International Trade Committee on Oct. 19th, 2006

[The Chair, Conservative, Leon Benoit]

Who would like to take the first one?

Mr. Murphy.

[Michael Murphy]

Sure. Thank you.

In terms of the importance of trade to our economy, I have two quick comments.

One, from study after study, I think it's indisputable that the benefits of trade--whether it's NAFTA, whether it was the FTA that preceded it, or whether it's WTO--are crucially important to Canada. This is a small economy that absolutely depends on trade liberalization. Market access for us is absolutely crucial to our standard of living. So I would start with that.

Some people, a number of economists, for instance, call the nineties the “lost decade” in this country. There were some good reasons for that. One of the reasons was our incomprehensible desire to overtax Canadians. Never mind businesses for the moment, I'll just focus on individual Canadians and what we did with personal income tax rates, including payroll taxes. The tax burden on Canadians was way too high. It still is.

I think the finance minister made a statement the other day to that effect. And this is 2006. It certainly was true in the nineties. The nineties were particularly difficult years for the Canadian economy, for a variety of reasons. In terms of the opportunity to have a higher degree of disposable income, I would argue that part of the reason why a number of families...was tax policy in Canada through the nineties. A lot had to be done. With the budget in the year 2000, we basically started to address these. There is much more that needs to be done.

This is another one of those examples where you say, what's the role of trade? Where would we be if we hadn't negotiated the FTA and then the NAFTA? I suggest we would have been far worse off as an economy.

I won't take the time to go through the numbers in terms of what has happened to our GDP as a result of it. I did have the benefit, though, of having a look at a very useful publication--if you don't mind me taking half a second to mention it, Mr. Chair--which the foreign affairs and international trade department just put out, called NAFTA @ 10 . It's a very good document, and there are a number of good contributions from a variety of knowledgeable players.

One of them is from your backyard, Mr. Julian, in terms of Simon Fraser University. Richard Harris is an economist there who I thought made a pretty interesting statement. He said:

In virtually all domains in which economic measurement is possible—trade flows, investment, employment, consumer benefits, productivity growth, improved competition in product markets and reduced exposure to protectionist actions in the US export market—there have been important measurable and positive impacts of this agreement.

I think you could add to that list. Essentially, the standard of living of Canadians has been lifted as a result of the work we've done in that area. Whether we have other challenges...and I agree with you, we certainly do. I think we still have, as Ben just mentioned, in terms of our effective rate of tax on capital and what that means for investment in Canada. The fact that we're still an economy that taxes investment is a huge problem. And our personal income tax burden is still way too high.

There are specific things we would suggest to do there, but I won't take the time to get into them now.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Hodgson.

[Glen Hodgson]

Mr. Chairman, I'm going to take a slightly different tack. I agree with Mr. Julian that there is a fundamental issue in globalization. It's the changing shares going to capital and to labour on a global basis. The data in Canada show that family real living standards haven't risen much over the last ten to fifteen years.

That's the problem. The question is, what are the causes and the prospective solutions? It's hard to pin the cause on free trade, NAFTA, or even the WTO. I think the real cause of low income in Canada is low productivity growth rates. There's a gap there between us and the United States that's been growing for twenty years now. Our research indicates that the gap is now to the point that Canadian incomes are 20% below American incomes across the board.

If you compare Canada to the fastest-growing industrial countries in northern Europe, countries with advanced social welfare systems like Sweden, Finland, Denmark, and Norway, the gap's even wider.

A recent report from the World Economic Forum ranked Canada 16th in the world in competiveness. Most of the countries ahead of us were industrial countries in northern Europe with well-developed social welfare systems and high corporate taxes.

The WEF, which is not a socially oriented organization but a business one, pointed out that the massive investment in education in northern Europe is what's giving them the critical advantage. So there clearly is an issue.

The areas we need to examine, which is what we'll put into our report, are things like why we have a punitively high marginal tax rate on the working poor. The marginal tax rate on people who earn less than $40,000 a year in this country is as high as 90%, because they are rolling out of social programs into our tax system. We're taking away the social benefits faster than we're allowing them to earn income. This is from the C.D. Howe Institute, so Jack Mintz and people like Finn Poschman get the credit.

