International Trade Committee on May 8th, 2012

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Of course with the access to the postal service, it would obviously have that advantage.

You also made mention of the fact that it runs contrary to Japan's international trade obligations, in that the global insurance industry has expressed serious reservations about their treatment.

Can you help us understand what international trade obligations are being violated at the present time?

[Janice Hilchie]

It's our view that the principle of national treatment under the GATS obligations is being infringed by the existence of these advantages to Japan Post.

We have participated in a coalition with other international insurance associations and trade groups for a number of years now, since the privatization plan for Japan Post has stalled, to advocate towards the Japanese government to continue with its undertakings to privatize the company by 2017. With the passage of this legislation this year, we see this as a serious setback. If it's acted upon, it is really going backwards on the obligations that Japan has under its trade agreements.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

So it's not just Canada that has a concern about their proprietary access.

[Janice Hilchie]

That's right. There's Europe, U.S., and Japan itself.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Has anybody filed a WTO complaint?

[Janice Hilchie]

No. There hasn't been a formal complaint filed. We really are working through diplomatic means to try to resolve this.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

What's the feedback that you're getting?

[Janice Hilchie]

Well, it still is an outstanding issue that hasn't been resolved yet.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Certainly the insurance providers within Japan would not like to be competing with their own government in this particular area. Are they offering substantial pressure for reform?

[Janice Hilchie]

The domestic insurers in Japan are similarly disadvantaged by these provisions, and they are also seeking a level playing field.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Hiebert.

Mr. Shory, for five minutes.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair.

Thank you to the witnesses for being here. It seems like this agreement will be beneficial for Canada and also for Japan.

Mr. Laurin, I need to ask you one thing. If I heard it correctly, you made a comment in response to one question that the resource sector has been supporting growth in the manufacturing sector.

I'd like you to elaborate on that.

[Jean-Michel Laurin]

Well, for starters, as I indicated earlier, the analysis we have access to shows that a little less than a third of our natural resources produced in this country end up being processed by the manufacturing sector in this country. So the resource boom, if you want to call it that, I think has benefited the manufacturing sector.

In fact if you look at the industrial sectors that have experienced the fastest growth levels since the recession, you'll see that sectors connected to the natural resource supply chain have tended to do better. Those are things like machinery and equipment, fabricated metal products, and so on and so forth.

We often talk about the oil and gas sector, but to us it's the forestry sector that is growing very strongly in northern British Columbia. It's the oil and gas sector in Alberta and parts of Saskatchewan. It's uranium in Saskatchewan. It's Richard's members, and all the agrifood producers who are taking advantages of higher prices and growing demand in international markets. It's the mining sector in northern Quebec, with the Plan Nord.

In northern Ontario we're seeing the same types of investments taking place, and in parts of Atlantic Canada as well. We've got that going for us, and I think the issue for manufacturers is how we can connect with those supply chains, how we can benefit from those investments.

For example, if you talk to the mining equipment sector, we're one of the best countries. We have some really good companies that were able to start 20 to 30 years ago supplying the oil sands and projects in northern Ontario. They now do business all over the world. In fact the best place for me to get information in terms of market access issues tends to be those companies because they operate in markets all over the world.

To see this as an either-or proposition, that what's good for the resource sector is not necessarily good for the manufacturing sector.... We see the two sectors as being very strongly connected.

Now, in the context of these trade negotiations with Japan, I think it's been great that our natural resource sector has been able to take advantage of opportunities in that market. The opportunity and the potential we have now is to diversify our trade with Japan and let other sectors of the economy take advantage of that market.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Mr. Phillips, we heard from some other witnesses last week that Japan pays premium prices for premium-quality products. That means more dollars in farmers' pockets. Will that also mean higher profits and more jobs in Canada? How would it increase jobs and productivity here in Canada?

[Richard Phillips]

When we grow grains in Canada, there are two major areas: one for human consumption, another for animal feed. If our beef and pork industries gain more access to the Japanese market, then that's a good place for our feed grains to go, because our feed grains are worth less money and the freight to get them to port position takes a huge chunk of their value.

So if we can feed that domestically here, it creates jobs. Somebody takes it down to the feed mill to be ground up into feed. Then somebody has a cattle feed lot—there are some cow-calf operators. Then the cattle go to slaughter plants to be slaughtered and cut up, put into containers, and moved out to port position. Every step in that value chain adds jobs and wealth here in Canada. So if we can add those value-added meat cuts and get access to these markets, then everybody benefits all the way down to the grain farmers.

