International Trade Committee on Feb. 13th, 2013

[The Chair, Conservative, Rob Merrifield]

We call the meeting to order.

We want to thank our witnesses for being here. We have two witnesses in the first hour. We have Mr. Sahsi. We want to thank you for coming in. He's from Canam International. We have by video conference Mr. Sundher from Sundher Group of Companies. Mr. Sundher, can you hear us all right?

[Tom Sundher, President, Sundher Group Of Companies]

Yes, I can hear you fine, thank you.

[The Chair, Conservative, Rob Merrifield]

Okay, we just want to make sure that we have all the communications working. We'll start with the presentation from Mr. Sahsi. The floor is yours, sir.

[Darshan Singh Sahsi, Managing Director, Canam International]

I would like to introduce myself. My name is Darshan Sahsi. I came to Canada in 1991. I did some odd jobs, forklift operating, and all that. Then I became one-third partner in Cann-Amm Exports Inc. in Maple Ridge, B.C., a small company. We started recycling used clothing, buying from Value Village stores. Value Village is an American company named Savers Inc. Their name in Canada is Value Village, and in America they call it Savers. They have around 300 thrift stores all over North America and two in Australia.

I started with my wife and five employees. To cut it short, today I have around 1,000 employees. I have exported 18,000 to 20,000 cube containers, each 40 feet high, to India and Africa in the last 12 years. This is a commodity that the Canadian government may not know about. This is a commodity we have because Toronto is the first hub of used clothing recycling, after Houston, U.S.A.

I started my plant in Maple Ridge, and I still have around 70 to 80 employees there. I just started in Toronto. I was the first one to get a duty-free licence in India from the Government of India, Ministry of Commerce, in a special economic zone called Kandla in Gujarat.

I'm facing some problems with India. When I started in India, this commodity, used clothing, was under ITC code 6309. It was an OGL, open general licence. We made our projections accordingly in India. Then in October 2004, the Indian government, with pressure from the textile industry, put it back in the restricted category. We were fighting with the government for a year or so. Then they gave us 15% local sales, 15% of the CIF value of our imports, value-wise. They kept it open for two years. Then they banned it again.

I'm here because this is a commodity we have in Canada that we are exporting. I have documented proof that I have exported 20,000 containers to India. The Indian government, to protect the textile industry, keeps opening and closing the doors every couple of years. So while the committee is negotiating with the Government of India, please keep in mind that this is a commodity we can export to India. More than 60% of the population of India needs it.

Last December and January, people were dying in Delhi because of the winter. I was mutilating blankets in my plant in India. I recycled more than 300,000 pounds every day in the plant in India, more than 400,000 last year. Because of the policy change, in May 2010, they again banned our 15%. I have all the documents. Let me explain this to you. On page 7, you can see the first time it was banned.

[The Chair, Conservative, Rob Merrifield]

One of the issues is that it's not translated, so we can't give it to all of our members.

[Darshan Singh Sahsi]

I have all the documents here. They show when the Government of India banned and when they opened the doors.

[The Chair, Conservative, Rob Merrifield]

Okay.

[Darshan Singh Sahsi]

All the details are there.

My company was awarded top export performance by the Government of India for four years. I have all the certificates from the government's commerce ministry. The commerce minister awarded them to me for export from India to African countries. The condition was that if I imported for $1.00 from North America, I had to export for $1.01 to keep my net foreign exchange earning positive in India.

I was doing all that, but still there was pressure from the textile industry. If you look around India, Pakistan is open, and Malaysia is open. They also have textile industries.

My request is that you keep in mind that this is a commodity that we can export to India. That is my major point with regard to negotiating free trade with India.

If you look at pages 16 to 21, you will see some of the suggestions I have given to the Government of India in a letter written to the commerce ministry. I met the commerce secretary in Delhi.

There are some unhealthy competitors in India. This business looks very simple to normal people, but it is very complicated to teach someone about fabric. In India nobody knew that a lady's blouse had buttons on the left and a man's shirt had buttons on the right. I trained my 200 employees, and one year spent more than six months sitting in 45° temperatures. Then some people from other countries came and picked off my employees, offering double the salary. Then I was suffering. Other people came in, used some loopholes, and started selling illegally in the Indian market.

I, being a Canadian, am living a very good life, with two sons and a wife. I didn't want to do anything illegal. God gave me the opportunity to live in this good country, and I didn't want to do all these illegal activities, but that meant I was suffering for a long time. I wrote a letter to the government. I did everything.

When Jasbir told me about this meeting, I asked him if there was anything the Canadian government could do to help me on this. I told him I'd like to go to the committee, and that's why I'm here today.

