Archived — Working Paper Number 26: Intrafirm Trade of Canadian-based Foreign Transnational Companies

by Richard A. Cameron, Industry Canada, December 1998

Executive Summary

This paper was written to fill a void in our knowledge about the trade activity of foreign subsidiaries in Canada. The paper is split into two parts: the first presents an overview of foreign subsidiaries operating in Canada; the second concentrates on their trade activity, especially intrafirm trade.

Foreign-affiliated companies account for about 25 to 30 percent of total sales in Canada. They are disproportionately located in Central Canada, though not well represented in Quebec. Their activities seem more focussed on the high value-added manufacturing and resource-based sectors. Foreign subsidiaries have stronger trade-to-sales ratios than do domestic companies. Four countries — the United States, the United Kingdom, Japan, and Germany — make up the lion's share of foreign investors in Canada. The Canadian subsidiaries of these four countries of control which export their products represent about 2 percent of all exporters, yet they account for roughly 44 percent of exports. U.S.-affiliated companies account for approximately 90 percent of exports by foreign subsidiaries.

Foreign-controlled companies are also responsible for about one-half of total Canadian imports, the bulk of which is concentrated in the following sectors: transportation equipment, electrical and electronic products, chemicals and textiles, and machinery and equipment. Imports from affiliates outweigh imports from non-related parties for each country of control (except British-controlled companies) and showed a rise over 1990–1992. The study finds that there is a strong link between the parent country of control and the source of intrafirm imports. After the parent country of control, the United States is the next most important source of intrafirm imports. Geographical proximity to the parent country of control is not found to be a factor in sourcing intrafirm imports.

Intrafirm export data is only available for trade with the United States and, not surprisingly, U.S. subsidiaries dominate these trade statistics. Despite declines in intrafirm export shares to the United States by non-U.S. affiliated companies, the overall share of foreign-affiliated intrafirm exports to the United States rose from 63 to 71 percent of foreign-controlled exports to the United States over 1990–1992. Increased intrafirm exports by U.S.-affiliated companies were the principal reason for this overall jump in intrafirm exports to the United States, led by advances in key sectors such as chemicals and textiles, electrical and electronic products and, especially, transportation equipment.

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