International Trade Committee on Feb. 13th, 2014

[Some hon. members]

Oh, oh!

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

With our four universities and our 200 research centres, certainly innovation is very important to my region.

In the IT sectors that you represent, what tariffs exist currently with the European Union?

[John Jung]

You'll probably hear more on this from our colleague from BlackBerry who will talk more specifically about those tariffs. I haven't done the study of the tariffs themselves, but I understand they are an issue. I'd rather not go into the detail because I don't have that background.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

We'll certainly ask your colleague about that.

You mentioned that job growth would be probable as a result of CETA, but you also mentioned there would be issues or challenges related to retention. Could you elaborate on that?

[John Jung]

Yes. We've done a talent study or a strategy of how we can best keep the talent in the community. It's sometimes very difficult in a smaller community. There was a study done in the United States where the focus was on affordable housing, good transportation, and as they said, things to do. Smaller communities have that struggle.

One of the things that is being developed in our region is better transportation. An LRT system is being built. We have the universities in one cluster of our region, but a lot of our entertainment and other things are in areas where the students can't get to. They don't really know what the community is about in some of the other areas. Finally, those people who do graduate tend to want to go from the tech cluster to other regions and try them out, but they come back as families. Our region is well known for bringing them back to raise their families. You have that sense of maturity in some of those tech communities that exists there.

By the way, we have a tremendous start-up community. We want to get venture capital to come there and many other things that help to keep the start-ups there. Otherwise, of course, they're taken away.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

I had a chance to visit Communitech. It certainly is an exciting incubator. I'm looking forward to what they can do in the future.

On labour mobility, what sectors would benefit the most from increased labour mobility through CETA?

[John Jung]

Obviously, the tech community at large would benefit.

We also think we can grow in various targeted advanced manufacturing areas, including some of our clean tech and the activities around that, and data centres. There are opportunities for some of the lifestyle businesses that are there. We also have a very strong financial services sector that we want to continue to grow. Also there's what we call tech and ops. The technology and the operations side is a new area that we want to grow. We think we can be part of that by getting that kind of expertise from Europe. There are some other sectors as well, such as growing aerospace and so forth.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Hoback, for three minutes.

[Randy Hoback, Conservative, Prince Albert, SK]

Thank you, Chair. Three minutes, you said?

[The Chair, Conservative, Rob Merrifield]

Yes.

[Randy Hoback, Conservative, Prince Albert, SK]

Okay, so that's rather quick then.

Mr. Jung, I'm curious. You have a unique situation in your ability to attract outside investors from around the world. You not only have NAFTA, bit you also have trade deals such as Canada-Peru, Canada-Chile, Colombia, and other bilateral trade deals. Of course, CETA is coming into play, and then hopefully the Korean trade agreement.

How does that impact you when you seek investment abroad and in positioning your region for the place to be?

[John Jung]

I think you partly answered the question.

We have a great community and a great story. We have great companies. We have great people already. People come to us for talent. People come to us to be partners. When we go abroad, we raise that as part of our arsenal, our tool kit. We do go to many of those places. Next week I'll be in China, Japan, and Taiwan. I'll be in Brazil later next month. The point is that even though we don't have a lot of resources, we know we need to be out there.

[Randy Hoback, Conservative, Prince Albert, SK]

You have a tool in your tool bag now called CETA that's going to make it that much—

[John Jung]

Well, that's what I said earlier. We have an opportunity, probably second to none, because we now have the United States and the rest of NAFTA, Mexico, of course. We have CETA. We have all of these other agreements. We have a great tool kit.

What we need to be able to do, though, is to create great champions. We need to have resources to go out and do this. Organizations like ours don't have those kinds of resources, so we work very closely with Invest in Canada and other organizations where we leverage on what they can do for us. We work very closely with our end-market people from each of our provinces, as well as with the trade commissioners and ambassadors directly in each of the countries that we go to.

We cover the world. You'd be surprised at how little money organizations like ours have, and others like us across Canada. We're your front-line people. We bring along business to business. We don't have a lot of government officials and mayors and EDOs with us. We really have a mixed bag of people, from universities to the private sector.

[Randy Hoback, Conservative, Prince Albert, SK]

To sum it up, you're pretty excited then.

[John Jung]

Well you can tell that. When I heard about this opportunity to come and talk to you I wanted to let you know we're very pleased with this. There are some things that might rumble from time to time in any community, but we think this is a fantastic opportunity. In fact, we want to take advantage of it by leveraging it for the next two years to come up with some strategies that we can take advantage of.

[Randy Hoback, Conservative, Prince Albert, SK]

I think I'll end on that high note.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Thank you to our witnesses for being here with us.

We will now suspend as we set up for the next panel.

[The Chair, Conservative, Rob Merrifield]

I would ask members to take their seats. We have our witnesses before us and we'd like to get this session on the way.