That's the short story. There are so many other things I could mention, but I don't want to waste your time today.

[The Chair, Conservative, Rob Merrifield]

No, that's very good. We'll get into questions and answers in a few minutes.

Mr. Sundher, the floor is yours, sir. We welcome your presentation.

[Tom Sundher]

Thank you very much. I really appreciate this opportunity.

My name is Tom Sundher, and I'm the president of the Sundher Group. I'd like to thank you for this opportunity to present to the Standing Committee on International Trade with regard to a CEPA with India.

Since my background and expertise is in forest products, specifically lumber, most of my comments will be directed at this segment.

First of all, I would like to give you a bit of background about myself. In 1907 my grandfather walked off the fields in the Punjab for what he had heard was a better life with greater opportunities in a country called Canada, and specifically British Columbia. He later sent for my father, who joined him in 1924.

I was born and raised in Port Alberni, the home of some of the most magnificent forests and wood products in the world. I attended university in Vancouver, and I am married with two adult sons.

I have worked for several of B.C.'s large forest products companies, as well as latterly establishing my own company, Coast Clear Wood. Both my sons now work with me in the custom cutting of west coast logs for a specialized customer base and exporting B.C. forest products, specifically lumber, to India.

Our company has had the honour of winning two B.C. export awards for our expertise in manufacturing and marketing, one in 2005 for manufactured products, and the other in 2011 for primary products.

Additionally, we are now the exclusive marketing agents in India for two of Canada’s leading forest product producers, Western Forest Products and Weyerhaeuser.

Our opportunities have been tremendous. Even one of my grandsons was drafted recently by the NHL, by the Buffalo hockey club. You can’t get much more Canadian than that. But he got onto an American team; we're waiting for a Canadian team.

[The Chair, Conservative, Rob Merrifield]

The Americans stole him.

[Voices]

Oh, oh!

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

That's free trade.

[Tom Sundher]

Now I'll turn to forest products, or more specifically, to lumber products.

My company has been exporting B.C. lumber products to India for over 15 years. It began as a result of a Vancouver visit by the owner of one of India's oldest and most respected lumber importers, B.F. Wadia and Sons of Mumbai. Arsheesh Wadia, the president, has been instrumental in the development of my understanding of the dynamics and huge potential of the emerging Indian market for Canadian forest products.

Some observations I've made over the years are that 1.2 billion people need housing. In many of the housing components, from supports to hold up the concrete floors as they are constructed, to doors and windows, to flooring, and industrial packaging products, they were using local woods. At that time, very little lumber was being imported into India as India was harvesting its own forests and there was an import tariff of 37.5% on lumber. Today, while much has changed in India, a lot still remains the same.

On factors that affect lumber, I'm sure that others have covered the economic realities of India in much greater detail than I can, but I will touch upon factors impacting lumber consumption.

First, there is a population of 1.2 billion, all requiring housing or shelter of some sort. There is a shift from a rural agricultural lifestyle to an urban industrial lifestyle requiring new housing units. By 2020 it is estimated that 200 million new housing units will be required, of which 80 million will be urban, with characteristics similar to those you would find in homes or condominiums in North America. The majority will be a multi-family type.

Second, the demographics are skewed towards a younger age group that is evolving into a middle-class consumer society for such items as furniture and other housing amenities constructed of lumber.

Other significant changes taking place over this timeframe include: first, the banning in 1995 of domestic timber harvest on all government lands to protect the environment; second, a significant increase in both hardwood and softwood log imports to make up for some of this shortage—approximately 200 shiploads of logs per year, of which five million cubic metres were hardwood logs, and one million cubic metres were softwood logs; third, a drop in the import tax on lumber from 37.5% to the now 14.75%; and fourth, a subsequent increase of lumber imports from 100,000 cubic metres of hardwood to 600,000 cubic metres of hardwood and softwood in 2011—12,000 containers per year—of which 300,000 cubic metres were hardwood lumber, and 300,000 cubic metres were softwood lumber. Canada exported 65,000 cubic metres.

However, it has not been a smooth journey. The increase in lumber imports led to much more rigorous inspection of the documentation required and it was found that most of the Canadian species' botanical names were not included in the import regulations. This led to a two-year hiatus of Canadian lumber imports to India while this was rectified. The Canadian and Indian governments, through the agricultural department, did a pest control assessment, and we've successfully now listed all of our species on India's import schedule.

India's preference for lumber products still remains hardwood, such as teak and meranti, which has seen significant increases of log imports from both Myanmar and—and I'll make a correction to the brief; it's not Indonesia, but Malaysia. These are the two largest exporters of these logs.

