying for the visa application, to the problem of possibly having to present oneself at an office many kilometres distant and in another country. Canada does not have the financial or human resources to have representation in every country and jurisdiction around the world. However, the lack of a Canadian presence in their country limits the ease with which Chart 1 Visitors From U.K. Surpass Their Previous Peak (000s) Sources: Statistics Canada; The Conference Board of Canada. Processing Payments Rules with respect to what is acceptable as payment for a Canadian TRV vary with each processing centre and can be complicated. For example, cash is sometimes acceptable and sometimes not. The acceptable form of payment generally varies by currency type. It may even be necessary for an applicant to travel to another country in order to make a payment in person. Payment instructions can be further complicated by rules that differ for different types of visas. Thus, an applicant may be following the rules for a student visa, not realizing that the rules are different for TRV applications. Also, the fees for a multi-entry permit are double those for a single entry, even though the amount of work required to process the application is not twice as much. This discourages visitors from applying for multi-entry visas which may result in additional applications that

13 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada 7 need to be processed. These compound the direct and indirect costs for both the applicant and the offices processing the applications. Processing Time Citizenship and Immigration Canada (CIC) publishes processing times for its services, but these vary considerably from one office to another. 2 For example, among the 66 listed offices that process TRV applications, the share of applications processed within 7 days varies from a high of 99 per cent in Taipei to a low of 3 per cent in Tehran. Chart 2 lists the fastest and slowest offices. A key reason for these variations is that security requirements differ considerably by country. A common security concern is the desire to prevent war criminals or members of organized crime from coming to Canada. Another factor influencing the size of the barrier associated with processing times is the gap between customer perceptions and actual processing times. The times published on CIC and embassy websites are the minimum or, at best, the average processing times. Once mailing time is added to the processing time, applicants often receive their documents later than they expected. These delays cause frustration, since potential travellers may wait weeks to get their passports back. For many business travellers, this slow turnaround time is not acceptable, since they are not able to function for long periods without access to their passports. Chart 2 Fastest and Slowest TRV-Processing Offices (share of visas processed by length of time, per cent) Capacity limits can affect processing times, and demand for visas is growing in a number of developing economies where Canada requires visitors to have a TRV. The capacity limits of each office (including seasonal variations, changes in personnel, and other factors) can also affect processing times. But more importantly, demand for visas is growing in a number of developing economies where Canada requires visitors to have a TRV. Among the 10 countries from which Canada saw the largest increases in visitors in 2007, three were TRV countries (India, the Philippines, and China). Other TRV countries from which Canada experienced a large increase in the number of visitors in 2007 include the United Arab Emirates, Columbia, Chile, Iran, and Venezuela. (See Chart 3.) Whether or not these visitors are coming to Canada for business purposes, they must go through the TRV application process. This increase in travellers strains the capacity of processing offices, and since business and non-business travellers are in the same queue, business traveller wait times can grow due to increases in the number of tourist applications from their country. These capacity constraints are further complicated in the offices that process applications for several countries. Mexico City, Mexico Taipei, Taiwan Rabat, Morocco Prague, Czech Republic Belgrade, Serbia Average for all offices Moscow, Russia Lima, Peru Riyadh, Saudi Arabia Islamabad, Pakistan Tehran, Iran Source: Citizenship and Immigration Canada. Chart 3 TRV Countries Are a Major Source of Visitor Growth (net increase in travellers from ; 000s) India Philippines China United Arab Emirates Colombia Chile Iran Venezuela Ukraine Morocco 2 days or less 7 days or less 14 days or less Sources: Statistics Canada; The Conference Board of Canada. 2 Citizenship and Immigration Canada, Statistical Information.

