International Trade Committee on Nov. 28th, 2006

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We have three items on the agenda today. We're going to hear from our witness first, and then we'll go to a discussion of the subcommittee report, just looking for approval or modification of the subcommittee report by the full committee. In that report we dealt with several issues, but first and foremost the study of North American trade and beyond. But I'll talk about that later. And finally, we have Mr. Julian's two motions, should he choose to bring them forth, and I think he's given indication that he will. So we will deal with those as well.

I'd like to start by thanking our witness very much for coming here on very short notice. Carol Osmond is the senior policy adviser for the Canadian Association of Importers and Exporters. The other witnesses apparently could not come, and we appreciate it very much that Ms. Osmond has agreed to come today.

You have a very short presentation, I understand, so perhaps we could be ready with questions as soon as possible. We'll probably go until about 10:15 with the witness and then get to the other business of the committee.

Again, Ms. Osmond, thank you very much for being here today. I just want to say one more thing before you actually get started. For several meetings now, we have been dealing with our study of North American trade and also trade beyond North America, and the proposal is to continue that until Christmas. But I consider this to be certainly a part of that study, and we'll talk about that once we have given the witness the chance to make her presentation and have gone to questions.

Go ahead with your presentation, please, Ms. Osmond.

[Carol Osmond, Senior Policy Advisor, Canadian Association of Importers and Exporters]

Thank you, Mr. Chair and members of the committee, for your invitation to be here today.

I understand it was a late night last night. I was actually watching the vote at the airport in Toronto, on my way to Ottawa.

I'm here representing IE Canada, the Canadian Association of Importers and Exporters. The association has been a leading voice of the trade community since 1932. This past October we had our 75th annual conference in Toronto.

The association serves small, medium, and large enterprises throughout the country, as well as a range of service providers to Canada's trade community. Our members are manufacturers, distributors, and retailers from a broad range of industries, including food and food product, automotive, electronic, and textile and apparel. We have a growing membership that today exceeds 750 members.

Given the nature of our association, obviously issues relating to customs and the border are uppermost in our minds and a key priority.

I have been with IE Canada as its senior policy advisor for one and a half years. I am a lawyer by training. I practised customs and trade law with an international law firm for 12 years. I spent five of those years in Mexico, following the implementation of NAFTA, which makes me one of those Canadians who has been impacted significantly, both personally and professionally, by our free trade agreements.

More recently I've been involved in legal research projects examining implementation of trade facilitation measures in Latin America, and particularly central America, as well as issues relating to the global trade in pirated and counterfeit goods and border enforcement of intellectual property rights. I serve as vice-chair of the Canadian Anti-Counterfeiting Network, for which IE Canada serves as the secretariat.

I'd like to begin by reiterating some of the points that were made during the trade policy round table that was held by this committee on October 19. The first point relates to the integrated nature of trade.

Export Development Canada recently reported that the import content used to make Canadian exports has been growing steadily, and now averages around 35%. In many manufacturing industries, the ratio is 50% or higher. This is clearly reflected in the membership of our association. In a recent survey, 51% of our members indicated that they are primarily both importers and exporters. If we remove service providers, that number is over 63%. So imports are becoming an increasing percentage of our exports.

The second point relates to the importance of integrating our trade policy with our domestic policy. Together with modernizing and improving customs processes to take advantage of our trading relationships, we must ensure that we have the physical infrastructure in place at our border, as well as at our principal maritime ports, to move goods efficiently into and out of Canada.

For most importers and exporters, the current concern is not customs release times but the time it takes to get to customs inspection booths due to inadequate infrastructure at, and leading up to, major ports of entry. The problem will only be exacerbated in coming years as trade volumes increase. An estimated 58,000 crossings occur in the Detroit-Windsor region every day. By 2020 the number of daily crossings could exceed 90,000. The Port of Vancouver anticipates that by 2020, it will need to handle three times the volume it does currently. With current infrastructure, most North American ports will not be able to handle projected 2010 volumes.

Turning to our trading relationship with the United States, clearly that relationship is of far greater importance to Canada than it is to the U.S. As highlighted in NAFTA@10, a report prepared by the Department of Foreign Affairs and International Trade, the U.S. is far less reliant on foreign markets than is Canada, exporting 10% of its GDP compared with 40% for this country.

Exports to Canada account for less than 2% of U.S. GDP. Nevertheless, trade between Canada and the U.S. has grown dramatically since implementation of the FTA in 1989 and NAFTA in 1994. Our economies are becoming increasingly interdependent: 34% of our bilateral shipments of goods is comprised of intra-company trade, and over 70% is comprised of intra-industry trade.