As an individual, we have Marc-André Gagnon. Thank you for being with us. From BlackBerry, we have Morgan Elliott. Thank you for being here.

Before we start I want to ask the committee for consent. Mr. Gagnon has a PowerPoint that he could follow through. It's a document, half in English and half in French, but it is not in both languages. We need unanimous consent if we want to hand this out. It would be translated and distributed later.

Do we have consent for that?

[Some hon. members]

Agreed.

[The Chair, Conservative, Rob Merrifield]

Very good. Then we will get that passed out.

We are starting with Mr. Elliott. The floor is yours.

[Morgan Elliott, Senior Director, Government Relations, BlackBerry]

I'll keep my comments relatively short to enable more time for questions and answers. That might be a little bit more productive.

Thank you very much for the invitation. I'm really happy to comment on some of the economic benefits we see from CETA, this agreement, coupled with other free trade agreements that have already been negotiated. The other ongoing trade negotiations with Canada and India, Canada and Japan, and Canada and South Korea really do represent some of the best opportunities for Canadian companies to not only compete in open markets, but to compete fairly in open markets.

As a European master's graduate who studied public administration, what really strikes me is the skill with which the Canadian government and the trade negotiators were able to reach a very ambitious trade agreement. The EU took 45 years to reach agreement among themselves, and in just a few short years, the Canadian government was able to negotiate what I think is an even more liberalizing agreement.

Doing business in Europe can be fairly daunting. We've faced some pretty complex regulatory barriers. There are numerous product and testing certification procedures and other barriers that can make us slower to market and less competitive, so in BlackBerry's analysis, CETA certainly addresses a majority of the tariff, and more importantly, the non-tariff barriers to trade and investment.

At first glance, it also appears to ease the temporary entry of our employees who need to work across borders in order to support, service, and train our customers on our products.

We believe that the agreement's use of a negative list approach to services and labour mobility, and the fact that it actually “future-proofs” Canada in terms of most favoured nation should other countries reach more advantageous agreements, will ultimately facilitate the tech industry in terms of doing business and in its ability, as I said earlier, to compete not only in an open market, but also in a fair market, especially when you do consider those non-tariff trade barriers.

We operate in over 100 countries so we're certainly versed in the types of shenanigans—that's the best word that comes to mind—that other countries can play in terms of protecting or extracting concessions in terms of operating in their country.

We realize it's still an agreement in principle and there's more work to be done. We encourage and support the government's efforts in finalizing the agreement.

As I said, what will be particularly interesting to us are the regulations affecting business travel, product certification, and especially a timely and effective dispute settlement procedure.

I'll sum up really quickly and point out that in relative comparison, Canada's size limits our economic and political influence on the world stage, so we need to work smarter than other countries. However, that smaller size is also a competitive advantage because it enables us to be more nimble and responsive to changes on the global social and economic stage. We're really reliant, and all tech companies are reliant, on constant innovation, but we're also reliant on modern, enabling and competitive public policies from our governments. We believe, in this case, that CETA represents sound, modern public policy and will enable Canadian companies to compete effectively on an open market.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now from Carleton University, speaking as an individual, is Mr. Gagnon. He is assistant professor at the school of public policy administration.

The floor is yours, sir.

[Dr. Marc-André Gagnon, Assistant Professor, School of Public Policy and Administration, Carleton University, As an Individual]

Thank you very much for the invitation. I am very sorry about the PowerPoint presentation. As I was given very short notice, I prepared it at the last minute.

I am going to talk to you about the Canada-European Union Comprehensive Economic and Trade Agreement and its consequences on the cost of patent medicines. I am going to try to demonstrate that here, unfortunately, we have a clear case of what can be called corporate welfare for parasitic enterprises.

The graph showing the total expenditure per capita on prescription drugs for 2011, or the last available year, shows that in Canada, we are paying much more than in the vast majority of OECD countries, except for the United States. One could think that that is because in Canada we have better access to medications and that consequently people consume more of them. However, that is not at all the case. All of the European countries have a universal drug insurance program of one kind or another, and they have better access. In Canada, 10% of the population does not buy prescription drugs for financial reasons.

Let us now review prices. In fact, the group of countries Canada is normally compared to includes the four countries where the cost of patent drugs is the highest in the world, that is to say the United States, Germany, Switzerland and Sweden. I would also like to direct your attention to another fact. In Canada, we pay from 25% to 30% more for patent medicines than in other countries that are more comparable, such as France and the United Kingdom.

There is this tendency to inflate the cost of prescription drugs somewhat. There was logic to this in the beginning. In 1987, when the Conservatives amended the Patent Act in a way that favoured the pharmaceutical companies, they did so the right way, that is by stating that they were going to put in place a better piece of legislation and a method of setting the cost of patent drugs that would benefit the industry. In exchange for granting privileges, they required that there be economic and industrial spinoffs. The level of research and development can be measured by the money spent on R&D as compared to sales. Thus, the government required that 10% of money generated by sales in Canada be spent on R&D.

