International Trade Committee on Feb. 1st, 2007

[Guy André, Bloc, Berthier—Maskinongé, QC]

Good morning, Mr. Hodgson and Mr. Rhéaume.

First, I wonder whether you're really talking about an integrating type of trade, Mr. Hodgson. I wonder whether it's not a type of trade that excludes certain classes of individuals, whom you've enumerated. It's said that globalization and international trade are helping us withdraw from certain sectors, such as the manufacturing sector, which often enables less educated people to hold jobs.

You also mentioned agriculture and supply management. I have a lot of questions on that subject. I recently attended a seminar by the Union des producteurs agricoles, where I met farmers. You're not unaware that they're going through major difficulties. Agriculture is very much threatened, both in the hog industry — you no doubt heard that on the news recently — and wheat and exports, with regard to U.S. subsidies. People are experiencing major difficulties. I'd also say, with regard to the supply management system, that producers aren't making fortunes either.

At the same time, I was in the United States not long ago and I met with farmers there. They're renegotiating their Farm Bill, the U.S. agricultural legislation. To my great surprise, they told me they were also experiencing financial difficulties, despite the fact that the industry is highly subsidized.

So I believe that agriculture shouldn't be subject to bargaining as is the case in the manufacturing sector, the steel sector and other industrial sectors. I believe that agriculture should be a sovereign field. We should move more toward food sovereignty because food, as you know, is what enables us to live. So I think that detaching ourselves from our agricultural sector represents a major danger.

Coming back to globalization, trade and rural land use, I come from a rural area. What supports our area is agriculture, the manufacturing sector; these are soft sectors. We're thinking about the areas located in the Lower St. Lawrence, the Gaspé and not even that far. I'm from an area located between Trois-Rivières and Montreal. All businesses not established in large cities seem to be having enormous difficulties because the knowledge industry is developing in the large cities. So I'd like to hear what you have to say on that subject.

You also mentioned that there were winners and losers in globalization. We should be able to help the losers, but I believe the current trend is to abandon them. I note, for example, the cuts made to employment insurance, a health system increasingly oriented toward the private sector, the fact that education is leaning toward the private sector as well. So this is a form of exclusion. That's the current trend. We're even withdrawing from our students. There have been cuts to student programs and so on.

I'd like to have your opinion on that subject.

[Glen Hodgson]

Perhaps I'll start, and Gilles can talk in particular about agriculture, because I know you want to.

I think you just touched upon the single hardest question in discussions on globalization, which is how to share the benefits, how to share the proceeds, and how to deal with people who are left behind. It is very interesting.

The Economist magazine, in the most recent edition, has a whole section dealing with winners and losers in globalization, and the challenge of finding public policies that help people get lifted back up, retrained, and supported as they adjust. There is also the fact that in every country touched by globalization--there are only two or three that aren't, and we wouldn't want to live in any of those two or three, like Burma or North Korea--a share of the population is always left behind, and there is the question of coming up with fair and socially just programs to carry those people along, knowing that someone who does not have the basic literacy skills to function in a modern industrial economy probably can't be retrained at 55 to go back to work. As well, there is the fact, the reality, that people who lose well-paying jobs in manufacturing often end up in services, and the real wage goes way down. They're frankly not taking home as much. They're losers. That is the single hardest question.

I think we know as economists that on a net basis, grosso modo, globalization is creating wealth for the world economy and there are more people with higher incomes than there were 25 years ago. That's very clear, but it's equally clear that it's not a perfect equation by any means, and the design of social programs really does matter. Can we re-educate young people so they can develop skills and advance themselves? At what point do you simply put someone on social assistance because they're not capable of adapting to fit the modern economy?

But if I have to choose between greater market openness and greater protection, I know which way I'm going: it's towards greater market openness, because I can see the net gain for the collective, for society.

Do you want to talk particularly about agriculture?

[Guy André, Bloc, Berthier—Maskinongé, QC]

Let's quickly discuss the food sovereignty question, an increasingly popular concept.

[Gilles Rhéaume]

Food sovereignty is not a problem in Canada. Canada is a major net agricultural exporter. We have a lot more agricultural land than our population needs. So food sovereignty isn't a concern for us. It shouldn't concern us in Canada.

