Industry Committee on May 10th, 2016

[Scott Smith]

As a matter of fact, the Chamber of Commerce network has been vocally supportive of all of the trade deals that have been floated over the course of the last few years, particularly CETA and the TPP, recognizing that there will be some challenges for certain industries. For instance, in the auto sector there are a few things in the trans-Pacific partnership that may hinder our local production with the differences in transition between Canada and the U.S. That said, regarding the overall benefits of an agreement like TPP for the rest of Canadian industry, we need to make sure that is satisfied. Being outside of an agreement with 17 countries is not going to benefit Canadian business.

[Michael Burt]

I would say that we're generally supportive of the free trade agreements that we've been party to in recent years. We have been actively working with our members through our networks, those sorts of things, to try to educate business leaders about the opportunities. We view these trade agreements as opportunities; they are a way for Canadian businesses to get better access into these markets.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

Certainly, it ties into what you were talking about before, which is actually knowing your customer and recognizing that you have to build for the customer, and not just for things that seem to work well for you when you're cranking out materials.

Another thing that I believe you mentioned was access to cash in case we have another global meltdown. I think most people recognize that what happened in 2008 and 2009 was a different type of recession and that we had different type of stimulus that was asked for and planned throughout the world. Canada did its part in two ways, first of all by putting dollars back into the pockets of Canadians by reducing taxation—that nearly took the 2% GDP investment by itself—but also by putting out dollars via shovel-ready projects, which was the other component, in order to make sure that balance had taken place.

We see now, as you just mentioned, that it's not the case in 2016 that banks are twisted around in a knot such that there's no credit available. We're in a situation where there are dollars, and they just want to make sure that they're going into things that are going to be productive and where there's less risk.

Again, one of the issues we have.... In so many ways, we have amazing start-up, as you've mentioned. Our marginal effective tax rate on new manufacturing investment in Canada is 9.1%. The OECD average is 19.6%. Take a look at the United States, where it's 31.7%. We have done a good job in that regard to help small industries and businesses get started, but it seems as though once you get to a certain size, we're prepared to let that to go until somebody else buys us out. That seems to be as far as we want to be. It's as though we're satisfied. Four million dollars might be a good number. We should be able to look after ourselves if we have that much, instead of $17 billion or wherever you might be able to take things.

I'm just wondering about it. Is there a way? You talked about the ways in which people have to get the—

[The Chair, Liberal, Dan Ruimy]

You're going to have to get a question in there.

[Earl Dreeshen, Conservative, Red Deer—Mountain View, AB]

—full entrepreneurship into that. How can we encourage that?

[The Chair, Liberal, Dan Ruimy]

Be very brief.

[Scott Smith]

I think we both talked about this a bit in our presentations. It's the idea that we need to remove some of the disincentives to growth. For instance, there are ideas around tax structures that might work for both small and large businesses. An innovation box is an example, or flow-through shares, where you've taken the risks or the challenges away from those small businesses and allowed them to grow to get to a specific point where they can scale up and be competitive.

[The Chair, Liberal, Dan Ruimy]

Mr. Jowhari, you have five minutes.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Thank you, Mr. Smith and Mr. Burt, for joining us today. I want to end this round of the discussion by focusing on international trade.

I had the opportunity to get access to the report that your organization, Mr. Smith, put out in April of 2016. I strongly recommend that we get a copy to the clerk's office and have it distributed, because regulatory barriers were identified as the biggest threat to our international trade.

I have two questions. One, can you talk briefly about what those barriers are and what the recommendations are? Two, what we can do to help small businesses connect to the global value chain that you're specifically talking about?

Mr. Burt, could you also shed some light on that?

[Scott Smith]

I'll start by saying that as far as the committee's access to this report goes, it's available on our website in both English and French. It's easily accessible. The links are there.

The challenges for business around regulatory harmonization can be a multitude of things. Primarily, it's around things like labelling requirements, where they're different in each province. That is a challenge for a number of businesses.

You're testing me here, because this is not my report. I did read it, but before it actually came out. I haven't really looked at the recommendations recently.

I know that there are challenges for businesses, both in importing into Canada and in exporting out of Canada. As I say, there can be a number of them. Some of them are around environmental regulations that are different here than they are in the U.S. or in Europe. There are also some growing challenges with the delivery of goods and services with respect to things such as privacy legislation, which is changing around the world.

[Majid Jowhari, Liberal, Richmond Hill, ON]

What can we do as a government to be able to help the small businesses, especially advanced manufacturing and SMEs, to be able to get connected to the global value chain?

