International Trade Committee on March 27th, 2014

[Ailish Campbell]

The logistics and ports remain critical no matter what trade agreements Canada concludes.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Not just ports but rail as well.

[Ailish Campbell]

Sure, absolutely.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Hiebert, you have seven minutes.

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

Thank you, Mr. Chair, and thank you all for being with us today.

I'm going to start with the CGPA.

Mr. Keon, in your comments, I'm told that you had expressed some concerns about the negotiations as they're unfolding. I'm wondering if you could elaborate on what those concerns are, and in particular, what tariff barriers the CGPA is currently facing in TPP nations that could be remedied through these negotiations.

[Jim Keon]

Thank you.

Our overall objective as a Canadian generic pharmaceutical industry and as part of the worldwide generic pharmaceutical industry is to increase opportunities for exports. We want to export good quality medicines around the world. Canada has a good reputation on generic medicines. We've been in this business for decades. Health Canada has a high regulatory standard. Canadian-approved generic medicines are wanted and seen as quality medicines around the world.

From time to time now, we're seeing questions about medicines coming from various countries. So one of the things we would like to see in TPP beyond intellectual property and beyond tariffs—and I'll answer the tariff question—would be, in trade negotiations generally, a movement towards trying to lift up regulatory standards and harmonize regulatory standards and reduce costs, improve efficiencies, and do more cooperation in terms of inspections between agencies. It's not possible for Health Canada to go and check agencies around the world. They need to have assurances that those plants we're relying on have quality products. That's an important element.

In terms of tariffs, as I mentioned, generally speaking they're not that high in pharmaceuticals and they're not really a barrier. It is not something that our member companies are particularly concerned about. We do support elimination of tariffs as a general principle. We import products from around the world and we sell around the world. We would like to see the complete elimination of tariffs on pharmaceuticals, but that's not a barrier.

On the intellectual property, again, we're an export industry. About 50% of our domestic production is being exported. We think it is critical that Canadian companies have access to developing products legally on a timely basis so that we're not late to market, because these are truly international markets now and generic pharmaceutical investment will go to those countries where it is legal to manufacture products on a timely basis.

[Jody Cox]

If I can also just jump in quickly, in answer to your question in terms of what the specific concerns are, they're very wide ranging depending on how you look at things. So again there are very good proposals that have been made by some countries that are on the table. There are other things that are under discussion that have been tabled that are also of great concern. So because of the complex nature of intellectual property, perhaps we could submit something in writing to the committee that would give a fuller explanation of those concerns.

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

Yes, thank you, we'd be pleased to receive those through the chair.

Ms. Cox, I was going to ask you about the opportunity you had to participate in a stakeholder day, as you said, in Brunei and Malaysia. I was curious to know what were the key points that you made on behalf of the CGPA in those presentations.

[Jody Cox]

Thank you very much.

Among my key points, first was to describe our industry, the importance of pharmaceutical manufacturing and exporting in Canada and many other jurisdictions as well. There was the importance of ensuring that the TPP does not erect new barriers to trade in generic pharmaceuticals for Canadian companies and also for all TPP member countries. Then also I was providing some of the information that Jim unfortunately had to skip over in his presentation, some of the kinds of things that we would like to see in trade agreements beyond regulatory cooperation and harmonization, things pertaining to intellectual property like an early working exception.

So Canada, for example, has a very strong early working exception for generic medicines, which ensures that generic medicines can access the market as soon as the patent expires, so that it doesn't create an extra delay there. I talked about best mode patent disclosure, so again, being able to have disclosed within a patent the most efficient way of creating an invention.

Also, I noted the incentives to help generics challenge weak or frivolous patents, because again countries rely on the generic pharmaceutical industry to challenge weak and frivolous patents to bring competition to the market, so providing incentives to ensure companies can do that is also viewed as very important to our industry.

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

Ms. Campbell, I wanted to ask you, in your presentation you highlighted a number of bad scenarios to summarize those concerns, including this hub-and-spoke outcome that you would not favour. Is this genuinely a concern on behalf of your organization that negotiators might end up with an outcome that would benefit primarily only one country and not all member states?