That's a fundamental fix—not a federal fix but a national one. The marginal tax rates are highest in Ontario and Alberta. Why are we punishing these people for going back to work? Why aren't we raising basic exemptions and allowing more of a bridge as we roll them out of EI and other forms of social welfare into the labour force?

I would strongly resist the idea of adding on more baggage directed at social and environmental conditions. We did some of that in NAFTA. There was an environmental sidebar within NAFTA. Perhaps it wasn't adequate; you can judge that for yourselves. I know that in many other cases we're now using that as an excuse to avoid free trade. We're actually using it as another form of trade barrier.

The Europeans are perhaps the most overregulated people in the world. It's hard to sell anything in Europe unless you meet European standards. Perhaps you don't know that Canadian sales from our affiliates in Britain, for example, are eight times our exports to Britain, because the only way we can actually penetrate the barriers around Europe is by becoming European companies. We're having to change our model to cope with that sort of stuff.

I don't see more barriers as a solution. I would much rather see better-designed public policy in Canada. If it's a matter of addressing low incomes, let's think about fundamental reform to our tax system.

[Ben Tomlin]

Again, most of my points have been said. I think it's important to note that if we look at where would we be without NAFTA, it's pretty clear we'd be worse off.

If we want to look at discrepancies in income or standard of living between the rich and poor in Canada, it's not so much NAFTA we need to address as it is our internal policies, such as our marginal tax rates on the working poor. We have to look at what's going on inside Canada, as opposed to looking to these trade deals.

That's all I'll say for now.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Myers.

[Dr. Jayson Myers]

Let me say I'm in agreement with much of what has already been said. Of course, real incomes have fallen, especially during the 1990s. For many families, real incomes are lower now than they were then. Certainly real incomes now are higher than they were back in 1990, but I'm not so sure the reason for that is free trade.

In fact, if I look at the manufacturing sector from 1991 to 2004, there were 600,000 net new jobs created in manufacturing in this country. Those jobs wouldn't have been created if it had not been for the ability of manufacturers to expand their businesses, particularly across North America. Granted, there were significant job losses in the transition period between 1989 and 1991, but we're still about 250,000 net new jobs ahead of where we were in 1990. In fact, we were at record levels of employment in 2004 in Canadian manufacturing. The fact that the Canadian dollar has gone up by 50% over the last three years has taken a big whack out of employment, but that's not the result of NAFTA or free trade. It is a result of global financial markets, yes.

Echoing what everybody else has said, I think the key factor and one of the reasons why our real income levels have tended to lag is because we had a huge deficit and a huge debt that we had to pay down that was threatening the fiscal viability of this country . That's what we did during the 1990s and that's why real income growth has lagged in this country. I can tell you real income growth in the United States is going to take a similar whack over the next ten years.

We do need, in order to make sure that Canadians can participate in the type of business that is going on today, much more investment in skills and in workforce capabilities and much more investment in productivity. When you look at Scandinavian countries, the European countries, you find two things in their tax system. One is that the tax system does not penalize entrance into the labour market. Secondly, their tax systems--and this may seem strange, but it's true--are some of the lowest in the world in terms of business investment. The Scandinavian countries, Ireland, all have very low tax rates on business. That allows businesses to invest in new technology. It means they're growing their businesses and providing the tools and technologies for their employees to grow their business. I think that's where we really should be focused.

Your major point is on international business policy. Do we need different agreements in different markets and a different style of negotiating? Yes, we definitely do, because what we're trying to achieve in North America is different from what we're trying to achieve in China, India, Brazil, or in Australia and Europe. We have to deal particularly with the non-tariff barriers that Glen has mentioned.

I don't think we can deal with these non-tariff barriers on the basis of the trade agreements that we've traditionally tried to negotiate. We need different approaches to this. We need approaches where we can have guaranteed access into markets that get at the regulatory differences, the regulatory barriers, in particular.

[The Chair, Conservative, Leon Benoit]

We only have half an hour left. I have on the list Mr. Cannan, Mr. Temelkovski, Mr. Maloney, and Mr. Williams. We also have a list of questions from the researchers that were prepared to focus discussion, and each of you received a copy of that.

It would be really good if we could get to some of those questions as well. There are three suggested by the researchers that we particularly need answers to. I'll leave it to the individuals asking questions, except I may ask some of these questions if I see them not being asked along the way.