Both Canada and the United States are facing intense competition from the Asia Pacific region, particularly China. China is competing with Canada as a primary source of U.S. imports, especially manufactured goods. To meet that competition, it is critical that we continue to work in very close cooperation with the United States as well as Mexico, through such initiatives as the security and prosperity partnership, to address North American competitiveness and issues related to the border.

Unfortunately, indications are that the Canada-U.S. border is becoming thicker rather than thinner. Despite significant investments made by both the public and private sectors to try to streamline and facilitate movement of goods and people across the border, initiatives such as the western hemisphere travel initiative and the imposition of the U.S. Department of Agriculture's APHIS or Animal and Plant Health Inspection Service fee at the border threaten to undermine those efforts.

We have to bear in mind in dealing with the United States that security continues to be a major preoccupation in the U.S. To maintain our access to that market we have to address U.S. security concerns, which makes the Ministry of Public Safety and the Canada Border Services Agency critical in our economic and diplomatic relations with the United States.

Finally, I would like to comment briefly on the issue of product counterfeiting and piracy. As I mentioned, IE Canada serves as the secretariat for the Canadian Anti-Counterfeiting Network. This is a coalition of broad-based associations as well as law firms and intellectual property rights holders that have joined together in Canada to address the issue of counterfeiting and piracy.

Lack of effective IP enforcement in Canada, especially at our borders, is a significant irritant in the Canada-U.S. trading relationship. Canada has been included on the United States trade representative's 301 watch list for the past several years. The major source of counterfeit and pirated products is Asia, especially China. This issue of counterfeit and pirated products not only has an impact in terms of our relationship with the United States, but it is also directly relevant to our trading relationship with China and the competition that we face from China.

It's estimated that counterfeiting and piracy cost the Canadian economy billions of dollars annually. The goods coming into the country range from potentially counterfeit pharmaceutical products, to car parts, to luxury goods, to toys, to electrical products, and so on. They not only present a threat to our economy and our tax revenue, but they also present a serious risk to the health and safety of Canadians.

Unfortunately we do not have an effective system in Canada to address this issue of counterfeit and pirated products. Particularly, our enforcement at the border is very lax and is somewhat of an embarrassment, I think, to this country. Not only is it of concern to the Canada-U.S. relationship, but it has also been raised internationally.

I'll finish my comments here, and I welcome your questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Ms. Osmond.

Just to remind the committee, in previous meetings the committee agreed to study Canada's trade and investment policy in our major markets. Of course, we also have agreed to identify specific problems and try to make specific recommendations for solutions. Since the United States—and we agreed to this before—is Canada's largest trade and investment partner, then of course the United States is a key part of the study.

At the subcommittee, as you'll see later, we will recommend that because of the time left, we'll have meetings going until the Christmas break, and this is part of that. The purpose of this meeting is to discuss Canada-U.S. trade and investment issues. The goal is to begin to understand the current issues that may impede Canadians' ability to do business with the United States.

Your presentation, Ms. Osmond, is very much appreciated. There will be, of course, more meetings on this in the months ahead, but today, again, we appreciate your coming very much.

Going to the questions, first is Mr. Eyking.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Thank you, Mr. Chairman.

Thank you for coming and meeting with us here today.

I have two questions. The first one is on the future of our trade with China. I'd like to get your opinion, as at present we have a bit of a chill in the relationship between Canada and China. What are the repercussions of that? How important is the political side in dealing with the trade side, and are we going to be left behind with other countries, like Australia?

The second question deals with ports. We know there is a move afoot to try to help the Pacific gateway, the Vancouver area. It seems they've maxed out the rail system and the port system on the west coast. How much potential do the east coast ports have for the future, considering that the Panama Canal might be widened and the Suez Canal can take post-Panamax vessels?

[Carol Osmond]

Okay. I'll start with the second question.

I detect a bit of an east coast accent. I'm actually originally from Newfoundland, and I went to school in Halifax.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

What part of Newfoundland was that?

[Carol Osmond]

I grew up in Port aux Basques.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

It's very close to Cape Breton.

[Carol Osmond]

It's very close. In fact, I often say Cape Bretoners have a stronger Newfoundland accent than Newfoundlanders do.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

It could be.