14 8 The Conference Board of Canada The lack of a formal system to expedite applications also causes frustration. Methods to expedite business applications include, but are not limited to, using a separate queue for business travellers (this practice was once used but has been since phased out); having an established low-risk, pre-approved sponsor list; and lowering the hurdles for the re-issuance of TRVs to people who have previously travelled to Canada. All these methods are used by some developed economies that are competing with Canada for business. For example, the U.S. has a separate visa category and application process for people travelling there on business. Canada has a presence in fewer than 100 countries around the world, and not all of these offices process visa applications. Turning in an application to a Canadian office can also be difficult. Canada has a presence in fewer than 100 countries around the world, and not all of these offices process visa applications. Canada has not committed the resources to have a processing facility in every major city in the world, and the lack of an accessible facility can significantly hamper an individual s ability to travel to Canada. The best solution to this problem is outsourcing. In a handful of countries, including India, Russia, and Brazil, Canada has made arrangements with local companies to collect applications and forward them to the appropriate processing office. While this is an important first step, it is an option that could be pursued more aggressively, as it is the best means of reducing the impediments associated with limited office locations. The perception of unnecessary and/or extended delays when applying for a TRV to enter Canada may generate reciprocal problems. If a foreign state perceives that Canada is treating its citizens unfairly, it may devote fewer resources to approving the trips of Canadians to that country, or place a lower priority on resolving any political or economic disputes. As a result, trade and investment between Canada and another country could be impaired by impediments erected by both countries. Application Process Impediments caused by the application process range from limited access to processing centres to difficulties in filling out the application form. Problems with the form include language barriers (generally the application form must be filled out in English or French, and instructions are provided only in French or English), which cause application errors. 3 In addition, documentation requirements, which vary depending on the purpose of the visit and the traveller s country of origin, can lead to errors and delays. Thus, if a person were to download the basic application from the Internet, fill it out, and mail it in, it is quite possible that their application would be incomplete. 3 See for information about TRV applications. Canada has also recently begun outsourcing document collection and some basic clerical work in China. This is almost a necessity if Canada is going to continue requiring TRVs from populous countries such as China. For example, if Canada were to have the same number of Chinese visitors relative to the size of its population as it currently does from Japan, it would have more than 4 million visitors from China annually. This is four times the number of visitors Canada currently receives from all TRV countries combined. Canada will not be able to devote the same level of resources per applicant that it currently does, given the expected continued increase in business travel that is associated with globalization. Multi-Entry Visas In theory, multi-entry visas are available to all applicants. They are also supposed to be valid for up to five years or until the passport with which they are associated expires, whichever is shorter. However, in practice, applicants are often discouraged from applying for them, their higher cost (twice the rate for single-entry visas) is a disincentive to those applying, and they are often issued for a period much shorter than five years. Multi-entry visas should alleviate the impediments to business travellers by allowing them to apply once for multiple business trips, thus limiting the applicant s direct

15 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada 9 and indirect costs. This would also help Canadian processing centres, reducing the need to process multiple applications for an individual. However, since this option is not being fully utilized, neither applicants nor Canadian officials are reaping the benefits of multi-entry visas. This ignorance is complicated by the sometimes complex rules regarding who requires a visa. There are often exceptions and special cases depending on the treaties to which Canada is a party, such as NAFTA. The result can be missed meetings and travel connections, frustrations, and a possible refusal of entry. Increased use of multi-entry visas would be an easy way to reduce the processing burdens on Canadian offices, Constraints for Long-Term Visitors This is an area where Canada is generally behind other developed economies. For example, B-1 business visas issued in the U.S. are all multi-entry, good for up to 10 years, and can be used with a new passport if the previous passport has expired but the visa has not. Increased use of multi-entry visas would be an easy way to reduce the processing burdens on Canadian offices, improve applicant satisfaction, and increase our competitiveness with other developed economies. Constraints for Short-Term Visitors Who Do Not Require a TRV The list of countries for which Canada does not require a TRV, similar to that of other developed economies around the world, includes developed economies such as Western Europe, the United States, Japan, and South Korea. (See Chart 4.) As well, citizens of Mexico, several Caribbean islands, many protectorates of European countries, and a few other smaller developing countries do not require a TRV (Appendix A lists all countries for which a TRV is required). Since a TRV is not required to travel from these countries to Canada, a major impediment to business travel is removed for their citizens. However, some obstacles remain. Perhaps the largest is ignorance on the part of business travellers. Under certain circumstances, such as when a person is travelling to Canada to make an investment or when they are carrying out work here, a visa is required. However, having often crossed the border before under different circumstances, some business people assume they will not need a visa and they arrive at the port of entry without adequate documentation for their current situation. People who come to Canada to work for extended periods all require a work permit issued by CIC, and these applicants face constraints similar to those faced by TRV applicants. These include such things as access to a nearby visa processing office and difficulties over how to process payments. However, applicants for work permits also face additional impediments. Perhaps the most visible of these is the waiting period for getting a permit. Instead of taking days or weeks, as is the case with TRVs, it generally takes months for a work permit application to be processed. This is because of the extra checks that it must go through. For example, most people wishing to travel to Canada on a work permit must take a medical exam. Also, a work permit requires a labour market opinion from Human Resources and Social Development Canada (HRSDC). In forming a labour market opinion, HRSDC Chart 4 Canada Has Visa Requirements Similar to Other Developed Countries (share of countries for which visas are required; per cent) Australia U.S. Canada Japan South Korea Italy Spain France Germany U.K Source: United Nations World Tourism Organization.

