International Trade Committee on Feb. 18th, 2015

[The Vice-Chair, NDP, Don Davies]

We'll call the meeting to order.

Welcome to the Standing Committee on International Trade. This is meeting number 46, and we are conducting a study into the positive effects of the global markets action plan, with a focus on the air transport agreements.

We have with us today two outstanding witnesses. From the Canadian Council of Chief Executives, Ms. Campbell, and from the Canadian Manufacturers and Exporters, Mr. Myers. Welcome to the committee. You'll each have 10 minutes to make your opening statements, and then we'll have questions from the committee.

We'll start with you, Ms. Campbell. Thank you for being with us.

[Ailish Campbell, Vice-President, Policy, International and Fiscal Issues, Canadian Council of Chief Executives]

Thank you so much, Mr. Chairman and committee members, for this invitation.

Before I begin my remarks, let me tell you a little about our organization. The Canadian Council of Chief Executives is a not-for-profit, non-partisan enterprise composed of the CEOs of 150 leading Canadian firms. Members collectively administer $6 trillion in assets, have annual revenues in excess of $850 billion, and are responsible for the majority of Canada's exports, investments, R and D, and training.

We engage in an active program of public policy research, consultation and advocacy. CCCE is a source of thoughtful, informed comments from a business point of view on issues of national importance to the economic and social fabric of Canada.

As I noted to this committee in testimony on the global markets action plan, or GMAP, last year, promoting Canadian commercial interests is critical to our nation's competitiveness and standard of living. This includes policies to support exporting and importing firms, the rule of law to facilitate two-way investment flows, and encouraging the people linkages that develop new customers for Canadian products. Total Canadian exports in 2013, including goods and services, were $530 billion in a $1.9-trillion economy.

For 2014, the Department of Foreign Affairs, Trade and Development has reported that two-way merchandise trade—in other words, not including services—has for the first time in Canadian history surpassed the $1-trillion mark at just under $1.1 trillion. This milestone was reached in 2014, despite the fact that as the year wound down the sharp decline in crude oil prices significantly decreased the value of Canada's top export product.

The continued resilience of the Canadian economy in the face of global headwinds is a result of the drive and ingenuity of Canadian firms, the support of Canadian government policies, and open markets, in particular to our largest trading partner, the United States. The partnership approach to success in battling protectionism in global markets, in which business and government are aligned and execute on opportunities and challenges, is at the core of the global markets action plan.

Today I'd like to table four key points on the importance of Canada's air transport agreements and their alignment with the global markets action plan. These points reflect the Canadian Council of Chief Executives' views on how to measure the success of GMAP's implementation.

Priority one for us is a strong and positive commercial relationship with the United States and a renewed North American partnership. The U.S. is Canada's primordial trading partner. According to trade data from Statistics Canada and The Conference Board of Canada, the U.S. is responsible for about 73% of Canada's exports and the source of almost 50% of Canada's overall international airline traffic. Other nations fall far behind, such as Mexico at 5.8%. On this point, Canada's air access to the U.S. is excellent, and competition for customers, both cargo and passengers, is fierce. Canada has an open skies treaty with the U.S., which effectively grants unlimited access to U.S. airports so long as the airline can obtain a slot at the airport in which they wish to operate. However, the cost of travel in Canada remains high relative to the U.S. due to U.S. government support for involvement in the air transport sector, including subsidies, direct and indirect ownership, favourable tax treatment, and loan guarantees. In contrast, Canadian carriers operate in a deregulated, user-pay aviation system.

The World Economic Forum's “Travel and Tourism Competitiveness Report 2013”, which I would commend to this committee, rated Canada number one in the world in 2013 out of 140 countries for its air transport infrastructure, but 136th for its ticket, taxes, and airport charges. Again, let me just contrast that number. Number one in airport infrastructure, and number 136 in costs and charges. Costs at Canadian airports on travel, ranging from security fees to the Ontario aviation fuel excise tax, should therefore be examined.