[Ailish Campbell]

I put it as a scenario to the committee. We should always be aware that we are a relatively smaller country in these negotiations. Geopolitically, we don't possess the same military projections, the same literal raw power that the other members of this negotiation do. Those can come sometimes with intangible benefits inside negotiations. It's something we should be aware of until we're assured that there is a single tariff schedule being negotiated.

Currently, as you may know, the negotiations, as I understand it, are being conducted bilaterally, and the objective is to then multilateralize those bilateral gains to all parties. Until that process actually happens, we should just simply be aware that there is a possibility this could turn into a series of bilateral agreements under the title of TPP, and that, in our view, would be bad, because as I said, businesses would find it very confusing to try to look at 11, 12, or 13 tariff schedules and move their products around the region.

We certainly hope that's not the outcome.

[The Chair, Conservative, Rob Merrifield]

Okay, thank you very much.

We'll now go to our second round. We have about ten minutes left and we'll need to prepare for the next session, so we'll give four minutes to each.

Go ahead, Mr. Côté. The floor is yours.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much, Mr. Chair.

Ms. Campbell, it is a real pleasure to listen to you.

In your presentation, you said that Canada had to show ambition and establish a strategy regarding its approach to Asian countries. You talked among others about Australia. The labour government has in fact developed a white paper on Asia. I think that is an intelligent approach.

How would you describe Canada's approach and its degree of preparation with regard to the Trans-Pacific Partnership?

[Ailish Campbell]

Canada has, I think, a very vigorous strategy toward Asia. Our people-to-people links are very strong. Increasingly, in addition to our first nations and our European heritage, we're becoming a more Asian country simply because of our excellent people-to-people links, education links, and again businesses continue to trade whether the government has an agreement or not.

The activity of Canada in APEC is to be welcomed and encouraged. Our bilateral engagement with Japan is, I hope, a very high-quality agreement, not least because Japan has invested significantly in Canada, including in our automotive footprint. We want to sell energy products to Japan.

I think our most important element of an Asia strategy is in fact the domestic work we have to do inside our own country to create the highest quality, most environmentally responsible infrastructure to actually export to Asia and take advantage of this incredible opportunity.

In addition to that, we would encourage a strategic partnership with China, similar to Australia. That white paper process you described is very important in terms of involving the public in a discussion about the people-to-people, human rights, and political linkages that surface any time we discuss China as well as, in our view, the huge economic opportunities that are presented by China.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

This leads me to another topic.

Last Tuesday, officials told us that the government had carried out studies on possible gains and losses related to the TPP. Unfortunately, we were not given access to those studies—which reminds me of something. Two years ago, when I sat on a committee in connection with the European agreement, my European colleagues were surprised to learn that even in camera we did not have access to that document.

First, do you think it is problematic that the content of that study was not shared with all of the members of the committee? Did you have access to these studies on the potential gains and losses related to the TPP?

[Ailish Campbell]

On that specific study, no, but we're working with an economist, Dan Ciuriak, and, in fact, we'll be publishing in a few weeks what we see as another thought exercise, shall we say, which would be looking at what would happen if Canada, in fact, just unilaterally liberated all tariffs, and the benefits that would produce. I'm sure you and I will both enjoy reading that study when it's available.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Finally, in connection with international trade, we must provide support to our enterprises. I was my party's critic on small business and tourism, and I remember the problems SMEs had in trying to do cross-border trade with the United States. In fact, the structures well not well-adapted to that, as compared to the trade done by big businesses and multinationals.

Do you consider that the current structure, including the Trade Commissioner Service, is adequate and can meet the needs of SMEs, or do you think, rather, that it is more useful to large companies or multinationals?

Do you think measures could be introduced to improve the support we provide to our small and medium enterprises?

[Ailish Campbell]

On that score I would say three key things.

First of all, small and medium-sized enterprises do export as part of the value chains of larger firms, so large firms are critical to the ecosystem of the Canadian economy because they enable small and medium-sized firms to export.