[Scott Smith]

In terms of regulatory harmonization, a good example would be how the automotive sector has been able to harmonize regulations for vehicle sales across North America, whereas 25 years ago the emissions regulations and standards were different. It's about solving some of those problems across the board.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Mr. Burt.

[Michael Burt]

In terms of getting access to global value chains, I'm not sure if there's an easy answer to that.

We've done some work with the aerospace industry. One of the key things that the smaller suppliers in that industry talk about is a lack of integrators, the companies that are the subcontractors. For the contractors, they build all of the different pieces that go into making one particular aircraft. How do we develop domestic expertise, to use that example, around integrators as part of it?

From the businesses I've personally spoken with, when they do go international, they speak loudly and proudly about the success of the trade commissioners. Can we find ways to make better use of that program to help our companies get access to global value chains for markets in Canada? Can we better connect our Canadian suppliers with the large multinationals that we target?

Okay, we're good at making this, and we want to sell to so-and-so, or we want to be part of so-and-so's value chain, so how do we develop that relationship?

[Majid Jowhari, Liberal, Richmond Hill, ON]

How do you think the trade commissioner service is doing?

Go ahead, Mr. Smith.

[Scott Smith]

I wanted to add to that point. You asked the question I was looking to answer.

From the discussions I've had with some of the trade commissioners, a lot of small companies are not ready to enter markets. They haven't done their due diligence in terms of their product, knowing their market, and knowing their customer. A lot of that education needs to happen before they get to the trade commissioner service to help them enter a new market.

There needs to be an interim stage to educate those companies on where they should be entering, when they should be entering, and what their product needs to look like. They're not ready for it yet.

[Majid Jowhari, Liberal, Richmond Hill, ON]

Where do you think that's going to come from?

Interestingly, you talked about the key elements or pillars: skilled executives, internationally oriented executives, and international network market knowledge. Those were mainly focused on the executives of the SMEs, or the companies that they want to grow and want to go international.

Where is that service going to be provided to be able to help them?

[The Chair, Liberal, Dan Ruimy]

You have about 10 seconds.

[Michael Burt]

You hit the nail on the head. A key part of our being successful internationally is having the right management skills and right entrepreneurial skills.

Where do they get that from? Often it's not from traditional sources. They've travelled, or they've worked overseas, and those sorts of things.

How do we tap into those informal sources of knowledge that people have access to? Maybe that's one way of doing it.

[Majid Jowhari, Liberal, Richmond Hill, ON]

They may not all have it. We need a body that would be able to help.

[The Chair, Liberal, Dan Ruimy]

Monsieur Boulerice, for two minutes.

[Alexandre Boulerice, NDP, Rosemont—La Petite-Patrie, QC]

Thank you, Mr. Chair.

I'd like to thank the witnesses for being with us today. I'll try to keep it brief.

We talked a lot about manufacturing jobs and productivity gains. A Quebec research institute by the name of Institut de recherche et d'informations socio-économiques recently did a study. And it showed that productivity as measured by GDP per hour of work had gone up 32% in Quebec between 1981 and 2010. Keep in mind, here, that we are talking about Quebec.

During that same period, however, worker incomes rose by only 15%. Had the increase in incomes been commensurate with the increase in productivity, every worker in Quebec would have earned about $6,000 more.

Do you think it's problematic that higher productivity does not go hand in hand with proportionally higher incomes for the men and women creating the country's wealth?

[Scott Smith]

Unfortunately, I have not seen the study you're referring to.

The only thing I would say that in being able compete globally, Canada has difficulty competing on labour rates and energy rates. Anything that can reduce those costs, which means increasing productivity, only allows those companies to continue to do business. If the idea is that you're going to have a match between productivity rates and increasing labour rates, you may be pressing yourself out of the business by doing that.

Is it fair? Perhaps not, but at the end of the day, they still have a job.

[Michael Burt]

I haven't seen that study either, but in the long term you would expect to see a link between productivity growth and wages, in the sense that wages, their share of all income, should be relatively constant over time. That's been somewhat less true in recent years.

I would also emphasize that Canada's not had the same income inequality problems that we've seen in other developed countries in recent years; Canada's done quite well in that regard. Maybe workers aren't getting quite as much as they should, but we are still doing well compared to our peers.

[The Chair, Liberal, Dan Ruimy]

We're going to go to round two and rejig some of the numbers so it's fair for everybody. We're going to do a first round of five minutes.

Mr. Longfield, you have five minutes.