More broadly in North America, the agreement with Mexico will be open for direct services to and from Canada once ratified by Mexico. I would note that Mexico has not concluded a full open skies agreement with any country, not even the United States. The key issue to facilitating improved air travel between Canada and Mexico is the elimination of the onerous visa requirements for travellers from Mexico. As a first step, Canada could begin by announcing it will waive the visa requirements for Mexicans who already hold valid U.S. visas. In 2008, Mexican tourists spent $365 million in Canada. In 2012, that number fell below $200 million. Canadian airlines have had to eliminate or reduce planned routes, and it's virtually impossible for a Mexican to arrange travel to Canada on short notice, whether for business or tourism purposes.

To summarize, while Canada's air transport agreements to the U.S. and Mexico provide excellent market access, fees and taxes that add costs to travel, and Canada's visa regime for Mexican travellers, require action.

Priority two for us for the GMAP and how to assess its implementation, as well as the effectiveness of other aligned policies, is the implementation of the Canada-EU comprehensive economic and trade agreement, noting here that the CETA is not yet ratified, but is an important and top priority for the Canadian Council of Chief Executives.

It's also not the main vehicle for air transport sector market access. Rather, this is the blue sky agreement that's already been negotiated with all 28 members of the European Union. Kudos again to the Canadian negotiators for securing this agreement, which will facilitate business and tourism. However, again we're looking at the same types of issues on the cost of travel. This committee may wish to examine the support that EU member states provide to airport hubs.

Priority three, I would suggest to you, is a strategy for Asia. Looking at our air transport agreements with Asia, in 2012 Canada officially joined the Trans-Pacific Partnership, which has now expanded to include 12 countries with a combined GDP of nearly $22 trillion. Of course, the negotiations have not yet been concluded.

Outside of the U.S. and Mexico, of the TPP countries, Canada has open skies agreements only with New Zealand and Japan for direct services. Modernization of the agreement with Australia is therefore commended as a priority. For other TPP nations, such as Vietnam and Malaysia, while market access varies, improvements could be negotiated if there is mutual interest and if there are concrete commercial plans on both sides.

More broadly in Asia, an open skies agreement is in place with South Korea, Canada's first free trade agreement partner in the region. On China, the Canadian Council of Chief Executives has recommended the launch of a bilateral free trade agreement. Again, as distinct from the FTA process, Canada already has in place an air agreement with China. However, slot issues are a constraint on this rapidly growing market in Beijing, Shanghai, and Guangzhou. Notably, again this is not a Canadian problem. This is an infrastructure challenge on the Chinese side.

Priority four, and the final point, is the growth of Canadian exports to emerging markets. There is a large number of emerging markets that the GMAP correctly identifies as markets with great potential because of their growing middle class and their need for Canadian products, and because of established firms and supply chains. New agreements we would recommend for negotiation in terms of air transport agreements would include emerging markets in Africa and Latin America, such as Nigeria, Ghana, Ecuador, and Belize, which again would allow for future growth.

Again, the point here is that in addition to market access, facilitation of travellers, tourists, and business visitors is critical to the growth of the air transport sector. Looking at Canada's visa policies is required in order to make most effective use of these air transport agreements.

In conclusion, the CCCE commends Minister of International Trade Ed Fast, Minister of Transport Lisa Raitt, Canada's chief air negotiator, Bruce Christie, the executive director of air policy, Mark Rioux, and their teams for the excellent work they've done to open up air market access. Their work ensures competition to benefit consumers and opportunities for Canadian airlines to grow and for the overall sector to enlarge.

Still, while the air transport agreement process is working well, more can be done to modernize agreements, as I've suggested, and expand agreements to new markets. We have every confidence that this will be done. Priority now needs to be given to examining the overall competitiveness of the Canadian air transport sector and key supporting government policies, and in particular, Canada's visa regime for business travellers, tourists, and in-transit passengers.

Thank you.

[The Vice-Chair, NDP, Don Davies]

Thank you, Ms. Campbell.

Mr. Myers, you have 10 minutes.

