International Trade Committee on April 24th, 2007

[William Crosbie]

The Department of Public Safety is the one responsible for negotiating with the United States on those specific questions.The SPP has not replaced that process. Border questions are really bilateral issues between Canada and the United States, because the situation at the Mexican-U.S. border is quite different. Those issues are discussed more through bilateral fora and processes.

[Serge Cardin, Bloc, Sherbrooke, QC]

I guess the Security and Prosperity Partnership of North America is probably not the place for discussing borders and irritants, or the free movement of people, services and goods. However, could there be discussion in that context of a border surrounding the three countries, which would abolish borders between the countries engaged in mutual trading activities?

[William Crosbie]

We can use the SPP process to address issues affecting all three countries, but under one of the principles underlying the SPP, if two governments want to do something, the third does not have to agree. For example, under the SPP process, there may be initiatives taken that involve the Mexican and U.S. governments, but that do not affect Canada. We do not try to eliminate a bilateral process to talk about issues that only affect two countries, but through this process, we do try to identify what could be benefits or opportunities for the three countries, so as to achieve enhancements in areas like the economy, the environment and energy.

[Serge Cardin, Bloc, Sherbrooke, QC]

The SPP per se, which also leads to economic integration, has meant that many people are now asking themselves a lot of questions precisely about economic integration and have a concern that this kind of integration could negatively affect Canada or particularly Quebec, where I live and where I hear that kind of commentary. People are concerned about prosperity, obviously, because there are inequities that cannot be changed. The United States has a population of 300 million; Canada has a population of a little more than 30 million. So there is an important disparity there when it comes to trade; that is perfectly clear. This economic integration is thus a concern for people, who also fear, to a certain extent, that Canada may lose some of its sovereignty as a result.

What do you say to people who have serious concerns about economic integration?

[Anthony Burger]

I believe the challenge is to see how to benefit and make gains as a result of globalization. Globalization is a reality, and there is nothing we can say or do to stop the tide from rising and bringing change along with it. We can't simply say we don't want globalization.

So, how can we make the most of changes occurring in the global economy? To achieve that, our policy is to establish a strong base in North America to benefit to the greatest extent possible from international value chains—in other words, parts production in one country, value added in another country, and final manufacturing in a third country.

What is our niche? And what is North America's niche? Well, I believe that in terms of the world as a whole, North America is not the only engine at this time. As a result, I think that what we have to do is work closely with our North American partners to present a strong economy to the rest of the world.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Go ahead, Mr. Gill, briefly.

[Lee Gill, Director of Industrial Research and Analysis, Policy and Sector Services Branch, Industry Canada]

The globalization that's occurring and the impacts that are happening within our economy are benefiting us. They've benefited us considerably during the last couple of decades. There are certainly some industries that will face restructuring. Difficulties happen for workers and for communities, and we recognize that.

The government, HRSDC for example, is looking at those sorts of issues and has been looking at those sorts of issues. We don't want to necessarily stop the restructuring that is occurring; we want to assist it where it will be of benefit.

There are things we've done in the textiles areas, for example, to help firms restructure in such a way that they move up that value chain, so they can compete with others. We have increased a certain number of our imports in the production process, as have the American companies, in order to make sure that we take advantage of our comparative advantages, our skills, the skills that our people have, so they can earn higher wages in the long run and in the medium run.

The security and prosperity partnership thing is part of that. As Anthony points out, it's essential that we get our act together within North America so that we can compete with the Chinas of the world, the Indias of the world, in a way that we can both take advantage of our comparative advantages and improve the standard of living of Canadians.

With the security and prosperity partnership, for example, there are a number of accomplishments that have occurred. We've addressed complex issues such as food labelling, common border infrastructure policies, environmental monitoring, and the liberalization of rules of origin, about which there are issues with respect to trade in terms of the portion of your production that is actually yours, versus the portion that is imported content from someone else. We've established a North American marine protected area network. We've agreed on a framework of common principles for electronic commerce. There's been the development of a trilateral steel strategy, and I could go on.

So there are a number of things that aren't necessarily covered under other areas that have been worked out under this SPP process, which we think will help us and help our people compete in the world today.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Cardin. Your time is up.

We'll now go to the government side, to Mr. Menzies and, if time is left, to Mr. Cannan.

[Ted Menzies, Conservative, Macleod, AB]

I will try to keep my comments and questions short so we can have a short enough answer that Mr. Cannan can share my time.

I'd first of all like to share with this committee and get on the record that I have the advantage of being able to look out the window. I see the blinds are closed beside me, but all the time we've been sitting here—for three-quarters of an hour—not one black helicopter has gone by, so I think that's positive. There's a lot of fear-mongering here, and we don't see too much of the black helicopter that we've been hearing so much about.

Thank you very much for your presentations today. I do appreciate Mr. Gill's most recent intervention on the positive things that are happening.

