Following a dramatic increase in the 1990s, Canada-U.S. trade has actually stagnated since 2000, and the process of Canada-U.S. economic integration has stopped, according to a Conference Board study released today.

“Canadians widely believe that we have become deeply integrated with the U.S. economy, based on a privileged position as America’s most important trade partner,” says Danielle Goldfarb, associate director, international trade and investment centre. “When the impact of rising prices is removed, however, Canada’s involvement in North American supply chains has plateaued since 2000. Canada is being left behind, failing to take full advantage of the opportunities presented by global and regional supply chains, which poses a threat to Canadians’ living standards.”

“Canadian companies have become more integrated into Asian, European and South American supply chains. But these gains have been insufficient to offset the plateau in the share of Canada-U.S. trade-both exports and imports-used as inputs into each others’ production processes,” Goldfarb adds.

The report analyzes the stage Canadian goods are at when they are used in other regions’ supply chains, as well as what stage Canada uses other regions’ goods in its production. This approach is more in line with the reality of how production takes place in today’s global economy, the Conference Board says.

Large increases of Canadian inputs into Asian supply chains in recent years likely reflect high prices for commodities rather than actual increases in trade volumes-though commodities still dominate Canadian exports to Asia. Despite the increased level of integration with regions such as Asia, Canadian companies appear to be doing a much better job of using imported Asian inputs to make themselves more competitive than providing inputs into Asian supply chains.

For Canada to get out of neutral, businesses need to do a better job at identifying areas where they are globally competitive, the Conference Board says. They also need to take greater advantage of other regions’ strengths-both expertise and inputs-to improve their competitive positions.

The Conference Board says governments need to reconcile the myriad regulations-in areas where policy objectives are the same-that differ slightly between Canada and the United States. Ottawa also needs to eliminate barriers to imported inputs. For example, country-of-origin rules, in which companies must meet certain criteria as to the origin of the materials in their goods to qualify for duty-free treatment, are outdated in today’s highly-integrated world.