International Trade Committee on Feb. 10th, 2009

[The Vice-Chair, Liberal, John Cannis]

We have quorum. The Chair, Mr. Lee Richardson, has asked me to get us started. He should be here shortly.

Here he is; I told you.

Mr. Chairman, you were faster than you told me.

[The Chair, Conservative, Lee Richardson]

I take it the meeting is already underway. Thank you, Mr. Cannis.

I'm sorry to be a few minutes late.

We have scheduled witnesses from the Department of Foreign Affairs and International Trade. I think we'll just dive right in. I will ask our witnesses to begin with a brief opening and an explanation of the workings of the department, particularly for our new members. Then we will open it to questioning on the basis that we established at the previous meeting.

With that, let me introduce Ken Sunquist, who is assistant deputy minister, Asia and Africa, and our chief trade commissioner; as well as Stewart Beck, who is assistant deputy minister, international business development, investment and innovation. Thank you, gentlemen, for coming.

I would turn it over to you, if you'd like to begin with some opening remarks and a general overview of the department.

[Ken Sunquist, Assistant Deputy Minister, Asia and Africa and Chief Trade Commissioner, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chairman. Good morning, ladies and gentlemen.

Thank you very much for allowing us to have a few moments of your time.

As the chair has mentioned, I'm joined by Stewart Beck. In the second phase, David Plunkett, who's behind me, will be discussing some of the bilateral and regional trade negotiations, in particular, EFTA.

It is really a great pleasure to be here to talk about some of our priorities at DFAIT. We place a very high value on the work done by this committee. Indeed, previous committees have done such things as “Elements of an Emerging Markets Strategy for Canada” and have visited certain countries and allowed us to reshape our priorities.

Your work contributes greatly to how we see the world and how we need to proceed. We look forward to working with you in the time ahead, especially during this time of serious instability in the global economy.

We cannot lose sight of the importance of participating in international trade and investment. We're seeing a good example playing out today in the United States, where we're working hard with our global partners to push against the protectionist measures being proposed in the American stimulus package. In our view, the last thing the world needs right now is restricted trade.

The nations of the world need to grow our way out of this crisis together, as partners. That means pushing hard for open markets that will stimulate economies, create jobs, and keep our country strong in the face of these challenges.

We also recognize the enormous competitive pressures in the global economy, especially from emerging giants like Russia, Brazil, India, and China. At the same time, governments are competing with governments to support their businesses and investors in the right ways, in the right markets, with the right tools.

Minister Day and Minister Cannon have ensured that an economic perspective is at the forefront of all DFAIT priorities.

Addressing these challenges is what we call our global commerce strategy. It's based on three areas of concentration: making Canada the best country and partner of choice to do business with; market access, not only in the narrow, older sense to markets, but to capital, to technology and to talent; and connecting businesses to opportunities. It's a fundamental part of our U.S. and Americas strategy, as well as growing and emerging markets. We think of it as a road map to help our businesses and investors adapt to the complex realities of trade today.

We've entered a period marked by what we call “integrative trade”, that is, all the various ways in which Canadian businesses create value in the global economy. It's about trade. It's about investment. It's about global value chains. And it's about other areas like innovation, science and technology, air services, and the many other value-added tools and policy instruments that governments can provide.

Our global commerce strategy represents our plan to give Canadian businesses and investors the support they need to continue building links to global markets.

Of course, market access for our businesses and investors will always be a crucial focus of our work. The WTO remains our preferred forum for market access. While the prospects are uncertain, at least in the short term, we'll continue working with our partners to push hard for a conclusion to the Doha round in the coming year.

In the meantime, we're stepping up our efforts on the bilateral front, first and foremost as a partner in the enormously successful North American commercial platform.

Canada benefits greatly from being part of the North American Free Trade Agreement. We're working closely with the U.S. and Mexico on a range of issues to keep trade, investment, and talent moving across our borders and to ensure that the North American partnership remains strong and prosperous. Also, as I've mentioned, we're working closely with both countries to ensure that the doors to trade remain open, not closed.

We're also getting more aggressive on the bilateral front outside North America. As you know, Canada's first new free trade agreement since 2001, with the European Free Trade Association, the EFTA countries of Iceland, Norway, Switzerland and Liechtenstein, is moving through the parliamentary committee process now.

We've also recently signed free trade agreements with Peru and Colombia. We're moving forward on a long list of other FTA negotiations around the world, primarily in Asia and the Americas, and we're working closely with the European Union on a closer economic partnership initiative.