[Carol Osmond]

Starting with your question on the ports, within our membership, particularly given the issues that arose in the port of Vancouver with the truckers' dispute a year or so ago, we're seeing that companies are looking to minimize or spread the risk. They are starting to look more and more at using east coast ports.

For a lot of companies, I think there's certainly a lot of importation of goods from China and Asia that would continue to come through the port of Vancouver. For a lot of our members, I think the port of Vancouver will continue to be the principal port they use.

We are certainly looking, because of the concerns with respect to our west coast ports. We're seeing more and more of our members potentially looking at Halifax and starting to shift some of their imports through the port of Halifax.

In terms of our approach to our ports, I think we definitely need to have a comprehensive and an integrated policy that looks at both the west coast and the east coast and at how they work together.

On the issue with China, it's actually unfortunate that Mary Anderson, who's the president of the association, isn't here. She's currently visiting Hong Kong and China.

China is clearly an extremely important trading partner for Canada.

I mentioned the issue of integrated trade and the fact that I think we've traditionally looked at exports as being good and imports as being bad. We want to promote exports and, I guess, discourage imports. We're finding more and more that companies are both exporters and importers.

We have increasingly integrated supply chains around the world. In order to be able to compete globally and to compete in the U.S. market, companies are looking for cheaper sources of supply for their parts and components.

I think that's important to bear in mind when we're looking at our trade relationship with China and at other emerging markets around the world. Being able to source in those markets can also help Canadian companies that are manufacturers and exporters compete globally.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Do I have any more time?

[The Chair, Conservative, Leon Benoit]

Yes, Mr. Eyking, you have time. You have three minutes.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

We have a motion at our table today dealing with restrictions and the restriction of access to our markets. My simple question would be this. Is government doing enough? Should they do more when dealing with investments from other countries in Canada? I'm talking about buying out companies or organizations.

In comparison to other countries, like the United States, do we have enough tariffs on products coming in that could be dumped here? How do you see the whole thing that we're shifting towards?

Especially when dealing with the U.S. political situation, where the Democrats seem to be taking more control of the Senate, their leaning towards it seems to be more for the protection of their markets. How do you see Canada fitting in to not only protect other countries investing in our companies but to deal with imports?

[Carol Osmond]

I'm not sure I fully understand the question with respect to protecting investment in Canada.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

Over the last few months, we had companies like Falconbridge and this kind of thing happening in our country. Is there a concern among your group that it will become foreign companies that dominate the ownership of our companies?

The second question would be on protectionism. Is it a road we almost have to take because the United States seems to be going down that road?

[Carol Osmond]

On the issue of investment, that's not an issue we focus on in our association. Largely we deal with issues related to the trade in goods between Canada and the United States and amongst other countries. So investment and issues related to investment don't really fall within the mandate of the association.

In terms of the concern about protectionism in the United States, when I talk to some of the people I've worked with in the United States, I think the point they make is that issues related to trade and security and so on are bipartisan issues in the United States, and we cannot assume that because we have a democratically controlled Congress and Senate we're going to see a significant rise in protectionism in the United States, particularly as it might affect Canada.

Where there are concerns is in terms of U.S. negotiating authority, fast-track negotiating authority, and how the change in the composition of the Senate and the Congress will impact the United States' free trade negotiations, for example, with the Andean community and other countries, and whether or not those treaties will be passed by the U.S. Congress.

I was reading an article that appeared in the Washington Post recently, and there are negotiations going on. The Democrats are concerned about having environmental and labour issues addressed, just as they have in other free trade agreements. The key concern from a Canadian perspective is the implications for the multilateral trade negotiations and the Doha round. There is a sense that if there isn't significant progress by the spring of next year, by March of next year, we're probably looking to 2009 before we're going to have any more movement at that level.

[Mark Eyking, Liberal, Sydney—Victoria, NS]

What's happening, then, is that the United States is doing more bilaterals. So that leaves us kind of falling behind.

[Carol Osmond]

Right, and I think it's unfortunate.

As I mentioned, I've had some experience travelling in Central America. In fact, I was in El Salvador and Nicaragua just a few weeks ago, and of course those are countries we've been trying to negotiate a free trade agreement with now for a number of years.

I guess one of the challenges that Canada faces in negotiating these free trade agreements is that we're a small market for a lot of these countries, and they're more interested in getting a trade agreement with the United States.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Eyking.

We'll go now to the Bloc, to Monsieur Cardin, for seven minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good afternoon and welcome, Ms. Osmond.

