International Trade Committee on Nov. 24th, 2011

[Theresa McClenaghan]

I think it's one of the most significant issues in the free trade agreements. So I gave you the Australia-U.S. example to say that we don't even need that kind of a clause; we could just do away with it entirely and not have this problem.

In the current draft that we saw, it was a little bit better than NAFTA because it had a better statement that indirect expropriation claims could not be made for environmental protection reasons.

We think that a better approach would be to just do away with those direct claims by private companies against governments for valid environmental and health regulation.

We often argue that those claims will not be successful and people shouldn't be so scared of them, and we do want them doing their environmental regulation. But at the same time, we don't like the fact that they can be waved around, and people can say they're going to bring such a claim, and then you wonder whether governments are taking a second look at the kind of environmental or health regulation they were considering.

We don't need that kind of a provision between Canada and Europe at all, in my opinion.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

Turning to the tar sands, I don't know if you have been consulted by the government or by the negotiators.

We know that Canada has been exerting strong pressure on the European Union over…

article 7a of the European fuel quality directive, which calls for recognition of the higher greenhouse gas intensity of fuel produced from oil shale and tar sands.

So could you tell us…

[A voice]

Oil sands.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

Oil sands, if you prefer.

[A voice]

Thank you very much.

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

So could you tell us what you think about the discussions between the European Union and Canada on this fuel quality directive?

[Theresa McClenaghan]

I'm sorry that I'm not going to be very helpful on that, because CELA has not been directly working on tar sands and oil sands issues. Some of our colleagues have been working on those issues, and I would have to ask them to make comment, which I could do.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you very much to the witnesses for coming.

I am going to start off, Ms. Sharpe, with you. When I'm going through your deck, I'm looking at a robust export picture that will be enhanced. The agreement will provide new access to venture capital, equity dollars, and established markets.

The interesting part about your deck is that 92% of the clean-tech companies that are part of Sustainable Development Technology Canada are small and medium-sized enterprises. I think that rings well. We all know that what drives the economy in Canada is our small and medium-sized business enterprises.

What I'm wondering is that when you talked about the revenues of $9 billion in Canada, and as we watch the total market, which would grow from $1 trillion to $5 trillion to $10 trillion by 2020, this is a huge increase. Why are we going to be successful? Why do the small and medium-sized companies see this trade as such a good thing for them? Is it because we're competitive? Is it because we have quality? Is it because Canadians are known and seen to be reliable entrepreneurs and business people, or is it some other reason?

[Dr. Vicky Sharpe]

Thank you.

Canada is a leader in the clean-tech arena because we have a very strong entrepreneurial spirit. We have an orientation to doing things better and faster and with less, and also with lower environmental impact, and we've integrated those concepts very cleverly. So we are competitive globally for a number of reasons. One is the fact that we have great institutions that have brought forward good ideas.

The other one is--and I have to say thank you for this, really--that the government has different policies around supporting these companies, because they are not able to get enough risk capital in Canada. So SDTC, with its partners, has been able to bridge that gap, that valley of death, and bring them forward and coach them and take them to the markets.

Another illustration of how competitive these companies are is that we have seen the growth in foreign direct investment into the SDTC portfolio companies. In the last five years the Canadian growth in investment has been about 60%. The foreign direct investment numbers have been 200%. A lot of that, in fact 50% of it, is currently from the U.S.

When we talk to U.S. investors and ask why they come to Canada when they have lots of opportunities in the U.S, they say it is because perhaps we don't have as much surplus cash, the companies we grow are used to doing more with less, and also they are very tightly managed. The other part of that is that because our own economy is not huge, we grow companies that start out their business knowing they have to export, so they're very export-oriented from day one. All of those things have contributed to our competitiveness.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you.

I want to switch now to Ms. McClenaghan.

In your report you said the CETA benefits solely “transnational corporations...at the expense of people's rights and the protection of the environment”.

We've heard, actually, that Canada is a clean-energy leader. We've just talked and had questions about how important small and medium-sized businesses are. So my concern is that comments by you and your organization are misleading, when the sole benefit.... In fact, it isn't transnational. We've had agriculture, and we've just heard about all these small and medium-sized business that are in here.

I'm wondering why you would make these inaccurate statements.