[Jayson Myers, President and Chief Executive Officer, Canadian Manufacturers and Exporters]

Thank you very much, Mr. Chair.

I am very pleased to comment this afternoon on the positive effects of the Global Markets Action Plan.

My comments are going to be a little more general, about the objectives of the markets action plan and what we've seen since the adoption of the plan. In many ways I agree with what Ailish Campbell has presented; if anything, it ties the issues around our air agreements more broadly to policy or trade negotiating objectives and to the interests of business as well as to other activities and initiatives and policy programs across the government.

I'm pleased to be here to comment not only as the head of Canadian Manufacturers and Exporters but also as a former member of the advisory committee for the Minister of International Trade in the formation of the GMAP.

I think the plan has accomplished a number of the objectives that we set out for it. First of all, it clearly emphasizes the importance of exports and of international business more generally and sees these as a critical engine of growth for the Canadian economy and a mainstay of competitiveness for Canadian business.

This is an important point, because we're not just talking about imports and exports any more. Business today is global in nature. Our agreements recognize that more than ever. The CETA, for example, sets a standard for 21st century trade agreements, I think, but it addresses an awful lot of issues other than import and export tariffs, issues such as the movement of people, standards, services, and investment. This is critical today.

The key point here is that business depends on the movement not only of cargo but of people, and those people are moving internationally today. As we assess the progress we're making on our air transport agreements, it's important to put that progress in the context of the global nature of business and of how important it is.

Second, the GMAP identifies the geographic and sectoral markets that are the most promising for Canadian companies as well as the support strategies that are most appropriate for the government to pursue in each case. The plan has been criticized by some on the grounds that it sets too many priorities. I don't see that. I think it responds to the changing nature of business and to business priorities that businesses set themselves.

Certainly, as Ailish was pointing out, the United States will continue to be Canada's most important trading partner, business partner. lt is the world's largest, richest, most dynamic economy, one of the riskiest of all markets to do business in. It's the economy in which Canadian businesses are most integrated in terms of their supply chains, their investment relationships, and also their personal relationships. We need a specific strategy for our economic relationship with the United States. That, I think, is clearly articulated in the global markets action plan.

Canada's economic and trading relationships with other countries, though, will be shaped by changing risks and opportunities, and they are continually evolving. GMAP identifies a number of priority markets based on input received from the business community, and it sets out a plan to better align the government's trade policy initiatives and trade support services to those business priorities.

The third and very important positive impact of the GMAP is alignment: the alignment of our trade negotiating objectives and the support services offered by government with business priorities themselves. Of course I would never want to say that business has one set of priorities, and it is always an art to try to align all of this. But I think the GMAP presents a very good framework for doing so.

That alignment has in turn, I think, brought about a far greater degree of coordination than I've ever seen between the Department of Foreign Affairs, Trade, and Development and other departments and between DFATD and the government's trade agencies—the Trade Commissioner Service, Export Development Canada, the Business Development Bank, and the Canadian Commercial Corporation.

Each of these agencies provides valuable and unique services to Canadian companies doing business in international markets, particularly to our small and medium-sized enterprises. Those are the companies that often lack the expertise, the experience, the resources themselves to tackle international markets profitably on their own. Far too often, these agencies are some of our best kept secrets here. The GMAP has shone a spotlight on the services they offer and the activities they undertake. That's one reason I'm glad that CME is partnering with all of these agencies in 20 forums across the country, bringing in small and medium-sized companies to promote not only the global markets action plan but also the business services that each of these agencies offers.

Finally, the GMAP sets an example for other organizations involved in supporting the international success of Canadian business. My organization is a good example. With the support of the Trade Commissioner Service, EDC, and the National Research Council, CME has launched the Enterprise Canada Network. This is an online service helping Canadian companies identify qualified leads for business and technology partnerships in international markets.

ECN works off a database of about 20,000 opportunities, offers, and requests that are posted on the site by small businesses in about 54 countries around the world. It's a pretty effective tool for Canadian companies to be able to identify qualified business opportunities. Since the launch in September, we've recorded about 26,000 visitors, have over 600 Canadian companies that have registered their interest in receiving these opportunities and we've already concluded 32 international partnerships.

