International Trade Committee on Feb. 15th, 2007

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

Good morning. It is a pleasure to see you for the third time.

This week, the Journal de Montréal published a series of news articles that say that 25,000 manufacturing jobs are currently under threat:

Following the layoffs or shut down of Shermag, Goodyear, Flextronics, Domtar, Tembec and Olymel, the manufacturing sector continues to bleed. Up to 25,000 jobs may be cut during 2007 [...] In 2006, some 30,000 jobs in the manufacturing sector were lost.

The sector is being bled dry. There have been huge layoffs in the furniture, textile and other sectors. At the same time, in my riding of Louiseville, a textile company called Chemise Empire Ltée, received support and was able to innovate. The company provided training to its employees. Today, it has been able to not only keep jobs, but also increase its labour potential.

I would not want to sacrifice our entire manufacturing sector and convert to a knowledge economy exclusively. At the same time, I have the impression that in 10, 15 or 20 years, the Chinese will be dominating the knowledge economy. We, for one, are going to be completely "deprived" of an entire industrial sector.

I would like to hear your comments on the subject. Indeed, the manufacturing sector is facing difficulty in light of Asian competition, the rising Canadian dollar, and the cost of energy. I agree with you on that. The Chinese are competing on the U.S. market, and that also affects our domestic market.

In your opinion, what can we do to maintain a healthy manufacturing sector in Quebec and throughout Canada?

[Gilles Rhéaume]

I'm proud that you have asked this very important question. There has been a lot of talk about this issue and a lot of studies carried out.

I published a report in 2004 entitled Open for business? which deals with these issues. The manufacturing sector is indeed suffering. This is mainly because the sector is not innovative enough.

We would be much better equipped to be competitive in a global marketplace if we were more innovative and had more skills training. You used the example of the textile company that adopted this approach and which, today, is highly successful.

The report Open for business? points out that we cannot be competitive cost-wise; that's impossible. China, India, and other emerging countries and developing countries will always have it over us when it comes to cost effectiveness. We will never be competitive from a scale standpoint: We'll never be able to compete with the Americans or Chinese on that level.

So what can we do? We need to be able to develop highly innovative specialized products on a small scale, and we need to do this in such a way that the Chinese and Americans will have a tough time emulating us. That's the approach we need to take.

We also need to think about what we can do policy-wise to establish a climate which will encourage companies to be innovative, train their employees and become competitive in a global marketplace. We never recommend tariff barriers or protectionist measures for these sectors because it would be damaging to the industry in the long term. We will never allow that type of approach. On the other hand, we need to equip our manufacturing sector with the tools it needs to be innovative.

Ben made a point about the auto industry. I want to stress the importance of being innovative if we want to have a booming auto sector—a manufacturing sector which is crucial to Ontario. Research and development is being carried out in the "biomaterial" field with the aim of developing vastly different auto parts to what we have today. We're talking about parts which will meet not only Canada's but the world's environmental needs. That right there is the future of the manufacturing sector, but it needs to adapt.

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

As you are aware member countries of the World Trade Organization, the WTO, are entitled to take steps to protect some industries, such as the furniture sector, which is another industry starting to lose jobs. Just recently there was talk of 5,000 jobs being lost.

A number of measures need to be instituted, but in addition to this, the current government needs to, as you said, develop programs to help our companies adapt to the new competitive environment in the area of manufacturing, design, and innovation. That's crucial.

You also raised the issue of supply and management. That bothers me, and I'll tell you why. I was in Washington last week with one of the members of a delegation. It became clear that the Farm Bill was in the process of being renegotiated. The Americans are investing heavily in corn, grain, etc. And they're not about to stop doing this. This makes the competition even fiercer from our point of view. I spoke with farmers. Despite being heavily subsidized they told us they need even more support. We have a small, fragile sector and our supply management does not equate to a subsidy system, as you know full well. It's a quota system. You are familiar with it and you said we need to forget about it, that we need to get rid of it.