[The Chair, Conservative, Rob Merrifield]

You have a minute.

[Theresa McClenaghan]

Yes, I'm sorry, I'm looking for where that is.

Be that as it may, in general, the debate between environmental interests and trade interests sometimes does become grounded on the debate between taking precautionary approaches to sustainable development and environmental protection on one hand and economic interests on the other hand. Too often, we've heard the jobs-versus-environment argument.

We agree--and I share much of what Ms. Sharpe said--that both must work together, and we really want both working together. So that's the fundamental perspective we bring to it. As I indicated at the outset, our fundamental review of this agreement, as it has been in other contexts, is to ask whether it will support governments that want to proactively take strong environmental protection measures forward.

[The Chair, Conservative, Rob Merrifield]

Okay.

Thank you very much to both our witnesses, Ms. Sharpe and Ms. McClenaghan. Thank you for your time and for accommodating video conferencing.

With that, we will suspend this part of the meeting as we set the table for our next set of witnesses. Thank you very much.

[The Chair, Conservative, Rob Merrifield]

I call the meeting back to order again.

I want to thank Mr. Don McIver of the Atlantic Institute for Market Studies for being here. As well, from the C.D. Howe Institute, we have Mr. Daniel Schwanen.

We're going to start with you, Mr. Schwanen. The floor is yours.

[Daniel Schwanen, Associate Vice-President, Trade and International Policy, C.D. Howe Institute]

Thank you very much.

I appreciate the opportunity to appear before the committee. Much of what I will say draws on a publication, a backgrounder on the Canada-EU negotiations published last month by the C.D. Howe Institute, of which the clerk has an electronic version.

I have prepared my presentation today in English, but I will be happy to answer questions in either of Canada's official languages.

As members of the committee are aware, the European Union is the world's largest markets in terms of GDP and one of the richest and most sophisticated markets in the world. The EU economies remain potentially dynamic in spite of the drag on economic confidence caused by the current eurozone turmoil. The European Union is also negotiating or has signed agreements with many partners of great interest to Canada, including Mexico, Korea, the Caribbean, and is negotiating now with India.

So these facts alone make the successful negotiation of a comprehensive trade and economic agreement with the EU, CETA, a strategic necessity for Canada. Apart from this overarching interest, I would like to draw the attention of members of the committee to some important qualitative aspects of our relations with the EU.

First, the EU-Canada relationship reflects a greater emphasis on two-way direct investment flows and on trade in services relative to the exchanges we have with the U.S. or with Asia. The relationship with Europe is more intensive in terms of foreign direct investment--there are lots of European investments here, and vice-versa--and in terms also of trade in services.

In addition, except for automobiles, where our exports to Europe certainly are weak, our goods trade with Europe also takes place in relatively sophisticated goods, notably in aerospace. These features--the importance of investment and services and sophisticated goods--explain the natural focus of the negotiations on movement of key personnel, protection of intellectual property, access to public sector procurement, and non-discriminatory application of regulation and non-discriminatory access to services markets proper.

A little-noted fact is that Canada runs a trade surplus with the EU in commercial services, which include legal, architectural, and engineering services, for example. To me, these features of our trade with Europe indicate that achieving more open trade and investment relations with the EU is a chance to parlay our advantages in our more traditional exports to new and perhaps unheralded areas of strength.

A Canada-EU deal would also of course mean more competition--let's not kid ourselves about that--on both sides of the Atlantic. Open international trade and investment, within accepted rules of fair competition, so long as governments do not relinquish the ability to regulate and set standards in the public interest or to help the disadvantaged, is beneficial for sustainable jobs, innovation, and economic growth.

Conversely, restricting trade, given intensifying global value chains within which products are increasingly made in the world by combining inputs and expertise from many different countries, means shooting ourselves in the foot. This fact--that imports are actually good--is increasingly recognized in the official trade policy statements of countries such as Australia or Sweden.

At a time when public expenditures will be severely constrained, enhancing the ability of governments to pursue more innovative or less costly ways to deliver services through a more competitive environment, without sacrificing key policy goals, is a good thing. And the CETA talks certainly do reflect the need to foster a more competitive and open environment in public procurement, for example.

