International Trade Committee on Feb. 1st, 2007

[Ted Menzies, Conservative, Macleod, AB]

I might remind you that in our 2006 budget we did put a lot of effort and finances toward education, not just in the standard university education, but also in training tradespeople. We see that as a win too. That's a shortfall that we've recognized.

Another statement you have made is that the federal government should take a strong stand in favour of further trade liberalization in the food industry. I go back to some of your comments about us taking advantage of what we have and using that as a primary production and being able to add value to what we export a tremendous amount of from this country, that being food, whether it's beef or wheat or whatever it may be. For us, going back to your comments about the WTO, we have so much to gain, but we have a real concern about how much we have to lose if we don't get an agreement.

We have this issue--and there's no use being shy about it--of tariffs in Canada. How do we deal with that? All parties have said that we want to defend all of our industries. We want to provide the best opportunities for all of our industries. How do we, as a country, as a government, deal with those issues, to go forward, to provide the best benefit for all Canadians?

[Gilles Rhéaume]

If you go back to the agri-food sector, 80% of our farm income is dependent on exports. It doesn't mean that all sectors, all the farms and food producers, are export-oriented, but there's a large proportion that are.

If you're looking at it in terms of market access, the biggest challenges we're facing are more at the higher end, with the more processed types of foods, the higher-quality types of foods, where you have tariffs as high as 300%. Where you have practices that prevent selling these processed foods, they're willing to buy your raw commodities. We're missing out on opportunities for producing these higher-end products that generate more income and higher wages, etc.

This is why we believe that trade globalization is key in the agri-food sector. It doesn't mean that everyone is going to win. Not all farmers are going to win with that strategy; there will be some losers, definitely. But on average you're going to have a lot more winners than losers, and it's going to be a net gain for Canada. That's why we believe in that strategy.

If you're looking at when Doha stalled--and we can talk about our supply-managed farm sectors, such as eggs, poultry, and dairy--there was an element that there could be some protection for sensitive sectors. That means for supply-managed sectors they would have had less protection than they currently have, but at least they would still have had some degree of protection.

It's through these negotiations that you can achieve the best deal, but with something in mind: that the greater trade liberalization we can have for that sector, the better off Canada will be.

[Glen Hodgson]

I have a thought on that.

I want to go right to supply management, because you want straight talk from us today. If we believe there are particular sectors of the agricultural economy that need income support, then find a smart way to get them income support. Economists are always worried when we're using the price mechanism as a vehicle to provide income support. I mean, supply management locks prices in well above the world price for particular goods, presumably because we want to provide income support to particular classes of farms and farm products. But there has to be a smarter way to do that. Frankly, writing a cheque--direct income support--would be far more efficient, and it might be a more effective delivery. And it would actually strengthen our ability to go to the WTO, become a leader again, and be in favour of freer trade on many fronts.

We've been effectively pushed aside by Australia, within the inner circle of the WTO where there used to be something called “the Quad”. We've been pushed out the back door because we weren't ready to actually articulate a true free trade plan--a true engagement by the federal government, by Canada, in favour of greater free trade internationally. To get back inside we're going to have to be prepared to make some sacrifices, but they don't have to be absolute sacrifices. Gilles is absolutely right. Whenever you change rules, there are winners and losers. You can design public policies that allow the losers to be compensated. Arguably that's the great challenge of globalization going forward: how we find ways to ensure we can look after the losers, to either mitigate or even offset the loss, while the rest of us capture the benefits of greater globalization and liberalization.

[The Chair, Conservative, Leon Benoit]

Mr. Rhéaume, you have something to add.

[Gilles Rhéaume]

I want to add one point to what you mentioned with respect to other mechanisms to compensate those who would lose out on further trade liberalization. With further trade globalization, you would be generating higher incomes in general in Canada, and so higher tax revenues, etc. You would have more of an opportunity to actually do that than would otherwise be the case. I would say that one has to have an aggressive strategy towards it, which we haven't seen in the past.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Menzies.