We're losing between 25,000 and 30,000 jobs in the manufacturing sector. Supply management in my opinion applies to small traditional farms. You referred to this last time. I'm telling you that traditional farms may disappear. I don't agree with that and I think that they need to be kept alive, and that we need to keep our supply management system because even the Americans are protected. They are protected, we know this. You have to protect some sectors.

[Gilles Rhéaume]

We wouldn't recommend dispensing with supply management as long as other countries continue to implement these sorts of programs.

[A voice]

That's absolutely right.

[Gilles Rhéaume]

They're not the kind of remarks we usually make. However, if we want the farming sector to develop we have to be tough negotiators and urge the Americans and Europeans to remove the existing subsidies which really hurt our farming industry.

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

That would be ideal, but we are a far cry from that at the moment.

[Gilles Rhéaume]

I'm not referring to what would be ideal, sir. I'm saying that if the federal government takes a tough stance at the bargaining table and if it adopts an unwavering reasoned approach, we'll make some headway.

We've made progress in the past. Look at the auto agreement years ago. We can be tough and adopt an approach which may pay off.

The Americans want to keep their subsidies because the Europeans have theirs. Conversely, the Europeans have their subsidies because the Americans have theirs. At the end of the day, no one wins, and other countries suffer, including our own.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. André.

Go ahead, Mr. Hodgson.

[Glen Hodgson]

This goes right to the heart of our advice, which is that to get back inside the inner circle, Canada will have to be prepared to sacrifice something. If we decide to support small farmers, let's say, the traditional farm, as you said, it doesn't necessarily have to be through supply management. There are other policy mechanisms that are available.

If you think about all the cases of long-term subsidies in this country where, inevitably, the asset had to be shut down—Sydney Steel, and you could go on and on—it's far better to offer direct support to the individuals concerned and not use market mechanisms that end up as distorting and in fact make it even harder for us to be treated as serious players in global trade negotiations.

But your point on both sides is absolutely right. The Americans subsidize; the Europeans subsidize. That's why the Doha Round is a failure, because no one has really been prepared to make the sacrifices for particular domestic constituencies that are needed to have a more open, effective global economy where there is a collective benefit.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Hodgson.

We'll now go to the government side, to Mr. Menzies for seven minutes.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

Thank you, once again, for your presentation. It's most interesting.

I'm going to go back.

I caution you not to believe the Americans, that they “need” subsidies. The Europeans will say they need subsidies, and every farmer will say they need subsidies. If we could get back to the marketplace's actually providing the income to farmers, they wouldn't need any subsidies. But that's a discussion for another day, and I agree exactly. Don't believe every word you hear from our American friends.

Going back to some of the comments made—I'm not sure whether by Glen or Gilles—on the concern about how we reposition Canada as a leader in multilateral negotiations, let me just elaborate a little bit. I'm going to put this into one question.

You also talked about the hindrance to being able to add value to agricultural products: the regulatory barriers involved in it, the regulations that inhibit us. I'll throw out one. Of course, the Canadian Wheat Board inhibits western Canadian farmers from being able to access the real-world price.

What do we have to gauge that? How do we analyze it?

Continuing with the regulatory process, we have all of these sectors in Canadian government: Stats Canada; Trade Canada keeps its own numbers; Ag Canada has tremendous resources of statistics; DFAIT has numbers; Industry Canada; Export Development Canada has a statistical branch, and they collect numbers. Do these people talk to each other? Do they share these numbers? You have talked about regulatory process and how it impedes our ability to trade. How do we get all of those people to talk to each other so that we're not duplicating? What are the indicators? Where do we get them from?

[Gilles Rhéaume]

The regulatory complexity we talk about has nothing to do with the statistical agencies. It has to do with the regulatory approval processes that exist for new products, new inputs such as pesticides and herbicides, new technologies that would be beneficial to farmers but approval for which is taking too long. We have products that are outdated. They are still on the shelf trying to be reviewed, while there are new products that aren't even on their radar screen.

[Ted Menzies, Conservative, Macleod, AB]

And safer products, I will add.

[Gilles Rhéaume]

And safer products, definitely.

We're preventing it from happening because of these regulatory complexities.