As I mentioned, David Plunkett, director general for bilateral and regional trade policy, will be here later to talk to you about the EFTA in particular, encompassing multilateral, bilateral, and regional access issues, but at the moment just let me say that market access will always remain a focus of our department's work.

We have focused on other kinds of agreements as well. Air services agreements are a good example. We currently have more than 70 in place.

Investment agreements are another example. With integrative trade driving global commerce today, we understand the importance of fostering two-way investment. Stewart Beck will give you more details on our efforts to promote Canada as an investment destination, including how we're leveraging the Asia-Pacific gateway and the 2010 Olympics to draw more attention and investment to our country.

But there's also a policy element to this. Canada now has more than 20 foreign investment protection and promotion agreements, FIPAs, in place with key partners in the world, with more in process. These agreements give investors from Canada and other nations the stable, predictable investment environment they need.

Stewart will also tell you how we're recognizing the importance of innovation and science and technology in our activities, and leading the wave. Certainly S and T is a key driver in investment, trade, and our national profile.

We're also keenly aware of the important role that strategic government services can play in helping connect our businesses and investors to global opportunities. For example, we're working closely with Canadian business to develop a series of targeted, sector-based market plans for key markets. These plans have raised a full range of international business activities, from exports, imports, and investment, to S and T, licensing, and the negotiation of market access through trade and investment agreements.

We also enjoy a wide-reaching international commercial network—our trade commissioner service. These dedicated men and women posted across Canada and in trade offices around the world can help businesses quickly identify contacts in key global markets. And they understand the demands of the world, because even in these challenging times, there are opportunities out there, but it's expensive and time-consuming for Canadian businesses to scope out these opportunities on their own.

We've received a lot of great feedback over the years. Businesses have told us that our trade commissioners have saved them time and money, connecting them to the people who matter in global markets, connecting their products or services to marketplaces all over the globe, and providing them with critical information to help them avoid costly mistakes.

We currently have about 950 trade commissioners active in more than 150 cities around the world, including 17 regional offices across Canada. They help thousands of Canadian companies each year, particularly small and medium-sized companies. And the demand for our services is rising.

As new global business models and non-traditional global commercial activities continue to develop, Canadian companies are becoming increasingly reliant on the services of our trade commissioners. In fact, demand for these services is expected to increase by at least 15% over the next five years. That's why we're boosting our presence in existing trade offices, both domestically and globally, and we're opening new offices in key markets like China, Brazil, Mongolia, and India.

Internally, we're also looking at creating a better mix between positions in Canada and abroad. This means reallocating positions and resources from our headquarters here in Ottawa to where they can make a deeper impact in our trade offices abroad. More generally, we're also focused on reorienting the services provided by the TCS depending on the realities and opportunities in each market. In some markets, for example, trade commissioners are focused more on investment and less on traditional export business. Some trade offices are working exclusively on innovation, technology partnerships, and science and technology. Some will be very active to support market access issues or trade negotiations. Others will be focused on more traditional export promotion activities, and still others will be performing all these functions. In short, we're seeing different focuses in different markets, as opposed to the old idea of just a brass plaque of “we do this” around the world.

The end goal is the same: building Canadian links in supply and value chains. But the journey will be different depending on each market, in keeping with the nature of the integrative trade model. Our trade commissioners are adapting to these new global realities and supporting our businesses in their efforts to create wealth and opportunities for Canadians, and partnerships with nations around the world that will benefit all of our economies.

As you see, the global commerce strategy is our road map to help our businesses and investors adapt to the complex realities of trade in the 21st century, especially during these tough economic times.

Thank you very much.

I'll turn to Stewart for his comments, and then we'll be very pleased to answer your questions and comments, and go forward.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Sunquist.

Mr. Beck.

[Stewart Beck, Assistant Deputy Minister, International Business Development, Investment and Innovation, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chairman and members of the Committee.

As Ken just noted, we cannot lose sight of the importance of participating in international trade and investment, and we can't lose sight of the fact that we are a trading nation.

You heard Ken mention how the global commerce strategy continues to position Canada assertively in traditional markets like the U.S. and emerging giants like India and China. He also mentioned how our main competition is from national governments, who are fully engaged in defining their national brands as an incalculable boost to their economies. Think of Ireland over the previous 15 years, Australia, and even the United States and Germany. Unquestioned economic powerhouses have poured hundreds of millions of dollars into national branding campaigns.