The second thing I would say is that joint ventures in those regions—finding a good partner in that region—are critical for small and medium-sized enterprises.

Third, in this case, I think the tools that are provided by the Government of Canada—the trade commissioner service; BDC, Business Development Canada; and EDC, Export Development Canada—are essential, in particular for small and medium-sized enterprises.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Ms. Bateman, the floor is yours for a few minutes.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you very much, Mr. Chair.

I also thank all of our witnesses for being here with us today.

I would like to start with Ms. Campbell, if I may. I thank you for the clarity of your presentation. I love it when people say, “This is good; this is bad” with such clarity of purpose.

The Prime Minister and Minister Fast have always said that we negotiate trade deals in the best interests of all Canadians. I mean, that's our intention. I defer to my colleagues here, but I think we've moved it from 5 to 42 trade deals since we became the government, so it is clearly our intention to benefit all Canadians.

Could you put more meat on the bones in the context that we're acting in the best interests of Canadians as to what is bad and how we avoid it? You've listed a few.

[Ailish Campbell]

Let me just say a few things.

First of all, trade diversion is bad. Trade diversion means that there is an excellent producer of a product, a service, or an agricultural good, and because of tariffs or non-tariff barriers, those rules act as a diverting effect for the customer to purchase what is really the product from the most efficient producer.

What we're really looking at here in the WTO, in the TPP, and in our suite of bilateral initiatives is making sure that governments are not in the way, that rules are not in the way between consumers and the best products. Anything that distorts markets such that inefficient producers end up getting to sell to customers is bad.

What's also bad, unfortunately, is seeing our competitors conclude agreements more rapidly than Canada. For example, I'm sure the United States looks on CETA with great jealousy. We're very excited about the opportunity to create a truly transatlantic marketplace, knitting together NAFTA and CETA with common regulatory standards that also allow governments in all those nations to protect consumers and their public with their own domestic rules, but rules that create a common market.

But when our competitors conclude agreements more quickly than we do—for example, in South Korea—it made it imperative that Canada have a bilateral agreement so that we weren't displaced by Australian, EU, or U.S. competitors who did have agreements with that country.

As countries have and develop closer relationships with China, we're going to have to look at that. China is third to the U.S. and the EU in terms of our export and import relationship. Chinese producers have displaced Canadian products in the U.S. market. We have to look at that very carefully. We have to have a strategy for China. It's just too big not to.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you very much.

That's it?

[The Chair, Conservative, Rob Merrifield]

Yes, your time has pretty well gone, so I'm going to call it because we have to set up for the next panel and we want to be respectful of time there as well.

I want to thank Ms. Cox, Mr. Keon, and Ms. Campbell for coming and sharing with us. It's been a very interesting panel.

With that, we will suspend and set up for the next panel.

[The Chair, Conservative, Rob Merrifield]

We will call this session back to order. We're a little bit late but we'll catch up, I'm sure.

From Amnesty International we have Alex Neve, and from the Canada China Business Council, we have Sarah Kutulakos.

Sarah, we'll yield you the floor first. We look forward to your testimony.

[Sarah Kutulakos, Executive Director, Canada China Business Council]

Thank you, Mr. Chairman.

Thank you to the committee for inviting the Canada China Business Council to be here today.

CCBC is an independent non-profit, non-partisan membership association. We were organized 35 years ago to help our members better succeed in trade and investment between Canada and China. We have approximately 225 corporate members and about 2,000 active individuals within those members. Of those organizations, 90% are Canadian. They tend to be companies primarily, but we also have a good number of educational institutions and also some government agencies within our membership. Our membership is about three-quarters SMEs; 75% of our members have less than $50 million in annual revenues. We have offices in Toronto, where our headquarters are, and in Montreal, Calgary, Vancouver, Beijing, and Shanghai. Through that network of offices we cover both countries as a bilateral organization.

