International Trade Committee on Feb. 15th, 2007

[Gilles Rhéaume]

It is a challenging question, because you have the data to look at history; you don't have the data of what could be if you were to get rid of the trade barriers. That's where you have to look at comparative advantages in terms of competitiveness and asking whether we could be more competitive in Canada in selling that product abroad, or maybe importing it because they are more competitive. That has to do with the aspect of comparative advantages. Their trade deficit doesn't help you; it's really getting into the micro-detail of comparing industry to industry in terms of the degree of competitiveness.

We did some work on the life sciences side; we're looking at biotech, for example. We spend a lot on life sciences in Canada, but we're such small players globally. There are other areas of biotech in which we spend very little, but we do have a comparative advantage. If we were to invest more in those other areas, such as bioenvironment or bioagriculture, we'd be much further ahead.

That's only a small example.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Lemieux.

Mr. Julian is next for five minutes.

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

Thank you, Mr. Chair.

To follow up on our last series of questions, is it correct to say that what you are looking at in your report is substantial public sector investments with an innovation agenda, but investments that would include education, infrastructure, and research and development? Is it accurate to say that?

[Glen Hodgson]

Do you mean investment in dollars or investment in energy?

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

I mean both.

[Glen Hodgson]

A lot of the investment that's required is in using our human capital and coming up with better policy frameworks; it's not all about spending more money. The public sector spends—two-thirds or three-quarters of the overall R and D spending in Canada is by the public sector.

[Gilles Rhéaume]

There has been tremendous growth in the last few years in public spending on R and D.

[Glen Hodgson]

We don't keep throwing more government resources at R and D as a solution. We have to find ways to properly incent the private sector to actually step up and do more R and D spending.

[Gilles Rhéaume]

On the R and D front, it's funny, because we have seen a pickup in terms of public spending on R and D in the last few years. The biggest challenge, though, is what you do with that R and D. That's the big question. A lot of the things we are seeing in terms of research and development in universities is either staying in universities or being sold abroad. We are not having the uptake here in Canada for these new technologies and new products that we could sell. The university strategy is that if they cannot get the local industries interested, then they will start their own little firm. You have a lot of startups and a lot of failures, or they end up selling their technology to a foreign company.

There are big issues around that.

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

Thank you. I wanted to clarify that and move on to the issue of our trade strategy.

You say very specifically to put supply management—I imagine you mean the Canadian Wheat Board as well--on the table so we can be in the inner circle within the WTO. Increasingly, the problem within the WTO is that there is a progressive agenda from countries that actively believe in things like social, environmental, and labour standards, and there is this leadership that has been pushing for the traditional approach to free trade, which, as I mentioned earlier, hasn't worked in Canada. As well, in other industrialized countries like the United States, most people have demonstrably seen their wages pushed down.

Would it not be a better strategy for Canada to defend ardently what our interests are—like supply management for rural communities, like the Canadian Wheat Board—and play leadership within the WTO within the increasing number of countries that are putting into question this whole idea that somehow we all have to just follow the American model of trade to actually develop our societies?

[Glen Hodgson]

Mr. Julian, your questions are so huge, and you start with the premise—

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

But you are big thinkers, so you can respond.

[Glen Hodgson]

You often start with a premise about falling real wages, for example. The fact of the matter is that economists would take that apart; we'd like to see whose real wages are falling.

I'm worried, for example, about immigrants, who have not made progress in Canada in 25 years; if you start to segment the decline in real wages, I'm obviously concerned about that. I'm concerned about aboriginal communities. I am concerned about organized labour in sectors where we have chosen to go to global free trade, like the auto industry. We have seen the massive layoffs this week, but that is almost, unfortunately, a natural consequence of exposing a once protected industry to international trade when technology is the driver. The Japanese companies that have invested in Canada are outperforming the big three fundamentally because they have a product that people want to buy.

I think we have to understand why the real wages are falling and really drill into some of the subcomponents.

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

Statistics Canada has actually drilled into it. The top 20% of Canadian families have seen their income skyrocket since 1989, but each of the other quintiles, from the middle class down to the poorest Canadians, have seen their real incomes fall. The sharpest fall has been among the poorest Canadians. We're not talking about something where there are some segments that have fallen behind and most of the population has progressed. It's the opposite; most of the population has actually fallen behind. That's a serious issue that we have to address as public policy and it's a serious issue that I would say needs to be considered as well.

[Gilles Rhéaume]

I think there are two things there. One you mentioned, but the other aspect is to look at it by level of education. Those who have post-secondary education have done quite well. Those who only have high school or have dropped out of high school are the ones who have definitely lost income. That's because we haven't been encouraging these people to continue investing in learning, either by themselves or through employers investing in learning. We've noticed that in Canada we do have people who don't have the right types of skills for this new economic reality, and because of that they're going to lose ground, no doubt about it.

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

I'll come back to my question. Within the WTO, if we're to show leadership, there are two ways of doing that. One is to simply give away supply management, give away the Wheat Board, and be among the frat boys basically saying, there's only one way to develop our societies. The other is to show a very distinct Canadian approach to trade that keeps reinforcing the strengths we have but that also looks to diversify our trade and build internationally.

[Gilles Rhéaume]

In our volumes we mention the seven strategies. You can't just adopt one because it's going to fail. You have to look at all seven. This is what you're raising in saying just look at your trade policy; if you liberalize trade, everything is going to be fine. And you don't agree with that. We wouldn't agree with that.

We have to get our house in order. We're saying we have a problem with our house, big problems with our house: there's federal-provincial, and even within the federal government in terms of policies around education, investment in infrastructure, innovation, regulatory barriers. I could go on and on with lists about how our house isn't in order. We can't talk about trade policy if we don't have our house in order. That's why we need the seven strategies.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Julian.

Gentlemen, never hesitate to tell Mr. Julian how he's wrong--that's okay.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Leon Benoit]

Ms. Ratansi, please go ahead for five minutes.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you for your presentation. It's interesting; it raises a lot of questions, and it perhaps challenges your thought processes.

Canada is vast. It is the second largest land mass. Japan is 1/26 the size of Canada and has four times the population. When I look at these things, and your presentation, I'd like to ask you questions. And I'd ask you to write them down because I'll need a response to them.

You did a study of R and D investment and you said Finland is bypassing us. What part of their GDP is invested in R and D? What sort of partnerships do they have in the three Ps, academia, public, and private? What is the gap between the rich and poor? Is there a safety net that these countries have? China, India, and the United States seem not to have a safety net. That's on R and D.

Two, you talked about protectionism being bad. You say protectionism is bad. The U.S.A. and Japan are the two largest economies and they are very protectionist. I've just come back from Japan, and they do not allow our agriculture products to be in there. And RIM does not go there without having another protocol. How can you allow Canada to open up its borders to everyone and not be protected itself? That's something we have to play with. How do you do that?

Three, does Canada have an industrial strategy?

Four, what is Canada's competitive advantage? I know you talked about value-added, etc. I want to know what you think is Canada's value-added advantage. You talked about value-added agriculture products that we could sell to the third world, not to the markets like Europe, etc., because the Doha Round, again, was there to protect the poor countries, and yet we've gone into terrible rounds there.

Would you answer those? Then I have a few more.

[Gilles Rhéaume]

That's all?

[Yasmin Ratansi, Liberal, Don Valley East, ON]

I have a few more, like the timeframe within which you want your strategies to go forward.

You have too many questions.

[Gilles Rhéaume]

And I have thirty seconds for each.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Yes.