I agree with those who say that this is the biggest non-WTO deal for Canada since the NAFTA. The NAFTA resulted in stronger and more competitive Canadian industries overall, including a number that were expected to wither and die. And many of those industries now employ a larger and more sophisticated labour force than ever before. So I like invoking the NAFTA in this context. I think the experience has been very good overall.

Many specific issues on the table with Europe are different from those with the NAFTA, but they remain fundamentally about the rules of competition. Through evolving agreements worldwide, as well as through regional integration in Europe and elsewhere, these rules of competition are rapidly changing. If we don't think through how we want to deal with these leading-edge issues with Europe, we will inevitably face them in other forums, such as the Trans-Pacific Partnership.

So CETA is an opportunity for Canadians and for all levels of government to decide how they want these new issues to be addressed more generally, not just in the context of our relations with Europe. To be clear, focusing on fairer, more open competition between Canada and the EU should never mean being forced to adopt European policies, rules, standards, or regulations. These likely would not be the best, or the best for us, or be compatible with the objectively more important regulatory cooperation exercise we are undergoing with the United States. Nevertheless, this is a chance for us to devise a framework within which irritants caused by different levels of protection or competition or regulation in different sectors can get solved.

The key is maintaining or enhancing Canada's ability to achieve important policy objectives. Exactly how we do this may be subject to what is considered fair under international standards and agreements. For example, our trading partners, and not only the EU, have concerns about the effective period of market exclusivity in Canada for patented products. Canada should consider committing to high international standards in this area, provided it can be satisfied that it can do so over time, i.e., without an immediate transfer to patent-holders. Canada should also take steps to advance innovation that will improve the welfare of Canadians and preserve the government's ability to be active in the marketplace in the pursuit of legitimate public policy goals, which in this case deal with patented products such as pharmaceuticals.

The CETA will most likely affirm the government's ability to regulate in a non-discriminatory way in the public interest. But it is important that Canada and the EU devise a proper framework to deal with products the EU blocks or seeks to block, not on account of the intrinsic characteristics of the product but on account of objections to how a product is made.

In the absence of internationally accepted rules, Canada should uphold the position that trade bans are not the first or best way to deal with concerns about the policies of another country.

A framework agreement would provide a proper way to deal with attempts by one party to impose its regulatory standards on another. The agreement would confirm that one of the parties may review the effectiveness of the other's regulatory process in areas where the other party has expressed special sensitivity, and it could contain a mechanism to engage in consultations and joint fact-finding on issues of interest. As I've said, Canada and the EU need to find mechanisms to address these issues in a fact-based, non-discriminatory way that treats government restrictions—or trade restrictions—as a last resort.

I hope I've been able to sketch the strategic and economic importance of the CETA for Canada, from our perspective, and to suggest some principled ways to deal with potential obstacles to reaching such an agreement.

I'd be happy to answer any questions.

[The Chair, Conservative, Rob Merrifield]

Thank you. I'm sure you're going to get a few.

But before that, we'll ask Don McIver to make his presentation.

[Don McIver, Director of Research, Atlantic Institute for Market Studies]

Thank you very much.

I'd like to focus on a few elements that have been recommended to be put on the table by the Europeans. My argument is that it is within our own personal self-interest to resolve the difficulties in these four areas. While I fully appreciate that we want to be in a position to negotiate with the European Union in a manner that we don't give up what we don't have to give up, what I'm suggesting is that we should consider correcting the deficiencies in these four specific areas, whether or not there is an agreement with the Europeans. The four areas are agricultural supply management, government procurement, intellectual property, and labour certification. Let me just quickly go through those.

On the agricultural supply management side, basically, we have an anachronistic situation, which, as we well know, interferes with other trade arrangements. I'm sure everybody here is familiar with the comments made yesterday by the New Zealand trade minister that suggested that Canada is not going to be able to be at the table on the TPP if we're going to stand alone, basically, in the industrial world behind our supply management mechanisms. It harms Canadian consumers. It may very well harm Canadian producers. The evidence of that comes from what has occurred in some of those countries that have eliminated supply management, like Australia and New Zealand. The consequence has been better production, better profits, new markets, and increased exports. Of course it also interferes with internal trade.