We do a number of things for our members, including helping them one on one with their China business, bringing them together to educate them and help them build their networks through events in both countries, as well as helping to advocate for an easier environment in which to do business. In that regard, we are always looking at ways in which we could break down barriers to trade and investment in both directions. Often it takes an agreement of some sort to make big progress in that. We saw big gains from the WTO, for example, when China acceded to the WTO in 2001, with some further sectors joining in 2005, but there has been little opportunity to make big progress in that lately.

As a council, we're in favour of any policies that increase market access and build rules-based systems to help our companies compete in a country that is challenging but offers huge growth opportunities. Two years ago the conclusion of the Foreign Investment Promotion and Protection Agreement was very good news to us, particularly because we see that the assistance the agreement could give to Canadian companies that are invested in and doing business in China could be significant. It may also offer benefits to Chinese companies in Canada, but as a country with a better system of rules overall, the impact is bigger for Canadian companies who are currently operating in China without the benefit of such an agreement.

On the Trans-Pacific Partnership, I'm not an expert on this, but I do eat, sleep, and breathe China and the China opportunity every day. Personally I've been involved in China my entire career, more than 25 years. I speak the language. I've lived in China on a number of different occasions. As an organization, we think about China 24-7.

The opportunity that China brings is something that has been very obviously covered in the press. I'm sure the committee is aware of it. China is Canada's number two trading partner after the U.S. We are China's 13th-largest trading partner, so we're a bit farther down the list. China will be the largest economy in the world in five years. Even China's slowing growth of 7.7% last year makes it one of the best opportunities around.

Canada's trade with China in 2012 was about $70 billion. If you look at all of the Asian countries, that is half of our total trade with Asia. Only Japan comes anywhere close, at $25 billion versus $70 billion, and the next one down, South Korea, is $10 billion—seven times smaller than our current trade with China.

This number is growing nicely. We were at $11 billion in 2001 and $65 billion in 2011. But to be honest, it's without trying very hard. Similar to what you heard from Ailish Campbell, there's a lot of opportunity for Canadian companies to do even more. The growth is nice at 7% overall in 2012. Our exports in 2012 grew by 13%, which is even better, but we still feel like we're far behind. To use a transportation analogy, it feels like we are on an express bus, so we're not doing too badly, but China is moving at the speed of a fast train. It often feels like a challenge to keep up, particularly because other countries are engaging China more aggressively and in a more coordinated fashion.

Unlike in other markets, government actions in China help to pave the way for businesses of all sizes. What happens from our federal government in its relationships with China's central government filters down even to the smallest companies. They will hear from their counterparts in China, “Well, you know, your government isn't getting along with our government,” or “Things are slow, so I can't do as much with you.” It's an important consideration. We always keep in mind that although businesses have to do well on their own merit, the government plays a very important role. The signalling from the top is important.

Overall, we look at the trade numbers and why that is good for Canada. There was a report done a couple of years ago by the Institute for Competitiveness & Prosperity, a think tank in Toronto. They talk about the fact that in addition to the standard economic benefits of more trade, trade is an important stimulant to innovation and our economic success. Innovation is driven by a combination of support and pressure, and international trade contributes to both, so these two terms—“support” and “pressure”—are important.

Support refers to the conditions that are a foundation of assistance to all firms and individuals as they compete and develop. This leads to larger market opportunities and access to better supplies of materials, people, and capital, which are critical supporting conditions for innovation. That support, through agreements like the TPP, can end up being delivered by the trade commissioner service and by organizations like ours and variety of resources that companies have in their tool box.

Pressure is even more important, in my opinion. It comes both from aggressive and capable competitors who are a threat to complacency and from sophisticated customers who demand innovative goods and services at low prices. Better market access to countries in Asia through the TPP gives you access to much more demanding customers, and it helps our companies be better. International trade exposes our businesses and managers to these beneficial pressures that create the imperative for innovation.