I think we tend to forget that we are a trading nation. Our largest trading partner is the United States. We have to have a good relationship with them. We have to talk about security, and we have to talk about prosperity, or we're not doing the job that we've been elected to do. So I'm glad to hear that we are actually talking about the benefits to trade, the increase in the per capita GDP.

One comment was about average manufacturing firms having increased in size, that Canadian manufacturing firms have increased in size by 33%. Those are the positive things that we need to be hearing about. We've heard from many witnesses who have talked about the advantages and about how Canada can encourage more trade to create more jobs, to create more wealth in this country, to provide the increase in average disposable income that we need, and also to be able to continue this increase in the levels of government expenditures on health and education by 129%, or $96 billion. That comes from commerce through taxation, and we need to keep promoting that.

Mr. Burger, there is one thing I would like you to clarify. We've had many people saying that the lower-income families are losing, and it wasn't in your written presentation, but you refute that. Can you provide perhaps, maybe not even now—

[An hon. member]

[Inaudible--Editor]

[Ted Menzies, Conservative, Macleod, AB]

Excuse me, I'm talking.

Actually, I'm glad to hear someone say that, because we're hearing the opposite, absolutely unsubstantiated, and I would like you to be able to substantiate those numbers and get them on the record so that we don't have to listen to the unsubstantiated comments.

[Anthony Burger]

Thank you, Mr. Chairman.

Thank you, Mr. Menzies.

In 1997 the lowest one-fifth of households earned $1,700—this is in 2004 dollars. By 2004 this had risen to $3,000. Now, you can quote whatever fact you want, but in 1989 it was at $3,400. So the recession of the 1990s led to a collapse of income for the poorest. It's not surprising, because the poorest were the ones who became unemployed.

We have seen a steady growth from $1,700 in 1997; $2,300 in 2001; $3,000 in 2004—that's market income. When you put in the stabilizers—and this includes welfare payments, other transfers and the like—per capita income of households in the poorest one-fifth of the population in 1997 was $11,800. It moved to $12,200 in 2004. These are in 2004 dollars, so they've been adjusted for inflation. Again, in after-tax income, including transfers, the figure was a little higher, at $13,200, in 1989.

What we have—and it should be of no surprise—s that there was a collapse of income for the poor in the early 1990s, and there's been a slow climb up. In May we'll have the year 2005, and putting my neck on the line, I predict there'll be a further improvement for the poorest.

[The Chair, Conservative, Leon Benoit]

Mr. Cannan, go ahead.

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

Thank you, Mr. Chair.

Thank you, gentlemen, for your presentation.

In the presentation that was provided to the committee there was a quote that really stuck out in my mind. It says “the impact has been positive in terms of economic growth, employment, the range of economic activity conducted in Canada, per capita income, and the quality of life”.

The presentation regarding this Canada-North America economic collaboration and its effects on our economy, the industry, and the welfare and lives of Canadians is something that I had some discussions about with my constituents in my riding of Kelowna—Lake Country, doing some research. The average Canadian can pick up the newspaper. There was an article yesterday that said this trend towards globalization “has led to fears of a hollowing out of Canada's business sector in which head offices are packed off to New York or Boston or Atlanta with a subsequent loss of high-paying executive positions, investment, jobs and research in Canada—all adding up to a loss of economic independence.”

For the average Canadian citizen who reads that, or one of my constituents, how do I square off these two statements? Are we at risk of losing our independence, or is Canada-North America economic collaboration good for Canadians and Canada?

Mr. Burger, or whoever would like to answer that.

[Anthony Burger]

Thank you, Mr. Cannan.

Per capita, average family disposable income has risen by 7.7% over this period. You'll recall that five to 10 years ago people were complaining that per capita income had stagnated over the period of the early 1990s. Again, I say there's no surprise to that figure. We know that it was a difficult period of adjustment to the economy. The truth is that we're much better off now, and the process continues. Family disposable income has risen by 7.7% over the period since NAFTA started, and the bulk of that has been in the past five years.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Cannan. You still have another three minutes.

Mr. Gill, you wanted to respond as well.

[Lee Gill]

If I could add to that, the one thing you point out is the economic independence. One part of the presentation that was made was, I think, extremely important, which is that we have to think of ourselves in terms of a North American bloc and we also have to think of ourselves in terms of a world trading bloc.

There are some adjustments occurring, and we realize that, but the reason Canadians are doing well, and the manufacturing.... Given that we've faced a huge increase in our exchange rate, energy prices have gone up, and we've faced enormous competition from emerging markets of India, China, Southeast Asia, the Eastern Bloc, and Europe too, we've done fairly well in that. We've maintained a manufacturing sector that is strong. Part of that is because they've reduced some of their economic independence. They're working out into the world. They're getting parts from China or other places and using them in their production process.

That's the way we really need to think of the future, in terms of working around the world, working as global supply chains, rather than as an independent economic bloc.

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

Thanks.

And I have one supplemental question. You talked about sustainable prosperity, and another issue that's very near and dear to my heart and to my constituents is the environment and a sustainable environment. How do you see working with our partners in this agreement so that we might be able to find some North American solutions to deal with global warming and climate change?