This worked very well for a few years, but toward the end of the 1990s, the system collapsed. The ratio whereby the funds devoted to R&D were supposed to be in proportion to sales collapsed in Canada, and rather than penalizing the industry for not having respected the 1987 agreement, the government put in place a series of measures to attempt to provide more assistance to the industry. They increased tax credits and granted direct subsidies, particularly in Ontario and Quebec. There was the 15-year rule. A series of measures were put in place that benefited the industry even more, so as to curb the drop.

Despite all that, the decline continued inexorably. In Quebec, we lost half of the members of the patent drug industry that used to allocate funds to R&D. We lost 50% of the jobs in that area over the past 10 years. In the rest of Canada, the figure is 18%, is a little less serious.

As for the level of research and development as compared to sales, Canada is almost dead last, behind Cyprus, Croatia and Romania, among others. So no one can say that this experience has been a success, or even close to one.

According to the industry, the problem is due to the fact that the intellectual property regime in Canada is not competitive. In the opinion of the industry, the system needs to be changed. The industry suggests that we use the free trade agreement with Europe to put in place provisions that will increase the protection of patent medications.

So, broadly speaking, the industry would like the government to increase its revenues, and in return it is ready to commit to spending more money on research and development. However, no conditions are imposed. The industry's logic is to say that if it has greater revenues, it will have more money to invest.

From 2000 to 2012, patent drug industry revenues in Canada increased considerably. However, investment in research and development stagnated or even declined. The claim that the higher the industry's revenues, the more it will invest, is magical thinking.

Indeed, in its last annual report published in October, the Patented Medicine Prices Review Board clearly stated that we had to stop believing that inflating drug prices would lead to an almost magical increase in investments. That logic is faulty; there is no cause and effect relation.

Regarding patent drugs, the free trade agreement with Europe started from the principle that being more generous with the industry would generate more spinoffs. There were three demands: restoring the duration of patents, extending data exclusivity, and a right of appeal under the notice of compliance regulations for both generic drugs and patented drugs. The extension of the data exclusivity was set aside, the length of patents was reset at a two-year period, although Europe was asking for five years, and the right of appeal was put in place.

With Joel Lexchin, I examined the meaning of these requests. We considered drugs from 2010, that is to say the available sample .

First of all, we wondered how much additional time would have been needed to put the generic version of these drugs on the market if the free trade agreement had been in place in 2010. In summary, we felt that for the 2010 medications, if that clause had been in place, generic drugs would have taken one to two years longer to reach the market. This one-to-two-year variance depends on whether exclusivity of data should apply to non-innovative drugs. That was one of the requests, however the agreement in principle presented by the government is not clear on that matter. That is why the additional delay to get these generic drugs on the market varies from one to two years.

On the basis of this sample, we estimated that if the provisions had been in place in 2010, the increase in the prices of patented drugs in Canada would have been on the order of 6.2% to 12.9%. Clearly, the CETA provisions will not have an impact before approximately 2023, but this gives us some idea of the increase in the cost of patented drugs.

What will the consequences of this be on the Canadian pharmaceutical sector? No conditions have been imposed on the industry this time. There will be no clear request requiring spinoffs from the industry. I do not believe in magical thinking. In my opinion, investment will not increase as a result of this, nor did it previously, as we saw during the past 15 years. In Canada, the increase in the industry's revenues did not lead to an increase of investments in that sector.

Here the privileges granted to the industry have been broadened and exclusivity increased, but we have nothing in return. I feel this is the very definition of aiding corporate welfare parasites. What to do?

First, let's make sure we do not extend data exclusivity to non-innovative drugs. If we did do so, we would create an incentive for those medications, on the one hand, and the costs would be much higher, on the other.

Secondly, we have to revoke the patent linkage system. I think the NDP tabled a private member's bill in 2003 or 2004 concerning this. At the time, it may have been somewhat premature. But now that the right of appeal has been granted, the patent linkage system becomes much more costly and presents few advantages. I think that the time has come to carefully reconsider it.

You will remember that in 2012 Italy attempted to introduce a patent linkage system similar to the one in effect in Canada. Europe then said to Italy that it did not have the right to do that, because it would cause too long a delay in the arrival on the market of generic drugs. At the same time, Europe asked Canada to not repeal its patent linkage system, but to strengthen it by adding a right of appeal. Let us simply imitate Europe and revoke the system, as it did.

Then, what to do next? Here is a very simple idea: if we want to compare ourselves to Europe, then let's compare ourselves to Europe. The price of patent drugs there are 20% to 25% lower than those in Canada. There is no reason to explain why Canada does not enjoy the same prices as those in France or in the United Kingdom, for instance.

If we want to encourage the industry to invest in the country, that is all well and good, but let's do so through other means, not by artificially inflating prices, which is costly and has no impact on investment.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to questions and answers.

We have Monsieur Morin. The floor is yours.