The Europeans themselves, in their background report behind these negotiations, appeared somewhat puzzled when they said:

Although Section 121 of the Canadian constitution prohibits the use of inter-provincial tariffs, subsequent judicial interpretation has allowed provinces to implement non-tariff barriers which have fragmented the country's internal market and provide obstacles to pan-Canadian standards.

They go on a little later:

While internal trade barriers impede a number of different sectors, the most prevalent internal trade impediments exist in the agriculture and agri-foods sectors. For example, restrictions are in place that limit inter-provincial shipments of supply-managed commodities such as wheat, dairy and poultry products;

Clearly, it seems to me that it is in our own self-interest to resolve the supply management dilemma, regardless of whether it's on the table with the Europeans. Yes, by all means let's bargain with that tool, but at the end of the day I certainly hope that supply management is eliminated.

The second area I want to talk about is government procurement. It's a small matter between Europe and Canada, at least as it stands now. It's a big advantage unilaterally--that is, within Canada. Let's cure the problem in Canada. Basically, buy local programs are essentially “beggar thy neighbour” for provincial barriers and national barriers, as we've seen with respect to trade with the United States. Again, it's an anathema to economic efficiency.

Now, there are a few things that are a little bit hopeful at this stage. I think it's a good sign that the provinces have been engaged actively in the negotiations. But Europe faced basically the mother of all procurement issues a couple of decades ago when the union was formed, probably 15 or 16 countries at the time—now it's 27 or 28 countries—all with essentially national procurement policies, and they overcame them. We should be able to overcome them, when we are one national country.

Look what the Europeans got--and this is, again, their assessment:

An impact assessment of the increased intra-EU competition for foreign procurement resulting from the EU's procurement directives is estimated to have delivered price reductions of around 30%, according to European Commission studies. The EU has already experienced improvements in the effectiveness of public procurement through increased foreign competition, both within Europe and from outside Europe.

Now, in these straitened times, 30% on our budgets would look very, very nice indeed. It's in our self-interest.

The third area I wanted to talk about is the Europeans' wish to harmonize intellectual property regulations with Canada. Why are they so concerned about that? I think, essentially, it's not because they're greatly concerned with Canada, but because they're more interested in the next stage in their discussions, which will be the EU-U.S. discussions.

I think it's important to put into context how important R and D is to Canada. We have a tendency to think it's peripheral, but it's a long way from being peripheral. Canada is right in the middle of the OECD pack in terms of the proportion of GDP it devotes to R and D and the number of people engaged in R and D. Even just in dollar terms, without relation to per capita, without relation to the size of the economy or the size of the country, there are very few countries in the OECD that actually expend more on R and D than Canada. Fifteen percent of our R and D spending comes from foreign investment. Canada is at the top of the G-7 per capita in environment, health-related, and biotech patents. We've got a lot vested.

In the past, we talked about trading patent protection for R and D spending. There seemed to be some desired trade-off. The past is no longer. Today, for example, the big pharmaceutical companies in Europe are greatly concerned about the loss of R and D to the U.S. U.S. companies and the U.S. government are greatly concerned about the migration of R and D spending to Korea, to China, and to India.

China and India will become the largest R and D spenders, the nations mostly engaged in the state-of-the-art activities that give the highest value-added employment. As important or more important in many ways is that, as they reach the stage of becoming upper- and middle-income countries, they will also be among the world's largest consumers of health-related products. So I think it's very important for us not to think in terms of trying to make inroads in global R and D but to actually maintain our toe hold. We are in a difficult situation, and I think we need to be sure that we, in conjunction with the Europeans and ultimately with the Americans, are on track with respect to our intellectual property regulations, to ensure that as these new markets become the mature markets, we are able to participate in those markets and not be alienated.

The last point I would like to make very briefly is on the whole question of labour certification. In many ways, that's been pre-empted by what has occurred. That is, at the provincial level the internal trade agreements are now focusing on the importance of getting certification across provincial jurisdictions. Immigration interests are concerned about making sure that some of the foreign individuals who have taken up residence in Canada are fast-tracked into their occupations. Why? Because of demographic pressures. Reality is actually outpacing the whole issue of labour certification. As the population ages over the next several years, certainly in the province where I live right now, we're expecting significant labour force contraction. We're going to need all of the skilled workers we can attract to the region.