16 10 The Conference Board of Canada examines considerations such as whether a Canadian resident could fill the job, whether the hiring of a foreign national will create opportunities for Canadian job seekers, and whether working conditions and wages offered are in line with what a Canadian would expect. The most problematic criterion is that of not having a foreign national potentially replace a Canadian resident in a job. Chart 5 Tight Labour Markets Require New Thinking on Immigration Policy (Canadian employment and unemployment rates, per cent) Unemployment rate (left) f = forecast Sources: Statistics Canada; The Conference Board of Canada. Employment rate (right) f 12f These constraints on obtaining work permits are symptomatic of past Canadian labour policies designed to promote full employment in an era of underemployment. However, in an era of tight domestic labour markets, this consideration should not carry much weight. (See Chart 5.) We live in a world characterized by aging workforces in developed economies, and this requires a rethink of workforce practices. 4 The current delays associated with labour market opinions place Canada at a disadvantage when trying to attract skilled workers who are being courted by all developed economies. The major exception to the requirement for a labour market opinion is special classes of workers who are citizens of Mexico or the United States. Under the NAFTA rules, workers in certain professional categories do not need to acquire labour market opinions and thus can acquire work permits much more quickly. The Canada Chile Free Trade Agreement and Canadian commitments under the General Agreement on Trade in Services (GATS) have similar provisions. As such, some professionals from Chile and member countries of GATS can acquire work permits in Canada without a labour market opinion. 4 The Conference Board of Canada, Performance and Potential , pp

17 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. Chapter 3 Assessing the Costs Chapter Summary The effects of language, office locations, and TRV requirements on trade, investment, and visitor numbers were tested. English being spoken in a foreign country was found to have a positive effect on most forms of trade and investment, but French was generally not found to have a significant effect. As expected, the size of the foreign economy, as measured by gross domestic product (GDP), was found to be a significant contributor to the size of investment and trade flows, as well as the number of visitors originating from that country. Distance was found to impede trade, investment, and travel with one exception: the stock of inward FDI. This implies that distance is not a major consideration for foreigners who are investing in Canada. The results are summarized in Table 2. The presence of a Canadian foreign office was important to trade and investment, particularly for Canadian outflows. TRV requirements reduced investment and trade and services, but not trade in goods. As expected, the size of the foreign economy was found to be a significant contributor to the size of investment and trade flows, as well as the number of visitors originating from that country. Given the previous discussion of the potential impediments that business travellers face, it would be informative if one could measure the costs of these impediments. One would expect that impediments to the mobility of business travellers would reduce the potential investment and trade flows between two countries, as well as the number of people travelling between the two countries. Since we have data by country for these concepts, and we know for which countries certain impediments such as TRV requirements and the lack of a Canadian office exist, it is possible to test whether these impediments reduce trade, travel, and investment. Appendix B describes the methodology and data used in the analysis, and provides detailed statistical results. English Is Important English being spoken in the foreign country was found to be a very important determinant of trade and investment. It had a significant positive effect on all the dependent variables tested, with the exception of FDI outflows from Canada. Thus, Canadian firms are more likely to operate in and transact with companies in countries where English is commonly spoken. As well, firms in these countries are more likely to invest and trade here. This is not surprising, since the lack of a common language can be a significant barrier to individuals and organizations interacting.