Particularly, what should we be doing to deepen the North American economic relationship regarding bilateral commercial deals? We haven't had one signed in five years. Why not? Which country should we be dealing with? Is Canada too dependent on the American economy? Should we be aggressively diversifying, or is diversifying too risky? Just think about that.

Mr. Cannan, I will go to you. Go ahead, please.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you for the opportunity this morning to participate in this interesting discussion, Mr. Chair.

I come from British Columbia. As you know, Mr. Chair, one of our biggest challenges in western Canada is the lack of human resources. I know the population of our country is aging, so I believe a unilateral or integrated domestic approach in getting our own house in order first is very important. Our government has tried different initiatives, with $70 million over two years to help the older workers and the trades program. I also mentioned debt repayment and trying to get our house in order. Those are all important initiatives.

From where we are with the lack of discussions at the WTO, as Mr. Menzies brought up, the reality comes with regard to NAFTA. We had some of the trade officials here on Tuesday. We talked about the fact that 97% of the trade to date with NAFTA has been dispute-free with regard to more or less positive negotiations, as Jayson mentioned.

There has been a net increase in workers. My honourable colleague beside me mentions the 1989 statistic pretty well every meeting, and you validated that with the comment about how much better off people are with the 250,000-plus net new jobs. But that reminds me of what my stats professor always said. Statistics are interesting in what they reveal but vital in what they conceal. You have to make sure that both sides of the perspective are presented.

In terms of where we're going with NAFTA, I just throw this question out. It partners in with some of the researchers' questions about our competitiveness and pursuing closer integration within North America.

I'd just ask our witnesses here today if, on the basis of productivity and innovation and competitiveness, they think North America is really where our capacity for competitiveness lies. Is it our biggest opportunity?

[The Chair, Conservative, Leon Benoit]

Mr. Tomlin, do you want to reply? I don't want to put you on the spot if you're not ready.

[Ben Tomlin]

I do believe North America is the area where we're going to have the greatest productivity gains. Although we do have the NAFTA, there are still several non-tariff areas that need to be addressed, and one is regulatory harmonization. We're dealing with the U.S., but all of our small businesses that are trying to access the U.S. market are having to deal with so many barriers.

The question is whether we want to go after regulatory harmonization with the U.S. The issue is whether the U.S. is going to be willing to negotiate with us. Or is this something wherein we're just going to have to adopt the U.S. system? It looks as though there may be room for negotiation, but basically we're going to have to adopt the American system. The question then is what the effect of that will be on the Canadian economy.

There are several other barriers, but I think that's the most important one, and I think we do have to look to the North American market for our productivity gains. That's where all of our trade is and that's where our businesses function. We can set up deals with other countries, but really businesses themselves are going to dictate where they function, and they've shown that by operating within the North American market for the most part.

I think this is the area where we have to make it easier for companies to function. Doing so is also going to affect the transference of technology, but small Canadian firms grow in productivity faster, so I think this is what we need to focus on.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Hodgson is next.

[Glen Hodgson]

I have talked a bit previously, so I'll be very brief.

Effectively, I think we have to think of the world in three big blocs right now. There's the North American bloc, where we're very lucky to live in arguably the best neighbourhood in the world.

Ben's absolutely right. Our future lies in deepening NAFTA. Non-tariff barriers are the critical next issue. It's very hard to negotiate with the Americans, though, if we don't have our act together at home.

One of the other messages in our forthcoming work is that we need to create a single Canadian market when it comes to regulation and deregulation. We need to eliminate all the crazy barriers that exist between provinces, and we need to have much improved alignment between the federal and provincial levels when it comes to regulation of everything, frankly. The number of examples you can give of dumb regulation in this country are absolutely staggering.

So there are three big blocs. One is North America. Which other bloc do we want to negotiate with? Do we want to negotiate with the Europeans, who are very inward-looking? There is expansion eastward in Europe. The Europeans are very much looking to the newly emerged economies in eastern Europe, but I believe there is a relative barrier around Europe that makes it very hard for Canada to do more trade with Europe.

Or are we going to look west, where the growth rates are spectacular? China is going to grow at 8% to 10% a year for the next 20 years. India is 10 years behind China, and it can grow faster than that potentially in 20 to 25 years.

