International Trade Committee on May 8th, 2012

[Ed Holder, Conservative, London West, ON]

Excuse me for interrupting. It started as a public company.

[Janice Hilchie]

Yes, that's right.

It was subsequently split into the four corporations: banking, insurance, and two for postal services. Because of politics in Japan, in 2010 those reforms to privatize were stalled. The four companies are owned by a holding company. The Japanese government holds, I understand, 30%.

[Ed Holder, Conservative, London West, ON]

You indicated in your testimony that Japan Post Insurance is 30% owned by the government. Who owns the other 70%?

[Janice Hilchie]

Effectively, the whole of Japan Post is owned by the government. The 30% represents the shares that have been released for ownership, if you will. I don't pretend to quite understand how that works.

[Ed Holder, Conservative, London West, ON]

That's not clear from your testimony, the way I've read it. I read that to mean that 70% of Japan Post—

[Janice Hilchie]

Is it owned by someone else? No.

[Ed Holder, Conservative, London West, ON]

Could I then ask, through you, Chair, perhaps if there's an ability to the extent that you have more background on that, to present that through the chair? That would be helpful to us to understand that better.

[Janice Hilchie]

Yes, we could do that.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Holder.

Yes, Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

We are going to Japan. Can we ask our people to line up a meeting with Japan Post when we're there?

[The Vice-Chair, NDP, Don Davies]

Certainly. We'll pass that request on to the analyst.

Before we go to the second round, I have one quick comment and a quick question. My comment is that I didn't think Japan was a socialist country. Certainly it wasn't during World War II and certainly hasn't been since.

[Ed Holder, Conservative, London West, ON]

If I gave that impression, Chair, I withdraw it.

[The Vice-Chair, NDP, Don Davies]

Thank you.

My quick question is maybe to Mr. Wilkinson. We did some quick research up here so it's not terribly in depth, but we understand that there is a double taxation treaty between Canada and Japan that was signed in 1986 and amended in 1999.

I'm just wondering if you felt there were provisions of that agreement that needed review.

[Peter Wilkinson]

We just need them reviewed. It's been a long time and so we just hope to make it easier. Yes, Chair.

[The Vice-Chair, NDP, Don Davies]

Okay. If there are any particular aspects that you think ought to be looked at, the committee would be happy to receive that information too.

[Peter Wilkinson]

Certainly. We'll send that off to you, Chair.

[The Vice-Chair, NDP, Don Davies]

Thank you.

We're going to start the second round of five minutes.

We'll start off with Madame Papillon from the New Democratic Party.

[Annick Papillon, NDP, Québec, QC]

Thank you, Mr. Chair. I also want to thank all of you for joining us today.

My first question is about the imbalance between natural resources and manufactured products.

We are concerned about that, as we are wondering what it will mean for this free trade agreement. We are wondering about the harm our manufacturing sector may suffer. The fact is that, last year, 24 of the 25 top products Canada exported to Japan were raw materials, commodities and food. That data comes from Statistics Canada. We would like to know whether any manufacturing companies will lose out in the deal. Could this be one of those exceptions that proves the rule that manufacturing companies may be unprofitable at this time? What do you think, Mr. Laurin?

[Jean-Michel Laurin]

As I mentioned earlier, the manufacturing sector has more at stake than anyone else in these negotiations. The fact that the main Canadian exports to Japan are natural resource products shows that Richard and his mining sector and natural resources sector members have done excellent work to penetrate that market. Japan certainly needs to import natural resources because of its small size and its fairly considerable needs. The question is knowing how to make sure we can also export products that are higher up in the chain, such as manufactured products and services. We have here some representatives of Manulife Financial, who work in the service industry.

As I was saying, we are not claiming Canada should not export natural resources to Japan. We rather think that we should diversify our exports to Japan. In theory, a free trade agreement could help us diversify our exports, provided that this agreement addresses the main concerns of other sectors of the economy, including ours, which are facing barriers. We are talking about non-tariff barriers.

