Evidence of meeting #31 for International Trade in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was going.
A recording is available from Parliament.
Conservative
Ted Menzies Conservative Macleod, AB
I was hoping to get a bit of a comment from everyone about the WTO, but then I've been ruled out of order before.
Conservative
The Chair Conservative Leon Benoit
I think we'll just have the questions directed to one. If the others really feel a strong urge to add to what the first one has answered, do that, but let's move through a little faster.
Yes, Peter.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
If I could, Mr. Chair, I think Mr. Menzies' point is a good one, because I think the questions that we'll tend to have will be for all four. If they choose not to answer it, that's their choice, but I think it's more difficult, and it would be more awkward, for us to try to direct a question to one, when we're looking for responses from them all.
Conservative
The Chair Conservative Leon Benoit
Okay. Is there anyone else on the WTO, on Mr. Menzies' question?
Go ahead, Mr. Myers.
Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters
I think we'll all make a response.
I would say that the WTO was not just a failure of the U.S. and a failure of the WTO to come to an agreement among all of its member countries. I think it was a good example of the failure of Canadian leadership in those negotiations. We really cannot proceed in multilateral negotiations or trade negotiations or investment negotiations with our hands tied behind our back because we're not prepared to negotiate all issues on the table. We can't go into negotiations on that basis.
Executive Vice-President, Policy, Canadian Chamber of Commerce
I support what Mr. Myers just said. I think he's right on the money there.
There are a number of key factors that go into this, and absolutely the global political agenda in terms of what's going on is always part of the reality. But it's also about what negotiating trade deals is all about--it's the give and take of the process. Somehow we, as a player, who used to be, I would say, as integral within WTO and as important as almost any other country, especially a country our size, which is why WTO and multilateralism is so important for us, have been marginalized--I think I can put it that way--as a result of our own doing in terms of taking defensive interests that we have, on the one hand, and handicapping ourselves, or as Jay said, tying our hands behind our back. That is part of the reality too. You have to be prepared to step up to some of these issues and be able to say, here's what we're prepared to do to help move the thing.
It's also true for others, and particularly, as we've seen, for the EU and the U.S.
Fellow, C.D. Howe Institute
I think the issues have been addressed. It's mainly that Canada needs to look at what areas it's protecting and it needs to be able to loosen up, to free up, the negotiations. It's already been said.
Bloc
Guy André Bloc Berthier—Maskinongé, QC
I come from a rural area in the writing of Berthier—Maskinongé. It's an area where one finds furniture companies, textile companies -- industries which have been weakened -- and many farm operations. Because of free trade, bilateral agreements and globalization, those rural areas are facing major difficulties leading to job losses and the empoverishment of the population. Rates of unemployment keep increasing and people move to the cities because they lose their jobs, among other reasons. With the arrival of free trade, the WTO and those bilateral agreements, among other things, I see that those rural areas are slowly losing their population and that those people who remain are becoming poorer.
You mentioned Mr. Murphy and the Doha Round. I was there. You know that agriculture is also a major issue with supply management and the opening of markets. Those are threats for farmers. Farmers aren't getting any richer. They have a very difficult life and those things threaten their quality of life.
I have a question. I saw recently some statistics indicating that those agreements -- the bilateral agreements and WTO agreements -- create situations where some people are getting richer but many more are only getting poorer. There's a saying that the rich get richer and the poor get poorer. That's part of the negotiations.
Does your trade policy include strategies or methods both to open our markets -- I know that we live in an era of open markets -- and to provide better protection to our manufacturing industries, our people and our regions? We should have an approach taking account of our whole territory, the whole of Québec and of Canada, because we should not give up on some regions or some groups of population. Would I be dreaming in thinking that those agreements could make sure that everybody has a place in our society and that nobody gets poorer, white taking account of Asian competition? This kind of competition creates difficulties for our industries in forcing them to produce at the least possible cost.
I would like to have you answer about this. Are there any possible strategies? Would it be possible to provide some type of protection to our weakened industries?
Conservative
October 19th, 2006 / 9:50 a.m.
Vice-President and Chief Economist, Conference Board of Canada
Mr. André, I will answer in English if I may since I'm not as good in French.