I think there are huge inroads that could be made, but it will really require a fundamental shift in attitude in Canadian foreign policy and in our entire thinking toward Asia. Right now, in fact, our market shares are falling in places like China. We've actually seen our share of both trade and investment decline over the last ten years, because we don't have a plan.

So I would argue very strongly for thinking of going forward with a twin-track policy. We deepen within NAFTA, and we start to think about how to expand into the very rapidly growing Asian market.

[The Chair, Conservative, Leon Benoit]

Mr. Hodgson, just before we go to Mr. Myers, your comment that we have to get our act together in terms of interprovincial trade is an interesting one. I was interprovincial trade critic for the Reform Party back in about 1996-97, when the only agreement on internal trade was actually very weak. I talked to people who owned several companies and who were actually preparing to move them—some did—to the United States so they'd have easier access to other Canadian provinces. That's how silly it is. And that's where we're at.

It's an excellent point. Thank you for that.

Mr. Myers.

[Dr. Jayson Myers]

As you would know then, Mr. Chair, it's very difficult to drive a truck across this country, because you face different transportation regulations in every province. As a result of that, a great deal of our trucking goes through the United States. So yes, solving the interprovincial trade issue is extremely important, particularly now.

Let me make one very general comment about the direction of international business policy. This should not be driven by policy; it should be driven by where the business is. The business is within North America. Businesses are expanding elsewhere, but the diversification of our trade policy should be driven by where the business opportunities are.

The second thing is that I agree we need a very different approach within North America. We have to look at things like.... And this is outside of the NAFTA. We have to deal with this differently. Most of our commerce with the United States is problem free, but a great deal of the commerce between Canada and the United States, particularly on the part of small business, is not duty-free under the NAFTA. The administrative costs, the rules of origin, and the low tariff rates we already have make it far less costly for companies not to take advantage of NAFTA duty-free rates. They do that by paying the low tariff.

We have problems within the NAFTA around rules of origin, many of which are very restrictive. For instance, there is one manufacturer of equipment in Canada that is prevented from exporting duty-free into the United States because of very protective regulations written into the rules of origin--there is about one part in that machine that's manufactured in Europe. That doesn't make sense to me. That's the type of thing we should get rid of. We have to do that in negotiation with the United States.

Ben's point about regulation is right on. We have regulatory barriers within Canada. We should look at cases where we really have to be different and make sure we have effective regulations there. But in lots of areas, like the deodorant issue, I frankly don't see why we need different regulations in Canada. We have to look at that, but we have to do it on a targeted and case-specific basis. That means much more intense negotiations with the United States.

We're seeing a lot of restrictions right now in the American market, in the form of “Buy America” and procurement, and in the form of ITARs and the restrictions placed on people who can work in Canada's defence industry.

We're seeing the border regulations becoming more and more restrictive. I'm very concerned that these are becoming non-tariff barriers to our access to the U.S. market. The border issues are extremely important. We have to sort out the transportation infrastructure and the complexity of the regulations around the border.

All of that is important. A lot of this is being negotiated within the context of the security and prosperity partnership, and we have to make sure we take a leading position in that. My feeling is that Canada is following right now. We should be much more aggressive.

The other comment I would make about North America, though, is that when we look at issues in Canada and the United States, we tend to look at bilateral or trilateral issues within the NAFTA. The fact of the matter is that North America has some very common competitiveness issues they have to deal with if they're going to be competitive globally. Everybody has common issues across North America in terms of upgrading the skills of our workforce, in terms of improving productivity, and in terms of making sure we have the type of investment systems that are necessary to grow. We're facing challenges, globally, from Asia and from other markets. Unless we as North Americans get our act together, it will make it very difficult for us to compete.

With respect to the other part of our negotiations with the United States, I think it's not just these bilateral issues, but common North American issues, where we can develop common policies. Unless Canada takes the lead in doing this, we're going to be followers, and we're going to lose.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Myers.

We'll go to Mr. Murphy next. We can go to about five minutes to eleven with this, because Mr. Julian has graciously taken his motion from today off the floor--only one was on the floor. The other one he can choose to bring forth any time he wants, and he's not going to do that today.

We'll have about a five-minute discussion on Bill C-24. That's all, I expect. And then we can have the informal lunch at 11 o'clock still, just so you know. All committee members, staff, and the other guests appearing are welcome to stay for that lunch.

