Thank you, Mr. Chair, and my thanks to the committee for the opportunity to appear.
I should say at the outset that I bring to this committee on this question much of the same background as my old friend and colleague Mr. Grenier. I could not count the number of hours I spent with him in the sea trade and other manifestations.
The question of machinery and implementation raises, in my mind, the question of the basic objective of Canadian trade policy. You cannot shape the machinery until you know what the objective is. So I'd like to offer a few reflections on that and then just comment on one aspect of Mr. Grenier's presentation.
In my view, Canadian trade policy now rests on some very outdated assumptions about how international trade is conducted. That outdated assumption is essentially that trade is a matter that occurs between firms and individuals in one country and unrelated firms and individuals in another.
It leads us to a view that a successful trade policy is one that expands exports, minimizes imports, and generates a positive trade balance, and following from that—as this committee has done, repeating in fact, I think, what the government has thought over many years—that there is a need to increase the resources for trade negotiation and increase the resources for trade promotion, all with a view to expanding Canadian exports. It's that assumption that I think is outdated.
How is trade actually taking place these days? That is the question.
It's now taking place within firms or among related parties or in related networks. We know, for example, that as much as two-thirds of Canada-U.S. trade is of this character. We know that trade increasingly comprises parts and components for assembly into end products. We know that the global fragmentation of production to take advantage of low-cost labour and specialized skills and access to critical inputs is now the dominant characteristic of international trade.
We can see the spread not only in sectors that we know well reflect this dynamic, such as the auto sector or the aviation sector. We're now seeing it creep into the resource sectors, as indeed we learned during the BSE affair with the United States. In fact, this old model of international trade, which we could witness in softwood lumber—which Mr. Grenier mentioned—now applies to an ever-diminishing number of sectors where the export sales from Canada are virtually wholly the production of Canada.
What are the new dynamics of international trade, what should our policy be, and how should we structure our machinery to reflect it?
In my view, the critical factor is the intersection of firm value and location value. Countries now compete in promoting policy settings congenial to mobile slices of production by removing barriers and providing incentives. Trade negotiation priorities, trade promotion priorities, and resources allocated to them that focus on particular countries could lead to serious policy errors and adverse economic consequences.
Just to give one example, if a Canadian firm—and we know this exists in the aerospace industry, for example—is part of a supply chain supplying components to other firms, which intend to further manufacture them and assemble them into final goods that are then blocked through trade barriers in third markets, with which country does the responsibility lie to negotiate the elimination of those trade barriers? If Canada were to decide, in order to favour the development of that sector, to negotiate free trade agreements with countries that are three or four steps down the line in the production process, rather than focusing on attracting that investment itself, we would probably lose it.
What are the issues, then, that we have to deal with in thinking about the trade policy for today?
Participation in global value chains is the key to the future, in my view. Canadian participation in global value chains is inevitably anchored in the United States, as producer, as consumer, as a source of inward investment and a destination for outward investment, and as a source of technology.
We have to understand that imports in this mix are as important as exports. If we orient our trade policy and the machinery related thereto to what happens on the export side while ignoring the import side, we will deny the opportunity for Canadian firms to participate in the value chains.
What are the issues, then, that we have to get our minds around? They are no longer those of the classic market access issues—tariffs, quotas, and so forth. They are issues of border administration. How well does your border work? How well does your customs system work? They are issues of product standards. They are even issues of immigration. What is your access to critically needed skills? They are issues of investment. They are issues of intellectual property enforcement.
A good many of the issues we need to confront in order to have a coherent and successful trade policy are within the power of the Government of Canada and the government of our provinces to deal with, and what we need to do is start hacking away at those barriers that impede it.
Let me offer you a quote from the executive chairman of IBM, Mr. Palmisano. He points out that the new dynamic means putting “people and jobs anywhere in the world based on the right cost, the right skills and the right business environment. And it integrates those operations horizontally and globally—work flows to the places where it will be done best, most efficiently and to the highest quality. The forces behind this are irresistible. The genie's out of the bottle and there's no stopping it.”
What about our machinery? I entirely agree with what Mr. Grenier has said about what we do with the provinces. I think now there is a critical gap, and let me reinforce this moment on the private sector. We have now no regular mechanism of consulting the private sector on these issues. Departments that I talk to are fearful of convening meetings, because it gives a suggestion that a particular government initiative is in play on which views are needed.
I was one of the officials at the origin of the SAGIT and the ITAC mechanism, developing proposals for the government to consider. I think it functioned extremely well, because what it enabled you to do was to consider issues without attaching expectations to them, without attracting attention to them. These would occur in quarterly or semi-annual meetings.
The previous government gave this up in favour of a multi-stakeholder consultation. In my experience, the business sector will not participate effectively or substantively in that. One recommendation I would make is the system of private sector consultations, with whatever changes to update it, since it was invented 23 years ago, ought to be urgently reconsidered by the government.
Thank you, Mr. Chairman.