[William Crosbie]

The rationale behind working with the U.S. and Mexico is that increasingly we find that we have issues to discuss among ourselves. Those issues, the first of the line, will be ones where we have a shared environment. So the transboundary environment, but also the environment that includes the three countries, is a natural area for cooperation. The environment ministers are meeting, I believe, in June for their next trilateral session.

So the environmental aspect of the work that goes on through the environment ministers, which is referenced in the SPP, is an important component. It also has to be done in connection with energy and in connection with the economy. So again, those are both areas where the three governments have a lot to discuss to make sure that North America is an efficient place to produce. We've seen, for example, that to the extent that our borders are not efficient, to the extent that creates another cost to doing business between Canada, the U.S., and Mexico, it reduces the incentive for people to produce things here in North America.

One of the key goals of a process like the SPP is to ask ourselves, when we are making changes or looking at our regulations or looking at other areas in which the government is involved, are we doing things in such a way that it enhances the competitiveness of being based in North America? Or are we creating a problem for people to actually produce things and services here on our continent?

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

And technology, as well. So I appreciate that.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Menzies and Mr. Cannan.

Now to Mr. Julian.

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

Thank you, Mr. Chair.

I'm glad the Conservative Party's personal medium has said that everything is okay in this country and that the poor aren't poor.

But let's get back to reality. You did reference the growth in marketing for the poorest of Canadians, and you did reference—I'm not sure Mr. Menzies caught the reference—that the actual fact is that for the poorest 20% of Canadian families, their income has declined in real terms, when we talk about constant dollars.

In 1989, $13,600 was the average real income in constant dollars for the poorest of Canadian families. And that descended to $12,400. So they're actually earning about a month's less income than they were in 1989.

Let's move on to the next 20% of the population, because you have said there is a small minority of people who haven't prospered, but I think we're seeing that it's at least 20%. There we go to those families earning $20,000 a year to $36,000 a year: their average income in 1989, in constant dollars, of $29,900 went down to $28,500. So they've actually lost two weeks' income.

Let's go to the next group of families, earning $36,000 to $56,000 a year. Their income in 1989 was $48,100, the average in constant dollars, down to $45,900. So again they've lost more than two weeks' income. It's like going two weeks without a cheque.

Now let's go to the fourth group. Now we're up to 80% of Canadian families. No change in that income group.

So 80% of Canadian families have seen either no change or their income actually fall since 1989. But if we look at the elite, the wealthiest of Canadians, their average income went from $121,000 up to $136,000.

What we're actually looking at is a huge and growing prosperity gap, where 80% of Canadian families are actually earning less, and that has to be part of the analysis and the discussions that you have about our trading strategy. If it hasn't worked for 80% of Canadian families, there is something fundamentally wrong with the bottom line.

During that same period, overtime has gone up over one-third, as you all know, and at the same time we've seen, as Statistics Canada tells us, that most of the jobs created today in our economy are part-time or temporary in nature. There's no secret why incomes are falling. It's because people are going from one temporary job to the next. They're trying to group together a couple of part-time jobs to make ends meet.

So my first question is this. We have this growing prosperity gap. We have very clearly, since 1989, a fall in real income for most Canadian families. How are you addressing that within the ministry?

[The Chair, Conservative, Leon Benoit]

Mr. Burger, go ahead.

[Anthony Burger]

The first thing to point out is that we had the worst situation in 1993, with respect to all of the statistics Mr. Julian is quoting. At that point, unemployment was 11.4%. In 2006 unemployment was 6.3%, and that was the lowest level in 30 years.

If you look at the statistics, as I mentioned in my intervention, it's obvious that people who are unemployed are going to be the ones not earning as much. Therefore, it's the poor who rely heavily on transfer payments. They're the ones in the bottom quintile, and they're the ones who will be hurt first when unemployment hits.

In my current job, I have to stress that I'm an analyst rather than a policy-maker. But I think the policy response of the government has been to ensure that economic growth was restored, and one of the vehicles for doing it was NAFTA.

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

The strategy has very clearly failed.

I appreciate the somewhat defensive presentation that you made. It's a good one because you're starting to deal with the issues that Canadians are talking about on main streets across the country. I appreciate it, and I actually enjoyed the presentation far more than I have enjoyed previous presentations from the ministry.

But the reality is that economically most Canadian families are earning less than they were in 1989. We have to rethink the whole thrust of how we can create good-quality jobs and how we will respond as a country to what has been, at the very least, economic stagnation for most families or economic degradation.

The answer that we can't have is more of the same or that we should go from NAFTA to NAFTA on steroids, which is what many are concerned about when we talk about the SPP. I appreciated the clarity of your presentation, but the fact is that there are a variety of agendas out there linked to the SPP, and each ministry is going through a different process of deregulation or reduced regulation.

My question is this. How do you pull it together? How do you track the legislation, the regulatory changes, and the deregulation that is taking place in so many areas, as you described, Mr. Crosbie? How does the ministry track it?