Thank you, Mr. Chair and committee members, for the invitation.
As the committee considers Canada's Indo-Pacific strategy, I will focus my comments on the links between economics and security, particularly with respect to Canada's international trade interests in the region.
Engaging with the Indo-Pacific is vital for Canada, as it's the fastest-growing and most dynamic economic region in the world, home to 60% of the world's population and 40% of its economic output, but some course correction is necessary. Recognizing the increasingly dangerous and threatening international context, Canada must work with allies to link our economic interests in the Indo-Pacific with our foreign and defence policy objectives. Most importantly, we need to adjust our trade diversification outlook to reflect our core interests.
Our diversification efforts in the Indo-Pacific are often framed as reducing our dependence on U.S. markets, but this is simply not supported by theory or evidence. The reality is that if Canadian firms trade internationally at all, they first trade with the United States. This of course makes perfect sense as the U.S. is Canada's only land neighbour, the world's largest economy and a country that shares cultural, legal and regulatory frameworks with Canada.
It is only after Canadian firms are comfortable trading with the United States that a subset of those branch into additional markets. According to Global Affairs' 2023 “Canada's State of Trade” report, 46% of Canada's large firms export exclusively to the United States, half export to the U.S. plus other countries and 4% export only outside the United States.
Reframing our Indo-Pacific strategy to build on our foundations of trade with the U.S. can simplify and streamline our approach moving forward. Canada should pursue economic opportunities with countries in the region only if they are compatible with our trade interests with the United States. This means we have to be much more strategic and deliberate about trade with China, while recognizing China is the major trade partner for all countries in the region. To that end, I recommend the government focus on four areas.
First, while the U.S. moves forward forcefully to de-risk supply chains, Canada has been entirely reactive. It is essential that Canada work more proactively to understand the threat environment and the potential impacts on our supply chains and that it devote more resources to actively monitor and enforce Canadian laws around security and forced labour violations in imported products.
Second, there are opportunities in the Indo-Pacific for Canada to lead others, particularly where the U.S. is absent. This year Canada serves as chair for the comprehensive and progressive trans-Pacific partnership. A number of countries have applied to join, including Taiwan and China. In adjudicating these applications, I have recommended that CPTPP members apply a clear set of criteria, including the country's record of economic openness, trade liberalization and reciprocity. A successful record must be established prior to entry to the CPTPP, a lesson China itself taught us when it joined the WTO in 2001 without reforming its economy.
Third, Canada should not shy away from making tough foreign policy choices out of fear of losing access to China's market. China has been pursuing self-sufficiency for decades already and will continue to import Canadian agricultural, meat and natural resource products so long as it serves China's interests. However, China will not hesitate to close its markets to Canadian products for the same reasons, as it did with Canadian canola in 2019. Australia is far more exposed to Chinese trade action in this respect, yet it continues to pursue its AUKUS security alliance and confronts China when warranted.
Finally, Canada must be relevant to the Indo-Pacific, and on this I think we are failing. Countries in the region are primarily interested in Canadian energy exports, especially LNG. The current Canadian government has sent them packing, ignoring the very real security challenges this poses for allies such as South Korea and Japan. Meanwhile, the United States became the world's largest exporter of LNG in 2023, helping to provide allies with alternatives to Russian energy exports. The U.S. may be our closest trading partner, but we are also energy competitors, and it is eating Canada's lunch.
After mismanaging the oil and gas file, the government cannot repeat these failures on critical minerals. The federal government must work to restore foreign investor confidence in Canadian energy products and use its full legislative powers to work with provinces to prioritize and accelerate the regulatory permitting processes needed for success.
Time is precious and we need to match our efforts to the serious context in which we live.
Mr. Chair, I would be happy to answer questions from committee members.