Those are basically the points I wanted to make. I have prepared a submission, and it's probably not available for circulation yet, but I guess it will be. At the end of that submission there is a reference to the paper we recently penned, about a month ago, and it gives you an idea of where you can get that online.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now turn it over to the question and answer portion.

We want to welcome Mr. Rousseau. We don't discriminate in this committee. The floor is yours.

[Jean Rousseau, NDP, Compton—Stanstead, QC]

Thank you very much, Mr. Chair.

I am particularly interested in supply management. My question goes to both witnesses.

My main concern is for the farms and family businesses all over rural Canada, where jobs are created and preserved because of the supply management system. Those sectors are not asking for any support or funding from governments of the day. The system works; it provides people with reassurance about the quality, and especially the availability, of the products.

The current government says that it supports supply management plans and intends to respond to farmers' claims by keeping the system in place. What are you going to say to all those owners of businesses and family farms, the people who shape the identity of our country, if they are forced into bankruptcy, if they lose their jobs and if unemployment in the regions goes up?

[Daniel Schwanen]

I would say that, in the long term, the support we are giving them through the prices of supply managed products is turning into a very heavy cost for the rest of the Canadian economy. It will cost a lot more if we cannot get into rapidly growing markets such as Asia-Pacific. The European market is a factor too. We block others' access to our markets. We may have to start to think of a new long-term strategy, for the good of Canada. That does not mean that the strategy cannot focus on the quality and availability of the products. You were mentioning family farms, but they are not the only ones to benefit from the present system. Big companies do too.

I see it as very simple. For consumers, and for producers in other areas, including some other areas of agriculture, opening up markets is basically a good thing. In the long term, we will have to find a new way of supporting the family farms you mentioned. We certainly have to start talking about it. The reason is simple: it is getting more and more expensive and it is costing us jobs in other sectors of the economy.

[Jean Rousseau, NDP, Compton—Stanstead, QC]

Mr. McIver, please, on the same subject.

[Don McIver]

Sure.

First of all, I think there's a question about the size of many of these operations. I know it's nice to have the image of the family farm and a family maintaining a few head of cattle, and living a sort of idyllic life.

In reality, as I understand it at any rate, a large number of the quotas in the agricultural field are held by fairly large concerns, and they're exceptionally valuable. I do recognize the value of these quotas; people have invested in those, and they've planned their lives around an expectation that those quotas will yield them a certain amount of product that they can sell.

We do have to find a way of resolving that issue for those people who have invested or who have inherited an expectation attached to a quota. Yes, probably we're going to have to buy them out in one form or another. That's only fair. But I would also suggest that in the other countries where this issue has been addressed, the whole industry becomes that much more profitable. And I use “industry” advisedly, because maybe when I say industry we don't have the same image as the family farm, but it is an industry. It's just a micro-industry.

The agricultural industries where supply management has been abolished in other countries have often done very well. Try going down to the supermarket and looking for a chunk of lamb. Almost for darn sure it's going to say New Zealand on it. Why is that? That's because they have successfully modernized not only their agricultural industry itself, but their marketing capacity.

[Jean Rousseau, NDP, Compton—Stanstead, QC]

You talked about R and D.

You said that we are behind in comparison with China and India. How will intellectual property play a role in this area? I know that a lot of university researchers share this concern, that too few measures are being taken to protect investments and especially development. How can we position ourselves in relation to China and India in the protection of research and development?

[Don McIver]

Both of those countries have been viewed as having considerably weaker intellectual property protection than Canada.

The observation I was making with respect to us lagging is that as we go forward.... Already China is essentially by volume the largest R and D country in the world--and not surprisingly. They have the population. They now have the educated population. They now have the market.

China is already an upper-middle-income country, as identified by the OECD. My contention is that as these countries mature economically, they are going to demand the type of high-quality, leading-edge innovation that we in North America and western Europe have taken for granted for a number of decades, and it's going to be in their interests at that stage to protect their investment, being the leading R and D producers.

I'm just suggesting that we don't want to be left behind with even weaker than their newly determined level of protection. We're already in a vulnerable situation. We don't have the R and D we would like to have, certainly in the pharmaceutical area, relative to Europe and the United States. When those other countries come on we're going to be that much further behind.

So let's at least try to make ourselves at an internationally recognized level of IP protection.