It's more important to ensure that Canadian farmers receive adequate incomes. There is a deficiency in that area because of the protection provided to farmers in other countries, subsidies granted not only by the Americans, but also by the Europeans, and that causes serious problems for us. That's why we're talking about a global trade liberalization strategy that would be essential to the prosperity of Canada's agricultural sector.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Rhéaume.

We'll now go to the government side for five minutes. Go ahead, Mr. Cannan.

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

Thank you, Mr. Chair.

Thank you, gentlemen, for your presentation. I appreciate your taking the time from our October meeting and sharing this information. I look forward to the report on the cities as well. The sustainable, prosperous city is important for all Canadians.

Looking at specifics, I think some of the comments raised about income support and the human development index are important. My understanding is that people in the top 20 countries in that index all have similar life expectanies, to within maybe a few weeks, so there's not really not much discrepancy. Canada, the U.S., and Australia are included in that top 20.

We are facing other initiatives and challenges, as we discussed before the meeting. You just flew over B.C. and saw the devastation caused by the pine beetle, and you mentioned in your preamble that the forest sector is vital for British Columbia. Fortunately, in this committee we were able to come up with a softwood lumber agreement to provide the certainty and stability for the industry to deal with that devastation and to provide employment. Otherwise, we would have been in an even worse situation. We provided over $1.5 billion for agriculture. There's more to come, and we'll be dealing with the CAIS program, so we have challenges. We continue to move forward in working with industry and we appreciate your report.

Specifically on the U.S.-Canada situation, you mention that Canada will continue to be our main trading partner. In your preamble you talked a bit about some of the trade barriers. Did you have any particular trade barriers in mind that you see as unnecessary? Could you recommend anything to our committee to help foster a more competitive expansion of our trade?

[Glen Hodgson]

Well, it's interesting. I know that our colleagues at the Canadian Council of Chief Executives are acting as the sort of secretariat within the North American Competitiveness Council that's been created. Having talked with them, they put on the table two issues on the Canadian side, which they reached independently from us, but I think they're right. They pointed to two things on which we have to make progress. One is on non-tariff barriers, which I find insidious. It's quite remarkable how subtle a barrier can be in the design of a regulation or a regulatory process that can keep Canadian businesses out of the United States and vice versa. With non-tariff barriers, it's a swamp, though, I'll tell you, when you get in there, trying to identify what particular things you can touch to make change, and it becomes extremely difficult.

The beauty of the world where protection was provided by tariffs is that it was transparent. You could see the price. You could see you were paying 12% more or 300% more for a particular good, and that was the barrier. But now that we've more or less done away with the tariffs—and they still exist, but they're fairly low for the most part—we're starting to discover really how insidious non-tariff barriers are and how hard it's going to be to actually fix that. So that's the one thing.

The other is the border, and making the border work. We have not invested adequately in the infrastructure at the border, really defined the security systems, or made for easy passage of both goods and people to get across the border. We're doing a study right now with the Conference Board in a centre we've created on trade and international investment, trying to examine wait times at the border pre- and post-9/11, and how businesses had to adapt to that. We'll be publishing that probably sometime this spring. I don't know the results yet, because we're still in the midst of doing it, but my suspicion is that there are all sorts of subtle costs that have been passed back to business on both sides of the border that have really made the trading relationship much more difficult.

So our advice, and it's through our report, is that significantly more investment is required in hard infrastructure, in alignment of security systems, and raising the IQ of the border, making the border a whole lot smarter. Otherwise, we've put yet another barrier in the way to attracting investment to Canada to serve the North American market and making it that much harder for our businesses to compete within North America.

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

Well, thank you, and I appreciate that. I know Minister Day will be looking forward to that report, because he's been working very closely with the Americans in trying to streamline that border-crossing initiative for tourism and our trade on both sides of the border.