Now to the New Democratic member of our committee, Mr. Julian.

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

Thank you very much, Mr. Chair.

Before I get to my question, I'd just like to follow up on your comments about supply management and supporting family farms.

I think it's fair to say Canadians haven't seen much support from their federal government, under the previous Liberal government or under the Conservative government. That is indeed the problem we saw with the softwood sellout, that a government was not willing to stand up for Canadian rights.

So the difference between the theory you're putting forward and the practice shows the gulf, I think, between the considerations here in Ottawa and what is actually happening on Main Street. There were thousands of jobs lost because the government wasn't standing up for us on softwood lumber, and potentially, farming communities across the country will be devastated if our government does not stand up for Canadians on the Canadian Wheat Board and supply management.

There will always be pressure on us to be like the Americans, but the point is Canada has to chart its own course. Most Canadians believe profoundly that our institutions need to be supported and that Canadians have the right to chart our own course. That is where I would disagree with some of the comments you've made so far.

I wanted to come back to my question. It's around the sustainability section. There is certainly one element within the report that the NDP has for some time been calling for, and that is significant new investment in education and training. We applaud that you have dealt with that in part in your report.

I went to your sustainability section first, of course, because the environment is, certainly in the public's mind, a major preoccupation, and it's something that is public policy. As people involved in public policy, we have to take consideration of it.

Now, you basically cite the arguments around the environment and sustainability, but there is one interesting comment. You say that Canada needs a well-functioning regulatory system to protect the public interest and the environment and ensure the public safety. I could not agree more. That is a very cogent statement.

However, previously you mentioned the SPP, the security and prosperity partnership, otherwise known as deep integration, where Canada would be essentially giving up our regulatory power to the lower American standards in about 300 different areas. You also mentioned TILMA, which, similar to chapter 11 in NAFTA, provides investor rights that override the public interest when it comes to the environment and public safety and a whole host of other areas.

So I'm wondering how you square what you've recognized--that we need to protect the public interest, we need to protect the environment, we need to ensure public safety--with investment agreements that give rights to investors that override public safety, override the public interest, and override the environment. The TILMA is very controversial in my province, British Columbia, because people are becoming increasingly aware of the details. Essentially, it provides a kind of protection to investors that allows them to override the public interest, as we've seen with chapter 11.

How do you square that contradiction? You've recognized the public interest in the environment, but you've also endorsed investment agreements that override that.

[Glen Hodgson]

Fundamentally, I'm not sure that our analysis takes us to the same conclusion that you've reached. I see the net benefits from freer trade, both horizontally across the country and vertically. We understand the trade-offs that are made, but I don't see the public interest being offended or abused by virtue of greater certainty on investment.

[Gilles Rhéaume]

I think the greatest contentious issue in terms of that is to use regulatory measures as a way of protecting an industry. You can use environmental standards, for example, that are different from, let's say, the Americans', which would prevent the American companies from investing unless they adopt the same standards, and they're saying that's not fair, in terms of that.

When you say protecting the public and the environment is paramount, having a very effective and efficient system to do that, a regulatory system, what we're seeing now is not a very efficient system. There are some doubts about whether it's actually effective, as well.

There's a lot of duplication and overlap that exists between the provinces, between the provinces and the feds, between various federal departments, between various provincial ministries. There's a lot of red tape. Basically, that is creating a problem with respect to our competitiveness and it is not necessarily benefiting the Canadian public or the environment. So there's a lot of improvement we can do with our regulatory system, to start.

Basically, the message is that we shouldn't say we're going to streamline the regulations at the expense of public safety and environmental protection, but there's certainly a way of doing it in a much better way than we're currently seeing. And that's basically the issue.

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

But you understand the public concern around chapter 11 provisions, the TILMA provisions, and the basic giving away of sovereignty around the SPP. There's not a single area where the Americans are willing to accept higher Canadians standards. It's simply concession after concession at the bargaining table, which is frustrating Canadians. We saw that with the softwood lumber sellout as well, so you can understand why Canadians are worried about these.