Imported logs are subject to a duty of 9%. Lumber is at 14.75%, and finished products, such as doors, windows, and flooring, are at 33%, thereby skewing buying decisions.

I believe that a comprehensive economic and partnership agreement, CEPA, between Canada and India that includes lumber products will be beneficial for both countries if it addresses both the tariff and non-tariff barriers currently in place. It would be a win-win situation.

First, India is a “fibre deficit” nation and needs to import logs and lumber to meet its growing needs for wood products. While India has restricted domestic harvesting and its government has discouraged wood use, the reality is that India is a wood culture.

As consumption grows, along with demographic and economic trends, all estimates are for more wood use, not less. Considering a policy of encouraging wood imports and use of sustainably managed forests can present a viable alternative to increasing pressures on domestic forests and ensure that India is making positive environmental choices by sourcing them from legal and sustainable sources. Some forecasts show a shortage of 50 million cubic metres of lumber by 2030.

Import duties are a tax on the Indian consumer, as they raise the price of the raw materials that are being used, either in housing construction or in other amenities. The tax is also applied on the landed price cost, including freight, which puts those countries with farther shipping distances at a disadvantage. Canada is on the opposite side of the world to India and has one of the longest shipping distances from the fibre-sourcing regions, putting it at the greatest disadvantage.

Second, India is developing an export economy of furniture, doors, etc., that will put it at a competitive disadvantage with other exporting nations that do not have the same import duties. I'm not aware of any import duty tax credit for goods that include lumber products that a duty has been paid on, but that are exported out of the country. High import tariffs on logs and lumber are likely putting more pressure on domestic forests, as they do not make imported wood products from sustainable sources as competitive.

I understand the desire to protect domestic jobs, which is why limiting their tariff to manufactured and finished goods may help create jobs in India. Bringing in the raw material without high tariffs can help encourage the domestic industry and keep it competitive with other nations. This is particularly acute if India wants to export finished goods. The raw material inputs are automatically higher than in other Asian manufacturing centres.

I would add that Canadian lumber should be more cost-effective to Indian secondary manufacturers and consumers than products generated from imported tropical hardwood logs, the supply of which is diminishing worldwide and the cost of which is rising worldwide. Although Canadian lumber may compete with lumber produced by Indian sawmills, constituencies in India, other than sawmillers, stand to benefit significantly from using Canadian lumber. Reflecting that phenomenon, we urge Indian policy-makers to characterize imported lumber as, at best, a semi-manufactured good, so that import duties are reduced, ideally to zero.

Third, India has several non-tariff trade barriers that other countries do not have, including import permits and phytosanitary certification. India's business practices can also be suspect when it comes to correcting even the smallest error in paperwork. This all leads to extra costs in doing business in India.

I've also listed a number of things that I have written down here. If you like, I can cover them very quickly, or whatever you think.

[The Chair, Conservative, Rob Merrifield]

Your time is about gone, so let's just open it up to questions and answers, because they may come out in some of your answers to the questions. We can have your text translated and given to the committee, so at any rate they'll get all of it.

[Tom Sundher]

That's great. Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll start with Mr. Sandhu.

The floor is yours for seven minutes.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you, Chair.

I want to thank both our witnesses, Mr. Sundher and Mr. Sahsi, for being with us today. It's very much appreciated. I know that both witnesses have had extensive experience in dealing with business in India.

I want to start with Mr. Sahsi. Actually, he's a good friend. I've known him for many years. I will call him Mr. Sahsi, not Darshan, at this committee meeting.

Mr. Sahsi, you've been in India for a number of years. What obstacles did you face in setting up your business in India and, for the negotiating team, what can we learn from that? What can you tell us at this committee today?

[Darshan Singh Sahsi]

Jasbir, there are so many small and big obstacles. I'm not doing only this business in India. My sister is a CMA in Canada. I started a business for her also in Chandigarh, and I have some connections. You always need connections to start a business in India.

The bureaucrats in India are always looking for fault. They go through your papers, and they want to find a small fault. It's not like a Canadian bureaucrat. Here, everybody is there to help you. Over there, everybody is there to find a fault. If there is a small fault, they'll put your file aside and tell you to come back tomorrow. I learned a lot. Because I am Indian, I was doing business in India before I came to Canada. I had a small business. I'm still running a brick kiln there, and I'm the major supplier for Jindal Steel and Power. The whole distribution centre is with me in part of the whole Punjab and Jammu and Kashmir states. So I am doing that business also.