It's not only with Europe. Actually, the United States is not really a very effective partner in this network and the network was established really to do business with Europe. I can tell you there's an awful lot of interest not only with Europe but with some of the other emerging markets that Ailish has already spoken about: Malaysia, Indonesia, certainly South Korea, Turkey, and Israel. These are good opportunities for business. More than ever before, Canadian companies are looking at taking advantage of those opportunities. Again, a network of their agreements that recognizes that interest response to that, I think, is crucial.

In order to grow, Canadian companies need to assess and take advantage of international business opportunities. I think the GMAP recognizes this and sets out a coordinated plan, not only to open markets and support Canadian businesses. It is a coordinated plan that allows for this continual review and continual alignment and coordination. There's a lot of work to be done. For instance, there needs to be better alignment of government departments with the objectives of our global markets action plan, making sure that government services continually evolve in line with the changing needs and challenges that businesses are facing.

From my perspective, the most important contribution of the GMAP is the focus it places—and quite correctly in my view—on the customer, on those Canadian businesses that are actively seeking new opportunities in international markets. To ensure that those priorities, in terms of the needs of business, are effectively communicated, not only within the department of international trade but in any other departments and other agencies across the country, is one mark of the success that we've already seen in the GMAP.

Thanks very much.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Myers.

We'll now go to our first round of questions starting with Monsieur Morin.

You have 10 minutes.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Thank you, Mr. Chair.

Ms. Campbell, it would appear that signing ATAs cannot on its own guarantee increased air traffic and economic benefits. Some internal factors also play a part, including our airlines' competitiveness, available infrastructure, connectivity of minor airports, and so on.

You talked about taxes that increase the cost of transportation and about the support the European Union provides to its airlines and airports.

Is there a way to take into account the magnitude of a continent-sized country? Wouldn't it be in our interest to apply a strategy that also takes local air traffic into account?

[Dr. Ailish Campbell]

Thank you for the question.

Let me make a couple of points.

First of all, regarding taxes, these are not always federal tools; in some cases these are provincial tools, provincial costs. The aviation fuel tax, which will rise to, I believe, 6.7%, will make Ontario the most heavily fuel-taxed jurisdiction for international flights in North America. I'm happy to be corrected on that point, but that is my understanding—when it rises to its full scope.

I would note that this does add to the cost of travel. Perhaps Toronto can bear it—that's the theory—but I would commend to this committee a Conference Board of Canada study that shows a great number of flights with a value of about $200 million now going to U.S. border airports because of the cost of travel. Particularly those people who have more time, let's say the family traveller, such as my husband and me, perhaps travelling with two children, might have the time on our holiday to travel down to a U.S. border airport and fly down somewhere in the southern United States, whereas a business traveller may decide that the full end costs are worth it to go to Toronto.

I would note that British Columbia, in implementing its revenue-neutral carbon tax, chose not to act in this particular area, again, worried about the disincentive that it would provide between Washington and the Vancouver airport in British Columbia. I think that was a smart decision, because we want to keep that business activity in Canada.

The second point is on infrastructure. I think you make an excellent point about examining airports inside the full logistics network of Canada. The Canadian Council of Chief Executives recently released a report called “Made in North America”, improving our North American relationship, specifically with the United States and Mexico, our primary trading partners. We recommended a review of the North American logistic system, which includes connectivity between airports, and then into our major highways and ports. And it depends on the cargo. I know that many of our Canadian Council of Chief Executives members with high-value but low-density cargo—for example seafood products, biopharmaceuticals, chemical products—do want to ship by air and in many cases are getting over the U.S. border and then using U.S. airports, again because of costs.

Taking a look at that again, I think this government did a fantastic job on the Asia gateway initiative, our port in Halifax. We have excellent assets there. But taking a look at how that connects globally, I would also point out that when it comes to the facilitation of business travellers, mass transit, connectivity into airports remains an issue. Toronto has to be one of the only airports in the world, Jay, that a business traveller goes into and cannot take a public transit option, and that's about to change. We're thrilled to see the federal and provincial governments aligned on creating that kind of infrastructure.