You've just identified the fundamental problems of any sector, any region, that has relied upon protectionism historically. It's a vicious circle. It's a vicious circle because the more you protect, the less competitive and the less innovative firms are, and the less they have to adapt to new technologies and the less they have to meet international competition. It really becomes a vicious circle, because you need to keep building the walls higher and higher to fight off the new competition. That's why we're trying to articulate a national strategy, a positive one, in our forthcoming report. Rather than protecting, let's invest. Let's invest in human capital, in human beings. Let's invest in new technologies. Let's invest in innovation. Let's allow our businesses to position themselves.
Clearly, sectors that are protected and that are also exposed to international trade need help; they need adjustment help. What they don't need is ongoing protection, which treats them as a welfare case.
It's very tough for the first generation of worker, I would argue, because often those people aren't well educated. They've been doing a fairly standardized job that doesn't require them to be creative thinkers, and they're being moved into a different world. Most economists are trained to say free trade is better because it keeps you on the cutting edge. I think most of us would also agree that if you're going to move any sector from protected to exposed in international competition, you have to help people adjust. You really do. In fact, you have to invest at least as much in adjustment as you do in pursuing freer trade. It's something we're going to talk about in great depth in our report.
I have great empathy for people in parts of our economy who are in things like textiles and furniture in Atlantic Canada, in rural Canada, in Quebec. Life was good as long as you hid behind the protectionist wall, but you know, the walls come down. We've seen the aggregate benefits from freer trade through the various WTO rounds. I think the key issue in fact is how to find positive ways to invest in human capital, ensuring that the kids coming into the school system can be as competitive as the Chinese are going to be or as the Americans are going to be. Then the adjustment for the existing workers is a key issue.
I'm not as keen to protect capital. I'm not particularly keen to protect the owners of capital, because they've seen the forces coming. I am much more interested in protecting the workers who are directly affected and in helping them to adjust.
Conservative
The Chair Conservative Leon Benoit
Just for clarification, in your comments on protecting capital, are you saying you don't think there's a real need for the type of thing Mr. Menzies was talking about, that is, having an agreement on protecting capital?
Vice-President and Chief Economist, Conference Board of Canada
No. I'm talking about subsidizing existing industries in order that they can keep doing things behind protective walls.
Senior Vice-President and Chief Economist, Canadian Manufacturers and Exporters
I also come from a small town in which furniture industries used to be a very important part of the economy. In 1990 most of those companies closed down. Much of it was because those companies just couldn't compete against the low-cost goods coming in, particularly from the United States. They were facing tremendous competition from the U.S. They dropped a 23% tariff overnight, and there were no adjustments. In the framework in which they had to make those changes, there was nothing to help them. I'm not talking subsidies. I'm talking about tax policy, employment policy, training policy. There was no net to catch them, nothing to help them make that adjustment.
The Canadian furniture industry was a $3 billion industry in 1990. By 1992 it was down to about $1.5 billion. Today it's about a $12 billion industry. The reason: opening markets allowed companies to become more competitive, more specialized, and more flexible. On the textile side, the clothing side, you had companies like Peerless, which is truly peerless in its ability to satisfy its customers.
It's a very different way of working. It's not just the effects of free trade. Today we're entering a new era of global competition that, whether we act on it or not, is going to result in a general restructuring of Canadian manufacturing. That means we have to choose the domestic policies that will make this transition as easy as possible. We need to provide companies and employees with the ability to upgrade their skills, products, and processes.
That means we need a tax policy that makes it easy to invest in new technology. We have in Canada the world's eighth highest level of taxes on investment in new technology. We have to have in place the right logistic systems, the right training programs. One of the reasons that textile manufacturers, agricultural producers, and furniture manufacturers went into free trade with one hand tied behind their back was that the interprovincial trade barriers they faced up until 1990 prevented them from selling across Canada. These are regulatory barriers that companies face. We can't import deodorant into this country without going through an inspection process different from that of the United States. Now American and Canadian underarms, I would argue, are just about the same. But Canadian consumers lack a lot of the products that are on the shelves in the United States. It's not just separate inspection processes. To resolve those regulatory differences, there has to be an entirely different production process in the U.S.
It works the opposite way too. Regulatory differences keep us out of a lot of U.S. and other markets. We have to deal with these non-tariff barriers. We should align our domestic policies so as to make sure we have prosperous companies that can take advantage of the international market agreements we're negotiating.