The list is now Mr. Temelkovski, Mr. Maloney, and Mr. Williams.

Mr. Murphy, we'll finish with your response to Mr. Cannan's question on that issue.

[Michael Murphy]

That's great, and I'll be brief, Mr. Chair.

Just in terms of Mr. Cannan's question, there are a couple of questions there. He made an opening comment about skills, and maybe I'll just come back to that at the end.

I have just a quick remark on the importance of the North American relationship. As I mentioned at the top of my remarks today, call it first among equals, call it whatever you like, it's the pre-eminent relationship, and from our membership's standpoint, it's where you have to maintain focus.

There were two comments I was going to make. One was in the area of regulation, and you've heard lots about that already so I won't get into any more detail. The only comment I would add there is that if we say you need to be strategic about this whole process, whether it's dealing with the United States, dealing with our full NAFTA partners, or thinking about how we should do multilateral trade negotiations, being strategic is the right way to go.

If you're going to do that, I think we have something here in terms of the SPP, the security and prosperity partnership that has been launched amongst the three NAFTA partners. We're very hopeful that in bringing together a lot of these initiatives...and I know there are some 300 initiatives in the SPP, which makes it a little daunting. But when the leaders of the three countries got together earlier this year they came up with five priority areas, and regulation is in that list. I'm happy to see that.

So is the border. Jay has already mentioned the border, and that was the second point I wanted to mention. I don't think you can spend enough time on this as a subject of importance for us.

What is the context of that discussion today? There are two very different ones. One is ours, which is very much interested, from a commerce standpoint, in building on security. But we're dealing with our partner south of the border, which is fundamentally focused on security issues. That's where it starts for them. It doesn't end there, but we're the ones pushing uphill on that issue with America in terms of getting the movement of people and goods as part of the discussion and into a security agenda. So we need to support the security agenda and we need to keep battling away on the...and I think the SPP will help us in that regard.

Those were two comments I wanted to make, and if there's time later I'll come back on skills, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Murphy.

Mr. Temelkovski, go ahead, please.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

Thank you very much, Mr. Chair.

We've heard a lot about border issues. We've heard a lot about interprovincial issues. You've mentioned the Pacific Gateway, the railways, the transportation, and the ports.

We were recently in Vancouver and had a presentation from the port authorities. They told us in no uncertain terms that they're definitely not capable of dealing with any more incoming trade unless we fix the infrastructure within Canada.

Can we increase our trade 20%, double-digit, and expect our current infrastructure to manage it? I think the answer is no.

Do we have the labour skills in force that we need, and will we have them in the next ten years? The answer is no.

Can we move our goods to the United States faster, as they're doing in Europe?

Borders are gone. We as Canadians go over there, and we try to drive between one country and another. We slow down at borders, and they flag us to go faster and faster, which means trade is moving faster and faster.

What are we doing here? We're talking about fences with the United States. We're talking about providing guns to border guards. We're talking about passports. Do you not think this is contrary to trade? I would think it is.

On a small scale, if I need to import a bag of beans to Canada and then transport it all across Canada once it gets here, and if I know I can't do that...before we go outside, we'd better look inward and make sure that our own gate is fixed, going out and coming in. We have labour issues. We have paper issues in terms of following all the trade going in and out. We saw that with Bill C-24. There will be more paperwork that needs to be done. How ready are we for that next step? That's one part of the discussion I'd like to pursue.

The other part is, should we be trading with big economies such as China, Brazil, and India, or should we, at the same time, be trading with other economies?

I was in business for twenty years, and my experience has told me that we build trade, commerce, and relationships. Every time there's a new president or prime minister, we look to see who came to see them first, or who he or she went to see first, to build what? To build a relationship. In Canada, we have so many people of so many countries who have relationships with so many countries. Those are the natural resources that Canada has and that we're not taking 5% advantage of.

Trade, for us, is very easy to do around the world because we can speak their language, we understand their culture, and we understand the way they do business. It's very easy for us to do. But can we get our house in order here, build up the capacity in Canada to be able to bring all those goods in and to be able to ship them out? At this time, I can't unequivocally say yes. Rather than pursuing large economies for trade, maybe we can start with smaller economies. You see, small economies of twenty years ago are big economies today.