The GCS gives us tools to compete, and we are doing so on the investment attraction, promotion, and retention front. The facts are indisputable: investment is a huge generator of wealth for Canada. It's also a huge source of R and D investment, a point I will get into a little further along.

In addition to our national efforts, we must also leverage signature and prestige events. We have an international marketing effort now to support the 2010 Olympic Winter Games in Vancouver. It's called “2010 reasons to do business in Canada”. Against the backdrop of our current economic environment, we have to be aggressive in showing Canada's strengths regardless of the times, particularly when the world will be focusing on Vancouver.

Another critical driver for wealth is innovation. Research and development in science and technology add wealth and diversity to our economic base. In fact, the Canadian headquarters of foreign multinationals, the large pharmaceuticals, for example, invest more in R and D in Canada than Canadian firms do. We have the highest level of public funding for R and D in the world, but rank out of the top 15 in taking ideas to market and building the companies of tomorrow. This is an area where our network is ideally placed to change that performance.

Ken mentioned our S and T agreements. Here is an example of why they are a good return on our investment and an important economic driver. This summer we established joint initiatives under existing agreements with India and China. The response to our calls to proposal was very well received, with 135 expressions of interest for projects in China. Through the selection process we ended up with a total of eight fully funded projects. We contributed $2.2 million through our international science and technology partnership program, which in turn leveraged an additional $9.2 million from domestic and international partners. Our efforts in India were just as successful. From 67 expressions of interest we awarded funding for eight projects. Our contribution was $2.2 million, which leveraged an additional $15.2 million from our domestic and international partners. The results of these initiatives will be market-ready, science-based technologies and projects. These types of arrangements continue to move Canada along a path toward a more innovative and productive economy.

Engaging research groups, businesses, or public sector partners is part of our unique offering to Canadian business. It's also why we have adapted our own business model to meet the integrative trade realities faced by our companies on a daily basis.

We are harnessing our network of 140 global contact points to better demonstrate our value-added to Canadian business. The network has evolved from helping companies to sell their products abroad to linking businesses into research groups, helping transfer or procure technologies, helping businesses to sell their technologies, securing investment or financing, or encouraging our companies to invest in good opportunities abroad. We also rebranded the Trade Commissioner Service to better promote our value-added in saving a company time and money when doing business in foreign markets.

We would be marketing the service aggressively and taking full advantage of all the traditional and non-traditional media at our disposal, like the Web 2.0. All this will ensure that once economic stability returns, we'll have positioned Canadian companies to take advantage of global opportunities.

Meanwhile, over the short term we are tasking our regional offices and posts to ensure clients are aware of the broad suite of government services and programs available in addition to our marketing program. We have moved aggressively to work even closer with our partners in the international trade portfolio, EDC and CCC, and we're working more closely on a daily basis with BDC. In fact, we have people in four BDC offices across the country.

Budget 2009 has increased the capacity and flexibility of EDC to ensure Canadian businesses have access to adequate financing as well as to maintain trade and investment during the global economic downturn. This means EDC has an additional $350 million in capital to support up to $1.5 billion in increased credit capacity to help address emerging stresses and financial gaps in Canada’s export sector.

All told, the GCS, our changed business model, our marketing efforts, and increasing trade portfolio integration have put us on a footing to help Canadian businesses now and well into the future. But this will require constant monitoring, evaluation, reallocation, and reinvestment to ensure full value for Canadians' money.

Thank you very much.

[The Chair, Conservative, Lee Richardson]

Thank you.

We are going to hear now from Mr. Plunkett before we go to questions; he's making the presentation for the rest of the group.

[David Plunkett, Director General, Bilateral and Regional Trade Policy, Department of Foreign Affairs and International Trade]

Merci.

My colleagues had expected to start at ten, so they may drift in over the next few minutes.

[The Chair, Conservative, Lee Richardson]

I'm sorry about that. I should have made that clear.

[David Plunkett]

But I'm certainly prepared to start and take it as far as I can get it.

[The Chair, Conservative, Lee Richardson]

Great. Thank you.

[David Plunkett]

I appreciate the opportunity to appear once again before this committee to talk about the Canada-EFTA agreement, this time in the context of Bill C-2. As you know, the Canada-EFTA agreement was the first treaty tabled in Parliament under the new treaties in Parliament policy back in February of 2008.

This committee studied the agreement and your careful review culminated in a positive conclusion. Today, I will briefly highlight some of the benefits of the Canada-EFTA FTA, as well as discuss generally the implementing legislation, Bill C-2. My colleagues and I will then be available to answer your questions.

