Evidence of meeting #48 for International Trade in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was report.
A recording is available from Parliament.
12:05 p.m.
Liberal
February 20th, 2007 / 12:05 p.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
Thank you, Mr. Chair.
Thank you, guests, for answering our questions and providing a little insight. Da svidAn’ya.
I had an opportunity about 10 years ago to spend some time in Russia, and the people are wonderful. The infrastructure has a long way to go, and they've come a long way in the last few decades.
There are still great opportunities, as was alluded to by some previous speakers. Specifically in the avionics business, coming from Kelowna, I know that Kelowna Flightcraft has been doing work with helicopters in Russia and some of the other avionic specialties.
I look at where we're branching out, such as in environmentalism. Mr. André mentioned that there were definitely some areas of improvement there, and working with our European partners, Canada has been very fortunate. Over the years, a lot of Europeans have come to Canada and helped by bringing their trades and skills. We continue to look forward to using those immigrant skills to help with our labour shortage.
But also working within your own neighbouring countries, from your perspective, there have been some real issues about natural gas...and the energy superpower they have. Recently there have been some discussions about cutting off the supply of natural gas with other countries. Is that an actual supply issue, or is it more political?
12:10 p.m.
National Board Director, Canada Eurasia Russia Business Association
In the last two years, I think we have seen the deliberate management of pipelines for political ends. More recently it's been threatened, and there have been conveniently timed pipeline breakdowns.
I have to leave it to you to draw the direct line between those dots.
12:10 p.m.
Conservative
Ron Cannan Conservative Kelowna—Lake Country, BC
I appreciate that.
I have one supplemental question before I pass the floor over to my colleague Mr. Lemieux.
From EDC's perspective, one aspect of Canadian businesses going to do business in Russia—you mentioned the mafia and the gypsies, and I know there were a lot of cash transactions when I was there—is the element of providing insurance. We had EDC talk about some of their services. Is this something you are offering in Russia, in order to provide some stability and certainty for Canadian business people who have that fear of investing in a foreign country?
12:10 p.m.
Director, Strategy and Operations International Business Development Group, Export Development Canada
Thank you, Mr. Chairman.
EDC is open for all of its family of programs in Russia, across the board. As was illustrated by Mr. Cumberlege's exposé, the landscape in Russia has changed in recent years so the quality of the risk in the market is much better than it used to be. We are applying appropriate due diligence to all transactions we are considering in Russia. In so doing, we're trying to demystify the Russian markets in the eyes of Canadian companies. Essentially the companies benefit from our understanding and assessment of the market when they draw upon our services.
That's a little about how we work to help change the perception about the market and build greater trust in the market. We're doing that in a very responsible and systematic way.
12:10 p.m.
Conservative
12:10 p.m.
Conservative
Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON
Thank you.
On trade relationships we could have with Russia, you briefed us this morning that we import a lot of crude oil, and we seem to be focusing on exporting machinery parts, and automobiles and parts.
If we put in place a trade relationship, how do you see the commodity picture changing? In what sectors would we expect to see growth, and what would be advantageous to Canada?
12:10 p.m.
Director, Strategy and Operations International Business Development Group, Export Development Canada
Right now, as you are inferring, 80% of the export earnings in Russia are related to natural resources. With this new-found wealth the Russians are trying to diversify in other sectors. Some of the sectors that are of particular interest to us are agriculture, light manufacturing, telecommunications, and infrastructure. Those are all sectors where we see a natural fit between what Canada can offer and the nature of the demand that is emerging in Russia. The pace of that demand in Russia is accelerating right now.
We also see a lot of investment going into fixed capital, so they are actively engaged in rebuilding their machinery. At the same time there is a growing middle class with high expectations for the quality for goods and services. That offers a range of opportunities for Canadian companies.
12:10 p.m.
Conservative
Pierre Lemieux Conservative Glengarry—Prescott—Russell, ON
So you feel there's a consumer market there that we're not tapping into right now.
12:10 p.m.
Director, Strategy and Operations International Business Development Group, Export Development Canada
It's starting. There are beginning to be some inroads in this area, but the prospect for future growth is increasing at a rapid pace.
12:15 p.m.
National Board Director, Canada Eurasia Russia Business Association
One of the things that accompanies consumer goods is packaging. Canada has notable companies involved in that sector and they're active in Russia. One of the investments I was talking about in the St. Petersburg region is driven by the need for packaging for consumer goods.
Another area is everything related to housing. Canada has some technology in housing that is very appropriate for the physical environments that Russia and Canada share. There's a lot of activity in that sector as well.
Luc referred to agriculture. That is a big file in the relationship between the countries.
On services, there is a desire on the Russian side to try to engage more with Canadian service providers, particularly financial institutions. Canadian financial institutions don't really go overseas very much, so at the moment it's a bit of a one-way dialogue.
One final sector I would mention that was not on your list is forestry. There has been a lot of activity, with EDC and us working together, to take Canadian forestry products companies, many from Quebec but also from across the country, to engage with Russian partners. I mentioned the potential for Russian and Canadian partnerships to find a way to counter the Chinese challenge. Russians are explicitly looking at how they can establish the right sort of partnership with Canadian forestry producers to give both countries the ability to deal with that Chinese challenge together.
12:15 p.m.
Liberal
12:15 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
Thank you very much, Mr. Chair.