As Ben mentioned, the long-term plan would be good if we start with the smaller economies. Maybe some of them will become the giant tigers we face today.

[The Chair, Conservative, Leon Benoit]

Thank you, sir. You have made some important comments and asked some important questions. Let's see if we can get the responses to focus on the issue of which countries we should be looking at next for bilaterals or better trade relationships.

Mr. Murphy.

[Michael Murphy]

I think there's a lot of good comments there to chew on.

With respect to the North American situation and our relationship with the United States, we have an integrated economy in many ways, but we have a border between us. And there's the challenge. Capital is very mobile. For companies thinking about investments around the world—and we talk to them all the time—the border is a very big issue. So we have to get that right. We need to think about how, in light of the border issue, we can ensure that our existing marketplace continues to develop.

One issue we've been raising with the government—and we're trying to get some traction on it—is this notion of coming up with a contingency plan for a shutdown at the border. How do we restart? Who's involved, and who gets priority? We have done a lot of work on this, and we have created some principles on which to base our response. The Canada Border Services Agency and others have been working with us on this. We think that's exceedingly important.

With respect to activities outside North America, I made an opening comment about focusing on the WTO. Our reality with the WTO dictates that we also have to think about what else we're going to do. Bilaterals are a huge part of it, whether it's with CA4 or Korea. We have those on our radar screen.

There's also China and India. We recently completed a major piece on China, which I think we circulated to the committee. We're about to do the same thing on India. Both of those markets present significant challenges for Canada with respect to our share of investments and trade. They're both hugely important to Canadian investors and Canadian companies looking to do business. So we have to have a priority there as well. We need to ask ourselves how we are going to do this strategically.

[Ben Tomlin]

I want to go back to the issue of going after small markets, as a way of testing the waters in trade. This goes back to the comments I made initially and would fall into the category of Canada following its own bilateral deals.

We want to decide whether these deals would be strategic, in the sense of creating a Canadian brand or style of trade agreement, or whether we'd just go after markets that are of economic importance. We've tried to do this in the past. We signed a deal with Chile—a small economy where we could test the waters—and trade with Chile has since gone down. A lot of times when we sign deals with small countries we may find that the trade just isn't there.

Most of our trade is going to the U.S., the E.U., China, and Japan. I don't know if there's much to learn from signing deals with small economies, other than the deal itself, which could be a Canadian style or brand of agreement that could work towards liberalizing multilateral or regional agreements. For example, signing deals with Chile and other South American markets could help to open up negotiations in the FTAA. So in that sense, there is a point to these small agreements. But in terms of economic gain or a learning experience, there's not a lot of evidence that it's going to do much for us.

[The Chair, Conservative, Leon Benoit]

Mr. Hodgson.

[Glen Hodgson]

Following along the same thought, you're absolutely right, relationships matter, but so do the rules, and so do things like air routes and transportation linkages. We have the benefit of being a settled country. We have immigrants from around the world. Arguably we have not taken advantage of the language knowledge, the local cultural knowledge, all the things that we have, whether it's with central Europe or eastern Europe or north Africa or Asia. There's a tremendous opportunity for individual businesses as well as government policy to get in-house capacity--actually have a language expert, somebody who knows the Polish market or the Chinese market--and do things on a very practical basis.

So yes, relations do matter, but so do a lot of other things, and that really applies to the big and small issue. I think the really critical factor is whether you have grounds to actually gain some sort of an advantage, actually integrate in some way, so your businesses can find a reason for actually doing business with those markets.

The Chile example is very good, Ben, because we dropped the tariffs and nothing happened, and nothing happened because we really didn't find a way to fit together the supply chains of Canadian companies and Chilean companies.

That's the real fear that I have in China, Mike. It's that we really haven't found a way to integrate China into our supply chains or integrate Canadian companies into Chinese supply chains. We're seen as a provider of raw materials. That's it. We're buying more and more Chinese stuff. We have a huge trade deficit, of course. It's up to almost $20 billion now. The Chinese are finding ways to fit into our supply chain. We haven't found ways to fit into theirs.

If you want to make progress on a bilateral basis, you really have to find the critical success factor--what do you have to offer on a firm basis to that other country and what do they have to offer to you?

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Myers.