You represent the Canadian Association of Importers and Exporters. The committee has decided to focus its study on what could be called “the best possible foreign trade policy.”

Your main concern, of course, is to represent all your members, both the exporters and the importers.

I imagine that for someone specializing in import and export, there could be a relative difference between the two activities, but that the important thing ultimately is that the individual in question be able to continue to do business and to prosper.

As far as we are concerned, we are in favour of trade with other countries, but we are concerned as well about competition from emerging countries such as China and India.

We really need to develop a strategy including some very specific points in order to compete with other countries. As my Liberal colleague mentioned earlier, we must do this in a context where the manufacturing sector here, particularly in the case of exports, has not necessarily followed quickly enough the trend toward development, modernization, the acquisition of new technologies and innovation.

You talked a little about safeguards. I think they are important for Canada, to give us some time to modernize in order to move forward—whether we are talking about the furniture, apparel or other industries. Are you in favour of safeguards? The fact is that your members would perhaps import less and would probably therefore focus more on exports. What is your association's position regarding this potential dilemma involving imports, exports and safeguards?

[Carol Osmond]

I guess generally our association is in favour of the free movement of goods across borders. If we're looking at safeguard measures, we have to be very careful how we use those measures. Increasingly what we need to do in North America is develop a North American strategy when it comes to addressing competition that comes from China and other countries in Asia.

As I mentioned, the trade between Canada and the United States, and to a lesser extent with Mexico, is becoming increasingly integrated. Thirty-four percent of trade between Canada and the United States is inter-company trade. An oft-cited example is the auto sector, where a motor vehicle may essentially go back and forth across the border eight times before you have a finished product, with parts and components going back and forth across the border. Addressing issues related to the border is absolutely critical to the competitiveness of Canadian companies and companies generally in North America.

Also, I think we have to be strategic in our investment decisions within North America. When I spent the time in Mexico.... I'll give an example of a Canadian company. What they found when producing in Canada was that there were certain lines of product that were no longer economically viable for them to produce in Canada; they were no longer cost-competitive. But their customers were demanding a full line of products, so in order to be able to satisfy their customers, they needed to maintain their full product line, including those products that were no longer feasible, from a cost perspective, to produce in Canada.

What they did was build a plant in Mexico to produce those products, at a lower cost in the Mexican market, so that they could continue to supply the full range of products to their customers. It also gave them the added advantage of being close to the southern U.S. market, which they weren't accessing from Canada, or not as effectively from Canada.

So there are certainly opportunities. We have to take advantage of our geographic proximity within North America to meet the competition that's coming from offshore. That means we have to invest in our infrastructure, we have to focus on our borders, and so on, and work very cooperatively with our trading partners within NAFTA.

[Serge Cardin, Bloc, Sherbrooke, QC]

Natural resources, metals, wood and various other items form the basis of our trade, particularly in the manufacturing sector. The trend is to setting world prices, in the case of metals, for example. Consequently, the price of resources and metals should be balanced at the world level. However, there are some other considerations such as working conditions, social conditions and the environment.

For example, in response to the Canadian government's lack of interest in the Kyoto agreement, France has actually said that it might impose a special tax on Canadian products, because the government is disregarding the environment. So we do have to respect some international considerations. In addition, the WTO seems inclined to allow France to impose these special taxes. In such a case, we could talk about dumping. Some prices drop when there is a lack of concern for working conditions, social conditions of employees and the environment.

That said, there should be a trend toward the globalization of markets, and that will live us to the globalization of human, economic and social conditions. So there will be very few differences in the basic elements of trade and the ways of doing business. I think that we have reached the most important point, what could be called the knowledge economy and the ability to innovate quickly in order to stay ahead of one's competitors at all times. Without that, we will never get anywhere.

We have to make the rules fairer and more equitable around the world as regards social conditions and the environment. I know your association's objective is to do business and to facilitate trade as much as possible, but as I was saying earlier, you are in a bind. If your exports go up or down, your imports will go down or up accordingly. People will come out ahead. Your overall vision for moving the Canadian economy forward, to avoid what could be called social or environmental dumping—and I come back again to the issue of safeguards—in order to achieve a balance so that the competition—

[The Chair, Conservative, Leon Benoit]

Mr. Cardin, excuse me. Your time is more than up. Could you close your question, and we'll go for an answer then?

[Serge Cardin, Bloc, Sherbrooke, QC]

I'm sure you understood the question underlying my comments. What do we need to do to come out ahead in our imports and exports within a balanced market?