One thing that is happening in the agrifood sector has to do with the advances of science. The advance of science is at a very fast pace, and these regulatory agencies are having problems catching up with it. They are missing also in capacity, with the enormous number of products, inputs, and technologies that need to be approved.

Our scholar-in-residence, Bruce Doern, will be publishing a volume this year talking about government labs. We've seen major cutbacks in government labs. We're there to look at the approvals, at testing these products and these inputs to make sure they are safe to the public and safe to the environment, but that they also could be commercialized, be sold in the marketplace, and be used by farmers and food processors. We miss that capacity. We need to invest a lot more and to address it. That's one item.

There are also multiple agencies that review the same products. That is another problem that needs to be resolved. You might have different jurisdictions with different standards, and sometimes I question the value of those different standards. Are they really true to the public safety, or are they just there to protect an industry? That's another factor that needs to be examined carefully.

Those would be the two main points: one, building capacity of our regulatory agencies so that they can actually review the products in a timely fashion; and secondly, getting rid of all the duplication that exists, to the extent we can, and stop the in-fighting and the silos that have been created over the years.

[Ted Menzies, Conservative, Macleod, AB]

That, then, leads me back to the statistical part of it. And I agree, absolutely, with what you talked about. I sat on the chemical harmonization NAFTA group for years, and I don't think we're three inches further down the road than we were 10 years ago.

But in regard to the statistics we need and the numbers you presented here today, do we have departments in government that are duplicating those numbers? Who are those numbers available to? Are the Stats Canada numbers the numbers that corporations will use to decide whether they want to directly invest in a foreign market? Are we duplicating? Are we wasting? What can we do better in our statistical analysis?

[Glen Hodgson]

There's actually remarkably little duplication in terms of the data sources themselves. We have one of the best, maybe the best, stats agencies in the world here, Statistics Canada. It is the source of all the data.

Now, gathering numbers is a tough job. You have different methodologies. You have to do revisions. But everything you see is coming from that one data source. Then at the international level, that's rolled up by the OECD or occasionally the IMF or the World Bank.

The issue you're pointing to is whether we have the right analytical capacity in the right places. I was one of those analysts at EDC, and I know we had bare-bones capacity to provide the risk management input for the organization. We had enough, but there was no surplus capacity. I think the same challenge actually exists in many government departments right now.

One of the things I've seen happen in 25 years in Ottawa is that a lot of the thinking capacity, the capacity beyond operations, has been pared away with government downsizing. I think Gilles was alluding to that as well when he spoke about the size of the labs.

Ironically, as we reinvent government, one of the things that's being reinvented right out the door is the ability to have big analysis, big creative thinking. You don't need a lot of people, but you do need a little core in many organizations. It's probably inappropriate to think that you can have only one hub doing all of the analysis. There are actually good things that happen from a little bit of competitive analysis, people comparing notes and studying slightly different things.

[Ted Menzies, Conservative, Macleod, AB]

What analysis are we missing? You talked about R and D, and I agree, we could certainly improve on that. What are we missing in evaluating markets?

The reason for the international trade department is not to employ a bunch of people, it's to be able to provide assistance to our Canadian companies to be able to participate in the world as traders.

What are we missing in order to give our Canadian companies the information they need?

[Glen Hodgson]

I think you start by getting the paradigm right. That's why I did the work I did over the last five years on integrative trade, showing that all the components of international business matter and how they fit together. I think people are now getting that.

The next step, then, is not so much analysis as it is getting the delivery in the field right, looking at how the trade commissioner service is positioned geographically, what their objectives are; looking at all of the instruments of government, things like the Canadian Commercial Corporation, EDC, and Investment Canada, which has been drawn inside International Trade Canada; and giving the right mandates to some organizations.

Investment Canada, since it was created in 1985, has had a mandate only to attract investment to Canada. I think they're only doing half the job. I think we have to understand that for Canadians to compete in Europe, for example, you can't ship from Mississauga or from a plant in Calgary. You have to go to Europe, because there are barriers around fortress Europe. And unfortunately, we've never really empowered government institutions to actively pursue that outward investment flow.

So getting the paradigm right really does matter, and then examining, institution by institution, whether you have the right tools in place.