I agree with the importance of a smarter, efficient immigration system, but I also believe that we can't just immigrate our way out of the skills problem, the skills and labour shortage. We're working on investment in education, as reiterated, so that we have some initiatives with post-secondary and continue to move down that road. But on one of the elements, as Mr. Julian alluded to, we had the ambassador from Chile here on Tuesday at our committee and we talked about bilateral agreements. Canada hasn't had a bilateral agreement since 2001. Chile's had over 40. From your perspective, do you see any specific areas we can concentrate on--what we can do to get out of that logjam?

[Glen Hodgson]

We've been putting all of our eggs, basically, in the FTAA basket. We were hoping that a Free Trade Area of the Americas would be the next step forward and we would be able to build a regional trade agreement, and of course that collapsed for whatever reason two or three years ago.

Part of the reason we've put emerging markets so high up in the foreign policy agenda is because that's where global growth is happening. I mean, ultimately, trade has to follow where the growth is happening, where the consumers are. So I would look to countries like China and India, recognizing that it's going to be tough negotiating because they're very different cultures and economies at a very different stage of development.

I'll give you a counter-example. We've put a lot of energy into trying to deepen our trade relationship with Europe and with the EU, and it's given us almost nothing. Much as I like the sense that Premier Charest brought to trying to re-energize trade with Europe last week, my fear is that we are really small potatoes compared to a European economy of 450 million people. Their interest is of course in the United States. So one lens we'll have to look through is whether it's bilateral or really it's going to be increasingly region-to-region negotiations.

I would argue part of the reason we're pursuing Korea right now, for example, is because the Americans got there first. They're talking to the Koreans about free trade as well, and we have to decide whether we're going to be “me too”s, trying to always catch up with what the American are doing, or are we prepared to really take the bold step forward and say that we have to look at this as a North American regional engagement with Europe, with Asia.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Cannan. Your time is up.

We'll go now to Mr. Julian for five minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair.

I appreciate the economic theory that you're providing today. Of course, Canadians can't eat a theory.

I want to come back to the issue of the quality of jobs. What Statistics Canada tells us is from 1989 to 2004, and those are the most recent figures available, for the lower 60%--in other words, the first, second, and third quintile...over 60% of working families have actually seen their incomes fall in real terms, and they are actually earning less money now than they were in 1989, before we started these free trade agreements and started to change, to restructure the Canadian economy. The upper middle class has held its own, just barely hanging on, and they basically have kept up with inflation. Then you've seen the wealthiest 20% of Canadians see their incomes absolutely skyrocket.

We're not talking about a theoretical situation where there have been some losers. Most Canadians are worse off than they were in 1989. They're working longer and longer hours. Overtime has gone up, as you know, by almost one-third. We're seeing that most of the jobs created in the economy today--Statistics Canada tells us--are part-time, temporary in nature, with no benefits and no pensions. We also see the quality of jobs being created in the current economic context as being jobs with a lot more precariousness and jobs that don't provide the sorts of family-sustaining incomes that we used to see in Canada.

My first question is around that issue of the quality of jobs. I'm looking through and trying to find a road map within your document that actually points to family-sustaining jobs. I don't see it yet. Perhaps I'm missing it, or perhaps it's in later studies. How do you deal with the fact that we have gone through these various trade agreements and most Canadians are worse off than when we began, even though there generally tends to be, from the corporate sector, a siren call to “let's just do more of the same” and somehow magically it will transform into real, equitable prosperity for all Canadians? I have doubts, because the reality is that on the bottom line, over the most recent figures that we have available since 1989, it hasn't worked. It's failed. That's my first question.

My second question is around foreign investment. We've seen 11,000 takeovers in that 15-year period. That's 11,000, and they were all rubber-stamped. Liberals have rubber-stamped them and Conservatives have rubber-stamped them. When is foreign investment not in Canadians' interests? Again, we're seeing a fall in real incomes for most Canadian families--11,000 takeovers without a single real review.

My third question is coming back to the agricultural sector, the family farms. Countries that have the highest quality-of-life index, the human development index, are countries that support the family farms. Here we have a real push by the Bush administration to destroy the Canadian Wheat Board, although farmers are pushing the government back on that, and to basically give up on supply management. Why should Canada give up on supply management and the Canadian Wheat Board when it serves our farmers very well and helps to support family farms and farming communities across the country?