The Canada-EFTA agreement is a big achievement for Canada. It's our first free trade agreement signed with European countries. It will provide Canadian businesses access to some of the wealthiest and most sophisticated economies in the world, as well as a platform to tap into European value chains.

The EFTA states are already significant economic partners with Canada and include some of the wealthiest and most sophisticated markets in the world, ranking among countries with the highest GDP per capita in the world. Taken as one, the EFTA countries are the world’s seventeenth-largest merchandise trader and Canada’s fifth-largest merchandise export destination in 2007.

Canada and the EFTA countries saw $12.9 billion in two-way merchandise trade in 2007, with Canadian exports at $5.2 billion and imports at $7.7 billion. Canada exported agrifood products worth more than $89 million to EFTA countries, while importing approximately $130 million in agricultural products. In addition, two-way direct investment was some $28.4 billion in 2007.

Norway saw the largest increase in Canadian exports in dollar terms in 2007. Also in 2007, the value of Canadian merchandise exports to Switzerland grew by 33%, driven mainly by gold exports. In fact, in 2007 Canada exported more to the EFTA countries than to the South America 10—that being Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, Uruguay, and Venezuela—combined.

The implementation of the Canada-EFTA Free Trade Agreement will build significantly on these already impressive numbers. While the Canada-EFTA FTA is a goods-only agreement, it is worth recalling that both Switzerland and Norway are significant investors in Canada. On a single country basis, Switzerland was the fifth largest foreign direct investor in Canada in 2007, while Norway was the eleventh largest foreign direct investor that year.

In terms of the benefits of this agreement, Canadian exporters and producers are expected to benefit considerably through the reduction or elimination of tariffs under the Canada-EFTA agreement. Specific benefits include the immediate elimination of duties on all industrial goods, the only exception being those for Canadian ship tariffs. These include numerous small tariffs, which impose not only an administrative burden on Canadian exporters, but also what our private sector has called an unnecessary tax on the intra-firm trade; the elimination or reduction of tariffs on certain agricultural products; prohibitions on the use of agricultural export subsidies by the EFTA countries for products exported to Canada and covered by the free trade agreement; a level playing field with the European Union exporters in EFTA markets with respect to tariffs on a significant number of processed agrifood products. Immediate benefits will include an estimated $5 million in duty savings on Canadian agricultural exports annually.

The EFTA countries are also closely integrated with EU markets through their membership in the European Economic Area, and the Canada-EFTA FTA will help Canadian companies to expand commercial ties, both with the EFTA countries themselves, and with the European Union more broadly.

In addition to that, there are other benefits.

The parties commit in the preamble to sustainable development and respect for labour rights; Canada's cultural exemption is maintained under this Agreement;

Canadian supply management programs for dairy, egg, and poultry products are fully protected under this FTA. Over-quota tariffs for these products are not covered and are therefore not subject to any reductions, nor are they subject to the dispute settlement provisions of the Canada-EFTA FTA.

As members of this committee will recall, the issue of ships has been a key issue in this process. I can assure you that government officials consulted extensively with Canadian marine industry stakeholders during the negotiations and explored with industry representatives how shipbuilding sensitivities could best be addressed in the FTA. Reflective of the input received from industry stakeholders, which was often contradictory, the Canada-EFTA FTA includes the following ship-specific provisions. First, there will be a 15-year phase-out for Canada's most sensitive shipbuilding products, the longest industrial phase-out Canada has ever obtained in an FTA. Second, there will be a 10-year phase-out for all other sensitive shipbuilding products. Third, there will be an initial bridging period of three years as part of both these phase-out periods during which tariffs will be maintained at the MFN level.

Finally, repairs and alterations on Canadian ships undertaken in EFTA countries will be subject to tariffs upon re-entry into Canada, in accordance with the tariff phase-out schedule.

The agreement also includes rules of origin for ships that were renegotiated in Canada's favour at the request of industry stakeholders. And there is no obligation--I repeat, no obligation--to modify the government's buy-Canada procurement policy for ships.

Briefly, implementation of the Canada-EFTA FTA is to be achieved in Bill C-2 through a number of general provisions and through amendments to three pieces of legislation: the Canadian International Trade Tribunal Act, the Customs Act and the Customs Tariff.