Again, regarding Vancouver, I would argue you shouldn't have to win the Olympics to get mass transit to your airport. You shouldn't have to get the Pan Am Games, which has become, somehow, part of the narrative as to why that connectivity piece was put into place in Toronto. These are our largest cities. To have that connectivity is a huge part of Canada's global value proposition to attract investment and business travellers. Let's not make it so you have to win some international sporting competition—with due respect to anyone who wins a gold medal—to get mass transit that makes sense for cities.

It's an excellent question. I think that's another area for study to commend to this group.

[The Vice-Chair, NDP, Don Davies]

Mr. Morin, you have two minutes left.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Ms. Campbell, you are talking about infrastructure. Would you agree with me that some airports have bottlenecks in customs or security services, and that there are staff shortages and overly limited facilities?

[Ailish Campbell]

That's a good question. I'm not familiar with the data on that point, so I wouldn't be able to answer.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Thank you.

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

Ms. Campbell, thank you very much for your testimony.

You briefly touched on some countries with which we could increase our air transport agreements. You mentioned Australia, Vietnam and a few others.

Do you think there are situations where an air transport agreement would not be in Canada's general interest? As far as your organization's members are concerned, are there any countries with which it's simply not worth negotiating agreements?

[The Vice-Chair, NDP, Don Davies]

A very quick answer, please.

[Ailish Campbell]

A quick answer is that I think the Canadian capacity is there and there is interest in, for example, modernizing our open skies agreement for direct service with Australia. But they have their own unique approach to these agreements. With Vietnam, there would have to be a commercial interest, I think, that is not yet there because transit often happens to these nations through other hubs. I think the capacity and the willingness is there on the Canadian side. We need to find the commercial interest and a willing partner.

[The Vice-Chair, NDP, Don Davies]

Thank you.

Mr. Gill, for seven minutes.

[Parm Gill, Conservative, Brampton—Springdale, ON]

Thank you, Mr. Chair.

I also want to take this opportunity to thank our witnesses for taking the time to come out and appear before the committee.

My question is, from your perspective, how does Canada stack up against some of our competitors, some of the other countries? Do you feel that with this policy we're moving in the right direction? Are there areas of opportunity that you feel we need to identify?

[Jayson Myers]

Let me say first of all, around our air transport agreements, I think we stack up very well in terms of our agreements. I think our negotiators are actively in touch with the business community. We've had several meetings with them asking where the priorities are. What markets should we be focusing on? So the issue is not so much the negotiating capacity. It's whether there's enough volume and enough interest on the part of a potential partner there to take advantage of it. Maybe I will get back to how it's tied into other opportunities and other assets and resources.

When we look more generally at the resources that we have in Canada to support our exporters—our companies that would be doing international business—I think we have some very unique services and some that are very highly valued. In fact, other companies model their services on ours.

I know that was the case in Australia when they were looking at the Canadian trade commissioners. I want to say that the first Canadian trade commissioner was actually a predecessor of mine, a former president of the Canadian Manufacturers Association who retired to Australia. That was how—

[Ailish Campbell]

—how they found out about her.

[Jayson Myers]

I think the financial services that EDC is now providing internationally, in terms of some of their pull strategy, to provide opportunities for Canadian companies to connect with larger companies, are unique. I can tell you the U.S. Ex-Im Bank is fighting for its life, let alone for the development of services that respond to the issues that their members face.

Canadian Commercial Corporation is unique in the world. There's no other organization like this, and it is one of the best kept secrets. The ability of the Canadian government to contract directly, not only in the defence and aerospace fields but in major infrastructure projects, again, is unique. It provides a tremendous opportunity for Canadian companies to take advantage of that.