18 12 The Conference Board of Canada Table 2 Summary of Equation Results Stock of inward FDI Stock of outward FDI Imports of goods Exports of goods Imports of services Exports of services Visitors TRV requirement * * * * * Foreign office presence * * * * * English * * * * * * French * *A significant result with an expected sign. Source: The Conference Board of Canada. The exception of the significance of English with respect to FDI outflows may be the result of the type of FDI that Canada undertakes. Financial services are the dominant source of Canadian outbound FDI stock, accounting for more than a third of investment. (See Chart 6.) However, a large and growing source of FDI outflows is mining activity, as well as the primary metals processing industry. Furthermore, many of the holding companies that undertake outbound FDI are interested in natural resource development. Chart 6 Share of Canadian Outbound FDI Stock by Industry (per cent) Finance and insurance Mining Holding companies Primary metal production Transportation and warehousing Information services Computer and electronic equipment Transportation equipment Chemicals Real estate and leasing Sources: Statistics Canada; The Conference Board of Canada. The primary consideration for investment in natural resources internationally is the location of resources, not the local language. This is why Asia and Africa account for an outsized share of Canadian outbound mining FDI. (See Chart 7.) Given the importance of English in Canada s trading relationships, it is worthwhile considering the causes. The most likely reason is the status of English as the international language of business. However, historic ties, as well as the predominance of the U.S. in our trade and investment relationships, may contribute to this result. Chart 7 Share of Canadian Outbound FDI Stock by Region (per cent) U.S. Mining Other Americas Asia and Oceania All industries Europe Africa Sources: Statistics Canada; The Conference Board of Canada.

19 The Conference Board of Canada. All rights reserved. Please contact cboc.ca/ip with questions or concerns about the use of this material. The Conference Board of Canada 13 To test these theories, two additional sets of equations were estimated. In the first circumstance, we tested to see if membership in the Commonwealth of Nations (which currently includes 53 nations) was a significant factor in explaining trade and investment relationships between Canada and other countries. We did not find this Commonwealth variable to be significant for any of the seven equations. Furthermore, it did not influence the statistical significance of the English variable. Thus, it is the fact of English being spoken and not Canada s membership in the Commonwealth of Nations that is a determinant of trade and investment. The presence of a Canadian foreign office in a country is a significant contributor to trade and investment, as well as to the number of visitors to Canada. The second set of additional equations tested whether the predominance of the U.S. in Canada s trade and investment statistics was influencing the results. To test for this, we removed the U.S. from the sample of countries used in the calculation. This did modestly change the estimated coefficients for each of the equations, but it did not result in any of the English variables becoming insignificant. In fact, the English variable for the FDI outflow equation become significant. Thus, there is little indication that the presence of the U.S. in the equations biased the results. The results for the equations excluding the U.S. data are provided in Appendix B. French Is Less So In contrast to the results for English, French being spoken in the foreign country was rarely a factor influencing trade and investment flows. Only in the case of inward FDI flows was the French variable significant. This likely reflects the fact that English is the predominant language used to conduct business internationally, as well as the minority position of French in Canada. In the case of inward FDI, the significant result for the French variable likely is due to the significant inflows of FDI from France. In fact, the stock of inbound FDI is the most significant involvement that France has with Canada, with France accounting for 3.5 per cent of the total. (See Chart 8.) France s significant investments in Canada are not surprising, given that Canada is home to one of the larger populations of francophones outside of France. Chart 8 Inbound FDI Is Where France Plays the Largest Role in Canada s Economy (France s share of Canadian investment and trade; per cent) FDI inbound FDI outbound Service exports Service imports Goods imports Goods exports Sources: Statistics Canada; Industry Canada; The Conference Board of Canada. Foreign Office Presence Affects Exports More Than Imports The presence of a Canadian foreign office in a country is a significant contributor to trade and investment, as well as to the number of visitors to Canada. The foreign office variable was found to be insignificant only for the inward FDI and imports of goods equations. This suggests that having a Canadian office in a foreign country is less important than other factors in attracting trade and investment to Canada. But an office presence leads to more Canadian companies operating in that locale. A possible reason for this is home bias in investment. A significant body of literature discusses this phenomenon. 1 Investors place abnormally high-risk expectations 1 As examples, see Daude and Fratzscher, The Pecking Order of Cross-Border Investment, pp ; and Portes, et al., Information and Capital Flows, pp