There are so many.... For example, there is used clothing. Used clothing comes in under ITC code 6309. For the last 20 years, maybe more, this used clothing from North America, from Europe, from wherever it is available, from South Korea has been coming into India under ITC code 6310. It is always going there illegally. When they gave us 15% from the special economic zone, 15% was okay with me. I need only 10% weight-wise. Even 5% is okay. We can export. We can sell in the DTA, the domestic tariff area. We are selling that 6310. It's allowed. We mutilate acrylic sweaters, wool sweaters, cotton sweaters for wipers. Some wipers we ship back to Canada and America from India. That is allowed, but we need only 5% to 10%, which is whole clothing, not mutilated.

The problem is that outside the special economic zone, people are importing under code 6310 illegally. They pay bribes of 30 rupees per kilogram. I would request that the committee suggest a duty of 30 rupees per kilogram on India for garments. Buyers in India are happy to pay that 30 rupees per kilo if it is open.

[Jasbir Sandhu, NDP, Surrey North, BC]

So you would like a fair system where everybody—

[Darshan Singh Sahsi]

I tried my best, but now I want the Canadian government to help. I tried. I met the commissioner. I was awarded...if you see my file, there is a photo with the King of Belgium who came to a Vancouver hotel. I was importing from Belgium also at that time. The minister of commerce gave me the award.

I did everything the Canadian way. If you look at my plant—I brought the CD, but unfortunately you said you can't play it here—I made my warehouses like those in Canada. They are fully ventilated. I provide distilled water to 1,000 people. I was paying double the salaries. In the plant, whenever the government or any delegation from the Government of India would come from Delhi to the special economic zone, the development commissioner was proud to bring them to my plant to show it to them. I developed my own fire system in the plant. If there was a fire, the fire brigades did not work in India, so I was afraid. Sometimes I have 200 containers of used clothing I have bought from the Salvation Army, from Goodwill Industries, or from other charities in Canada. I buy their leftover clothes, whatever they can't sell. These clothes were going to the garbage heap. I have my own outlets in Africa. The major problem was the garments of the unhealthy competitors in India. That was the major hurdle which I am still facing today.

[Jasbir Sandhu, NDP, Surrey North, BC]

I have a question for Mr. Sundher.

Mr. Sundher, what are the main obstacles that have prevented you from expanding in India over the last 10 years? Obviously, you have some business there, but you've had some difficulties and some obstacles. Can you maybe highlight those for our committee, besides the tariffs, which you've already talked about?

[Tom Sundher]

Thank you, Jasbir.

The major issue is the tariffs. The 14.5% duty restricts our ability to go inland economically. Right now, most of our lumber is going to a port city, whether it be Bombay or some other port. To go inland, it's another $900 to $1,200 U.S. for a container. If our duty could come down to zero, or close to zero, that would give us more access to inland cities and more access for our lumber at economical prices. That's a huge hurdle.

The other ones I've listed in my presentation are in regard to the bureaucracy and getting the lumber there. In other words, it deals with the different rules for different categories of lumber. Our lumber is in schedule VI and schedule VII of the import schedule. I'm questioning why we can't have it all under one schedule. One schedule requires no import restriction and the other one requires us to get an import permit. I'm asking why it is separated like that. There's no reason for it.

The other thing is, our SPF, southern yellow pine and all that, comes under three separate import permits. Our industry would like to see one import permit that covers SPF as it's marketed worldwide. Why not one import permit to cover that? Right now our buyers in India have to apply for three separate import permits, putting down the percentage of pine, the percentage of spruce, and the percentage of fir. This is really no issue, because you're just guessing at it. It's better to have one import permit for those species. Those are the things that I think should be addressed.

[The Chair, Conservative, Rob Merrifield]

That sounds very good. We'll take note of that, and we'll move on to Mr. Shory.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair.

My thanks to the witnesses for being here today. I want to thank you for your hard work here in Canada and abroad. I congratulate you and your families for the success you have achieved.

Mr. Sundher, within the 1.2 billion population in India, we have heard that 300 million are in middle-class families and 25 million of those Indians have the capacity to buy virtually anything. That's the kind of range of prosperity there is. Of course, India has quite a large young generation.

You have been dealing in lumber. The Indian government has ambitious plans to improve their infrastructure; they are talking trillions of dollars. You and I both know that in India lumber homes have not yet been adopted. Do you see an opportunity for expanding in that area? Other countries are also keen to cash in on those opportunities. Where do you see this happening?

You talked about tariffs. Are there any non-tariff areas we should address in CEPA? Do you see any benefits to starting the CEPA with India? We have our Canadian trade commissioner services in India. Has anyone of you used those services?