Executive Vice-President, Policy, Canadian Chamber of Commerce
There's one point of Mr. André's that I disagree with: the notion that trade, considered across the whole economy, harms more people than it benefits. I don't think that's true. There's a lot of data to demonstrate how important trade is to our economy and our standard of living.
Both our previous commentators mentioned adjustment programs, which have to be part of the reality. We've seen these in NAFTA and other programs. This is a classic example of the need to harmonize domestic and national policy. Jay was just talking about how fiscal policy plays a major role. Tax competitiveness is going to be just as important as regulation. On the skills side, I'm concerned about the disincentives to labour mobility we have in our home market. There are a lot of issues that need to be addressed. That's why you can't make trade policy in a silo.
Fellow, C.D. Howe Institute
When economists talk about the benefits of globalization, it's important to distinguish between the long-run and the short-run effects. Economists are usually talking about the long-run benefits. In the short term, there are going to be drawbacks such as the costs associated with reallocations and people having to move. The issues you're talking about, Mr. André, are the short-term effects.
Considered in the long term, there's lots of evidence to show that trade is really helping the Canadian economy. There's a recent, often-quoted paper out of the University of Toronto showing that NAFTA has resulted in large productivity gains. You need at least ten years of data to be able to go back and see the gains.
Obviously, there are concerns associated with the short-run effects, and I'm going to echo some of Jayson's comments on this. We need to dampen some of the short-run effects. One major thing we need to simplify and clarify is the Canadian tax system. Right now, as Jayson said, the effective tax rate on capital is the sixth or eighth highest in the world, which doesn't allow young and established firms to grow or to deal with their competition.
To deal with these short-run effects, there should be some government program to retrain people whose jobs have been affected by globalization. We need a program that either teaches them to be more productive in their own industry or trains them for a new job and lets them stay where they are. I think these are two important issues.
Conservative
The Chair Conservative Leon Benoit
With what's going on in Alberta now, industry is in many cases doing its own retraining. Alberta is that desperate for people.
Two people have just come in. Dominic and John, please introduce yourselves.
Liberal
Dominic LeBlanc Liberal Beauséjour, NB
I'm a Liberal member of Parliament from New Brunswick. The riding is called Beauséjour, a predominantly francophone rural area in southeastern New Brunswick. I apologize for being late.
Conservative
John Williams Conservative Edmonton—St. Albert, AB
I'm John Williams from the riding of Edmonton—St. Albert. Unfortunately, I can't stay too long today, Mr. Chairman, but I'm certainly glad to be here to offer my two bits and any wisdom that I may or may not have to the agenda.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
My thanks to all of you for coming today, particularly Mr. Murphy. I'm a proud member of the New Westminster Chamber of Commerce and the Burnaby Board of Trade. I come from the small business sector.
I'm going to follow up on the comments of Mr. André. They are in keeping with the way many Canadians feel about how we are now situated, more than fifteen years after signing the free trade agreement. It's not a short-term impact. I would argue that it's a medium- to long-term impact. Statistics Canada tells us, Ron Cannan just reminded me, that since 1989 real income has declined for 80% of Canadian families. The bottom 80% are actually earning less in real terms than they were in 1989, when the free trade agreement was being implemented.
So there's a problem. It's not just for industries that are in decline. It's a general problem. The bottom line is, when we talk about quality of life, as Mr. Murphy referenced, most Canadian families are finding it harder to make ends meet. They're working longer weeks.
This is a fundamental problem we have to address, and I don't think we can address it by doing the same things and looking at trade agreements fashioned on the American model.
Other countries are dealing with trade agreements in a different context. In Europe, they're establishing, within the context of trade agreements, social standards, labour rights, and environmental standards. In other words, they're levelling the playing field but not going down, not digging a hole. They're raising that playing field as they're levelling it. So Europe has that context.
In Latin America, they're looking at trade agreements that target poor communities for economic development.
I have a question for all four of you, starting with Mr. Murphy. Shouldn't we be looking at new approaches to trade agreements, and to trade itself, that deal with the bottom line of bringing a relative level of prosperity to all Canadians, rather than what we're seeing now, which is an increasing gap between the wealthy 20% and the 80% of Canadians who are losing ground?