[Devinder Shory, Conservative, Calgary Northeast, AB]

This question is for everyone, basically.

Do you think that our presence in Japan will help to open doors to other markets in Asia?

[Peter Wilkinson]

Yes, Japan is a good place for access to the Asian region, because it is a well-developed democracy with a good legal system. So it would be perfect for that.

[Jean-Michel Laurin]

I think Japan has some potential. To the extent that they're negotiating trade agreements with other countries in the Asia-Pacific region, they might become more of a platform for companies that want to establish a presence in the region. Traditionally, though, companies have looked more at Singapore and Hong Kong as gateways to all of Asia. The legal system, the tax structure, our agreements, access to infrastructure that can easily serve markets throughout the region—these are all critical elements. To the extent that Japan could replicate that, I think it could serve more as a gateway for Canadian companies that want to access all of Asia. But up till now, people have looked to Hong Kong and Singapore as places to set up operations to serve the region.

[The Vice-Chair, NDP, Don Davies]

Thank you, Monsieur Laurin.

Madame Papillon.

[Annick Papillon, NDP, Québec, QC]

Thank you very much.

I would like to come back to what I was saying earlier.

Mr. Laurin, you represent many members. I know that you represent many Canadian companies located in the west or the east of our great country. Do some of your members have more concerns regarding this agreement? Are there certain regions that could benefit from it because they have resources other regions do not have? Have you noticed an imbalance among Canada's regions?

[Jean-Michel Laurin]

It is certain that the manufacturing heart of Canada is located in the central part of the country—in Ontario and Quebec. Over two-thirds of Canada's manufacturing sector and manufacturing activities are concentrated in that area. Those two provinces probably share the concerns I expressed in my comments.

That being said, as I mentioned earlier, if the resource sector had better access to the Japanese market and could increase its production and exports, the manufacturing sector would certainly benefit in turn.

However, when our members assess the negotiations of a trade agreement with Japan, they realize that it is more of a situation where, in general, the Japanese companies have fairly good access to the Canadian market. Of course, there are custom tariffs on many of their products, and the Canadian market is not always easy to penetrate. However, it should be said that there are fewer trade barriers and restrictions for a Japanese company that wants to do business in Canada than for a Canadian company that wants to go to Japan.

As I mentioned, those factors partially contribute to the trade deficit with Japan when it comes to products and goods manufactured in Canada. That being said, in the context of a free trade agreement and provided that some of those barriers can be eliminated, we may be able to do more trading with Japan and to increase our exports to and investments in that country. That's a promising situation for us.

Quebec and Ontario manufacturing companies want to export elsewhere in the world. For those companies, access to foreign markets outside of North America is becoming increasingly important. Companies are devoting more and more resources to the development of those markets.

A number of sectors in the Japanese market should normally be very attractive. Unfortunately, entrepreneurs have often given up on the idea because it was too expensive, too complicated and too risky to try to increase their exports to that market.

[Annick Papillon, NDP, Québec, QC]

That's true.

In addition, we see that the Japanese have a lot more difficulty importing our manufactured products. They sometimes find that there is insufficient surplus value involved. That challenge will probably have to be addressed. We will have to ensure to have the edge over German or French products that are perhaps more attractive to them.

How can our Canadian manufactured products be made more interesting, so that the Japanese can benefit more from them?

[Jean-Michel Laurin]

That's a good question.

The Japanese industrial sector has not developed by accident. That country adopted a concerted strategy, after the Second World War, in order to build a world-class industry.

Today, Japan is in an enviable position, but so is Canada. Our manufacturing industry is also of world-class quality. Many of the two countries' sectors complement each other. We would benefit from engaging in more trade with one another.

Richard pointed this out very nicely in his comments. For us, one of the advantages of Japan's market is that the Japanese are prepared to pay more for a quality product. I think that's in the best interest of our manufacturing industry, given that what is increasingly setting us apart on international markets is the manufacturing of innovative and high-quality products.

[Annick Papillon, NDP, Québec, QC]

Do you have any examples?

[Jean-Michel Laurin]

We may look at the aerospace industry or the electronics sector. RIM is often used as an example. However, many of our members manufacture products, ranging from mining equipment to electronics.