I would like to talk about one of the obstacles our members face. When they want to penetrate a foreign market, they don't necessarily want to begin exporting directly from Canada. Therefore, they decide to acquire a company in another market. That often happens in the United States. In fact, a company buys a competitor—in other words, a company from the same sector in another market. It is very difficult to do that in Japan. Manulife Financial seems to have done so in the 1990s, but that is an exception. There are many barriers, such as corporate governance rules that are very different in Japan. Much has been written about that. I know that, for companies, traditional ways of penetrating that market often do not work because of non-tariff structural barriers, regulatory barriers and other types of barriers. If a free trade agreement could address those concerns, that would be very good news for us.

However, as I was saying earlier, we will wait and see how the negotiations turn out. I think that the Japanese are negotiating in good faith, as are we. So there is a lot of potential, but at the same time, many questions remain.

[Annick Papillon, NDP, Québec, QC]

It is completely normal to be wondering about the manufacturing sector, especially since, let's not forget, many jobs have been lost in the Canadian manufacturing sector over the past few years. That's why we are concerned.

In addition, the oil and gas industry could take advantage of the Japan market opening up to boost its exports, which totalled $1.9 billion in 2011. You said that you represent 10,000 Canadian companies. Could you tell me approximately how many of them may have ties to the oil and gas industry?

[Jean-Michel Laurin]

A significant number of them do, but I don't have the exact figure. Many of our members are taking advantage of the oil and gas industry's growth across Canada, be it in the maritime provinces or in the west. Our industrial base is increasingly leaning toward repositioning itself, not only by diversifying its export markets, but also by diversifying its sales in various sectors. For instance, several of our association's member companies were long-time suppliers, especially in the Ontario auto industry. Today, they are manufacturing advanced metal products and trying to position themselves. They have been successful in that endeavour and are selling their products to the oil and gas industry, especially in the west. Therefore, I think that the oil and gas industry's growth has benefited a number of the country's manufacturing companies. We still need to figure out how to make sure the manufacturing sector can benefit even more from this growth.

I think that Canada has a nice problem on its hands. How are we to benefit from or maximize the profits of the oil industry's growth? I know that the Americans and the Europeans, among others, would very much like to have the same problem right now.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Laurin.

We'll go to Mr. Shipley from the Conservative Party for five minutes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, Mr. Chair.

Thank you, witnesses.

I'd like to go to Mr. Phillips first. We had the cattlemen in, and we've heard the very strong support for this I think throughout the whole agriculture industry. You mentioned something, though, that was a little disturbing to me, and that was that you had to actually go back over to Japan to discount some of the false allegations about us being able to provide a quality product to Japan, which we already are doing, but I guess to re-confirm that.

How were you received when you went back over there?

[Richard Phillips]

The meeting went very well. Part of it is what our competition is out there alleging—i.e, you know, you should come and talk to us, because we'll be able to meet your quality specifications.

Part of the concern was that, as we know, the future of the wheat board was a very divisive issue among many farmers. The Japanese read the press clippings every day. Some people said the wheat board could work and some people said the wheat board couldn't work. That's what caused a lot of concern.

Our competitors took that information and were using it to suggest it probably would not work and there would be no wheat, that everything would be commingled and our quality levels would drop.

So it was very good to be there, and having the Canadian Grain Commission there was good, because they could explain how they are going to continue to inspect the grain and issue certificate finals on grain leaving.

Having Ian White of the Canadian Wheat Board was also very positive, because whether it's the wheat board or agents of the wheat board, when you're dealing in Japan, change doesn't come quickly, in many ways. The wheat board has had long relationships with the Japanese buyers, and Ian White was there to assure them that they'll continue to do that.

I spoke as a producer there, saying that producers will continue to be growing good-quality wheats in Canada.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

When you talked about the opportunities in Japan, you said we have great markets, they recognize our quality of product, they pay a premium for that, so what opportunities do you see then in terms of growth? Help us by explaining how those opportunities will continue to grow, if they will.