These legislative amendments provide for the agreed-upon Canadian tariff reductions and related mechanisms such as customs verification and emergency action measures. These include various administrative provisions in clauses 9 to 15 pertaining to the implementation of the Canada-EFTA FTA and the bilateral agreements generally, including provisions that support the operation of a joint committee and the arbitral tribunals. Clauses 16 to 37 will amend the Canadian International Trade Tribunal Act, the Customs Act, and the customs tariff in accordance with Canada's new rights and obligations under the Canada-EFTA FTA.

There was originally an expectation, with our EFTA partners, that the Agreement would come into effect on January 1, 2009. While our colleagues at the EFTA Secretariat have told us that they have taken the necessary steps to implement the Agreements, circumstances did not allow Canada to meet this deadline.

Mr. Chairman, I and my colleagues--assuming they arrive in due course--will be pleased to answer any detailed questions on the EFTA. I will introduce them as they arrive.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Plunkett.

Again, I'm sorry for the confusion this time with regard to the witnesses and the questioning. What we found in the past was that when we broke it up, there wasn't time for all the members to get on in terms of questioning. We devised a system whereby we would have a number of rounds to give everyone a chance to ask a question. That said, I appreciate your opening.

Members, I might suggest that in this circumstance, perhaps those with questions particularly with regard to the broad department and free trade in general might want to direct those questions early on. If you have questions about the global commerce strategy or EDC or the department generally, those could be earlier questions. As other colleagues of Mr. Plunkett arrive, we'll have further witnesses appear to help with any questions you might have. They will be arriving at around 10 o'clock. But I'm sure that those present can handle most of the questions we have today, so let's try that.

We'll start out with Mr. Brison.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you, Mr. Chair.

Thanks to our officials for joining us this morning.

Last weekend at the Davos conference, Pascal Lamy from the WTO said that 80% of the contentious issues in the Doha Round have largely been addressed. Among the 20% still holding things up are agricultural subsidies. How are we doing in terms of defending our supply management program at the Doha Round? That of course is of great concern to all of us. We recognize the success of supply management within Canada to protect our agricultural interests and to ensure that our producers receive an adequate price for what they produce, but how is it going in terms of the Doha Round and defending it internationally?

[David Plunkett]

This is outside my personal remit, but from discussions with our colleagues who are involved with the WTO negotiations, in particular our agricultural chief negotiator, my understanding is that they are very confident that they are doing a very good job in defending our supply management process.

[Scott Brison, Liberal, Kings—Hants, NS]

Thank you.

On the “buy American” provisions that are part of the stimulus package in the U.S., since Canada is not a signatory to the WTO clause on sub-national government protectionism, what does that mean in terms of our capacity to defend ourselves against state-level protectionism as compared with those countries that are protected, or who have signed on to that clause?

[Ken Sunquist]

There might be several of us who get a chance to comment on this one.

Clearly, both on the U.S. state level and on the Canadian provincial level, the whole idea of sub-nationals has been fraught with problems for some time. That said, we are making very strong representations at the Washington level, which covers the national buy America. As well, our 22 consulates and consuls general across the U.S. are actively engaged in advocacy issues.

We're just using the facts: for 38 states in the United States, their number one trading partner is Canada, so any move backwards, any kinds of restrictions at the state level in the U.S., will harm the U.S. to an extent, as well as Canadian interests. So there is a very strong public advocacy. There is a very strong political advocacy program in place, using our network across the country.

I think the point to be made here is that for 38 U.S. states, Canada is their number one trading partner. It has huge implications for them.

[Scott Brison, Liberal, Kings—Hants, NS]

Are we going to have time to come back in a future round to EFTA, Mr. Chair?

[The Chair, Conservative, Lee Richardson]

Go ahead.

[Scott Brison, Liberal, Kings—Hants, NS]

I want to because the industry people are joining us, and there are some industry-related questions.

[The Chair, Conservative, Lee Richardson]

Do you mean today?

[Scott Brison, Liberal, Kings—Hants, NS]

Yes, there are Department of Industry people coming.

[The Chair, Conservative, Lee Richardson]

I think if we move along we can. I want to have a first round of seven minutes for everybody, and then if we can get through the whole round, we'll see.

[Scott Brison, Liberal, Kings—Hants, NS]

I'd like to share my questions with my colleagues and then come back to some EFTA-specific questions.

[The Chair, Conservative, Lee Richardson]

All right, we'll have to just play it by ear today because of the difficulty.

[Scott Brison, Liberal, Kings—Hants, NS]

Because of the format, we're doing some EFTA here, but we need the industry people, so I'm asking for clarification. Will we be able to do EFTA in a future round?