One of the comments we made in our report is on thinking about trade remedy—the Canadian International Trade Tribunal, the use of things like anti-dumping. Well, all that was built for the traditional view that imports are unfairly competing against domestic goods. We still need to examine whether competition is fair or not, but we have to do it with a different mindset—not assume that imported steel from China is a bad thing. Maybe for some manufacturers, it's critical; it's the only way they're going to be in the game.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Menzies.

It's interesting that you should mention Canadian government institutions—Investment Canada, EDC—and that it seems as if the export-import sides aren't together on things. That's something I'm actually going to invite the committee to look at in the future. Whether they'll take me up on that or not, we'll see.

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

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

Thank you very much, Mr. Chair.

It's good to see you again. You're both very articulate.

[Some hon. members]

Oh, oh!

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

I disagree with much of what you have to say and agree with some of what you have to say, but I do want to state for the record that this will be your fifth and sixth hour before this committee. Many folks from British Columbia who wanted to testify before this committee during the hearings on the softwood lumber sellout were pushed away or refused by the government. So the government has actually provided more time to the Conference Board—three times as much—as to the entire province of British Columbia before this trade committee. I think that's a fundamental problem, because with Ottawa there's a tendency to drink its own bathwater, and we continue to have the same kinds of ideas recirculated, and recirculated again.

We've had 20 years, next year, of the so-called free trade agenda. Let's downsize government. Let's focus just on establishing a relationship with the United States to the exclusion of all other countries. What we're seeing now, of course, is record corporate profits, but most Canadian families are earning less. So on the bottom line, this ideology that's being put forward has failed. The bottom line is that it has failed.

What I see from your report is that you're trying to identify other factors, rather than looking at some of the core causes. You talk about productivity, and of course that's an element in terms of investment, no doubt. But when you compare us with the United States, saying that the United States is much more productive, the United States has seen the same kind of tendencies: the loss, as Monsieur André mentioned, of manufacturing jobs, the erosion of the middle class. Even though they're much more productive, you did mention the whole question of paying for health care. Well, in the United States, there are 60 million Americans who have no health care at all.

So we have an agenda where there is more and more wealth going to fewer and fewer people, and continuing that as a strategy doesn't make any sense for most Canadians. In the United States it was a major issue—he major issue—n the mid-term elections, and Republicans were thrown right out. Democrats campaigned very heavily on re-establishing manufacturing jobs, re-establishing a middle class.

Given all that, I come back to your report. There are some aspects that I certainly support, that are NDP ideas, investment in education, investment in infrastructure. No doubt about that. Some of the other ideas--just throwing away our agricultural sector and continuing deep integration, when NAFTA demonstrably hasn't worked for most Canadians--I have much more difficulty with. In the two weeks since the last time you came forward, we've heard from Chile, which is a progressive government, and we had Norwegian and Swiss representatives in front of us as well. Those countries define trade in a completely different context. They may use the word, and the Conservatives will say, “Oh, they've used the word 'trade', so they think like us”, but what they have is very strong protection for certain sectors, like agriculture, as you know. They have a much more public-policy-oriented investment in research and development. In other words, the public sector plays a crucial and important role.

So I guess my question is very simple: in terms of thinking outside the box, when the last 20 years demonstrably haven't worked, what are the lessons we can learn from countries that have a strong public sector and that protect their sectors, like their agricultural sector, when it's in the national interest, and why aren't those components more reflected in your report?

[The Chair, Conservative, Leon Benoit]

Go ahead. Would one of you like to respond?

[Gilles Rhéaume]

First of all, you mentioned so many points, it's hard to say where we should begin.

With the aspect of downsizing government, we aren't saying that we should continue to downsize. We have some problems with that as well, because we're missing some major capacity within government, and we alluded to that with the previous question. So yes, I would say there are some issues that need to be resolved with respect to that.

In terms of the U.S. shutdown of the manufacturing sector, it is something that is basically a transformation of the global economy. We're going to see that continue. If you think that the Americans, by erecting protectionist measures, are going to resolve that problem, it's very short-term thinking. It's the same thing with us, thinking that if we erect--