[Gilles Rhéaume]

Yes, I can understand that for sure.

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

I'd like to come to another issue. On Monday we had the ambassador from Chile testify before us, and he talked about the importance of not treating trade in isolation, that in fact what's happened under a much more progressive government in Chile now is that they are taking trade and the economy on a parallel track and engaging in a very targeted social policy initiative to try to reduce income inequality. In Canada, of course, we're seeing rising income inequality. We're now at the same stage we were in the 1920s. In fact, for most Canadian families their income has actually fallen since 1989, since the first Canada-U.S. Free Trade Agreement was signed.

Are there components within your report, either current or coming, that deal with that issue of ensuring that social policy addresses income inequality, so that we actually have prosperous communities?

And secondly, when we look at the human development index, which includes the standard of living and the overall quality of life, most of the countries that score at the very top are social democratic countries--in other words, countries that have not simply abandoned everything to the market but have integrated their social policies, including investment in education, as you've mentioned, and health care, which is a major source of competitive advantage for Canadian companies because we subsidize health care with our public system. Are there parts of your report that deal with those issues—social policy and income inequality—and with having an overall comprehensive policy, so we don't continue going down the same trail we've gone the last 15 years, which is more inequality, more poverty, more homelessness, and fewer social programs?

[Glen Hodgson]

On a general or aggregate level, you're absolutely right that some of the countries that are performing best in the world right now are ones that have high levels of taxation, high levels of social investment, high environmental standards, a country like Sweden, for example. It's very interesting that since Sweden entered the EU it has performed very well—they've met their Kyoto targets, and they've done marvellous things restructuring their economy inside. And I think part of the reason their productivity has taken off is because of more competition. They still pay high taxes and have far stronger productivity growth and therefore much more rapidly rising incomes than we do in Canada.

On the specifics, we have a couple of very specific ideas. For example, we were part of the support for the MISWAA task force in Toronto, looking at the working poor and the punitively high marginal tax rates that low-income Canadians pay in many provinces. We focused on that as one of three areas where we're advising tax reform for productivity; there is a need to address head-on the high marginal tax rates of low-income Canadians to have a much smarter and smoother transition from social support to paid employment. A very concrete way of addressing that would be through things like working income tax credits or tax benefits.

So we point to very specific things to try to address the social impact of liberalization and the opening up of markets in Canada.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Julian.

We will now go to the second round.

Five minutes, Mr. Temelkovski.

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

Thank you very much, Mr. Chair, and thank you to the presenters.

Mr. Menzies mentioned earlier that Canada is an exporting nation. If we take that a little deeper and look at the labour shortages you mentioned earlier.... You also commented about improving some of the labour shortages. Most western countries are really looking at it through immigration. If all of these western countries and emerging markets are also looking at the same issue, I believe we're in the same situation: all of us share labour shortages. I was recently in Switzerland, where it's the same thing. I was in Colombia—a similar situation—and so on and so forth.

You mentioned smarter immigration. Maybe you can tell us a little bit more about smarter immigration.

[Glen Hodgson]

We have a huge advantage over many other industrial countries in that we've had an active set of values and a set of policies towards immigration for a long time. A country like Japan, which has reached and passed zero population growth, doesn't believe in immigration. It gives people one-year work permits and then tries to get them to go home, because they have a particular social view.

For us, smarter immigration policy would consist of things like offshore recognition of credentials. We pushed for that years ago--three or five years ago--and we were very pleased to see recent announcements that the government is going to establish a greater capacity for offshore credential recognition. That's a key piece. We think that the balance between economic and other classes of immigrants has to be rethought. We need to put more weight on people coming here who are going to be direct contributors to our workforce.