In any country, there are competing interests that can get in the way of trade liberalization. I look, for example, at our dairy supply management policy, an interesting anecdotal example being Saputo, the Quebec dairy company that is in the process of buying Australia's Warrnambool for about $520 million. In the press around that acquisition, a key statement was made, which was that they are buying it for the China market opportunity that an Australian operation brings. They're not addressing that China opportunity directly from Canada. That could be an indication of the fact that value chains are really global, but there are also, I believe, some trade barriers in that.

Now, I'm not the right person to comment on the pros and cons of supply management concessions in an agreement like the TPP, but the fight over such a controversial topic is analogous to one that happened in China prior to its WTO accession in 2001. The WTO deal pitted China's internationalists against those who preferred not to open up to the world. The internationalists won, and China benefited greatly.

The TPP, as you know, doesn't include China currently among its 12 countries, but our council is still in favour of the TPP, particularly because there is an opportunity for China to be brought in along the line. A successful TPP may very well convince China to join. The Development Research Center, which is a think tank under China's State Council, has recently invited a number of scholars to Beijing to brief them on the agreement. I would add that the DRC, in conjunction with the World Bank, has published some very good work that shows China very clearly understands the changes that need to be made to China's structure to keep growing at the rate they are. They know there are a lot of reforms that need to be done, so I'm heartened to see the DRC inviting scholars in to talk about the TPP.

Some recent statements show that they're thinking about joining as they learn about what the TPP includes. China may be able to use the TPP to deal with some of their own internal structural issues. Just like the WTO, where it was actually very convenient to essentially blame it on the foreigners—“they made us join” and “they made us make these changes to our country's structure”—that's often a convenient excuse for getting this hard work done. In this regard, China tends to recognize the value of multilateralism, especially when it can help it restructure its economy.

I would also point out that global value chains are predominant, as I alluded to with the Saputo example. The more countries with which Canada has such cooperation agreements, the easier it will be to build productive and efficient global value chains, because much less happens bilaterally than multilaterally as we move products around the world.

There is also a significant benefit to Canada, as was written by the Peterson Institute for International Economics in a report in 2012. Among the key points this report made were that the TPP offers a pathway to free trade in the Asia-Pacific with significant potential gains economically, and in addition to some very strong economic numbers listed even for Canada, they talk about some intangible effects of “renewed momentum toward global economic integration”.

As I mentioned at the beginning, there hasn't been much news in terms of agreement that makes it easier for companies. You can see from the success—or lack of—with the Doha Round of the WTO that a large worldwide agreement is likely not in the cards. So agreements like this, which help us take steps toward that, are useful. One of the points they also made was that it can lead to better rules for Asia-Pacific trade and perhaps global trade. As I mentioned, those rules are very helpful to us.

Finally, people might ask why we don't just negotiate a free trade agreement with China. Wouldn't that be what the council would want? While we are definitely in favour of such an agreement, realistically whether or not it can happen is a question.

The bilateral complementarities that we have between our economies will not remain static. A good report was done two years ago between DFAIT and China's Ministry of Commerce about economic complementarities in a variety of sectors, but those opportunities come from China's five-year plan and some of its stated goals in how it wants to upgrade its industries. Those are open windows, as I call them, that will close as China tries to develop those capabilities. In the time it may take to negotiate a comprehensive agreement, the open windows may completely change. Other countries that have been negotiating bilateral FTAs with China have seen that it is not a quick process.

So we feel it may be more promising to negotiate a series of confidence-building agreements that would deliver liberalizing momentum as they enter into force and help create a framework for the future. But at the same time, the TPP can help to move things along well.

Finally, we need a strategy versus ad hoc liberalization of trade. Often these one-off bilateral agreements appear to be much more ad hoc. So the TPP is a very efficient way of getting many Asian countries involved at the same time, with a fallback being individual negotiations where Canada is often just too small to get those done quickly.

So we see TPP as a must-do, but it's not in lieu of having a strategy for China. The TPP would be part of an Asia strategy and Canada's China strategy should be an integral part of that Asia strategy. They can be mutually reinforcing.

I would recommend to this committee a commission perhaps in parallel to your TPP work to study the China trade relationship, and the council would be very happy to provide further input on that topic.

Thank you.