Those are my three questions. Thank you.

[Gilles Rhéaume]

I would basically link what we're seeing in terms of incomes to education. Basically, if you're looking at that, 40% of our population of labour force age has low literacy skills. How can they compete in this new reality that we're facing? We have immigrants who do not have their credentials recognized and they are underemployed for the skills they have and therefore are earning lower incomes. There's a big link between the level of education and the levels of incomes being generated. That's one thing.

As well, if you're looking at it in terms of the trends that we're seeing, and Glen mentioned the rights of global supply chains, in Canada we still haven't found our place with respect to global supply chains and making sure we can prosper within that new economic reality. We talk, in our volume, about Canadians being complacent on a number of fronts. That complacency is affecting our productivity. If we could generate more productivity in Canada we would also have higher incomes. The productivity challenge is very much on some of those jobs that are lower paid as well.

There are a number of issues around that. One has to do with education, but it also has to do with finding our niche within these global supply chains, and looking at it in terms of making sure that we can generate the types of jobs we need.

Glen, would you like to add anything?

[Glen Hodgson]

I think Gilles picked up a lot of the points I was going to mention.

We clearly acknowledge right up front that we're sliding within the OECD, in aggregate, in income per capita. The link we draw is to productivity, but as Gilles just set out, we then analyze in much greater detail not the jobs per se, but the attributes of the populations behind.

So you look at, as you said, the 40% of our workforce that doesn't have the basic literacy skills to actually adapt. That's where we talk about lifelong learning and the need for skill development in colleges and universities and in the workplace. We actually call upon employers to invest a lot more money in retooling and educating their own workforce on an ongoing basis.

We point to the aboriginal population, and the numbers, frankly, are shocking. Aboriginal kids who get through high school live as well as we do. They have roughly the same life expectancies and their incomes are not different from ours. But if they don't get through that gate, that grade 12 gate, they have a drastically worse life expectancy in every respect.

So I don't think it's a matter of capturing it simply in terms of the employment numbers. I think you also need to drill more into the microfactors. But your data is spot-on, and that's exactly why we focused on sustainable prosperity, on productivity and competitiveness, as such a key driver.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Julian. Your time is up.

We now go to the official opposition Liberal Party, Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

Mr. Hodgson referenced non-tariff trade barriers as being insidious with the United States.

Our next bilateral agreement will probably be with Korea. We've had strong representations before this committee from both labour and the producers on their extreme concerns that if we enter into an agreement with Korea, it will be a one-way street in the auto sector because of the non-tariff trade barriers.

Given that the auto sector is such an important part of our economy, how do we protect ourselves against those non-tariff trade barriers? How can we sign an agreement, until we have such protections or at least an escape, as well, if in fact they throw them up and we can't respond?

[Glen Hodgson]

That's a very valid question, an extremely valid question. For example, I don't know Korea as well as I know Japan, but in Japan, there are subtle things they use in terms of auto ownership, the fact that most people don't drive a car beyond year six, you have safety inspections, all sorts of little biases built in favour of consuming a Japanese automobile, so that penetration by cars fabricated in North America has been very, very slim over the years.

I don't think I have an easy answer for you. I do think we have to think very hard about whether we have two separate bilaterals.

The Americans have already approached the Koreans, and whether Canada is a “me-too” and goes along on our own separate track, or whether, frankly, we have to sit down and think very hard about Canada-U.S. as a team, effectively, protecting our collective interests in our engagement with Korea.... Clearly, America will have much more leverage in that relationship than we have alone.

[John Maloney, Liberal, Welland, ON]

Canada and the U.S. are certainly integrated in the auto industry.

[Glen Hodgson]

In the auto industry in particular, there's complete and total integration, except for the challenge of getting stuff across the border unimpeded.

And right now, of course, by virtue of things like a public health care system, we have a competitive advantage. That's probably the key driver—plus the exchange rate in the past, but that's gone.

But why are more cars made in Canada than in the United States? Because the auto manufacturers save between $800 and $1,500 a car by doing the fabrication here. Well, that tells me that, as a core strategy, if you're worried about that particular sector, we have to do it in alignment with the United States.