I don't think we're necessarily behind in our strategy, certainly not in terms of our negotiations. CETA sets the standard for international negotiations. I don't think we're behind in the services that we offer. What we are lacking, I think, is an engagement strategy with some of the smaller companies, and that's not just a matter of culture. It's a matter of being able to help them manage risk, de-risk what is going on in their businesses in international markets. That, frankly, is a service that some agencies provide. We have a lot of work to do in the preparation for Canadian exporters, and both our organizations are looking at that. That, if anything, is where we tend to fall behind, and maybe in one other area, which is getting out and championing how darned good Canada is as an investment location, how good our products and companies are, and how good the Canadian brand is.

I speak to one of our members who has a great business strategy. One of the fastest-growing sectors in Canadian manufacturing is our textile sector, all high-end, really good materials and great design. They've got a great business model. They can gain more customers internationally and increase their price just by saying they're Canadian, and that is indicative of our presence around the world. If the federal government could focus on anything, it's how, even in air agreements, we improve the brand that Canada presents and hook that up to the commercial opportunities that are already there.

[Parm Gill, Conservative, Brampton—Springdale, ON]

Thank you.

Ms. Campbell.

[Ailish Campbell]

I'll just echo Jay's comments quickly with three points.

I think the Brand Canada point is really interesting. I know that was a passion of former finance minister Jim Flaherty, and there was a Brand Canada initiative in budget 2012 or 2013. It would be interesting to know where that stands. Again, the idea is to make the most of that kind of market recognition, as Jay is saying.

I have a fascinating little update from a publication that I enjoy, Monocle, run by Canadian Tyler Brûlé, located out of London. It rated Canada number nine or 10 in the world in soft-power brand recognition, the positive feeling people get when they see the maple leaf, which is incredible.

To the extent that we can all buy that down and then use it to add value to Canadian products, I say absolutely why not? I'd echo Jay on Export Development Canada, and that whole facility. What he's talking about is identifying high-value large companies, particularly in Asia, which has a different capitalist formation, where you have chaebols and very large organizations that represent multiple sectors.

Tata would be an example of a whole facility with EDC bringing them in, identifying what some of their market needs are, and then using EDC to buy down the cost of getting that information to Canadian companies, and in particular, to small and medium-sized enterprises.

We should be even more aggressive in what we see as the markets of the future, particularly India where we hope we can conclude a foreign investment protection agreement. I think, again, that's not on our side. That's up to the Indians. I hope they will meet us halfway on that important agreement, because I know...for example, we've seen the Canada Pension Plan Investment Board, which manages all our pensions, make some interesting forays into that market. Fairfax announced its own India fund of $500 million on the TSX at the end of last year. This is like the United States in the 1800s, with huge potential market growth, and Canada has to be well-positioned there. I would say the same thing on China, where I would encourage us to get over our fear factor and conclude a free trade agreement as Australia and New Zealand have, with the result that they've seen their exports in agriculture grow fivefold since concluding that bilateral agreement.

Thank you.

[The Vice-Chair, NDP, Don Davies]

Thanks. I'm sorry to cut you off, but we're out of time.

Ms. Freeland, for five minutes.

[Chrystia Freeland, Liberal, Toronto Centre, ON]

Thank you very much, and thank you, Ms. Campbell and Mr. Myers, for some great presentations.

I'd like to start with Ms. Campbell and pick up on your China point. I have two questions about China. What would it take to conclude exactly that sort of bilateral agreement, and to what extent is the lack of a reciprocal 10-year visa deal, like the one the U.S. has with China, an obstacle to Canada doing business?

[Ailish Campbell]

Let me first recognize your attendance at the committee. It's wonderful to see you here, Ms. Freeland.

I would note in 2014 I attended this committee when there was not a single woman on this committee, and so I would like to commend Ms. Liu, Ms. Grewal, and Ms. Freeland. It's nice to see you all here. I felt like I was in an episode of Mad Men at one point.

But here we are in 2015....

[Chrystia Freeland, Liberal, Toronto Centre, ON]

Sorry to interrupt, but it's great to have a woman witness. We should make a point of having more of those.