I had to step out for a press conference, sorry.
I want to start off with the issue of the overall rule of law in Russia. Transparency International does not give a particularly high grade to the current Russian government. So I'm wondering what your perspective is in terms of consistency of interpretation of business law and consistency in regional government enforcement of those laws.
12:15 p.m.
National Board Director, Canada Eurasia Russia Business Association
It's not good. The corpus of law is generally good and workable. The corpus of law, legislation itself, is actually good. The country has been putting in place good legislation. It has tidied up the crazy period of 1995 to 1996, when decrees were being issued that had force of law. Yeltsin issued, I think in 1994, 372 decrees, each of which had force of law and overrode existing legislation. All of that has gone away and there is now a body of law that is good.
The judiciary is very patchy and is subject to local and regional influence. You can go through the process. I took a case from Vladivostok right through to the Supreme Court in Moscow, and won it in the Supreme Court, only for the judge to say to me, “Now good luck enforcing it back in Vladivostok.” So that is an issue. At the same time, I won a shareholders rights case in St. Petersburg over a period of two years, which went through the courts very transparently.
So it is patchy. It is something that I believe the Kremlin is actually trying to tidy up. The Kremlin has a strong desire to have control, and this patchiness undermines the control—by control, the stability across the country—the Kremlin has. There's more to do there, but for business people, it is possible to continue to operate. To a great extent, in Russia, as in many Asian countries, you do better to focus on the relationship you establish with your partners and maintain with your partners, rather than to rely purely on legal documentation.
12:20 p.m.
Director, Strategy and Operations International Business Development Group, Export Development Canada
From EDC's perspective, we see over recent years in Russia a greater predictability and a greater consistency. We recognize that there are some shortcomings in certain cases.
On the other hand, that's precisely why we have a political risk insurance program, to allow Canadian companies to have protection, and through those services we help them make sure that there are no arbitrary actions taken against their investments.
12:20 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
For that political risk program, do you find that there is a much higher degree of use of that by exporters wanting to serve the Russian market than you would find for other countries?
12:20 p.m.
Director, Strategy and Operations International Business Development Group, Export Development Canada
Right now we see a demand that is reflective of the actual amount of investments taking place. We see a growth in the program for Russia right now that correlates with the actual growth of investments in the country.
Typically, when a country matures to a greater type of business environment—I would say, western-like—the demands for those types of services are reduced. Right now I would say our program is very well suited for the transition that Russia is in.
12:20 p.m.
NDP
Peter Julian NDP Burnaby—New Westminster, BC
What about the issue of corruption of public officials?
12:20 p.m.
Director, Strategy and Operations International Business Development Group, Export Development Canada
In the case of the EDC, we have rules of ethics and we're bound by anti-corruption guidelines, which are inspired by OECD guidelines against corruption. So those criteria are stringently applied to any transactions that we might be called upon to support in Russia.
12:20 p.m.
National Board Director, Canada Eurasia Russia Business Association
I think there has been a clear improvement in what I would describe as petty corruption, and a clear improvement in, for example, the ability to get goods through customs without having to pay bribes. Studies were done in 2001 and then again in 2003, of samples of Russian SMEs. In 2001, they were still highlighting corruption as one of the major barriers to business; by 2003, they were highlighting competition as the main thing they were facing. Corruption and government intervention had actually gone down on the list.
It's not a perfect universe, and there is undoubtedly still corruption in Russia, but I would say it is not a daily necessity. You can do business in Russia without getting involved in corruption at quite a large level of business as well, of senior-level business.
Most foreign companies working there have realized that they are much better off to say from the outset that they will not pay. Having that as a clear policy, once it is understood by their partners, tends to work.
12:20 p.m.
Director, Strategy and Operations International Business Development Group, Export Development Canada
As companies typically become more integrated in the global economic environment, they tend to want to follow international standards. One of the conditions of being part of the international global environment is to follow a certain ethical standard. If not, then it precludes you from actively engaging in markets outside of Russia. This is a process we've seen many countries go through over time.
12:20 p.m.
National Board Director, Canada Eurasia Russia Business Association
As Russian businesses come to western public markets and list, for example, on the London Stock Exchange, they go through a fairly intense process of tidying up before getting there. All of that and the governance that goes with it is all helping to shed the corruption that was undoubtedly a part of the early 1990s Russian landscape.
12:25 p.m.
Liberal
Navdeep Bains Liberal Mississauga—Brampton South, ON
Thank you very much, Mr. Chair.
Along the theme that you were discussing with respect to corruption, I represent the riding of Mississauga—Brampton South. I would say 95% of the economic activity there is based on small and medium-sized enterprises. Because the area is situated close to the airport, many of them trade a great deal with the United States and abroad as well.
Even though corruption has declined according to your survey or the feedback that you're getting, it's still a major concern for many of my constituents in terms of business representatives when I speak with the local board of trade members. With respect to trade with Russia, they still bring that issue up. It's an issue that specifically pertains to SMEs more, because they feel they don't have the tools or resources available to combat that. So I'm glad you talked about some of the political risk activities that you have in place to deal with it.
Another question I had—and I'm not sure if it was raised before—was with respect to the Russian diaspora here in Canada, meaning the people who moved here from Russia, and their business interests. What role do they play in promoting trade and business development with Russia? Has that been leveraged to the fullest potential possible?