That takes us to very different places politically, and we understand that entirely, but in the world of realpolitik, it will be hard for Canada to really pursue its own interests in Korea without the kind of leverage that our neighbour to the south has.

[Gilles Rhéaume]

The other thing about the automotive sector is that we have in Canada the most efficient car assembly processes within the North American continent. We're highly productive.

One thing that is important has to do with what the auto industry introduced in Canada last year, an initiative called the “Beacon Project”. The aspect is to find, basically, a way our auto sector can become more innovative, because of these global supply chains that are happening, and trying to make sure that we can thrive within that global auto sector.

Assembling cars is one thing, designing them is another. Getting involved in terms of greater innovation in the automotive sector could be a key in competing not only in the North American context but worldwide. That, I would say, should be a key strategy for Canada to be successful in that industry.

[John Maloney, Liberal, Welland, ON]

You also referenced the border and how we have to deal with some of the problems there. But how do you deal with the mindset that you have in the United States where they're so paranoid about security?

At one time, we used to cross the land border by just identifying what country we were born in, and only those born in another country would produce a passport. Now they want not only Canadians but their own citizens returning to their country to produce passports.

We have NEXUS cards, smart cards, but whenever we try to work something out, they're always putting up more barriers. How do you deal with a mindset that is opposed to a free flow of services and people across the border?

[Glen Hodgson]

We certainly don't have a silver bullet for all of that. Some of the advice we give in our report includes investing more in pre-customs clearance away from the border, for example. And I would add to actually to have the federal government step up with the provinces and be seen as investing in more things that boost American confidence in our security, like smart intelligence, looking at trucks, and various things like that.

[John Maloney, Liberal, Welland, ON]

But we have that now.

[Glen Hodgson]

And that's the frustration, because it really is two solitudes to a great degree right now, in the north-south context, around security. We put all of our weight on economic interests and they put all of their weight on security, and it is frustrating.

I lead a team at the board that gives advice on tourism. We're one of the core forecasters on tourism to various players across the country. The collapse of our tourist industry is very sad. It's been so quiet. It's a very atomistic industry, spread across, and we really don't notice the impact.

But you're absolutely right to worry about the border, because the day travellers from the U.S. are simply not going to come. They're not going to come to our casinos. Many of them will not go out and get a passport to make the trip. So it's a real point of concern. Yet there is no easy fix; there truly is not.

I would presume we're going to fall back on standard diplomacy, constant representation, finding the key interested parties in Washington, being there, sort of friendly, in their face all the time. But we haven't come up with a silver bullet by any means.

[John Maloney, Liberal, Welland, ON]

You indicated that we're small potatoes to Europe, and that they're looking at the U.S. market. You indicated also that 83% of our trade is with the U.S. How do we protect ourselves from being squeezed out by European goods and services that replace our goods and services that are going there now?

[Glen Hodgson]

To a great degree within Europe itself, we already have been squeezed out. We have a few charts in the report showing how little growth in exports we've had to Europe over the last 10 to 20 years, and how our businesses had to resort to becoming European companies. So there clearly is a very subtle fortress-Europe barrier that goes around Europe, a lot of it non-tariff.

Companies that want to do business in Europe have to become European; they have to invest in Europe to get inside that wall. The evidence of that is that sales from our affiliates in Europe are a multiple of our exports to Europe. In a country like the U.K., I think it's three and a half times. For Canadian companies established through investment operating in Britain, their sales are triple what our exports are to Britain.

How do we overcome it? Well, we've tried. We've tried very hard to get European attention. We have something called the TIA in place, where there's a dialogue between Canadian and European business, but it's going nowhere fast. So I guess, increasingly--and this is not in the report--we have to really think hard about whether we can use the North American integration as a platform.

Getting squeezed out.... I would argue it's already happened. We've seen the deflection of investment away from North America. The Canadian share of external investment--Gilles, you actually did this research three years ago--coming into North America has fallen progressively over 15 to 20 years. So the crowding out has already occurred. It's more a question of whether we can do anything to try to crowd ourselves back in.