We clearly need to invest more in things like more rapid integration of immigrants into society. Recognizing credentials earlier so people don't have to come and requalify would be an important piece of that. I think there's a particular crying need, a short-term need right now, given the acute gaps that exist in Alberta--and I hear about it in Manitoba, as well--to be a lot more creative about short-term work permits and almost guest-worker programs, but in a very positive way, and to actually find ways to build that into our economic strategy.

It's interesting that we hear about the provinces taking a lot of the lead in that right now. They are actually doing programs, trying to match the needs of employers with the available workforce and looking outside the country. There is a lot of ground to be made up at many different levels.

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

How much of a labour force shortage will we be faced with in the next ten years, and will we be able to maintain our exporting nation designation, if I may say that? Or should we really look at the other side, which is that we're not very good at importing?

[Gilles Rhéaume]

If you look at the growth, in terms of our population and the age of the labour force, it's rapidly declining. Glen said that by around 2012, if you are looking at growth, the growth will be occurring from immigration, not from our natural population. That is the net growth in terms of labour force.

There is an issue you mentioned. You associated labour shortages with the aspect of being an export nation. There are other things that need to happen, as well, so that we continue to prosper as an export nation.

We refer to three components. We've already mentioned investing in terms of our human capital--training programs, and so on. The second has to do with investment in new technologies. We do poorly compared to other countries in terms of that. We don't invest as much. That's what we call, in economics, capital intensity. We're much lower than what we are seeing in other countries, which is affecting our productivity.

The third critical element is the degree of innovation and commercialization that we have in this country, which helps us become more efficient but also helps us figure out ways of producing higher-value types of products with the resources we have--our human resources and our machinery and equipment.

There are a lot of other things that we can do to make sure that we continue to prosper.

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

I sat on the immigration committee for two years, and we looked at some of those issues. One of the terms that came up was the brain drain from other countries and a brain waste in Canada. Are you somewhat concerned about the brain drain from other smaller countries than Canada, and their not being able to function themselves, and creating ghettos around the world?

[Glen Hodgson]

Ultimately, people vote with their feet, and if they don't feel valued within the society where they live, intelligent people will find a way to use whatever skills they have. I'm probably less concerned, frankly, about a brain drain from places like India and China, which are the two dominant sources of immigrants now, because they are making massive investments in education in growing engineers and skilled people in numbers that far exceed what we could ever use in Canada.

Your fundamental point is absolutely right. You have to worry, as a matter of fundamental social policy, about stripping the best and brightest out of other countries. But often they have a willingness simply because they cannot find a way to use their talent at home.

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

If I could, I'll change to the environmental sector. You mentioned that it is an upcoming and emerging sector in Canada, and it is very important for our future. You mentioned also that for us to be able to take advantage of global markets, we would need to seriously look at developing it for the future. Would you say that research and development is necessary in this area? What are some of the elements that would be necessary to kick-start this?

[Gilles Rhéaume]

Research and development would be a key element in terms of that.

When we looked at the aspect of making Canada a clean-energy superpower, on the clean side there were a number of environmental technologies that need to be developed, and that comes from investing in research and development but also helping and making sure that we can commercialize these new technologies in Canada so that we can build an industry that can then export and not only sell in this country.

Basically, in the past we've missed the shot on a couple of occasions. If you look at the forest products sector, for example, we used to have a lot of R and D. We used to have a manufacturing sector that was selling technologies to the forest products manufacturers. Now we're importing it from the Scandinavian countries, and a lot of that technology we did in terms of research has been licensed to the Scandinavian countries. We're missing out on a big opportunity of developing an industry in Canada that could have exported to these other countries.

On the energy side, we have an opportunity, given our vast energy resources, to develop also an industry that develops those types of technologies so that we can export it worldwide, because other countries will be facing the same environmental challenges as we are, as they will want to produce and consume that energy.

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

So it's not too late.

[Gilles Rhéaume]

No.

[The Chair, Conservative, Leon Benoit]

Mr. Temelkovski, your time is more than up.

We will now go to Monsieur André, for five minutes.